<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-4877
FRONTIER AIRLINES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1256945
- --------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization Identification No.)
12015 E. 46th Avenue, Denver, CO 80239
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 371-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
Title of Each Class
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Company's revenues for its fiscal year ended March 31, 1996:
$70,392,575.
Aggregate Market Value of Stock held by Non-Affiliates of the Company as of
June 17, 1996: $67,295,280, based on a closing price on that date of $10.19 per
share.
The number of shares of the Company's Common Stock outstanding as of June
17, 1996 is 6,725,433.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant hereby incorporates by reference information required by
Part III to this Form 10-KSB from its definitive proxy statement to be filed
with the Securities and Exchange Commission.
Transitional Small Business Disclosure Form: Yes: ; No: X.
--- ---
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I..................................................................................................................... 1
Item 1: Description of Business............................................................................ 1
Item 2: Description of Property............................................................................ 8
Item 3: Legal Proceedings.................................................................................. 9
Item 4: Submission of Matters to a Vote of Security Holders................................................ 9
PART II................................................................................................................... 9
Item 5: Market for Common Equity and Related Stockholder Matters.......................................... 9
Item 6: Management's Discussion and Analysis of Financial Condition and Results of Operations............. 10
Item 7: Financial Statements.............................................................................. 22
Item 8: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 22
PART III.................................................................................................................. 22
Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act............................................................................... 22
Item 10. Executive Compensation............................................................................ 22
Item 11. Security Ownership of Certain Beneficial Owners and Management.................................... 22
Item 12. Certain Relationships and Related Transactions.................................................... 23
Item 13(a): Exhibits...................................................................................... 23
</TABLE>
-i-
<PAGE>
PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
Frontier Airlines, Inc. ("the Company") is a low-fare, full-service airline
based in Denver, Colorado. Principally serving markets abandoned by Continental
Airlines during that carrier's downsizing of its Denver hub in 1993 and 1994,
the Company currently operates routes linking its Denver hub to 15 cities in 12
states covering the western two-thirds of the United States. The Company's
current route system extends from Denver to Los Angeles, San Diego and San
Francisco, California; Chicago, Illinois; Seattle/Tacoma, Washington; Las Vegas,
Nevada; Phoenix, Arizona; St. Louis, Missouri; Minneapolis/St. Paul, Minnesota;
Salt Lake City, Utah; Omaha, Nebraska; Albuquerque, New Mexico; El Paso, Texas;
and Bismarck and Fargo, North Dakota. At present, the Company utilizes four
gates at the new Denver International Airport ("DIA") for approximately 54 daily
flight departures and arrivals.
Organized in February 1994, the Company commenced flight operations in July
1994 with two leased Boeing 737-200 jet aircraft. It has since expanded its
fleet to nine leased jets, including five Boeing 737-200s, two larger Boeing
737-300s added to the fleet in November 1995, and two additional Boeing 737-200s
added in June 1996. The Company has agreed to lease a third Boeing 737-300 in
April 1997, at which time it plans to add one or more new cities to its route
system.
Pending future aircraft availability, the Company plans to lease additional
jets in the 737 series for possible deliveries in the second half of 1996 and in
1997, which would permit the Company to further expand its lines of service.
The Company's senior management team includes executives with substantial
service in the airline industry, including persons who occupied similar
positions at a former airline called Frontier Airlines that served regional
routes to Denver from 1950 to 1986. From time to time, the former Frontier
Airlines served all of the Company's current and intended markets with jet
equipment from its Denver hub.
BUSINESS STRATEGY AND MARKETS
The Company's business strategy is to provide service at low fares to high
volume markets from its hub at DIA. The strategy is based on the following:
* Filling gaps in flight frequencies in markets that the Company
has selected from among the approximately 51 Denver routes vacated by
Continental Airlines in 1993 and 1994.
* Stimulating demand for its product by offering a combination of
low fares, quality service and its own frequent flyer program as well
as Continental Airlines' OnePass program.
* Expanding its Denver hub operation and increasing its connecting
traffic through the addition of service to other high volume markets.
The Company's initial service pattern in 1994 was designed to fill flight
voids on routes to eight relatively small cities in North Dakota and Montana
where there was little or no jet competition to Denver after Continental's
flight terminations. The Company has since refocused its marketing priorities
on more heavily traveled routes ---typically markets dominated by one or more
major airlines and characterized by high fares due to the lack of low-fare
competition prior to the Company's entry. In line with its revised marketing
strategy, the Company in 1995 suspended service in most of its original markets,
and the aircraft used on these routes were redeployed to a number of major
markets. Other high volume markets were added in late 1995, upon the Company's
leasing of two Boeing 737-300 aircraft, and in May and June 1996, the latter in
conjunction with the addition of two additional Boeing 737-200 aircraft to the
Company's fleet.
-1-
<PAGE>
The following table sets forth the Company's service commencements and
suspensions for the two-year period from its initiation of flight operations in
July 1994 through June 1996.
<TABLE>
<CAPTION>
Date Service Date Service Average Number
Denver Market Commenced Suspended of Daily Roundtrips
- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C>
Bismarck, ND July 5, 1994 1(a)
Fargo, ND July 5, 1994 1(a)
Grand Forks, ND July 5, 1994 January 14, 1995
Minot, ND July 5, 1994 January 14, 1995
Bozeman, MT August 8, 1994 September 25, 1995
Missoula, MT August 8, 1994 September 25, 1995
Billings, MT September 26, 1994 September 25, 1995
Great Falls, MT September 26, 1994 September 25, 1995
Tucson, AZ October 13, 1994 April 16, 1995
Albuquerque, NM October 13, 1994 3(b)
El Paso, TX October 13, 1994 3(b)
Omaha, NE January 16, 1995 2
Las Vegas, NV January 19, 1995 3
Phoenix, AZ September 25, 1995 2
Chicago (Midway), IL September 25, 1995 2
Los Angeles, CA November 3, 1995 2
Minneapolis, MN November 13, 1995 2
Salt Lake City, UT November 13, 1995 3
San Francisco, CA November 17, 1995 2
Seattle, WA May 1, 1996 2
St. Louis, MO June 1, 1996 2
San Diego, CA June 1, 1996 1
</TABLE>
a. Flights are operated on Denver-Bismarck-Fargo and Fargo-Bismarck-Denver
routings
b Flights are operated on Denver-Albuquerque-El Paso and El Paso-Albuquerque-
Denver routings.
-2-
<PAGE>
The Company plans to further develop its Denver hub by introducing low-fare
service in additional high volume markets formerly served by Continental
Airlines. Management believes that potential markets for its planned route
expansions can support greater flight capacity than now provided by the
incumbent carriers and that passengers would welcome the restoration of
additional capacity, particularly at the low fares and quality service to be
offered by the Company.
MARKETING
To support the marketing of its Denver hub, the Company has negotiated
various types of interline agreements with approximately 25 other carriers. The
Company has a "code-sharing" agreement with Continental Airlines at Denver. This
arrangement includes provisions for "through fares" on two routes and joint
ticketing and baggage services, among other passenger transfer features. At
present, the Company's customers receive these services when connecting at
Denver to Continental's flights to its three major hubs: Newark, New Jersey;
Houston, Texas; and Cleveland, Ohio. The Company and Continental Airlines,
Mexicana Airlines, Trans World Airlines, and USAir offer "joint fares"-- one
fare covering travel on two participating airlines. Also, the Company has
entered into several other agreements for various levels of joint ticketing and
baggage services with these and approximately 25 other carriers. United Airlines
and American Airlines currently accept the transfer of baggage to and from the
Company but do not accept the Company's tickets.
The Company has implemented marketing strategies to maintain relationships
with travel agencies throughout its route system. The Company communicates with
the travel agents through personal visits by Company executives and sales
managers, mailings of sales literature, telemarketing and familiarization trips
to acquaint agents with the destinations and service of the Company.
A key strategy in the Company's marketing efforts is its consumer and trade
advertising programs. The Company produces and places television, radio and
newspaper advertising in its system cities along with placements in selected
regional magazines. Advertisements also are placed in the major trade
publications primarily aimed at the travel agent community.
The Company participates in the four major computer reservation systems
used by the travel agents to make airline reservations. On a cost-per-flight
segment basis, this has proved to be an efficient method for the Company to sell
its product. The Company also maintains a reservations center in Denver,
operated by its own personnel. The present facility and staffing are adequate
for the current size of the Company. The Company plans to expand this facility
at its current location as call volume increases.
The Company pursues sales opportunities with corporate accounts, meeting
and convention arrangers, government travel offices and vacation clubs. Personal
sales calls, direct mail and telemarketing are the primary tools in attracting
this business. The Company offers air/ground vacation packages to Phoenix, Las
Vegas and other destinations on its route system.
An important marketing tool in today's airline environment is the frequent
flyer program. The Company joined Continental's OnePass program in January 1995.
The selection of OnePass was based on the established membership base in the
cities served by the Company and consistent high marks that the program has
received when compared with other programs. The Company also maintains a
separate frequent flyer program for travel over its own routes. The emphasis of
this program is simplicity with one free ticket awarded for each ten trips
flown.
PRODUCT PRICING
The Company offers all of its seats at various discount fares reducing the
cost of travel in markets it enters by as much as 60 percent. Seat inventories
on each flight are managed through a yield management system. The Company
generally offers discounts with three levels of advance purchase requirements
and at "peak" and "off-peak" levels, the lowest of which are available on the
least heavily traveled days of the week. In contrast to most carriers, the
Company does not require travelers to have a Saturday overnight stay to take
advantage of these discount rates. Unlike most other carriers, the Company does
not charge a premium for one-way fares.
-3-
<PAGE>
COMPETITION
The Airline Deregulation Act of 1978 produced a highly competitive airline
industry, freed of certain government regulations that for 40 years prior to the
Act had dictated where domestic airlines could fly and how much they could
charge for their services. Since then small start-up carriers such as the
Company have entered markets long dominated by large airlines with substantially
greater resources such as United Airlines, American Airlines, Trans World
Airlines and Delta Air Lines.
As shown in the following chart as of June 1996, the Company competes
principally with United Airlines, the dominant carrier at Denver with a market
share of approximately 70% as of April 1996. This gives United a significant
competitive advantage compared to the Company and other carriers serving Denver.
<TABLE>
<CAPTION>
ROUTES FROM DENVER TO: COMPETING AIRLINES DAILY ROUND-TRIPS
---------------------- ------------------ -------------------------
Competing
Frontier Airlines
-------- ---------
<S> <C> <C> <C>
San Francisco, California United Airlines 2 15
Minneapolis, Minnesota United Airlines, Northwest Airlines 2 13
Salt Lake City, Utah United Airlines, Delta Air Lines, Trans 3 18
World Airlines, Vanguard Airlines
Los Angeles, California United Airlines 2 20
Phoenix, Arizona United Airlines, America West Airlines 2 17
Chicago (Midway), Illinois United Airlines (O'Hare), American 2 21
Airlines (O'Hare)
Las Vegas, Nevada United Airlines, America West Airlines 3 9
Omaha, Nebraska United Airlines 2 5
Albuquerque, New Mexico United Airlines 2 8
El Paso, Texas Southwest Airlines and Delta Air Lines (to 2 5
and from Albuquerque)
Bismarck, North Dakota United Express/Great Lakes Airlines 1 6
Fargo, North Dakota United Express/Great Lakes Airlines (to 1 3
and from Bismarck)
Seattle, Washington United Airlines 2 10
St. Louis, Missouri United Airlines, Trans World Airlines 2 10
San Diego, California United Airlines 1 7
</TABLE>
United matches the Company's prices on selected competitive flights.
Central to the prospects for the Company's success is that United will not
dramatically undercut the Company's pricing. Management believes that the
Company's strategy to fly to its scheduled cities on average two to three times
per day will cause an increase in total enplanements by stimulating air traffic
and should not cause United to react in a manner which could have a material
adverse effect on the Company's business. However, there can be no assurance
that this will be the case.
In addition to direct competition with United, the Company indirectly faces
low fare competition in some markets from Western Pacific Airlines ("Western
Pacific") operating from Colorado Springs, approximately 75 miles south of
Denver. As of June 1996, Western Pacific was serving 20 cities from Colorado
Springs, including seven cities served by the Company from Denver. The Company's
lowest fares to these seven destinations on average generally are within $10 of
those charged by Western Pacific, which management believes is offset by the
cost of ground transportation between Denver and Colorado Springs, combined with
lost travel time in city-to-city surface transit.
The Company has a marketing or "code-sharing" alliance with Continental
Airlines at Denver. Among other benefits, this arrangement provides prominent
listings of two connecting flights operated by the two carriers in the computer
-4-
<PAGE>
reservations systems used by travel agents. In the Denver-North Dakota market,
United has a similar type of code-sharing alliance with Great Lakes/United
Express, which, since United controls the majority of the Denver hub market,
gives Great Lakes/United Express a substantial advantage in capturing connecting
traffic. The Company believes that it has a competitive advantage in serving El
Paso, Texas, where it offers the only direct service to and from Denver, and in
serving Chicago/Midway, where it offers the only nonstop service to and from
Denver.
AIRCRAFT
As of June 1996, the Company leases nine Boeing 737 twinjet aircraft
including five Boeing 737-200 aircraft manufactured in 1968 and 1969, two Boeing
737-200 aircraft manufactured in 1981, and two Boeing 737-300 aircraft
manufactured in 1985 and 1986. The two Boeing 737-300 aircraft have 136 and 138
passenger seats configured in a single class of service. Two of the Boeing 737-
200 aircraft have 119 passenger seats and the other five Boeing 737-200 aircraft
have 108 passenger seats, all configured in a single class of service. The lease
terms for five of the leased five Boeing 737-200 aircraft expire between July
and October 1997, although the Company has the right to extend the initial lease
terms for two additional renewal terms of two years each. The lease terms for
the Boeing 737-300 aircraft expire in the year 2000. The lease terms for two
Boeing 737-200 aircraft expire in the year 2001.
The demand for Boeing 737 aircraft has increased markedly in the past year.
The Company is seeking to lease additional aircraft in order to expand its
service and route system. However, there can be no assurance that additional
suitable aircraft will be available to the Company at favorable lease rates and
terms, or at the times needed for implementation of the Company's plan of
operation. See "Management's Discussion and Analysis of Financial Condition and
Plan of Operation-Liquidity and Capital Resources."
MAINTENANCE AND REPAIRS
All aircraft maintenance and repairs are accomplished in accordance with
the Company's maintenance program approved by the United States Federal Aviation
Administration ("FAA"). Spare or replacement parts are maintained by the Company
primarily in Denver. Certain of these parts are supplied through a contractual
arrangement with a major airline, with others purchased from other airline or
vendor sources. There are two categories of aircraft maintenance and repair:
routine servicing and checks accomplished on a daily or weekly schedule, and
major maintenance. The Company's major maintenance has been performed by two
major airlines, Continental Airlines and USAir. Routine maintenance is performed
by the Company's mechanics and by outside contractors approved by the FAA.
Under its aircraft lease agreements, the Company pays all expenses relating
to the maintenance and operation of the Company's aircraft, and the Company is
required under its lease agreements to pay monthly maintenance reserve deposits
to the lessors based on usage. Maintenance reserve deposits will be applied
against the cost of major maintenance, which is scheduled to occur in late 1996
for seven of the Company's aircraft.
The Company's monthly completion factors for its fiscal year ending March
31, 1996 ranged from 95% to 99%. The completion factor is the percentage of the
Company's scheduled flights that were operated by the Company (i.e., not
canceled). Flights not completed were canceled principally as a result of either
weather or mechanical problems. There can be no assurance that the Company's
aircraft will continue to be sufficiently reliable over longer periods of time.
Beginning in September 1996 and ending in February 1997 the Company will be
performing major routine maintenance on seven of its nine aircraft. Each
aircraft will be out of service for approximately one month. The Company is in
the process of locating an aircraft to lease during this maintenance cycle. If
the Company is unable to obtain a short-term lease, the Company will only have
eight aircraft in service during this time. Management believes that it has
adequately accrued for the expenses of this major maintenance cycle. In October
1996, one of its B737-200 aircraft leased in June 1996 will be removed from
service and "hush-kitted" at the lessor's expense. The Company is estimating
that this will take approximately eight days.
-5-
<PAGE>
FUEL
During the fiscal years ending March 31, 1995 and 1996, jet fuel accounted
for 14.5% and 14.4%, respectively, of the Company's operating expenses. The
Company has arrangements with major fuel suppliers for substantial portions of
its fuel requirements, and management believes that such arrangements assure an
adequate supply of fuel for current and anticipated future operations. However,
the Company has not entered into any agreements that fix the price of fuel over
any period of time. Jet fuel costs are subject to wide fluctuations as a result
of sudden disruptions in supply beyond the Company's control. Therefore, the
future availability and cost of jet fuel cannot be predicted with any degree of
certainty. Fuel prices increased slightly during the fiscal year ended March
31, 1996.
Newer aircraft are more fuel efficient than the Company's Boeing 737-200
aircraft due to improved aircraft airframe design and engine technology.
Significant increases in the price of jet fuel would result in a higher increase
in the Company's overall total costs than those of competitors whose entire
fleet consists of more fuel efficient aircraft. Increases in fuel prices or a
shortage of supply could have a material adverse affect on the Company's
operations and financial results. The Company's ability to pass on increased
fuel costs to passengers through price increases or fuel surcharges may be
limited, particularly given the Company's low fare strategy.
In August 1993, the United States increased taxes on domestic fuel,
including aviation fuel, by 4.3 cents per gallon. Airlines were exempt from this
tax increase until October 1, 1995, at which time airlines became subject to the
tax increase. The airline industry has proposed a continuation of this
exemption. The fuel tax increases the Company's annual costs by approximately
$1,290,000 assuming its current nine aircraft fleet and an annual consumption of
approximately 30 million gallons of fuel. See "Management's Discussion and
Analysis of Financial Condition and Plan of Operation."
INSURANCE
The Company carries $500 million per aircraft per occurrence in property
damage and passenger and third-party liability insurance, and insurance for
aircraft loss or damage as required by its aircraft lease agreements, and
customary coverage for other business insurance. While the Company believes such
insurance is adequate, there can be no assurance that such coverage will fully
protect it against all losses which it might sustain. Moreover, the Company's
insurance for aircraft loss or damage carries a deductible requiring the Company
to pay up to the first $500,000 of loss or damage unless the aircraft is
determined to be a total loss. The Company's property damage and passenger and
third-party liability insurance coverage exceeds the minimum amounts required by
the United States Department of Transportation ("DOT") regulations.
EMPLOYEES
As of June 1996, the Company had 615 employees, including 528 full-time and
87 part-time personnel. The Company's employees included 99 pilots, 129 flight
attendants, 140 customer service agents, 129 reservations agents, 26 mechanics
and related personnel, 65 general management personnel, and 27 personnel
performing other miscellaneous functions. The Company considers its relations
with its employees to be good.
The Company believes it operates with lower personnel costs than many
established airlines, principally due to lower base salaries and greater
flexibility in the utilization of personnel. There can be no assurance that the
Company will continue to realize these advantages over established or other air
carriers for any extended period of time. None of the Company's employees is
represented by a labor union. If unionization of the Company's employees occurs,
the Company's costs could materially increase.
Training, both initial and recurring, is required for many employees.
Pilots, flight attendants, ground service personnel, reservationists and
mechanics are trained by the Company. FAA regulations require pilots to be
licensed as commercial pilots, with specific ratings for aircraft to be flown
and to be medically certified as physically fit. Licenses and medical
certification are subject to periodic continuation requirements including
recurrent training and recent flying experience. Mechanics, quality control
inspectors and flight dispatchers must be licensed and qualified for specific
aircraft. Flight attendants must have initial and periodic competency fitness
training and certification. Training programs are subject to approval and
monitoring by the FAA. Management personnel directly involved in the supervision
of flight operations,
-6-
<PAGE>
training, maintenance and aircraft inspection must meet experience standards
prescribed by FAA regulations. Employees performing safety-sensitive functions
are subject to pre-employment and subsequent random drug and alcohol testing.
GOVERNMENT REGULATION
All interstate air carriers are subject to regulation by the DOT and the
FAA under the Federal Aviation Act. The DOT's jurisdiction extends primarily to
the economic aspects of air transportation, while the FAA's regulatory authority
relates primarily to air safety, including aircraft certification and
operations, crew licensing and training and maintenance standards.
In general, regulation of interstate air carriers in terms of market entry
and exit, pricing and inter-carrier agreements has been greatly reduced
subsequent to enactment of the Airline Deregulation Act of 1978. As a result,
the level of regulation to which the Company and other airlines is subject has
been greatly reduced. By the same token, the availability to the Company of
regulatory protection from competition has been virtually eliminated.
U.S. Department of Transportation. The Company holds a Certificate of
Public Convenience and Necessity ("DOT Certificate") issued by the DOT which
allows the Company to engage in air transportation. Pursuant to law and DOT
regulation, each United States carrier must qualify as a United States citizen,
which requires that its President and a least two-thirds of its Board of
Directors and other managing officers be comprised of United States citizens;
that not more than 25% of its voting stock may be owned by foreign nationals,
and that the carrier not be otherwise subject to foreign control.
U.S. Federal Aviation Administration. The Company also holds an operating
certificate ("FAA Certificate") issued by the FAA pursuant to Part 121 of the
Federal Aviation Regulations. The FAA has jurisdiction over the regulation of
flight operations generally, including the licensing of pilots and maintenance
personnel, the establishment of minimum standards for training and maintenance,
and technical standards for flight, communications and ground equipment. The
Company must have and maintains FAA certificates of airworthiness for all of its
aircraft. The Company's flight personnel, flight and emergency procedures,
aircraft and maintenance facilities are subject to periodic inspections and
tests by the FAA.
In May 1996 a relatively new domestic airline, as is the Company, sustained
an accident in which one of its aircraft was destroyed and all persons on board
were fatally injured. In June that airline agreed at the FAA's request to cease
all of its flight operations for an indefinite period of time. Should the
Company experience a similar accident, it is probable that there would be a
material adverse effect on the Company's business.
The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, the Airport Noise and Capacity Act of 1990 ("ANCA") and
Clean Air Act of 1963 to monitor and regulate aircraft engine noise and exhaust
emissions. The Company is required to comply with all applicable FAA noise
control regulations and with current exhaust emissions standards. According to
FAA rules, each new entrant airline such as the Company must presently have at
least 25% of its fleet in compliance with the FAA's Stage 3 noise level
requirements. The balance of each airlines' fleet must be brought into
compliance with Stage 3 in phases, with 50% compliance by January 1997, 75%
compliance by January 1999 and full compliance by January 2000. The Company's
aircraft fleet is currently in compliance with Stage 3 noise level requirements.
As a result of litigation and pressure from airport area residents, airport
operators have taken local actions over the years to reduce aircraft noise.
These actions have included regulations requiring aircraft to meet prescribed
decibel limits by designated dates, curfews during night time hours,
restrictions on frequency of aircraft operations and various operational
procedures for noise abatement. ANCA recognizes the right of airport operators
with special noise problems to implement local noise abatement procedures as
long as such procedures do not interfere unreasonably with the interstate and
foreign commerce of the national air transportation system. ANCA generally
requires FAA approval of local noise restrictions on Stage 3 aircraft and
establishes a regulatory notice and review process for local restrictions on
Stage 2 aircraft. An agreement between the City and County of Denver and another
city adjacent to DIA precludes the use of Stage 2 aircraft, such as certain of
the Company's Boeing 737-200 aircraft, on one of DIA's runways. On occasion,
this results in longer taxi times for the Company's aircraft than would
otherwise be the case. However, this has not had a material adverse effect on
the Company's
-7-
<PAGE>
operations. The Company's operations could be adversely affected if additional
restrictions are imposed at DIA or if locally-imposed regulations become
restrictive at any other cities on the Company's routes.
Miscellaneous. All air carriers are also subject to certain provisions
of the Communications Act of 1934 because of their extensive use of radio and
other communication facilities, and are required to obtain an aeronautical radio
license from the Federal Communications Commission ("FCC"). To the extent that
the Company is subject to FCC requirements, it takes all necessary steps to
comply with those requirements.
The Company's operations may become subject to additional federal
regulatory requirements in the future under certain circumstances. For example,
if the Company's employees were to unionize, the Company's labor relations would
be covered under Title II of the Railway Labor Act of 1926 and would be subject
to the jurisdiction of the National Mediation Board. During a period of past
fuel scarcity, air carrier access to jet fuel was subject to allocation
regulations promulgated by the Department of Energy. To the extent that the
Company seeks to provide international air transportation in the future, it will
be required to obtain additional authority from the DOT and become subject to
other regulatory requirements imposed by affected foreign jurisdictions.
ITEM 2: DESCRIPTION OF PROPERTY
The Company has leased approximately 21,100 square feet of office space
in Denver with terms ending in 1999 and 2001 at a current annual cost of
$237,000 for the fiscal year ending March 31, 1997. This facility provides space
for the Company's reservation center together with space for administrative
activities including senior management, purchasing, accounting, sales,
marketing, advertising and human resources.
Each airport location requires leased space associated with gate
operations, ticketing and baggage operations. The ticket counters, gates and
airport office facilities at each of the airports the Company serves are leased
from the appropriate airport authority or subleased from other airlines.
The Company has entered into an airport lease and facilities agreement
with the City and County of Denver at DIA that expires in 2005. The Company
subleases ticket counter space and four gates at DIA from Continental Airlines.
See "Management's Discussion and Analysis of Financial Condition and Plan of
Operation-Liquidity and Capital Resources."
The Company currently leases nine aircraft and has agreed to lease one
more aircraft for delivery in April 1997. See "Aircraft" and Notes 5 and 12 to
Financial Statements.
ITEM 3: LEGAL PROCEEDINGS
There are no legal proceedings pending in which the Company is a party
or of which any of the Company's property is the subject that are not adequately
covered by insurance maintained by the Company, or which, if adversely decided
would have a material adverse effect on the Company's business. From time to
time, the Company may become involved in routine litigation incidental to its
business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this Report to a vote of security holders of the Company through the
solicitation of proxies or otherwise.
-8-
<PAGE>
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "FRNT." The following table sets forth the range of high and low sale
prices per share for the common stock for the periods indicated. Market
quotations represent prices between dealers and do not reflect retail mark-ups,
mark-downs or commissions. There was no market for the Common Stock prior to
the Company's initial public offering on May 20, 1994. As of June 17, 1996,
there were 335 holders of record of the Common Stock.
<TABLE>
<CAPTION>
Price Range of
Common Stock
--------------------------
Quarter Ended High Low
- ------------------------------ -------------- ----------
<S> <C> <C>
June 30, 1994................. $4 1/16 $3 1/4
September 30, 1994............ 4 1/4 3 5/8
December 31, 1994............. 4 2 3/4
March 31, 1995................ 6 1/2 2 7/8
June 30, 1995................. 6 4 11/16
September 30, 1995............ 5 3/4 3 1/4
December 31, 1995............. 8 1/4 4 3/8
March 31, 1996................ 7 3/8 5 1/8
</TABLE>
WARRANTS AND OPTIONS
The Company issued 2,670,000 warrants to purchase Common Stock in
conjunction with a private placement and its initial public offering with one
warrant entitling a warrant holder to purchase a share of Common Stock for a
purchase price of $5.00. These warrants were subject to redemption at $.05 per
warrant by the Company on 45 days written notice if certain conditions were met.
The Company met these conditions in May 1996 and on May 14, 1996, the Company
notified the warrant holders of the Company's intent to exercise its redemption
rights with respect to the warrants not exercised on or before June 28, 1996.
As of June 14, 1996, 626,060 of the warrants had been exercised.
At the completion of the Company's initial public offering, an underwriter
acquired a warrant to purchase up to 110,000 shares of common stock and 110,000
warrants, exercisable at a price equal to $5.525 per share of common stock and
$.325 per Warrant. Underwriters in a secondary public offering by the Company
received a warrant to purchase 168,500 shares of Common Stock at $5.55 per
share. The Company also has issued to each of its two Boeing 737-300 aircraft
lessors a warrant to purchase 100,000 shares of Common Stock at a purchase price
of $500,000 per warrant, and two warrants to a Boeing 737-200 lessor to purchase
70,000 shares of common stock at an exercise price of $503,300 per warrant. The
warrants issued to aircraft lessors, to the extent not earlier exercised, expire
on the expiration date of the aircraft leases.
As of March 31, 1996, the Company also has granted stock options to
purchase up to 1,731,250 shares of Common Stock, substantially all of which
options are currently exercisable at exercise prices ranging from $1.00 to $3.75
per share.
DIVIDEND POLICY
The Company has not declared or paid dividends or paid dividends on its
Common Stock. The Company currently intends to retain any future earnings to
fund operations and the continued development of its business, and, thus, does
not expect to pay any cash dividends on its Common Stock in the foreseeable
future. Future cash dividends, if any, will be
-9-
<PAGE>
determined by the Board of Directors and will be based upon the Company's
earnings, capital requirements, financial condition and other factors deemed
relevant by the Board of Directors.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's flight operations began at Stapleton International Airport
("Stapleton") on July 5, 1994 with two Boeing 737-200 aircraft operating eight
daily flights between Denver, Colorado and four North Dakota cities. Since that
time, the Company has increased the number of markets it serves and the number
of flights offered. The Company placed three additional Boeing 737-200 aircraft
in service in 1994 and operated a total of five aircraft through October 1995.
In October 1995, the Company leased two Boeing 737-300 aircraft which were
placed in service during November 1995 in conjunction with adding four new, high
volume routes linking Denver to Los Angeles and San Francisco, California,
Minneapolis-St. Paul, Minnesota, and Salt Lake City, Utah. The Company
significantly rescheduled its flights in 1995 through the elimination of Minot
and Grand Forks, North Dakota and all four of its Montana destinations, and the
addition of Omaha, Nebraska, Las Vegas, Nevada, Chicago (Midway), Illinois and
Phoenix, Arizona to its schedule. Flights to Seattle/Tacoma commenced on May 1,
1996, and flights to San Diego, California and St. Louis, Missouri commenced on
June 1, 1996 in conjunction with the addition of two additional Boeing 737-200
jets to the Company's fleet. After adding these new cities, the Company's nine
aircraft serve 15 cities from its Denver base of operations. On February 28,
1995, Stapleton was closed and the Company's flight operations were moved to the
newly opened Denver International Airport ("DIA").
The Company has agreed to lease a third Boeing 737-300 in April 1997, at
which time it plans to add one or more new cities to its route system. Pending
future aircraft availability, the Company plans to lease additional jets in the
737 series for possible deliveries in the second half of 1996 and in 1997, which
would permit the Company to further expand its lines of service. Demand and
competition for Boeing 737 aircraft has increased significantly in the past
year.
The Company's operations prior to July 5, 1994 were limited to start-up
activities, including the establishment of its general office operation, initial
financing activities, completing the Department of Transportation and Federal
Aviation Administration application process, training crews and other activities
associated with a start-up airline. These activities generated pre-operating
expenses of $1,179,000, which are included in the Company's results of
operations for the year ended March 31, 1995. In addition, the Company modified
its initial operating strategy during the fiscal year ended March 31, 1995 and
further modified and expanded operations during the fiscal year ended March 31,
1996. Therefore, the Company's results of operations for the fiscal years ended
March 31, 1995 and 1996 are not necessarily comparable or indicative of future
operating results.
Small fluctuations in the Company's yield per RPM or expense per ASM can
significantly affect operating results because the Company, like other airlines,
has high fixed costs and low operating margins in relation to revenues. Airline
operations are highly sensitive to various factors, including the actions of
competing airlines and general economic factors, which can adversely affect the
Company's liquidity, cash flows and results of operations.
In June 1995, the Company contributed 137,340 shares of Common Stock to its
employee stock ownership plan ("ESOP"). The compensation expense attributable
to the 137,340 contributed shares totaled $721,000, which the Company recognized
during the year ended March 31, 1996. See Note 9 to the Financial Statements.
RESULTS OF OPERATIONS
Year ended March 31, 1995. The Company incurred a net loss of $7,999,000,
or $2.56 per share, for its first full fiscal year ended March 31, 1995. The
loss was caused by several factors. The Company incurred pre-operating costs of
$1,179,000 in connection with its start-up activities, comprised of expenses
related to flight operations of $284,000 and general and administrative expenses
of $895,000. The Company believes that a substantial portion of these costs were
non-recurring. The Company had insignificant operating revenues during this pre-
operating period.
-10-
<PAGE>
The Company incurs substantial costs in ramping up its flight operations
as it begins service to new destinations. Commencement of service in new markets
is characterized by relatively high initial operating costs with a gradual
buildup of revenues over a 60 to 120 day period until the Company achieves
anticipated market penetration. As a result, the Company can expect to incur
losses related to the new markets during at least the first few months of
operation in these new markets. Operating results for fiscal 1995 and 1996 also
were adversely affected by the Company's need to modify its initial strategy.
The Company's initial strategy in July 1994 was to enter regional markets where
a series of earlier route abandonments by Continental Airlines and other major
airlines had resulted in either only limited jet service to Denver, service
transfers to commuter carriers operating small turboprop aircraft, or no nonstop
or direct service to Denver at all. In its early planning, the Company had
expected to capture two types of traffic on its selected routes: "local"
passengers (those either beginning or ending their trips in Denver) and
"connecting" passengers (those transferring to or from other airlines for
flights to destinations beyond Denver).
After entering its first markets in July 1994, the Company encountered
difficulty in attracting connecting traffic because United Airlines, Denver's
dominant carrier, chose not to enter into interline agreements with the Company.
The Company's ability to attract connecting traffic was further inhibited by the
substantial reduction in service of Continental Airlines at Denver. As a result,
the Company modified its strategy to develop its own connecting hub at Denver.
The Company modified and expanded its route structure to routes that are more
dependent on local traffic and less dependent on connecting traffic pending the
development of its hub in Denver. The addition of new markets increased the
Company's start-up costs, and the Company again experienced a gradual buildup of
revenue in each of the new markets as they were opened. In late 1994 and early
1995, the Company implemented a low fare strategy and focused on markets with
greater potential volumes of local traffic.
-11-
<PAGE>
The following table provides information regarding the Company's operating
revenues and expenses for its first nine months of flight operations ending
March 31, 1995. The information excludes pre-operating expenses of $1,179,000.
<TABLE>
<CAPTION>
REVENUE/
AMOUNT PERCENT BLOCK HOUR YIELD/ASM YIELD/RPM
REVENUES ----------- ------- ---------- --------- ---------
--------
<S> <C> <C> <C> <C> <C>
Passenger ....................... $23,883,000 97.1% $2,457.35 6.69c 16.22c
Cargo ........................... 567,000 2.3% 58.34 0.16c 0.39c
Other ........................... 146,000 0.6% 15.02 0.04c 0.10c
---------- ------ --------- ----- ------
Total operating revenues $24,596,000 100.0% $2,530.71 6.89c 16.71c
========== ====== ========= ===== ======
EXPENSE/
AMOUNT PERCENT BLOCK HOUR YIELD/ASM
---------- ------- ---------- ---------
EXPENSES
--------
Flight operations ............... $12,548,000 39.8% $1,291.08 3.51c
Aircraft and traffic servicing .. 5,925,000 18.8% 609.63 1.66c
Maintenance ..................... 5,650,000 17.9% 581.34 1.58c
Promotion and sales ............. 5,293,000 16.8% 544.60 1.48c
General and administrative ...... 1,875,000 5.9% 192.92 .53c
Depreciation and amortization ... 248,000 0.8% 25.52 .07c
---------- ------ --------- -----
Total operating expenses $31,539,000 100.0% $3,245.09 8.83c
========== ====== ========= =====
</TABLE>
Year ended March 31, 1996. The Company did not recognize any revenue or
related direct costs of operations until July 5, 1994. Therefore, a discussion
regarding comparisons between the year ended March 31, 1996 and the comparable
period ended March 31, 1995 is not necessarily meaningful. The Company incurred
a net loss of $5,582,000, or $1.23 per share, for the year ended March 31, 1996.
On September 25, 1995, the Company eliminated all four of its Montana
destinations, reduced frequency to Bismarck and Fargo, North Dakota, and
inaugurated routes to Chicago (Midway), Illinois and Phoenix, Arizona. During
November 1995, the Company began service between Denver and an additional four
markets -- Los Angeles and San Francisco, California, Minneapolis-St. Paul,
Minnesota, and Salt Lake City, Utah.
The Company completed the integration of the two Boeing 737-300s leased
during the quarter ended December 31, 1995 and the restructuring of its
connecting hub and route system related to these aircraft during mid November
1995. As a result of the completion of the first phase of its new business and
marketing strategy, the Company had its first profitable quarter during the
fourth fiscal quarter ended March 31, 1996 with net income of $816,000.
-12-
<PAGE>
The following table sets forth certain quarterly and annual financial and
operating data regarding the Company for the year of operations ended March 31,
1996.
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
QUARTER ENDING YEAR ENDED
-------------------------------------------------------------------- --------------
JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
------------- ------------------ ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Passenger revenue $ 12,421,000 $ 13,725,000 $ 16,831,000 $ 25,553,000 $ 68,530,000
Revenue passengers carried 130,000 159,000 202,000 267,000 758,000
Revenue passenger miles (RPMs)(1) 71,721,000 88,372,000 136,454,000 183,340,000 479,887,000
Available seat miles (ASMs)(2) 160,837,000 160,244,000 226,106,000 296,974,000 844,161,000
Passenger load factor (3) 44.5% 55.2% 60.4% 61.7% 56.9%
Break-even load factor (4) 52.0% 59.3% 73.6% 59.7% 61.8%
Block hours(5) 4,223 4,170 5,426 6,964 20,783
Average daily block hour
utilization(6) 9.28 9.18 10.33 10.93 9.93
Yield per RPM(7) 17.32c 15.53c 12.33c 13.94c 14.28c
Yield per ASM(8) 7.72c 8.57c 7.44c 8.60c 8.12c
Expense per ASM 9.29c 9.53c 9.24c 8.48c 9.04c
Passenger revenue per block hour $ 2,941.00 $ 3.291.47 $ 3,101.90 $ 3,669.30 $ 3,297.41
Average fare(9) $ 96 $ 85 $ 80 $ 93 $ 88
Average aircraft in service 5.0 4.9 5.7 7.0 5.7
Operating income (loss) ($2,059,000) ($1,020,000) ($3,687,000) $ 833,000 ($5,933,000)
Net income (loss) ($1,857,000) ($986,000) ($3,555,000) $ 816,000 ($5,582,000)
</TABLE>
(1) "Revenue passenger miles," or RPMs, are determined by multiplying the
number of fare-paying passengers carried by the distance flown.
(2) "Available seat miles," or ASMs, are determined by multiplying the number
of seats available for passengers by the number of miles flown.
(3) "Passenger load factor" is determined by dividing revenue passenger miles
by available seat miles.
(4) "Break-even load factor" is the passenger load factor that will result in
operating revenues being equal to operating expenses, assuming
constant revenue per passenger mile and expenses
(5) "Block hours" represent the time between aircraft gate departure and
aircraft gate arrival.
(6) "Average daily block hour utilization" represents the total block hours
divided by the weighted average number of aircraft days in service.
(7) "Yield per RPM" is determined by dividing passenger revenues by revenue
passenger miles.
(8) "Yield per ASM" is determined by dividing passenger revenues by available
seat miles.
(9) "Average fare" excludes revenue included in passenger revenue for non-
revenue passengers, administrative fees, and revenue recognized for unused
tickets that are greater than one year from issuance date.
-13-
<PAGE>
The following table provides information regarding the Company's operating
revenues and expenses for the year ended March 31, 1996.
<TABLE>
<CAPTION>
REVENUE/
AMOUNT PERCENT BLOCK HOUR YIELD/ASM YIELD/RPM
REVENUES ----------- ------- ---------- --------- ---------
--------
<S> <C> <C> <C> <C> <C>
Passenger.......................... $68,530,000 97.4% $3,297.41 8.12c 14.28c
Cargo.............................. 1,148,000 1.6% 55.29 0.14c 0.24c
Other.............................. 714,000 1.0% 34.36 0.08c 0.15c
----------- ------ --------- ----- ------
Total operating revenues $70,393,000 100.0% $3,387.06 8.34c 14.67c
=========== ====== ========= ===== ======
EXPENSE/
AMOUNT PERCENT BLOCK HOUR YIELD/ASM
EXPENSES ----------- ------- ---------- ---------
--------
Flight operations.................. $28,019,000 36.7% $1,348.17 3.32c
Aircraft and traffic servicing..... 18,487,000 24.2% 889.53 2.19c
Maintenance........................ 11,732,000 15.4% 564.50 1.39c
Promotion and sales................ 14,219,000 18.6% 684.16 1.68c
General and administrative......... 3,321,000 4.4% 160.79 .40c
Depreciation and amortization...... 547,000 0.7% 26.37 .06c
----------- ------ --------- -----
Total operating expenses $76,325,000 100.0% $3,673.52 9.04c
=========== ====== ========= =====
</TABLE>
The following table provides information regarding the Company's operating
revenues and expenses for the quarter ended March 31, 1996.
<TABLE>
<CAPTION>
REVENUE/
AMOUNT PERCENT BLOCK HOUR YIELD/ASM YIELD/RPM
REVENUES ----------- ------- ---------- --------- ---------
--------
<S> <C> <C> <C> <C> <C>
Passenger.......................... $25,553,000 98.1% $3,669.30 8.60c 13.94c
Cargo.............................. 327,000 1.2% 46.96 0.11c 0.18c
Other.............................. 169,000 0.7% 24.27 0.06c 0.09c
Total operating revenues ----------- ------ --------- ----- -------
$26,049,000 100.0% $3,740.53 8.77c 14.21c
=========== ====== ========= ===== ======
EXPENSE/
AMOUNT PERCENT BLOCK HOUR YIELD/ASM
EXPENSES ----------- ------- ---------- ---------
--------
Flight operations.................. $ 9,517,000 37.7% $1,366.60 3.20c
Aircraft and traffic servicing..... 6,360,000 25.2% 913.27 2.14c
Maintenance........................ 3,693,000 14.6% 530.30 1.24c
Promotion and sales................ 4,607,000 18.3% 661.55 1.55c
General and administrative......... 871,000 3.5% 125.07 .29c
Depreciation and amortization...... 168,000 0.7% 24.12 .06c
Total operating expenses ----------- ------ --------- -----
$25,216,000 100.0% $3,620.91 8.48c
=========== ====== ========= =====
</TABLE>
REVENUES
General. Airline revenues are primarily a function of the number of
passengers carried and fares charged by the airline. The Company believes that
revenues will gradually increase in a new market over a 60 to 120 day period as
anticipated market penetration is achieved. This occurred during the three
months ended September 30, 1994, which was the Company's first three months of
flight operations and, more recently, in January, September and November 1995
when
-14-
<PAGE>
the Company commenced service to Omaha, Nebraska, Las Vegas, Nevada,
Chicago (Midway), Illinois, Phoenix, Arizona, Los Angeles and San Francisco,
California, Minneapolis-St. Paul, Minnesota and Salt Lake City, Utah. The
Company expects that this will also occur in its Denver - Seattle/Tacoma, San
Diego and St. Louis markets which it inaugurated in May and June, 1996.
The Company's results are highly sensitive to changes in fare levels. Fare
pricing policies have a significant impact on the Company's revenues. Following
is a table of the Company's average fares:
Quarter Ended Average Fare
-------------------- ------------
September 30, 1994 $104
December 31, 1994 $ 83
March 31, 1995 $ 91
June 30, 1995 $ 96
September 30, 1995 $ 85
December 31, 1995 $ 80
March 31, 1996 $ 93
On commencement of operations, the Company set its fares at prevailing
competitive fares within the markets entered. In connection with the
modification in the Company's strategy, the Company reduced fares to maximize
traffic and revenue. The initial stimulative effect on the markets involved was
positive when system-wide prices were reduced in September 1994. On March 1,
1995, in connection with the opening of DIA, the Company increased its local
Denver fares by up to $35 to offset the increased costs of DIA and other
expected cost increases and the Company's average fare peaked at $96 for the
quarter ended June 30, 1995. During the quarter ended September 30, 1995, the
Company reduced its fares system-wide in order to "re-stimulate" markets and
match competitors' fares. During the quarter ended December 31, 1995, the
Company's average fare decreased to $80 as a result of introductory fares for
its two new markets added in late September 1995 and the four new markets added
during the month of November 1995. The Company's average fare for the quarter
ended March 31, 1996 increased to $93 largely as a result of the Company's new
yield management system, the elimination of introductory fares, and the
expiration of excise taxes on air transportation. Management believes that the
excise tax or some other type of tax will be likely in the future and may be as
high as 10% of the fare. Given the elasticity of passenger demand, increases in
fares will result in a decrease in passenger demand. To maintain passenger
traffic in the face of an excise tax increase may require some downward
adjustment in net fares realized by the Company. The Company cannot completely
predict future fare levels, which depend to a substantial degree on actions of
competitors. When sale prices or other price changes are made by competitors in
the Company's markets, the Company believes that it must, in most cases, match
these competitive fares in order to maintain its market share. Passenger
revenues are seasonal in each market. The Company expects the March quarter to
be its weakest with the September quarter to be its strongest.
Year ended March 31, 1995. Passenger revenues totaled $23,883,000 for the
fiscal year ended March 31, 1995 and represented 97.1% of total revenues.
Passenger revenues increased each quarter during the year ended March 31, 1995.
The Company was able to increase its aircraft utilization through the schedule
adjustments made in January 1995 and other minor adjustments made from time to
time during the year.
An airline's break-even load factor is the passenger load factor that will
result in operating revenues being equal to operating expenses, assuming
constant revenue per passenger mile and expenses. For the year ended March 31,
1995, the Company's break-even load factor was 54.4% compared to a passenger
load factor of 41.2%. The Company's low load factors during its first quarter of
flight operations ended September 30, 1994 reflect the start-up nature of the
airline, an increase in capacity from two to four aircraft, the difficulties the
Company encountered in entering the connecting traffic market at Denver and the
modification to the Company's initial strategy to create its own hub at Denver
and to enter higher volume markets. The Company's improved load factors in the
quarter ended December 31, 1994 reflect this result, along with higher seasonal
passenger traffic. The Company's load factor for its fourth fiscal quarter ended
March 31, 1995 was affected by several factors. Seasonality and a change in the
Company's route structure in January 1995 to eliminate Minot and Grand Forks,
North Dakota and to add Omaha and Las Vegas reduced load factors in January.
Load factors improved in February and March 1995 as the Company's strategy
received greater acceptance. Seasonal travel in March 1995
-15-
<PAGE>
increased RPMs to their highest level for the Company's first operating fiscal
year. The Company believes that its load factors were favorably impacted by its
low fare strategy and adversely affected by modifications to the Company's
strategy requiring entry into new markets. In addition, the Company believes
that its load factors were adversely affected by passenger uncertainty
associated with the closing of Stapleton and the opening of DIA which has
reduced air travel through Denver and caused the Company and other airlines at
DIA to increase fares to cover higher operating costs.
Fare pricing policies have a significant impact on the Company's revenues.
The Company's average fare for the fiscal year ended March 31, 1995 for all
passengers was $89, net of federal excise taxes. Initially, the Company set its
fares at prevailing competitive fares within the markets entered. In connection
with the modification in the Company's strategy, the Company reduced fares to
maximize traffic and revenue. The initial stimulative effect on the markets
involved was positive when system-wide prices were reduced in September 1994.
From the commencement of the Company's flight operations on July 5, 1994 through
September 30, 1994, the Company's average fare was $104, excluding federal
excise taxes. For the period of October 1, 1994 through December 31, 1994, the
comparable average fare was $83. From January 1, 1995 through March 31, 1995,
the Company's average fare was $91. On March 1, 1995, in connection with the
opening of DIA, the Company increased its local Denver fares by up to $35 to
offset the increased costs of DIA and other expected cost increases. This
accounted for the increase in the Company's average fares from the previous
quarter. The Company believes that this fare increase has reduced the
stimulative effect the Company experienced from its low fare pricing strategy.
Cargo revenues, consisting of revenues from freight and mail service,
totaled $567,000 and represented 2.3% of total operating revenues. This adjunct
to the passenger business is highly competitive and depends heavily on aircraft
scheduling, alternate competitive means of same day delivery service and
schedule reliability.
Other revenues, comprised principally of liquor sales and excess baggage
fees, totaled $146,000 and represented less than one percent of total operating
revenues.
Year ended March 31, 1996. Passenger revenues totaled $68,530,000 for year
ended March 31, 1996 and represented 97.4% of total revenues. Passenger revenues
increased each quarter during the year ended March 31, 1996 principally as a
result of the Company reaching full market penetration on its earlier routes,
increasing its aircraft utilization through schedule adjustments, the increase
in the average aircraft in service, and the introduction of new high volume
markets. This is reflected in the aircraft block hour utilization described in
the table above.
For the year ended March 31, 1996, the Company's break-even load factor was
61.8% compared to a passenger load factor of 56.9%. The Company's passenger load
factor increased each quarter during the year ended March 31, 1996. The Company
believes that its load factors were adversely affected during this period by
passenger uncertainty associated with the closing of Stapleton and the opening
of DIA and the increased fares charged by the Company and other airlines at DIA
to cover higher operating costs coupled with new competition offering low fares
at the Colorado Springs, Colorado airport which is approximately 75 miles south
of Denver. Although the Company's load factor will fluctuate from period to
period, management believes that, based on the Company's current low fare
strategy and operations, its break-even load factor will range from 58% - 62% as
demonstrated in the quarter ended March 31, 1996 when the Company had a break-
even load factor of 59.7%, a load factor of 61.7% and operating income of
$833,000.
Cargo revenues totaled $1,148,000 for the year ended March 31, 1996 or 1.6%
of total revenue. This adjunct to the passenger business is highly competitive
and depends heavily on aircraft scheduling, alternate competitive means of same
day delivery service and schedule reliability.
Other revenues comprised principally of liquor sales, excess baggage fees,
and ground handling services for other carriers totaled $714,000 or 1.0% of
revenue. Of the $714,000, $234,000 represented revenues earned by providing
ground handling services to other carriers in Omaha and its Montana cities.
These ground handling services were discontinued in September 1995 when the
Company terminated its Montana service and the termination of its contract in
Omaha.
-16-
<PAGE>
OPERATING EXPENSES
Year Ended March 31, 1995. Operating expenses include those related to
flight operations, aircraft and traffic servicing, maintenance, promotion and
sales, general and administrative and depreciation and amortization. The
information provided below excludes pre-operating expenses related to flight
operations of $284,000 and general and administrative expenses of $895,000.
Flight Operations. Flight operations expenses of $12,548,000 were 39.8% of
total operating expenses and include all expenses related directly to the
operation of the aircraft including fuel, lease and insurance expenses, pilot
and flight attendant compensation, in flight catering, crew overnight expenses,
flight dispatch and flight operations administrative expenses.
Aircraft fuel expenses include both the direct cost of fuel as well as the
cost of delivering fuel into the aircraft. Aircraft fuel costs of $5,081,000 for
7,681,000 gallons used resulted in an average fuel cost per gallon during the
year of 66.15c. Fuel consumption for the year averaged 790 gallons per block
hour but varied monthly as weather and flight planning changed considerably by
season. Fuel prices during the year were generally stable to declining which was
favorable to the Company's operating results. Fuel prices are subject to change
weekly as the Company does not purchase supplies in advance for inventory. In
August 1993, the United States increased taxes on domestic fuel, including
aviation fuel, by 4.3 cents per gallon. Airlines were exempt from this tax
increase until October 1, 1995. See "-- Year Ended March 31, 1996" below.
Aircraft lease and insurance expenses, including passenger liability
insurance, totaled $3,555,000 for the fiscal year ended March 31, 1995.
Pilot and flight attendant compensation totaled $1,927,000 for the fiscal
year ended March 31, 1995. With a scheduled passenger operation, and with
salaried rather than hourly crew compensation, the Company's expenses for flight
operations are largely fixed, with flight catering expenses the principal
exception. Higher aircraft utilization produces a more favorable cost per block
hour or per ASM, and the Company benefited from an increase in aircraft
utilization during fiscal 1995.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses
were $5,925,000 and represented 18.8% of total operating expenses. These include
all expenses incurred at the airports as well as station operations
administration and flight operations ground equipment maintenance. Station
expenses include landing fees, facilities rental, station labor and ground
handling expenses. These costs generally increased throughout the year as the
Company added stations to its schedule and related airport departures increased.
The Company served four cities in July 1994 and increased service to eight
cities by October 1994. Daily flights increased from 19 during the quarter ended
September 30, 1994 to 40 during the quarter ended March 31, 1995.
Maintenance. Maintenance expenses of $5,650,000 were 17.9% of total
operating expenses. These include all maintenance, labor, parts and supplies
expenses related to the upkeep of the aircraft. Routine maintenance is charged
to maintenance expense as incurred while major engine overhauls and heavy
maintenance checks are accrued each quarter. In the Company's fourth fiscal
quarter ended March 31, 1995, the Company determined, through competitive
bidding, that its accruals for heavy maintenance were unduly high, and a
$500,000 reduction in the accrual was made in this period.
Promotion and Sales. Promotion and sales expenses totaled $5,293,000 for
the fiscal year ended March 31, 1995 and represented 16.8% of total operating
expenses. These include advertising expenses, telecommunications expenses, wages
and benefits for reservationists and reservations supervision as well as
marketing management and sales personnel. Credit card fees, travel agency
commissions, and computer reservations costs are included in these costs. The
promotion and sales expense per passenger for the year was $19.94, which is
higher than would be normally expected for future Company operations because of
the start-up nature of the airline and the expense required to familiarize the
public with the Company's services.
-17-
<PAGE>
Advertising costs are seasonal as heavier media utilization is planned to
coincide with heavy passenger booking periods. Generally, as new cities are
added to the Company's flight schedule, advertising and marketing promotions are
designed to increase awareness of the Company's new service to create name and
brand awareness.
General and Administrative. General and administrative expenses totaling
$1,875,000 were 5.9% of total operating expenses and include the wages and
benefits for the Company's executive officers and various other administrative
personnel. Legal and accounting expenses, supplies and other miscellaneous
expenses are also included in this category.
Depreciation and Amortization. Depreciation and amortization expense of
$248,000 was less than one percent of total operating expenses and includes
depreciation of office equipment, ground station equipment, and other fixed
assets of the Company. Amortization of start-up and route development costs are
not included as these expenses have been expensed as incurred.
Expenses per ASM. Generally, the Company's expense per ASM declined during
its first fiscal year as service and equipment added contributed to economies of
scale and as the high fixed costs associated with the airline were spread across
a larger base of operation. The average expense per ASM for the year was 8.83c.
The notable exception to the decrease in expense per ASM was the cost associated
with DIA described above, which had an impact upon the Company for the operating
period from February 28, 1995, when DIA opened, through March 31, 1995. The
Company increased its local Denver fares by up to $35 per ticket in March 1995
in response to these and other expected cost increases.
Expenses per ASM are influenced to a degree by the utilization of aircraft
and by the seating configuration that each airline employs. For example, with
the 108 seat all coach seating configuration selected by the Company on five of
its 737-200 aircraft, the expenses per ASM of the Company are higher by 11% when
compared with the 120 seat alternative used by many carriers.
Aircraft and traffic servicing expenses will increase with the addition of
new cities; however, the increased existing gate utilization at DIA will reduce
per unit expenses.
Year ended March 31, 1996. Flight operations expenses of $28,019,000 were
36.7% of total operating expenses and include all expenses related to the
operation of the aircraft including fuel, lease and insurance expenses, pilot
and flight attendant compensation, in-flight catering, crew overnight expenses,
flight dispatch and flight operations administrative expenses.
Aircraft fuel expenses include both the direct cost of fuel as well as the
related taxes and the cost of delivering fuel into the aircraft. Aircraft fuel
costs of $11,836,000 for 16,746,000 gallons used resulted in an average fuel
cost per gallon during the year ended March 31, 1996 of 70.67c. Fuel consumption
for the year ended March 31, 1996 averaged 806 gallons per block hour but varied
monthly as weather and flight planning changed. Fuel prices during the period
were generally stable but increased slightly in the second calendar quarter of
1996. Fuel expenses for the year ended March 31, 1996 were approximately 4.52c
higher that the average fuel cost per gallon for the year ended March 31, 1995
of 66.15c. The increase is attributable to a slight increase in the cost of fuel
and the fuel tax of 4.3c which became effective October 1, 1995. Assuming the
Company's present nine aircraft operation, a one cent variance in the cost per
gallon of fuel would have a $300,000 annual impact on the Company's expenses.
Fuel prices are subject to change weekly as the Company generally purchases in
advance for the following week's requirements. The Company will reduce its
exposure to fuel price increases to some extent as it leases additional Boeing
737-300 or comparable aircraft that are more fuel efficient than the older
Boeing 737-200 aircraft.
In August 1993, the United States increased taxes on domestic fuel,
including aviation fuel, by 4.3c per gallon. Airlines were exempt from this tax
increase until October 1, 1995. Effective October 1, 1995, the Company's
suppliers began to charge this tax. The aviation fuel tax included in the total
fuel cost of $11,836,000 was approximately $425,000 for the six months ended
March 31, 1996. The airline industry has proposed an extension of this
exemption. In May 1996, the House of Representatives had approved an additional
seven month extension of the exemption through December 31, 1997. As of June 11,
1996 the Senate had not approved or disapproved the House's recommendation.
Management is
-18-
<PAGE>
unable to predict if an extension of the airline industry's exemption will be
approved. The fuel tax increases the Company's annual costs by approximately
$1,290,000, assuming its current nine aircraft fleet and annual consumption of
approximately 30 million gallons of fuel.
Aircraft lease and insurance expenses, including passenger liability
insurance, totaled $8,506,000 for the year ended March 31, 1966 for the seven
aircraft operated during the year. These expenses can be expected to increase
during fiscal 1997 if the Company leases additional aircraft.
Pilot and flight attendant compensation totaled $4,025,000, excluding
compensation under the ESOP, for the year ended March 31, 1996. With a scheduled
passenger operation, and with salaried rather than hourly crew compensation, the
Company's expenses for flight operations are largely fixed, with flight catering
expenses a principal exception.
Aircraft and traffic servicing expenses were $18,487,000 and represented
24.2% of total operating expenses for the year ended March 31,1996 compared to
18.8% of total operating expenses for the year ended March 31, 1995. The
increase as a percentage of total operating expenses is largely attributable to
the increased costs of operating at DIA versus Stapleton. DIA opened on February
28, 1995. The Company operated out of DIA for only one month of the year ended
March 31,1995 and for the entire year ended March 31, 1996. These include all
expenses incurred at the airports as well as station operations administration
and flight operations ground equipment maintenance. Station expenses include
landing fees, facilities rental, station labor and ground handling expenses.
Maintenance expenses of $11,732,000 were 15.4% of total operating expenses.
These include all maintenance, labor, parts and supplies expenses related to the
upkeep of the aircraft. Routine maintenance is charged to maintenance expense as
incurred while major engine overhauls and heavy maintenance checks are accrued
each quarter.
Promotion and sales expenses totaled $14,219,000 for the year ended March
31, 1996 and represented 18.6% of total operating expenses. These include
advertising expenses, telecommunications expenses, wages and benefits for
reservationists and reservation supervision as well as marketing management and
sales personnel. Credit card fees, travel agency commissions and computer
reservations costs are included in these costs. The promotion and sales expense
per passenger was $18.75 which is higher than would be normally expected for
future Company operations because of the start-up nature of the airline and the
introductory expense required to familiarize the public with the Company's
services.
Advertising costs are seasonal as heavier media utilization is planned to
coincide with heavy passenger booking periods. In addition, as new cities are
added to the Company's flight schedule, advertising and marketing promotions are
designed to increase awareness of the Company's new service to create name and
brand awareness. Advertising expenses of $1,619,000 were 2.4% of passenger
revenues for the year ended March 31, 1996, compared to approximately $908,000
or 3.8% of passenger revenues for fiscal year ended March 31, 1995. The Company
expects these costs to continue to decrease as a percentage of revenue.
General and administrative expenses totaling $3,321,000 were 4.4% of total
operating expenses and include the wages and benefits for the Company's
executive officers and various other administrative personnel. Legal and
accounting expenses, supplies and other miscellaneous expenses are also included
in this category.
Depreciation and amortization expense of $547,000 was less than one percent
of total operating expenses and includes depreciation of office equipment,
ground station equipment, and other fixed assets of the Company. Amortization of
start-up and route development costs are not included as these expenses have
been expensed as incurred.
Expense per ASM. The average expense per ASM for the year ended March 31,
1996 was 9.04c as compared to 8.83c for the year ended March 31, 1995. The
increase is primarily attributable to the higher operating expenses at DIA as
compared to those at Stapleton. The Company only operated at DIA for the last
month of its fiscal year 1995. After the average expense per ASM peaked at
9.53c for the quarter ended September 30, 1995, the average expense per ASM
decreased to 8.50c for the quarter ended March 31, 1996. The decrease is
attributable to the increase in the number of the Company's aircraft during the
quarter ended December 31, 1995 when the Company added two Boeing 737-300s. The
-19-
<PAGE>
Company was able to add aircraft without adding additional gate positions at DIA
or significantly increasing general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet reflected cash and cash equivalents and short-
term investments of $7,527,000 at March 31, 1996. At March 31, 1996, total
current assets were $25,797,000 as compared to $25,844,000 total current
liabilities, resulting in working deficit of $47,000.
Cash used in operating activities for the year ended March 31, 1996 was
$2,489,000. This is attributed primarily to the Company's net loss for the
period, increases in trade receivables, prepaid expenses, deposits to secure
credit card transactions and deposits for aircraft leases, required aircraft
maintenance deposits, and decreases in accrued expenses, offset by increases in
accounts payable, air traffic liability, and accrued maintenance expenses. Cash
used in operating activities improved by $1,737,000 from the year ended March
31, 1995.
Cash used in investing activities for the year ended March 31, 1995 was
$1,611,000 which consisted of capital expenditures for the five Boeing 737-200s
leased during the year, spare parts, ground equipment, computer equipment,
leasehold improvements and maintenance equipment. Cash used in investing
activities for the year ended March 31, 1996 was $2,234,000. The Company
invested $1,168,000 in short-term investments comprised of certificates of
deposits with maturities of one year or less. The Company had capital
expenditures totaling $1,098,000 consisting of leasehold improvements and
rotables for the two Boeing 737-300s leased in November 1995, expansion of the
Company's reservation system and related leasehold improvements, spare parts,
ground equipment, computer equipment, and maintenance equipment.
Cash provided by financing activities for the year ended March 31, 1995 was
$9,256,000, primarily reflecting net proceeds from the Company's initial public
offering of common stock and warrants. Cash provided by financing activities was
$7,248,000 for the year ended March 31, 1996, primarily reflecting net proceeds
of $7,282,000 from the Company's secondary public offering sale of common stock.
The Company currently has no lines of credit.
Five of the Company's Boeing 737-200 aircraft are leased under operating
leases which expire in the year 1997. The leases provide for up to two two-year
renewal terms with no increase in basic rent. Under these leases, the Company
was required to make security deposits and deposits for maintenance of these
leased aircraft. These deposits totaled $625,000 and $6,091,000, respectively,
at March 31, 1996.
The Company leased two Boeing 737-300 aircraft under operating leases in
November 1995 which expire in the year 2000. The Company was required to make
security deposits and deposits for maintenance of these leased aircraft.
Security and maintenance deposits totaled $1,505,000 and $688,000, respectively,
at March 31, 1996. These aircraft are compliant with Federal Aviation
Administration ("FAA") Stage 3 noise regulations. The Company has issued to each
of the two Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares
of the Company's Common Stock at a purchase price of $500,000. These warrants,
to the extent not earlier exercised, expire upon the expiration dates of the
aircraft leases.
In June 1996 the Company leased two additional Boeing 737-200 aircraft
under operating leases which expire in the year 2001. The Company was required
to make security deposits totaling $858,000. The Company is required to make
deposits for maintenance for these leased aircraft which begin in July 1996.
These aircraft will be "hush-kitted" by the lessor at its expense during 1996.
Once "hush-kitted" these aircraft will be compliant with FAA Stage 3 noise
regulations. The Company has issued to the aircraft lessor two warrants to
purchase 70,000 shares each of the Company's common stock at a purchase price of
$503,300 per warrant.
In June 1996 the Company entered into a lease for a new Boeing 737-300
which is scheduled for delivery in April 1997. The lease term for this aircraft
is eight years from date of delivery with three additional one year renewal
terms at the
-20-
<PAGE>
Company's option. Between June 1996 and February 1997, the Company is required
to make security deposits with respect to this aircraft totaling $726,250.
In April 1996, the Company completed a private placement of its Common
Stock that resulted in net proceeds of approximately $2,723,000. The net
proceeds will be used principally to lease additional aircraft, subject to
availability.
In May 1996, the Company notified the warrant holders of the Company's
intent to exercise its redemption rights with respect to the warrants not
exercised on or before June 28, 1996. As of June 14, 1996, 626,060 warrants had
been exercised and the Company had received net proceeds of $3,129,000. If the
remaining 2,043,940 warrants are exercised prior to the June 28, 1996 deadline,
additional proceeds to the Company will be approximately $10,219,000.
Management is taking steps designed to improve the Company's operating
performance. The Company believes that expansion of service through its Denver
hub is essential for its long-term success. The airport charges at DIA were
increased several times in the months preceding that airport's opening on
February 28, 1995. They have also been increased since the airport opened as
additional charges have been made to the cost allocation formulas used by the
airport. Carriers that are able to utilize their gate positions at DIA with
greater frequency each day can reduce the impact of DIA's relatively high costs.
In September 1995, the Company redeployed some of its aircraft from the
Company's relatively lightly traveled routes in Montana and added service to new
routes to two of Denver's major destinations: Chicago (Midway), Illinois and
Phoenix, Arizona. In November 1995, the Company commenced service from Denver to
Los Angeles, California, Minneapolis-St. Paul, Minnesota, Salt Lake City, Utah,
and San Francisco, California in conjunction with the two Boeing 737-300
aircraft delivered to it in October 1995. These markets have strong local
passenger volumes and represent destinations requested by customers within the
Company's current route cities. These increased flights were accommodated with
the Company's present four gate operation at DIA. The fourth fiscal quarter
ended March 31, 1996 was the first full quarter that the Company's present route
system was in place and the Company's seven aircraft were fully utilized. The
Company had operating income of $833,000 for the quarter ended March 31, 1996
which was its first profitable quarter.
As of June 1996, the Company serves 15 cities from Denver with nine
aircraft. The Company's goal is to lease a number of additional aircraft to
serve additional cities from Denver. The Company believes that such a route
system would facilitate a greater volume of connecting traffic as well as a
stable base of local traffic and offset the impact of higher DIA-related
operating costs through more efficient gate utilization.
In late October 1995, a competing low fare carrier, headquartered in
Denver, discontinued its flight operations. This carrier handled approximately
2% of the traffic at DIA as of the quarter ended June 30, 1995. With
approximately one half of the carrier's destination cities also served (or to be
served) by the Company, management believes that traffic on these routes
improved in the short-term as an outgrowth of that carrier's service
termination.
The Company is exploring various means to reduce expenses. These include
use of a ticketless reservations system, a reduction in credit card fees, and an
in-house revenue accounting system. The Company believes that it can reduce its
airport operating expenses at certain cities by performing its own "above wing"
operations (including passenger check-in at ticket counters, concourse gate
operations, cabin cleaning and baggage services) rather than continuing to
contract out these services. The Company commenced performing such operations at
DIA in April 1996 and at Los Angeles International Airport in June 1996. A
changeover to the Company's handling of these activities at Chicago/Midway is
expected to be completed by July 1996, at which time the Company will be doing
its own "above wing" operations at eight of the 16 airports it serves.
The proceeds from the private placement completed in April 1996 and the
conversion of the warrants in June 1996 have provided additional working capital
for the Company and, subject to aircraft availability, will enable it to further
expand its operations through the leasing of additional aircraft. The Company's
suppliers currently provide goods, services and operating equipment on open
credit terms. If such terms were modified to require immediate cash payments,
the Company's cash position would be materially and adversely affected. The
expansion of the Company's operations will entail the hiring of additional
employees to staff flight and ground operations in its new markets and
significant initial costs such as deposits for airport and aircraft leases.
Because of the expansion of the Company's business and the competitiveness of
the airline
-21-
<PAGE>
industry, which often requires quick reaction by management to changes in market
conditions, the Company may require additional capital to maintain or further
expand its business.
ITEM 7: FINANCIAL STATEMENTS.
The Company's financial statements are filed as a part of this report
immediately following the signature page.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not, during the past two years and through the date of
this report, had a change in its independent certified public accountants or had
a disagreement with such accountants on any matter of accounting principles,
practices or financial statement disclosure.
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by this Item is incorporated herein by
reference to the data under the heading "Election of Directors" in the Proxy
Statement to be used in connection with the solicitation of proxies for the
Company's annual meeting of shareholders to be held on September 13, 1996, which
Proxy Statement is to be filed with the Commission.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the data under the heading "Executive Compensation" in the Proxy
Statement to be used in connection with the solicitation of proxies for the
Company's annual meeting of shareholders to be held on September 13, 1996, which
Proxy Statement is to be filed with the Commission.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the data under the heading "Voting Securities and Principal Holders
Thereof" in the Proxy Statement to be used in connection with the solicitation
of proxies for the Company's annual meeting of shareholders to be held on
September 13, 1996, which Proxy Statement is to be filed with the Commission.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by
reference to the data under the heading "Related Transactions" in the Proxy
Statement to be used in connection with the solicitation of proxies for the
Company's annual meeting of shareholders to be held on September 13, 1996, which
Proxy Statement is to be filed with the Commission.
ITEM 13(a): EXHIBITS.
Exhibit
Numbers Description of Exhibits
- ------- -----------------------
3.1 Amended and Restated Articles of Incorporation of the Company. (1)
3.2 Amended Bylaws of the Company (July 12, 1994). (2)
4.1 Specimen Common Stock certificate of the Company. (1)
-22-
<PAGE>
4.2 The Amended and Restated Articles of Incorporation and Amended
Bylaws of the Company are included as Exhibits 3.1 and 3.2.
4.3 Form of Warrant. (1)
10.1 Office Lease. (1)
10.2 Office Lease Supplement and Amendment. (2)
10.3 1994 Stock Option Plan. (1)
10.4 Amendment No. 1 to 1994 Stock Option Plan. (2)
10.5 Registration Rights Agreement. (1)
10.6 Sales Agreement. (1)
10.7 Airport Use and Facilities Agreement, Denver International Airport (2)
10.8 Aircraft Lease Agreement dated as of July 26, 1994. (2)
10.9 Code Sharing Agreement. (2)
10.10 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177).(3)
10.11 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257).(3)
10.12 Aircraft Lease Agreement dated as of May 1, 1996. (3)
10.13 Aircraft Lease Agreement dated as of June 3, 1996. (3)
10.14 Aircraft Lease Agreement dated as of June 12, 1996. (3)
27.1 Financial Data Schedule (3)
_____________________
(1) Incorporated by reference from the Company's Registration Statement on Form
SB-2, Commission File No. 33-77790-D, declared effective May 20, 1994.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB,
Commission File No. 0-4877, filed on June 29, 1995
(3) Filed herewith.
ITEM 13(b): REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
-23-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FRONTIER AIRLINES, INC.
Date: June 25, 1996 By: /s/ SAMUEL D. ADDOMS
---------------------
Samuel D. Addoms, Principal Executive
Officer and Principal Financial Officer
Date: June 25, 1996 By: /s/ ELISSA A. POTUCEK
----------------------
Elissa A. Potucek, Controller and Principal
Accounting Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: June 25, 1996 /s/ SAMUEL D. ADDOMS, DIRECTOR
-------------------------------
Samuel D. Addoms, Director
Date: June 25, 1996 /s/ WILLIAM B. MCNAMARA, DIRECTOR
----------------------------------
William B. McNamara, Director
Date: June 25, 1996 /s/ PAUL STEPHEN DEMPSEY, DIRECTOR
-----------------------------------
Paul Stephen Dempsey, Director
Date: June 25, 1996 /s/ B. LARAE ORULLIAN, DIRECTOR
--------------------------------
B. LaRae Orullian, Director
-24-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE STOCKHOLDERS AND
BOARD OF DIRECTORS
FRONTIER AIRLINES, INC.:
We have audited the accompanying balance sheet of Frontier Airlines, Inc. as of
March 31, 1996 and the related statements of operations, stockholders' equity,
and cash flows for the years ended March 31, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Frontier Airlines, Inc. as of
March 31, 1996 and the results of its operations and its cash flows for the
years ended March 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
Denver, Colorado
June 14, 1996
F-1
<PAGE>
FRONTIER AIRLINES, INC.
BALANCE SHEET
MARCH 31, 1996
- --------------------------------------------------------------------------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 6,359,254
Short-term investments 1,168,200
Restricted investments 2,150,964
Trade receivables, net of allowance for
doubtful accounts of $32,141 5,872,158
Maintenance deposits (note 5) 6,589,551
Prepaid expenses and other assets (note 2) 2,945,787
Inventories 569,176
Deferred lease expenses 133,200
Note receivable -- current portion 8,739
----------
Total current assets 25,797,029
Security, maintenance and other deposits (note 5) 2,684,714
Property and equipment, net (note 3) 1,983,060
Note receivable -- long-term portion 61,261
Deferred lease and other expenses 398,500
Restricted investments 65,627
----------
$ 30,990,191
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable 4,402,462
Air traffic liability 11,200,560
Other accrued expenses (note 4) 1,886,045
Accrued maintenance expense (note 5) 8,290,346
Note payable 10,441
Current portion of obligations under capital
leases (note 5) 54,522
----------
Total current liabilities 25,844,376
Accrued maintenance expense (note 5) 243,689
Other accrued expenses 108,961
Obligations under capital leases, excluding
current portion (note 5) 92,145
----------
Total liabilities 26,289,171
----------
Stockholders' equity:
Preferred stock, no par value, authorized
1,000,000 shares; none issued --
Common stock, no par value, stated value of
$.001 per share, authorized 20,000,000 shares;
5,420,640 shares issued and outstanding 5,421
Additional paid-in capital 18,399,918
Accumulated deficit (13,704,319)
----------
Total stockholders' equity 4,701,020
----------
Commitments and contingencies (notes 5, 7, 10, 11 and 12)
$ 30,990,191
==========
See accompanying notes to financial statements.
F-2
<PAGE>
FRONTIER AIRLINES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
---- ----
Revenues:
Passenger $ 68,530,051 23,882,965
Cargo 1,148,357 566,500
Other 714,167 146,073
---------- ----------
Total revenues 70,392,575 24,595,538
---------- ----------
Operating expenses:
Flight operations 28,019,390 12,831,668
Aircraft and traffic servicing 18,486,719 5,924,907
Maintenance 11,732,102 5,650,090
Promotion and sales 14,218,814 5,292,816
General and administrative 3,320,700 2,770,455
Depreciation and amortization 547,514 247,887
---------- ----------
Total operating expenses 76,325,239 32,717,823
---------- ----------
Operating loss (5,932,664) (8,122,285)
---------- ----------
Nonoperating income (expenses):
Interest income 419,756 245,563
Other (68,774) (121,871)
---------- ----------
Total nonoperating income, net 350,982 123,692
---------- ----------
Net loss $ (5,581,682) (7,998,593)
========== ==========
Loss per common share $(1.23) (2.56)
==== ====
Weighted average shares outstanding 4,536,914 3,128,423
========== ==========
See accompanying notes to financial statements.
F-3
<PAGE>
FRONTIER AIRLINES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common stock
-------------------- Additional Total
Stated paid-in Accumulated stockholders'
Shares value capital deficit equity
------ ----- ------- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCES,
MARCH 31, 1994 813,300 $ 813 514,837 (124,044) 391,606
Sale of common stock and
warrants in April 1994,
net of offering costs
of $180,000 600,000 600 1,319,400 -- 1,320,000
Sale of common stock and
warrants in initial public
offering, net of offering
costs of $1,215,521 2,030,000 2,030 7,927,449 -- 7,929,479
Net loss -- -- -- (7,998,593) (7,998,593)
--------- ----- --------- ---------- ---------
BALANCES,
MARCH 31, 1995 3,443,300 3,443 9,761,686 (8,122,637) 1,642,492
Contribution of common
stock to employee stock
ownership plan 137,340 -- 721,000 -- 721,000
Issuance of compensatory
common stock options -- -- 60,500 -- 60,500
Sale of common stock and
warrants, net of offering
costs of $1,230,000 1,840,000 1,978 7,279,532 -- 7,281,510
Issuance of warrants -- -- 577,200 -- 577,200
Net loss -- -- -- (5,581,682) (5,581,682)
--------- ----- --------- --------- ---------
BALANCES,
MARCH 31, 1996 5,420,640 $ 5,421 18,399,918 (13,704,319) 4,701,020
========= ===== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
FRONTIER AIRLINES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,581,682) (7,998,593)
Adjustments to reconcile net loss to
net cash used in operating activities:
Employee stock ownership plan compensation expense 721,000 --
Issuance of compensatory common stock options 60,500 --
Depreciation and amortization 603,014 247,887
Loss on sale of equipment 62,940 --
Changes in operating assets and liabilities:
Restricted investments (842,574) (1,374,017)
Trade receivables (2,289,183) (3,582,975)
Security, maintenance and other deposits (6,811,215) (2,463,050)
Prepaid expenses and other assets (2,259,203) (676,790)
Inventories (362,581) (206,595)
Accounts payable 1,590,072 2,788,622
Air traffic liability 7,384,114 3,816,446
Other accrued expenses (337,294) 2,261,540
Accrued maintenance expense 5,572,559 2,961,476
--------- ---------
Net cash used in operating activities (2,489,533) (4,226,049)
--------- ---------
Cash flows from investing activities:
Increase in short-term investments (1,168,200) --
Acquisition of property and equipment (1,097,788) (1,610,794)
Proceeds from sale of property and equipment 32,440 --
--------- ---------
Net cash used in investing activities (2,233,548) (1,610,794)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 7,281,510 9,249,479
Deferred offering costs (10,000) 35,000
Proceeds from short-term borrowings 101,496 --
Principal payments on short-term borrowings (91,055) --
Principal payments on obligations under capital leases (34,357) (28,242)
--------- ---------
Net cash provided by financing activities 7,247,594 9,256,237
--------- ---------
Net increase in cash and cash equivalents 2,524,513 3,419,394
Cash and cash equivalents, beginning of period 3,834,741 415,347
--------- ---------
Cash and cash equivalents, end of period $ 6,359,254 3,834,741
========= =========
</TABLE>
SUPPLEMENTAL INFORMATION:
In the year ended March 31, 1996, the Company issued warrants in lieu of future
lease rentals with an estimated fair market value totaling $577,200. The
unamortized portion of deferred lease expense totaled $531,700 at March 31,
1996.
In the year ended March 31, 1996, the Company sold equipment and accepted a
promissory note in lieu of cash for $70,000.
The Company acquired equipment through capital leases totaling $209,266 in the
year ended March 31, 1995. Interest of $22,671 and $21,871 was paid in cash
during the year ended March 31, 1996 and 1995. No income taxes were paid in the
years ended March 31, 1996 and 1995.
See accompanying notes to financial statements.
F-5
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- -------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Frontier Airlines, Inc. (the Company) was incorporated in the State of
Colorado on February 8, 1994 and is engaged in the business of operating a
commercial airline based in Denver, Colorado which currently serves
selected midwestern and western cities. The Company commenced airline
operations on July 5, 1994.
The airline industry is highly competitive primarily due to the effects of
the Airline Deregulation Act of 1978, which has substantially eliminated
government authority to regulate domestic routes and fares and has
increased the ability of airlines to compete with respect to flight
frequencies and fares.
The airline industry is also characterized by low gross profit margins,
with fixed costs that are high in relation to revenues. Accordingly, a
shortfall from expected revenue levels can have a material adverse effect
on profitability, including the Company's. The Company's connecting hub is
located at Denver International Airport (DIA). DIA opened in March 1995.
Financed through revenue bonds, DIA depends on landing fees, gate rentals
and other income from airlines, the traveling public and others to pay debt
service and support operations. Management believes that the Company's
operating costs at DIA will substantially exceed those that other airlines
incur at hub airports in other cities.
The airline industry is significantly affected by general economic
conditions. Because a substantial portion of business and personal airline
travel is discretionary, the industry tends to experience severe adverse
financial results during general economic downturns. The Company's business
also is seasonal, which can affect the Company's results of operations from
quarter to quarter.
Fuel is a major component of operating expense for all airlines. Both the
cost and availability of fuel are subject to many economic and political
factors and events occurring throughout the world. The future cost and
availability of fuel to the Company cannot be predicted, and substantial
sustained price increases or the unavailability of adequate fuel supplies
could have a material adverse effect on the Company's operations and
profitability.
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statmeents in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
For financial statement purposes, the Company considers cash and short-term
investments with an original maturity of three months or less to be cash
equivalents.
F-6
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SHORT-TERM INVESTMENTS
Short-term investments are comprised of certificates of deposit and are
carried at cost, which management believes approximates market value.
Maturities are for one year or less and the Company intends to hold short-
term investments to maturity.
RESTRICTED INVESTMENTS
Restricted investments include certificates of deposit and government
treasury bills which secure certain letters of credit issued primarily to
companies which process credit card sale transactions and certain airport
authorities. Restricted investments are carried at cost, which management
believes approximates market value. Maturities are for one year or less and
the Company intends to hold restricted investments until maturity.
INVENTORIES
Inventories consist of expendable parts, supplies and aircraft fuel and are
stated at the lower of cost or market. Inventories are accounted for on a
first-in, first-out basis and are charged to expense as they are used.
Under the terms of the aircraft lease agreements for the five Boeing 737-200
aircraft discussed in note 5, the lessor has consigned expendable parts and
supplies to the Company. The Company has also entered into an agreement
with a supplier for consigned parts and supplies for the two Boeing 737-300
aircraft. The Company is required to pay a monthly consignment fee, based
on the value of the consigned parts, and to replenish any such parts when
used with a like part. Expendable parts and supplies are charged to expense
as they are used. At March 31, 1996, the Company held consigned parts and
supplies in the amount of approximately $4,565,059, which are not included
in the Company's balance sheet.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Major additions, betterments
and renewals are capitalized. Depreciation and amortization is provided for
on a straight-line basis to estimated residual values over estimated
depreciable lives as follows:
Flight equipment 3 years
Improvements to leased aircraft Life of improvements or term of
lease,whichever is less
Ground property, equipment, and
leasehold improvements 3-5 years or term of lease
Assets utilized under capital leases are amortized over the lesser of the
lease term or the estimated useful life of the asset using the straight-line
method. Amortization of capital leases is included in depreciation expense.
F-7
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Routine maintenance and repairs are charged to operations as incurred.
Costs of major improvements are capitalized and expensed over the period of
expected benefit. Additionally, a provision is made for the estimated cost
of scheduled major overhauls required to be performed on leased aircraft
under the provisions of the aircraft lease agreements. Accrued maintenance
expense expected to be incurred beyond one year is classified as long-term.
REVENUE RECOGNITION
Passenger, cargo, and other revenues are recognized when the transportation
is provided or after the tickets expire. Revenues which have been deferred
are included in the accompanying balance sheet as air traffic liability.
PASSENGER TRAFFIC COMMISSIONS AND RELATED EXPENSES
Passenger traffic commissions and related expenses are expensed when the
transportation is provided and the related revenue is recognized. Passenger
traffic commissions and related expenses not yet recognized are included as
a prepaid expense.
FREQUENT FLYER AWARDS
The Company maintains a frequent travel award program that provides awards
to program members based on accumulated mileage. The estimated cost of
providing the free travel is recognized as a liability and charged to
operations as program members accumulate mileage. The Company also allows
program members to accumulate mileage on Continental Airline's OnePass
frequent flyer program, instead of the Company's program. The cost of
providing mileage on the OnePass program is based on an agreed upon rate per
mileage credit, which is paid to Continental Airlines on a monthly basis.
LOSS PER COMMON SHARE
Loss per common share is computed based on the weighted average number of
common shares and, if dilutive, common stock equivalent shares (options and
warrants) outstanding during the respective periods.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. Under the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and
tax bases of the existing assets and liabilities. A valuation allowance is
provided to the extent that the realizability of net deferred tax assets is
judged by management to be unlikely. The effect on deferred taxes from a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-8
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
FOURTH QUARTER ADJUSTMENT
During the quarter ended March 31, 1995, the Company adjusted its estimate
of accrued liability for maintenance, a portion of which was established in
prior quarters. The effect was to decrease net loss for the fourth quarter
of the year ended March 31, 1995 by approximately $500,000.
RECLASSIFICATIONS
Certain 1995 financial statement balances have been reclassified to conform
to the 1996 presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS No. 123), is required to be adopted by the Company
in the year ended March 31, 1997. Pursuant to the provisions of SFAS No.
123, the Company will continue to account for transactions with its
employees pursuant to Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Therefore, this statement is not expected to
have a material effect on the Company's financial position or its results of
operations when adopted.
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lives Assets and for Long-Lived Assets to Be Disposed Of,
which is required to be adopted by the Company in the year ended March 31,
1997, is not expected to have a material effect on the Company's financial
position or its results of operations when adopted.
(2) PREPAID EXPENSES AND OTHER ASSETS
The March 31, 1996 prepaid expenses and other assets is comprised of the
following:
Prepaid passenger traffic commissions and related expenses $1,340,651
Prepaid aircraft rentals 534,097
Prepaid landing fees 223,467
Prepaid insurance 181,466
Other prepaid expenses and other assets 666,106
----------
$2,945,787
==========
(3) PROPERTY AND EQUIPMENT, NET
As of March 31, 1996 property and equipment consisted of the following:
Flight equipment and improvements to leased aircraft $ 881,643
Ground property, equipment and leasehold improvements 1,865,956
----------
2,747,599
Less accumulated depreciation and amortization (764,539)
----------
Property and equipment, net $ 1,983,060
==========
F-9
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
Property and equipment includes certain office equipment under capital
leases. At March 31, 1996, office equipment recorded under capital leases
was $183,698 and accumulated amortization was $67,739.
(4) OTHER ACCRUED EXPENSES
The March 31, 1996 other accrued expenses is comprised of the following:
Accrued salaries and benefits $ 1,102,392
Deferred lease payments 314,897
Accrued passenger facility charges 167,493
Other 301,263
---------
$1,886,045
=========
(5) LEASE COMMITMENTS
AIRCRAFT LEASES
At March 31, 1996, five Boeing 737-200 aircraft are leased by the Company
under operating leases which expire in the year 1997. The five aircraft
leases each have a maximum of two two-year renewal terms, with no increase
in basic rent.
At March 31, 1996, two Boeing 737-300 aircraft are leased by the Company
under operating leases which expire in the year 2000.
In addition to scheduled future minimum lease payments, the Company is
required to pay certain cash deposits to each aircraft lessor based on
flight hours incurred to provide funding for certain future airframe,
engine, landing gear, and auxiliary power unit maintenance costs of leased
aircraft. The lease agreements provide that the Company shall pay taxes,
maintenance, insurance, and certain other operating expenses applicable to
the leased property.
At March 31, 1996, deposits with aircraft lessors totaled approximately
$6,779,000 related to required aircraft maintenance deposits and $2,130,000
related to initial lease security deposits and are reported as a component
of security, maintenance and other deposits in the accompanying balance
sheet. These deposits are unsecured and may be subject to the risk of loss
in the event the lessors were not able to satisfy their obligations under
the lease agreements.
F-10
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(5) LEASE COMMITMENTS (CONTINUED)
OTHER LEASES
The Company leases office space and office equipment for its headquarters,
airport facilities, certain ground equipment, and automobiles. The Company
also leases certain airport gate facilities on a month-to-month basis.
At March 31, 1996, commitments under capital and noncancelable operating
leases with terms in excess of one year were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ----------
<S> <C> <C>
Year ended March 31:
1997 $ 67,086 12,016,487
1998 44,433 9,447,394
1999 44,433 7,705,076
2000 16,656 4,809,863
2001 -- 105,710
--------- ----------
Total minimum lease payments 172,608 34,084,530
==========
Less amount representing interest (25,941)
---------
Present value of obligations under
capital leases 146,667
Less current portion of obligations
under capital leases (54,522)
---------
Obligations under capital leases,
excluding current portion $ 92,145
=========
</TABLE>
The obligations under capital leasehave been discounted at imputed interest
rates ranging from 10.5% to 12.2%.
Rental expense under operating leases, including month-to-month leases, for
the years ended March 31, 1996 and 1995 was $12,625,175 and $3,287,302,
respectively.
F-11
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(6) INCOME TAXES
The Company has not recognized any income tax benefit related to net losses
for the year ended March 31, 1996 and 1995 because the benefit of the net
losses were offset by an increase in the valuation allowance for net
deferred tax assets.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 1996 are presented below:
Deferred tax assets:
Equipment depreciation and amortization $ 151,000
Start-up cost deferred for tax purposes 305,000
Accrued maintenance not deductible for
tax purposes 318,000
Accrued vacation liability not deductible
for tax purposes 129,000
Other 27,000
Net operating loss carryforwards 3,059,000
-----------
Total gross deferred tax assets 3,989,000
Less valuation allowance (3,989,000)
-----------
Net deferred taxes $ --
===========
The valuation allowance for deferred tax assets as of March 31, 1995 was
$3,125,000. The increase in the valuation allowance for the year ended
March 31, 1996 was $864,000. At March 31, 1996, the Company had net
operating loss carryforwards of approximately $8,200,000, which expire in
the years 2010 to 2011.
(7) WARRANTS
The Company issued 2,670,000 warrants to purchase common stock in
conjunction with a private placement and its initial public offering. Each
warrant entitles the a warrant holder to purchase one share of common stock
for $5.00. These warrants were subject to redemption at $.05 per warrant by
the Company on 45 days written notice if certain conditions were met. The
Company met these conditions in May 1996 and on May 14, 1996, the Company
notified the warrant holders of the Company's intent to exercise its
redemption rights with respect to the warrants not exercised on or before
June 28, 1996. As of June 14, 1996, 626,060 of the warrants had been
exercised with net proceeds to the Company totaling $3,129,300.
F-12
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
At completion of the Company's initial public offering, an underwriter
acquired a warrant to purchase up to 110,000 shares of common stock and
110,000 warrants, exercisable at a price equal to $5.525 per share of common
stock and $3.25 per warrant. The underwriters in a secondary public
offering by the Company received a warrant to purchase 168,500 shares of
common stock at $5.55 per share. Warrants issued to underwriters expire on
May 20, 1999. The Company also has issued to each of its two Boeing 737-300
aircraft lessors a warrant to purchase 100,000 shares of Common Stock at a
purchase price of $500,000 per warrant. In June 1996, the Company issued
two warrants to a Boeing 737-200 lessor to purchase 70,000 shares each of
common stock at an exercise price of $503,300 per warrant. Warrants issued
to aircraft lessors, to the extent not earlier exercised, expire upon
expiration of the aircraft leases in February 2000 and June 2001,
respectively.
(8) STOCK OPTION PLAN
The Company has a stock option plan whereby the Board of Directors may issue
options to purchase shares of the Company's common stock to employees,
officers, and directors of the Company.
Under the plan, the Company has reserved an aggregate of 1,750,000 shares of
common stock for issuance pursuant to the exercise of options. Options
issued through March 31, 1996 generally vest one year from the date of grant
and expire from March 9, 1999 to December 31, 2005.
Stock options transactions are summarized as follows:
Shares Option
under price
option range
--------- --------------
OUTSTANDING AT MARCH 31, 1994 1,527,813 $ 1.00 -- 1.10
Granted 127,187 2.50 -- 3.50
Canceled (3,750) 3.125
--------- --------------
OUTSTANDING AT MARCH 31, 1995 1,651,250 1.00 -- 3.50
Granted 80,000 3.50 -- 3.75
--------- --------------
OUTSTANDING AT MARCH 31, 1996 1,731,250 $ 1.00 -- 3.75
========= ==============
AT MARCH 31, 1996:
Options exercisable 1,671,250
=========
Available for future grant 18,750
=========
F-13
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(9) EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an Employee Stock Ownership Plan (ESOP) which
inures to the benefit of each permanent employee of the Company, except
those employees covered by a collective bargaining agreement that does not
provide for participation in the ESOP. Company contributions to the ESOP
are discretionary and vary from year to year. In order for an employee to
receive an allocation of company common stock from the ESOP that employee
must be employed on the last day of the ESOP's plan year, with certain
exceptions. The Company's annual contribution to the ESOP, if any, will be
allocated among the eligible employees of the Company as of the end of
each plan year in proportion to the relative compensation (as defined in
the ESOP) earned that plan year by each of the eligible employees. The
ESOP does not provide for contributions by participating employees.
Employees will vest in contributions made to the ESOP based upon their
years of service with the Company. A year of service is an ESOP plan year
during which an employee has at least 1,000 hours of service. Vesting
generally occurs at the rate of 20% per year, beginning after the first
year of service, so that a participating employee will be fully vested
after five years of service. Distributions from the ESOP will not be made
to employees during employment. However, upon termination of employment
with the Company, each employee will be entitled to receive the vested
portion of his or her account balance.
The initial Company contribution to the ESOP was made on June 22, 1995 and
consisted of 137,340 shares of Common Stock, of which 27,468 shares relate
to the plan year ended March 31, 1995 and 109,872 shares relate to the
period from April 1, 1995 to December 31, 1995. The Company recognized
compensation expense during the year ended March 31, 1996 of $721,000
related to its contribution to the ESOP.
(10) CONCENTRATION OF CREDIT RISK
The Company does not believe it is subject to any significant
concentration of credit risk relating to trade receivables. At March 31,
1996, over 91% of the Company's trade receivables relate to tickets sold
to individual passengers through the use of major credit cards, travel
agencies approved by the Airlines Reporting Corporation or tickets sold by
other airlines and used by passengers on Company flights. These
receivables are short-term, generally being settled shortly after sale or
in the month following ticket usage.
(11) COMMITMENTS AND CONTINGENCIES
The Company is party to legal proceedings and claims which arise during
the ordinary course of business. In the opinion of management, the
ultimate outcome of these matters will not have a material adverse effect
of the Company's financial position or results of operations.
F-14
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(12) SUBSEQUENT EVENTS
On April 16, 1996, the Company sold 678,733 shares of its common stock, no
par value, through a private placement to four institutional investors.
Gross proceeds to the Company from the transactions were $3,000,000, of
which the Company received net proceeds of $2,723,000.
Subsequent to March 31, 1996 and through June 14, 1996, the Company was
required to secure additional letter of credits totaling $2,087,000 in
connection with credit card and travel agent cash sales transactions,
thereby requiring an additional restriction on cash for the same amount.
As discussed in note 7, subsequent to March 31, 1996, the Company notified
the holders of 2,670,000 warrants to purchase the Company's common stock
of the Company's intent to redeem the warrants at $.05 per warrant unless
the warrants are exercised on or before June 28, 1996. As of June 14, 1996,
626,060 of the warrants had been exercised with net proceeds to the Company
of $3,129,300.
In May and June 1996 the Company entered into operating lease agreements to
lease two Boeing 737-200 aircraft with lease terms expiring in the year
2001. These two aircraft were delivered to the Company and placed in
scheduled service in June 1996. Lease deposits of $858,000 were paid by the
Company in connection with the two leased aircraft.
The Company has entered into an operating lease agreement to lease a new
Boeing 737-300 aircraft with delivery expected in April 1997. This lease is
for a period of eight years from date of delivery with three additional
renewal periods at the option of the Company. Between June 1996 and
February 1997, the Company is required to make security deposits with
respect to this aircraft totaling $726,250.
F-15
<PAGE>
AIRCRAFT LEASE AGREEMENT
Dated as of
October 20, 1995
between
GPA II LIMITED
as
Lessor
and
FRONTIER AIRLINES, INC.
as
Lessee
in respect of
Aircraft : Boeing 737-300
Serial No: 23177
Draft Number: 3
Date: 5/22/96
Ref No: LA4.DOC
Note: This Aircraft Lease Agreement has been executed in several
counterparts of which this is Counterpart No. [ ]. See Clause 16.15
hereof for information concerning the distinction between various
counterparts.
<PAGE>
INDEX
<TABLE>
<CAPTION>
CLAUSE PAGE
- ------ ----
<S> <C>
1. Interpretation....................................................... 1
1.1 Definitions................................................. 1
1.2 Construction................................................ 16
2. Representations and Warranties....................................... 16
2.1 Lessee's Representations and Warranties..................... 16
2.2 Lessee's Further Representations and Warranties............. 18
2.3 Repetition.................................................. 20
2.4 Lessor's Representations and Warranties..................... 20
3. Conditions Precedent................................................. 21
3.1 Conditions Precedent........................................ 21
3.2 Further conditions precedent................................ 23
3.3 Waiver...................................................... 24
4. Commencement......................................................... 25
4.1 Leasing..................................................... 25
4.2 Delivery.................................................... 25
4.3 Delayed Delivery............................................ 25
4.4 Licenses.................................................... 26
4.5 Inspection.................................................. 26
4.6 Indemnity................................................... 26
5. Payments............................................................. 26
5.1 Deposit..................................................... 26
5.2 Rental Periods.............................................. 27
5.3 Rent........................................................ 27
5.4 Maintenance Reserves........................................ 28
5.5 Payments.................................................... 29
5.6 Gross-up.................................................... 29
5.7 Taxation.................................................... 29
5.8 Value Added Tax............................................. 30
5.9 Information................................................. 30
5.10 Taxation of Indemnity Payments.............................. 30
5.11 Default Interest............................................ 31
5.12 Contest..................................................... 31
5.13 Net Lease................................................... 31
5.14 Security.................................................... 32
6. Manufacturer's Warranties............................................ 32
6.1 Assignment.................................................. 32
6.2 Proceeds.................................................... 33
6.3 Parts....................................................... 33
6.4 Agreement................................................... 33
7. Lessor's Covenants................................................... 33
7.1 Quiet Enjoyment............................................. 33
7.2 Release of Maintenance Reserves............................. 33
7.3 Lessor Obligations Following Expiry Date.................... 34
8. Lessee's Covenants................................................... 35
8.1 Duration.................................................... 35
8.2 Information................................................. 35
8.3 Lawful and Safe Operation................................... 36
</TABLE>
I
<PAGE>
<TABLE>
<S> <C>
8.4 Taxes and other Outgoings................................... 38
8.5 Sub-Leasing and Wet-Leasing................................. 38
8.6 Inspection.................................................. 39
8.7 Title....................................................... 39
8.8 General..................................................... 40
8.9 Records..................................................... 41
8.10 Protection.................................................. 41
8.11 Maintenance and Repair...................................... 42
8.12 Removal of Engines and Parts................................ 43
8.13 Installation of Engines and Parts........................... 43
8.14 Non-Installed Engines and Parts............................. 44
8.15 Pooling of Engines and Parts................................ 45
8.16 Equipment Changes........................................... 45
8.17 Title on an Equipment Change................................ 46
8.18 Third Party................................................. 46
9. Insurance............................................................ 46
9.1 Insurances.................................................. 46
9.2 Requirements................................................ 47
9.3 Change...................................................... 47
9.4 Insurance Covenants......................................... 47
9.5 Failure to Insure........................................... 48
9.6 Continuing Indemnity........................................ 48
9.7 Application of Insurance Proceeds........................... 49
10. Indemnity........................................................... 49
10.1 General..................................................... 49
10.2 Duration.................................................... 50
11. Events of Loss...................................................... 50
11.1 Events of Loss.............................................. 50
11.2 Substitute Aircraft......................................... 52
11.3 Requisition................................................. 52
12. Return of Aircraft.................................................. 53
12.1 Return...................................................... 53
12.2 Final Inspection............................................ 53
12.3 Non-Compliance.............................................. 53
12.4 Redelivery.................................................. 54
12.5 Acknowledgment.............................................. 54
12.6 Maintenance Program......................................... 54
12.7 Fuel........................................................ 54
13. Default............................................................. 54
13.1 Events...................................................... 54
13.2 Rights...................................................... 58
13.3 Deregistration.............................................. 62
14. Assignment.......................................................... 62
14.1 Lessee's Assignment......................................... 62
14.2 Lessor's Assignment......................................... 62
14.3 Transfer.................................................... 62
15. Illegality.......................................................... 63
15A Lease Amendment..................................................... 63
16. Miscellaneous....................................................... 63
16.1 Waivers, Remedies Cumulative................................ 63
16.2 Delegation.................................................. 63
</TABLE>
II
<PAGE>
<TABLE>
<S> <C>
16.3 Certificates............................................... 64
16.4 Appropriation.............................................. 64
16.5 Currency................................................... 64
16.6 Set-off.................................................... 64
16.7 Severability............................................... 64
16.8 Remedy..................................................... 65
16.9 Expenses................................................... 65
16.10 Time of Essence............................................ 65
16.11 Notices.................................................... 65
16.12 Governing Law and Jurisdiction............................. 67
16.13 Sole and Entire Agreement.................................. 69
16.14 Indemnities................................................ 69
16.15 Counterparts............................................... 69
16.16 Language................................................... 69
16.17 No Brokers................................................. 69
17. Disclaimers and Waivers............................................. 70
17.1 Exclusion.................................................. 70
17.2 Waiver..................................................... 71
17.3 Disclaimer of Consequential Damages........................ 71
17.4 Confirmation............................................... 71
18. Section 1110........................................................ 71
19. Usury Laws.......................................................... 71
20. Modification or Revision............................................ 72
21. Witness............................................................. 73
SCHEDULES.................................................................. 74
SCHEDULE 1. Description of Aircraft....................................... 74
SCHEDULE 2. Certificate of Acceptance..................................... 76
SCHEDULE 3. Operating Condition at Redelivery............................. 81
SCHEDULE 4. Insurances Requirements....................................... 85
SCHEDULE 5. Acknowledgments in Connection with Financing.................. 89
SCHEDULE 6. Form of Legal Opinion......................................... 92
SCHEDULE 7. Form of Aircraft Usage Report................................. 96
SCHEDULE 8. Lease Amendment............................................... 97
</TABLE>
III
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AGREEMENT is made as of the 20th day of October, 1995 between:-
(1) GPA II Limited, a company incorporated under the laws of Ireland whose
registered office is at GPA House, Shannon, Co. Clare, Ireland ("Lessor");
and
(2) Frontier Airlines, Inc., a company incorporated under the laws of the
State of Colorado whose registered office is at 12015 East 46th Avenue,
Denver, Colorado, 80239, United States of America ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease
from Lessor the Aircraft on the terms of this Agreement.
It is proposed that, at the Adjustment Date, the then existing financing
arrangements entered into in respect of the Aircraft will be changed and
that the security granted in favour of the Trustee on behalf of the Banks
will be released. The Lessor and the Lessee agree to amend and modify
this Agreement at the Adjustment Date to reflect this change.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
Adjustment Date a date which shall be determined by Lessor
and shall be notified by Lessor to Lessee
promptly following such determination.
After-Tax Basis in the case of any amount payable on an
"After-Tax Basis" to or for the benefit of
any Person (including any amount payable
pursuant to this definition) (a "Required
Payment"), the total amount that must be
paid is the amount such that, after
deduction of the net amount of all Taxes
required to be paid by such Person with
respect to the receipt or accrual by it of
such amount (and assuming that such Person
is subject to (i) United States Federal
income tax at the highest marginal statutory
rate imposed on corporations for the
relevant period, (ii) United States state
and local income taxes at the composite of
the highest
1
<PAGE>
marginal statutory rates imposed on such
Person for the relevant period, as such
composite rate shall be certified by a
financial officer of such Person, and (iii)
income taxes (if any) imposed by countries
outside the United States at the actual
rates imposed on such Person) the net amount
received is the amount of the Required
Payment.
Agreed Maintenance Performer the Lessee, Continental Airlines Inc., USAir
Inc., or any other person agreed to from
time to time in writing by Lessor.
Agreed Maintenance Program the Maintenance Program agreed to from time
to time in writing by Lessor.
Agreed Value $22,000,000, or such other amount as Lessor
may require from time to time provided such
other amount does not exceed 115% of the
fair market value of the Aircraft.
Air Authority the Department of Transport, Energy and
Communications of Ireland or any successor
thereto..
Aircraft the aircraft described in Part 1 of Schedule
1, (which term includes where the context
admits a separate reference to all Engines,
Parts and Aircraft Documents) or any
aircraft substituted in place thereof
pursuant to Clause 11.1 or 11.2.
Aircraft Documents the documents, data and records identified
in Part 2 of Schedule 1 and all additions,
renewals, revisions and replacements from
time to time made in accordance with this
Agreement.
Airframe the Aircraft, excluding the Engines and
Aircraft Documents.
Appraisal Procedure the following procedure for determining the
"fair market rental value" of the Aircraft:
(a) Lessor shall select an independent
aircraft
2
<PAGE>
appraiser who shall make a determination of
"fair market rental value" of the Aircraft;
and (b) the fees and expenses of the
appraiser shall be paid by Lessee. "Fair
market rental value" shall mean the value
determined by an appraisal completed on an
"as-is" and "where-is" basis.
APU the auxiliary power unit installed on the
Aircraft on the Delivery Date and any
replacement auxiliary power unit installed
in accordance with this Agreement.
Assignments each of Owner Assignment and Trustee
Assignment.
Banks such financial institution(s) which from
time to time finance the Aircraft for Owner
and/or for whose benefit security over, or
rights relating to, the Aircraft and/or this
Agreement is granted by Owner or at its
request.
Boeing The Boeing Company, a Delaware corporation
with its principal office in Seattle, State
of Washington, U.S.A.
Business Day a day (other than a Saturday or Sunday) on
which business of the nature required by
this Agreement is carried out in Ireland and
the State of Incorporation or where used in
relation to payments on which banks are open
for business in London and New York.
Certificated Air Carrier any Person (except the United States
Government) that is a citizen of the United
States of America (as defined in Section
40102 of Title 49 of the United States Code)
and holding a Certificate of Public
Convenience and Necessity issued under
Section 41102 of Title 49 of the United
States Code by the Department of
Transportation or any predecessor or
successor agency thereto, or, in the event
3
<PAGE>
such certificates shall no longer be issued,
any Person (except the United States
Government) that is a citizen of the United
States of America (as defined in Section
40102 of Title 49 of the United States Code)
and legally engaged in the business of
transporting for hire passengers or cargo by
air predominantly to, from or between points
within the United States of America, and, in
either event, operating commercial jet
aircraft capable of carrying ten or more
individuals or 6,000 pounds or more of
cargo, which also is certificated so as to
entitle Lessor, as a lessor, to the benefits
of Section 1110 of Title 11 of the United
States Code with respect to the Aircraft.
Cold Section Refurbishment with respect to any Engine the completion of
the following: completely unstacking either
the high or low or both compressor sections,
if needed, and completing the following for
the appropriate section(s): visual
inspection; de-blading discs as necessary;
visual inspections of all discs;
verification that all snap diameters on
discs are within limits; inspection of all
blades for proper chord dimensions and
cracking; repair or replacement of blades
below minimums; inspection and repair of
stators as necessary; blade-up of discs
using new lock plates; assembly of rotors in
the compressor; balance of all rotors; and
installation of rotors in the engine.
Cycle one take-off and landing of the Aircraft.
Damage Notification Threshold $250,000.
Default any Event of Default and any event which
with the giving of notice, lapse of time,
determination of materiality or fulfillment
of other condition would constitute an Event
of Default.
Delivery Condition
4
<PAGE>
Requirements the requirements specified on Part 1 of
Schedule 1.
Delivery Date the date on which the Aircraft is tendered
for delivery by Lessor in accordance with
this Agreement.
Delivery Location Shannon, Ireland or such other location as
may be nominated by Lessor.
Deposit all amounts payable pursuant to Clause 5.1.
Dollars and $ the lawful currency of the United States of
America.
Engine whether or not installed on the Aircraft:-
(a) each engine of the manufacture and model
specified in Part 1 of Schedule 1 (each
of which has 750 or more rated takeoff
horsepower or the equivalent of such
horsepower) which Lessor elects to
tender to Lessee with the Aircraft on
the Delivery Date, such engines being
described as to serial numbers on the
certificate of acceptance to be executed
by Lessee upon delivery of the Aircraft;
or
(b) any engine which has replaced that
engine, title to which has or should
have, passed to Owner in accordance with
this Agreement;
and in each case includes all modules and
Parts from time to time belonging to or
installed in that engine but excludes any
properly replaced engine title to which has,
or should have, passed to Lessee pursuant to
this Agreement.
Engine Event of Loss the occurrence with respect to an Engine
only, whether or not installed on the
Airframe, of any of those events described
in provisions (a) through (d) of the
definition of Event of Loss.
5
<PAGE>
ERISA the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default an event or condition specified in Clause
13.1.
Event of Loss with respect to the Aircraft (including for
the purposes of this definition the
Airframe):-
(a) the actual or constructive total loss
of the Aircraft (including any damage
to the Aircraft which results in an
insurance settlement on the basis of a
total loss, or requisition for use or
hire which results in an insurance
settlement on the basis of a total
loss); or
(b) it being destroyed, damaged beyond
repair or permanently rendered unfit
for normal use for any reason
whatsoever; or
(c) the requisition of title, or other
compulsory acquisition, capture,
seizure, deprivation, confiscation or
detention for any reason of the
Aircraft by the government of the State
of Registration or other competent
authority (whether de jure or de
facto), but excluding requisition for
use or hire not involving requisition
of title; or
(d) the hi-jacking, theft, condemnation,
confiscation, seizure or requisition
for use or hire of the Aircraft which
deprives any person permitted by this
Agreement to have possession and/or use
of the Aircraft of its possession
and/or use for more than 15 days (or,
if earlier, beyond the Expiry Date).
Excusable Delay with respect to delivery of the Aircraft,
delay or non-performance due to or arising
out of acts of God or public enemy, civil
war,
6
<PAGE>
insurrection or riot, fire, flood,
explosion, earthquake, accident, epidemic,
quarantine restriction, any act of
government, governmental priority,
allocation, regulation or order affecting
directly or indirectly, the Aircraft, any
manufacturer, Lessor or any materials or
facilities, strike or labor dispute causing
cessation, slowdown or interruption of work,
inability after due and timely diligence to
procure equipment, data or materials from
manufacturers, suppliers, any existing
owner, seller or lessee in a timely manner,
damage, destruction or loss, or any other
cause to the extent that such cause is
beyond the control of Lessor whether above
mentioned or not and whether or not similar
to the foregoing.
Expiry Date the day preceding the numerically
corresponding day 52 months after the
Delivery Date or if earlier the date on
which:-
(a) the date Lessor, acting in accordance
with the terms of this Agreement
terminates the leasing of the Aircraft
to Lessee under this Agreement; or
(b) Lessor receives the Agreed Value
together with any other amounts then
due and unpaid by Lessee following an
Event of Loss.
FAA the Federal Aviation Administration of the
United States of America and any successor
thereof.
FAR the Federal Aviation Regulations set forth
in Title 14 of the United States Code of
Federal Regulations, as amended and modified
from time to time.
Federal Aviation Act The Transportation Laws of the United States
as set forth at 49 United States Code et
--
seq. or any similar legislation of the
---
United
7
<PAGE>
States of America enacted in substitution or
replacement thereof.
Financing Statements Uniform Commercial Code Financing Statements
in respect of the Aircraft and Engines
leased hereunder prepared in a form
acceptable for filing with the applicable
Government Entities in the Habitual Base,
the state in which the chief executive
office (as that term is defined in Article 9
of the Uniform Commercial Code as in effect
in the Habitual Base) and such other
jurisdiction as Lessor shall reasonably
require.
Flight Hour each hour or part thereof (rounded up to two
decimal places) elapsing from the moment the
wheels of the Aircraft leave the ground on
take off until the wheels of the Aircraft
next touch the ground.
GAAP generally accepted accounting principles in
the United States.
Governing Law the laws of the State of California.
Government Entity (a) any national government, political
subdivision thereof, or local
jurisdiction therein;
(b) any instrumentality, board, commission,
court, or agency of any thereof,
however constituted; and
(c) any association, organization, or
institution of which any of the above
is a member or to whose jurisdiction
any thereof is subject or in whose
activities any of the above is a
participant.
Gross Negligence means any intentional, conscious or
voluntary action or decision which is taken
with wanton, reckless, flagrant and culpable
disregard for the consequences of such
action or decision.
8
<PAGE>
Habitual Base the State of Colorado or, subject to the
prior written consent of Lessor, any other
state, country or countries in which the
Aircraft is for the time being habitually
based.
Head Lease the aircraft lease agreement between Owner
and Lessor in respect of the Aircraft.
Hot Section Refurbishment with respect to any Engine, the complete
visual inspection and repair as necessary of
the combustion section of an Engine in an
engine repair/overhaul station including
without limitation complete unstacking of
the high pressure or low pressure turbine or
both if needed; complete visual inspection;
de-blading of discs as required; visual
inspections of all discs; verification that
all snap diameters on discs are within
limits; inspection of all blades for proper
chord dimensions and cracking; repair or
replacement of all blades below minimums;
inspection and repair of stators as
necessary; blade-up of discs using new lock
plates; assembly of rotors in the turbine;
balance of all rotors; and installation of
rotors in the engine.
Indemnitee each of GE Capital Aviation Services, Inc.
("GECASI"), GE Capital Aviation Services
Limited ("GECASL"), Owner, Lessor, Security
Agent, Trustee and Banks including, any of
their respective successors and assigns,
shareholders, subsidiaries, affiliates,
partners, contractors, directors, officers,
servants, agents and employees and
indemnitees; provided, however, that no such
Indemnitee shall be entitled to an
indemnification to the extent such
Indemnitee is manufacturer of the Aircraft,
any Engines, or Parts in its capacity as
such.
Insurances as defined in Clause 9.1 hereof.
Landing Gear the landing gear assembly of the Aircraft
excluding any rotable components.
9
<PAGE>
Law shall mean and include (a) any statute,
decree, constitution, regulation, order
judgment or other directive of any
Governmental Entity; (b) any treaty, pact,
compact or other agreement to which any
Governmental Entity is a signatory or party;
(c) any judicial or administrative
interpretation or application of any Law
described in (a) or (b) above; and (d) any
amendment or revision of any Law described
in (a), (b) or (c) above.
Lessor Lien (a) Owner Assignment, Trustee Assignment
and any Security Interest whatsoever
from time to time created by or through
Owner or Lessor in connection with the
financing of the Aircraft;
(b) any other Security Interest in respect
of the Aircraft which results from acts
of or claims against Lessor or Owner
not related to the transactions
contemplated by or permitted under this
Agreement; and
(c) Security Interests in respect of the
Aircraft for Lessor Taxes.
Lessor Taxes Taxes:-
(a) imposed as a direct result of
activities of Lessor or Owner in the
jurisdiction imposing the liability
unrelated to Lessor's dealings with
Lessee or to the transactions
contemplated by this Agreement or the
operation of the Aircraft by Lessee; or
(b) imposed on the income, profits or gains
of Lessor or Owner by any Government
Entity in Ireland; or
(c) imposed with respect to any period
commencing or event occurring after the
Expiry Date and unrelated to
10
<PAGE>
Lessor's dealings with Lessee or to the
transactions contemplated by this
Agreement.
Maintenance Program an Air Authority approved maintenance
program for the Aircraft encompassing
scheduled maintenance (including block
maintenance), condition monitored
maintenance, and/or on-condition maintenance
of Airframe, Engines and Parts, including
but not limited to, servicing, testing,
preventive maintenance, repairs, structural
inspections, system checks, overhauls,
approved modifications, service bulletins,
engineering orders, Airworthiness
directives, corrosion control, inspections
and treatments.
Maintenance Reserves all amounts payable under Clause 5.4(a).
Major Checks any C-Check, multiple C-Check, D-Check or
annual heavy maintenance visit or segment
thereof suggested for commercial aircraft of
the same model as the Aircraft by its
manufacturer (however denominated) as set
out in the Agreed Maintenance Program.
Manufacturer Boeing.
Minimum Liability Coverage $500,000,000 on each occurrence.
Mortgage Convention shall mean the Convention for the
International Recognition of Rights in
Aircraft, signed (ad referendum) at Geneva,
Switzerland, on June 19, 1948, and amended
from time to time, but excluding the terms
of any adhesion thereto or ratification
thereof containing reservations to which
Ireland does not accede.
Operative Documents shall mean this Agreement, any schedules or
documents prepared in conformance to the
Schedules hereto, any side-letters related
hereto and any amendments, revisions,
supplements or modifications hereto or
thereto.
11
<PAGE>
Other Agreements any agreement (other than this Agreement)
made or to be made between Lessor (or an
associate or affiliate thereof) or General
Electric Capital Corporation (or an
associate or affiliate thereof) and Lessee
(or an associate or affiliate thereof).
Owner GPA Finance (Bermuda) Limited, a company
incorporated under the laws of Bermuda whose
registered office is at Cedar House, 41
Cedar Avenue, Hamilton HM 12, Bermuda.
Owner Assignment any present or future assignment in favor of
Owner of Lessor's rights under this
Agreement created by Lessor as security for
its obligations under the Head Lease and any
present or future assignment in favor of the
Banks of Owner's rights in respect thereof
as security for its obligations.
Part whether or not installed on the Aircraft:-
(a) any component, furnishing or equipment
(other than a complete Engine)
furnished with the Aircraft on the
Delivery Date; and
(b) any other component, furnishing or
equipment (other than a complete
Engine) title to which has, or should
have passed to Owner pursuant to this
Agreement;
but excludes any such items title to
which has, or should have, passed to
Lessee pursuant to this Agreement.
Permitted Lien (a) any lien for Taxes not assessed or, if
assessed, not yet due and payable, or
being contested in good faith by
appropriate proceedings;
(b) any lien of a repairer, mechanic,
carrier, hangarkeeper or other similar
lien arising in the ordinary course of
12
<PAGE>
business or by operation of Law in
respect of obligations which are not
overdue or are being contested in good
faith by appropriate proceedings; and
(c) any Lessor Lien.
but only if (in the case of both (a) and
(b)) (i) adequate resources have been
provided by Lessee for the payment of the
Taxes or obligations; and (ii) such
proceedings, or the continued existence of
the lien, do not give rise to any likelihood
of the sale, forfeiture or other loss of the
Aircraft or any interest therein or of
criminal liability on Owner, Lessor, Trustee
or any Bank.
Person any individual person, corporation,
partnership, firm, joint stock company,
joint venture, trust, estate, unincorporated
organization, association, Government
Entity, or organization or association of
which any of the above is a member or a
participant.
Redelivery Location Shannon International Airport, Ireland or
such other location as Lessor and Lessee
shall agree.
Previous Operator Markair, Inc.
Replacement Engine an engine of the same manufacturer and
model, and having equivalent value, utility,
modification status, time elapsed since Hot
Section Refurbishment and Cold Section
Refurbishment and remaining warranty status
as the Engine it is intended to replace
under Clause 11.1(c), or at Lessee's option,
an engine of the same manufacturer as such
Engine but of an improved model, and
otherwise of an equivalent value and utility
and suitable for installation and use on the
Airframe without impairing the value or
utility of the Airframe and compatible with
the remaining installed Engine.
13
<PAGE>
Rent all amounts payable pursuant to Clause 5.3.
Rental Period each period ascertained in accordance with
Clause 5.2.
Rent Date the first day of each Rental Period.
Return Occasion the date on which the Aircraft is
redelivered to Lessor in accordance with
Clause 12 hereof.
Scheduled Delivery Month October, 1995.
Security Agent National Westminster Bank plc, GSI
Aerospace, NWM Agency Group, 3rd Floor, Juno
Court, 24 Prescot Street, London EI 8BB
England and/or such other institution or
institutions as Lessor may from time to time
advise Lessee.
Security Interest any mortgage, charge, pledge, lien,
assignment, hypothecation, right of set-off
or any agreement or arrangement having the
effect of creating a Security Interest other
than a Permitted Lien.
State of Incorporation State of Colorado.
State of Registration Ireland.
Subsidiary (a) in relation to any reference to
accounts, any company whose accounts
are consolidated with the accounts of
Lessee in accordance with GAAP;
(b) for any other purpose an entity from
time to time:-
(i) of which another has direct or
indirect control or owns directly
or indirectly more than 50 per
cent of the voting share capital;
or
(ii) which is a direct or indirect
subsidiary of another under
14
<PAGE>
the laws of the jurisdiction of
its incorporation.
Taxes any and all present and future taxes,
duties, withholdings, levies, assessments,
imposts, fees and other governmental charges
of all kinds together with any penalties,
fines, surcharges and interest thereon and
any additions thereto.
Term the period commencing on the Delivery Date
and ending on the Expiry Date, except that
the Term may be extended beyond the Expiry
Date if the Return Occasion is delayed in
the circumstances specified, and subject to
the limitation described, in Clause 12.3.
Trustee NatWest Aerospace Trust Company Limited of
NWM Agency, 3rd Floor, Juno Court, 24
Prescot Street, London, EI 8BB England
and/or such other institution or
institutions as Lessor shall from time to
time advise Lessee.
Trustee Assignment such assignment in favor of Trustee on
behalf of the Banks of Lessor's rights in
respect of the Insurances as may from time
to time be created by Lessor.
United States the United States of America.
Warrant the warrant referred to in Clause
3.1(a)(xi).
Wet Lease any arrangement whereby Lessee agrees to
furnish the Aircraft to a third party
pursuant to which the Aircraft (i) shall be
solely within the operational control of
Lessee and shall be operated solely by
regular employees of Lessee possessing all
current certificates and licenses that would
be required under the Federal Aviation Act
for the performance by such employees of
similar functions within the United States
of America, (ii) shall be maintained by
Lessee in accordance with the Agreed
Maintenance Program and (iii) shall
15
<PAGE>
be and remain subject and subordinate to all
other terms and conditions of this
Agreement; provided, however, that Lessee
shall remain primarily liable for the
performance of all of the terms of this
Agreement (including, without limitation,
its obligations set forth in Clause 9 of
this Agreement) to the same extent as if
such arrangement had not been entered into.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a reference
to:-
(i) each of "Lessor" or "Lessee" or any other person includes without
prejudice to the provisions of this Agreement any successor in
title to it and any permitted assignee;
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated or
supplemented;
(iv) a Clause or a Schedule is a reference to a clause of or a schedule
to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and warrants to
Lessor that:-
(a) Status: Lessee is a corporation duly incorporated and validly existing
under the laws of the State of Incorporation and has the corporate power
to own its assets and carry on its business as it is being conducted and
is the holder of all necessary air transportation licenses required in
connection therewith and with the use and operation of the Aircraft;
(b) Power and authority: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) Legal validity: this Agreement has been duly entered into and delivered by
Lessee, and this Agreement does, and the Operative Documents when executed
and delivered by Lessee will, constitute legal, valid and binding
obligations of Lessee, enforceable in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting the
16
<PAGE>
enforcement of creditors' rights generally, and, to the extent that
certain remedies require or may require enforcement by a court of equity,
by such principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) as a court having
jurisdiction may impose and by Laws which may affect some of such remedies
by which do not make the available remedies inadequate for the substantial
realization of the benefits provided herein;
(d) Non-conflict: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding
upon Lessee or any of its assets nor result in the creation of any
Security Interest over any of its assets;
(e) Authorization: all authorizations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are (or
will on their being obtained or effected be) in full force and effect;
(f) No Immunity:
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of this Agreement by
Lessee constitute private and commercial acts;
(g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries
most recently delivered to Lessor, including balance sheets and statements
of income and retained earnings:-
(i) have been prepared in accordance with GAAP; and
(ii) fairly represent the consolidated financial condition of Lessee and
its Subsidiaries as at the date to which they were drawn up;
(h) Restricted Countries: Lessee does not hold a contract or other obligation
to operate the Aircraft to or for any of the countries designated under
U.S. Code of Federal Regulations 31 CFR Chapter V including, without
limitation, Cuba, Iraq, Iran, Libya,
17
<PAGE>
North Korea, the Federal Republic of Yugoslavia (Serbia and Montenegro)
and the Unita Rebels of Angola.
(i) Chief Executive's Office: Lessee's Chief Executive Office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in the
State of Colorado) is located at 12015 East 46th Avenue, Denver, Colorado,
United States of America;
(j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits
of Section 1110 of Title 11 of the United States Code with respect to the
Aircraft; and
(j) Citizen of the United States: Lessee is a "citizen of the United States"
as defined in Section 40102 of Title 49 of the United States Code.
2.2 Lessee's Further Representations and Warranties: Lessee further represents
and warrants to Lessor that:-
(a) No Default:
(i) no Default has occurred and is continuing or might result from the
entry into or performance of the Operative Documents; and
(ii) no other event or condition has occurred and is continuing which
constitutes (or with the giving of notice, lapse of time,
determination of materiality or the fulfillment of any other
applicable condition or any combination of the foregoing, might
constitute) a material default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding on
Lessee or any assets of Lessee;
(b) Registration:
(i) except for the filing of any Financing Statements (and continuation
statements at periodic intervals), it is not necessary or advisable
under the laws of the State of Incorporation, the State of
Registration or the Habitual Base in order to ensure the validity,
effectiveness and enforceability of this Agreement or the
Assignments or to, establish, perfect or protect the property rights
of Lessor, Owner or Trustee in the Aircraft or any Engine or Part
that this Agreement or any other instrument relating thereto be
filed, registered or recorded or that any other action be taken or
if any such filings, registrations, recordings or other actions are
necessary or advisable, the same have been effected or will have
been effected on or before the Delivery Date; and
(ii) under the laws of the State of Incorporation, the State of
Registration and the Habitual Base the property rights of Lessor,
Owner and Trustee in the Aircraft have been fully established,
perfected and protected and this Agreement will have priority in all
respects over the claims of all creditors of Lessee;
18
<PAGE>
(c) Litigation: no litigation, arbitration or administrative proceedings are
pending or to its knowledge threatened against Lessee which, if adversely
determined, would have a material adverse effect upon its financial
condition or business or its ability to perform its obligations under this
Agreement;
(d) Pari Passu: the obligations of Lessee under the Operative Documents rank
at least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of Lessee,
with the exception of such obligations as are mandatorily preferred by law
and not by virtue of any contract;
(e) Material Adverse Change: there has been no material adverse change in the
consolidated financial condition of Lessee and its Subsidiaries or the
financial condition of Lessee since the date to which the accounts most
recently provided to Lessor on or prior to the Delivery Date were drawn
up;
(f) Taxes: Lessee has delivered all necessary returns and payments due to the
tax authorities in the State of Incorporation, the United States, the
State of Registration and the Habitual Base and is not required by Law to
deduct any Taxes from any payments under this Agreement;
(g) Information: the financial and other information furnished by Lessee in
connection with this Agreement does not contain any untrue statement or
omit to state facts, the omission of which makes the statements therein,
in the light of the circumstances under which they were made, misleading,
nor omits to disclose any material matter to Lessor and all forecasts and
opinions contained therein were honestly made on reasonable grounds after
due and careful inquiry by Lessee;
(h) ERISA: Lessee is not engaged in any transaction in connection with which
it could be subjected to either a civil penalty assessed pursuant to
Section 502 of ERISA or any tax imposed by Section 4975 of the Internal
Revenue Code; no material liability to the Pension Benefit Guaranty
Corporation has been or is expected by Lessee to be incurred with respect
to any employee pension benefit plan (as defined in Section 3 of ERISA)
maintained by Lessee or by any trade or business (whether or not
incorporated) which together with Lessee would be treated as a single
employer under Section 4001 of ERISA and Section 414 of the Internal
Revenue Code; there has been no reportable event (as defined in Section
4043(b) of ERISA) with respect to any such employee pension benefit plan;
no notice of intent to terminate any such employee pension benefit plan
has been filed or is expected to be filed, nor has any such employee
pension benefit been terminated; no circumstance exists or is anticipated
that constitutes or would constitute grounds under Section 4042 of ERISA
for the Pension Benefit Guaranty Corporation to institute proceedings to
terminate, or to appoint a trustee to manage the administration of, such
an employee pension benefit plan; and no accumulated funding deficiency
(as defined in Section 302 of ERISA or Section 412 of the Internal Revenue
Code), whether or not waived, exists with respect to any such employee
pension benefit plan; and
19
<PAGE>
(i) Equity Share Capital: Lessee has raised the additional equity share
capital (as contemplated in Form SB-2 Registration Statement filed by
Lessee on July 20, 1995 with the Securities Exchange Commission, as
amended, a copy of which was furnished to Lessor by Lessee prior to the
date of this Agreement) as evidenced by the Form 8-K dated September 22,
1995 filed by Lessee with the Securities Exchange Commission, a copy of
which was furnished to Lessor by Lessee prior to the date of this
Agreement.
2.3 Repetition: The representations and warranties in Clause 2.1 and Clause
2.2 will survive the execution of this Agreement. The representations and
warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be
repeated by Lessee on the Delivery Date with reference to the facts and
circumstances then existing. The representations and warranties contained
in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as
if made with reference to the facts and circumstances then existing.
2.4 Lessor's Representations and Warranties: Lessor represents and warrants to
Lessee that:-
(a) Status: Lessor is a company duly incorporated and validly existing under
the laws of Ireland and has the corporate power to own its assets and
carry on its business as it is now being conducted;
(b) Power and authority: Lessor has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, the Operative Documents and the
transactions contemplated by the Operative Documents;
(c) Legal validity: the Operative Documents constitute Lessor's legal, valid
and binding obligation;
(d) Non-conflict: the entry into and performance by Lessor of, and the
transactions contemplated by, the Operative Documents do not and will
not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any of
its assets;
(e) Authorization: so far as concerns the obligations of Lessor, all
authorizations, consents, registrations and notifications required under
the laws of Ireland in connection with the entry into, performance,
validity and enforceability of, and the transactions contemplated by, the
Operative Documents by Lessor have been (or will on or before the Delivery
Date have been) obtained or effected (as appropriate) and are (or will on
their being obtained or effected be) in full force and effect; and
(f) No Immunity:
20
<PAGE>
(i) Lessor is subject to civil commercial law with respect to its
obligations under the Operative Documents; and
(ii) neither Lessor nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Operative
Documents by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 Conditions Precedent: Lessor's obligation to deliver and lease the
Aircraft under this Agreement is subject to satisfaction of each of the
following conditions:-
(a) receipt by Lessor from Lessee not later than 5 Business Days prior to the
Delivery Date of the following satisfactory in form and substance to
Lessor:-
(i) Constitutional Documents: a copy of the constitutional documents of
Lessee including without limitation articles of incorporation,
bylaws and a current certificate of good standing issued by the
secretary of the state for the State of Incorporation;
(ii) Resolutions: a copy of a resolution of the board of directors of
Lessee approving the terms of, and the transactions contemplated by,
this Agreement, resolving that it enter into this Agreement, and
authorizing a specified person or persons to execute this Agreement
and accept delivery of the Aircraft on its behalf;
(iii) Opinion: evidence that opinions substantially in the form of
Schedule 6 will be issued on the Delivery Date by legal counsel
acceptable to Lessor;
(iv) Approvals: evidence of the issue of each approval, license and
consent which may be required in relation to, or in connection with,
the remittance to Lessor in Dollars of all amounts payable under
this Agreement or the performance by Lessee of any of its
obligations hereunder (including, without limitation, any consent to
the export of the Aircraft from the Habitual Base and consent to the
deregistration of the Aircraft upon the termination of the leasing
of the Aircraft under this Agreement);
(v) Import: evidence that any required import license, and all customs
formalities, relating to the import of the Aircraft into the
Habitual Base have been obtained or complied with, and that the
import of the Aircraft into the Habitual Base is exempt from Taxes;
(vi) Licenses: copies of Lessee's Certificate of Convenience and
Necessity, Radio License, FAR Part 121 operator's certificates and
all other licenses, certificates and permits required by Lessee in
relation to, or in connection with, the operation of the Aircraft;
21
<PAGE>
(vii) Process Agent: a letter from the process agent appointed by Lessee
in this Agreement accepting that appointment;
(viii) Certificate: a certificate of a duly authorized officer of Lessee:-
(a) setting out a specimen of each signature referred to in
Clause 3.1(a)(ii);
(b) certifying that each copy document specified in this Clause
is correct, complete and in full force and effect;
(c) certifying that Lessee's representations and warranties
contained in Clause 2.1 and 2.2 are true and correct on the
Delivery Date as if given on such date; and
(d) certifying that there has been no material change in Lessee's
Constitutional Documents since originally delivered by Lessee
to Lessor.
(ix) Air Traffic Control: a letter from Lessee addressed to Transport
Canada or other relevant air traffic control authority pursuant to
which Lessee authorizes the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of all
sums due by Lessee to the authority in respect of all aircraft
(including, without limitation, the Aircraft) operated by Lessee;
(x) Deregistration Power: an irrevocable power of attorney authorizing
Lessor or such other person as Lessor may from time to time specify
to do any thing or act or to give any consent or approval which may
be required to obtain deregistration of the Aircraft and to export
the Aircraft from the Habitual Base upon termination of the leasing
of the Aircraft under this Agreement, duly notarized and legalized;
(xi) Warrant: evidence of the grant by Lessee to Lessor of a warrant
entitling Lessor to purchase 100,000 shares of Lessee's common stock
no par value at an aggregate purchase price for all such shares of
$500,000, such shares carrying demand registration rights by Lessor
and such other rights as Lessor may require. It is understood and
acknowledged that upon delivery of the Aircraft, such warrant shall
be deemed solely as additional consideration to induce Lessor to
deliver the Aircraft to Lessee and shall then and thereafter cease
to have any attribute or character of a security or other deposit;
(xii) Equity Share Capital: evidence that the Lessee has raised on terms
and conditions acceptable to Lessor the additional equity share
capital as contemplated in its form SB-2 Registration Statement
filed on July 20, 1995 with the Securities Exchange Commission, as
amended, a copy of which was furnished to Lessor by Lessee prior to
the date of this Agreement; and
22
<PAGE>
(xiii)General: such other documents as Lessor may reasonably request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) Opinions: a signed original of each of the opinions referred to in
Clause 3.1(a)(iii);
(ii) Payments: all sums due to Lessor under this Agreement on or before
the Delivery Date including, without limitation, the first payment
of Rent;
(iii) Insurances: certificates of insurance, an undertaking from Lessee's
insurance broker and other evidence satisfactory to Lessor that
Lessee is taking the required steps to ensure due compliance with
the provisions of this Agreement as to Insurances with effect on and
after the Delivery Date;
(iv) Acknowledgment: an acknowledgment in the form set out in Part 2 of
Schedule 5 relating to the notice of assignment set out in Part 1 of
that Schedule;
(v) Accounts: the latest available accounts of Lessee as described in
Clause 8.2(b)(i) and (ii);
(vi) Documents: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Delivery Date;
(vii) General: such other documents as Lessor may reasonably request;
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Program as Lessor may require and Lessor having
agreed the proposed Maintenance Program on or prior to the Delivery Date;
(d) evidence that on the Delivery Date the Aircraft has been validly
registered under the laws of the State of Registration and that all
filings, registrations, recordings and other actions have been or will be
taken which are necessary or advisable to ensure the validity,
effectiveness and enforceability of this Agreement and the Assignments and
to protect the property rights of Lessor, Owner and Trustee in the
Aircraft or any Part; and
(e) evidence that on the Delivery Date the Air Authority shall have accepted
delegation of surveillance of the Aircraft by the Irish Department of
Transport.
3.2 Further conditions precedent: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are
correct and would be correct if repeated on delivery of the Aircraft under
this Agreement; and
23
<PAGE>
(b) no Default has occurred and is continuing or might result from the leasing
of the Aircraft to Lessee under this Agreement.
3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole
benefit of Lessor and may be waived or deferred in whole or in part and
with or without conditions by Lessor. If any of those conditions are not
satisfied on the Delivery Date and Lessor (in its absolute discretion)
nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure
that those conditions are fulfilled within 15 days after the Delivery Date
and Lessor may treat as an Event of Default the failure of Lessee to do
so.
24
<PAGE>
4. COMMENCEMENT
4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the
Aircraft on lease in accordance with this Agreement for the duration of
the Term. Lessor will deliver and Lessee will accept the Aircraft on the
day in the Scheduled Delivery Month notified by Lessor to Lessee at least
5 Business Days in advance of such date or such other day as may be
agreed. In the event (a) Lessee is unwilling or unable to accept delivery
of the Aircraft on the date notified by Lessor as the Delivery Date, and
(b) the Aircraft meets Delivery Condition Requirements then Lessee's
obligation to pay Rent hereunder shall commence on such Delivery Date
notwithstanding that Lessee has not accepted possession of the Aircraft.
After delivery the Aircraft and every Part will be in every respect at the
sole risk of Lessee, who will bear all risk of loss, theft, damage or
destruction to the Aircraft from any cause whatsoever.
4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the
Delivery Location or such other location as may be agreed. Lessee will
effect acceptance of the Aircraft by execution and delivery to Lessor of
the duly completed and executed Certificate of Acceptance in the form of
Schedule 2.
4.3 Delayed Delivery: If owing to:-
(a) any seller, manufacturer or existing lessee of the Aircraft delaying in
the delivery of, or failing to deliver, the Aircraft to Lessor for any
reason (other than because of any default of Lessor in the performance of
its obligations under an agreement with that seller, manufacturer or
lessee unless the default arises from any act or omission of Lessee)
whether or not in circumstances entitling that seller, manufacturer or
lessee to terminate that agreement;
(b) any purchase agreement for the Aircraft terminating prior to delivery of
the Aircraft (other than because of any default of Lessor in the
performance of its obligations under that agreement unless the default
arises from any act or omission of Lessee);
(c) any Excusable Delay; or
(d) notification of any defect or non-conformity pursuant to Clause 4.5;
Lessor delays in the delivery of, or fails to deliver, the Aircraft under
this Agreement:-
(i) Lessor will not be responsible for any losses, including loss of
profit, costs or expenses arising from or in connection with the
delay or failure suffered or incurred by Lessee;
(ii) subject to Clause 4.5, Lessee will not be entitled to terminate this
Agreement or to reject the Aircraft when tendered for delivery by
Lessor, on the grounds of any such delay;
25
<PAGE>
(iii) in the case of termination of a purchase agreement, Lessor may at
any time after the termination terminate this Agreement; and
(iv) upon any such termination or termination pursuant to Clause 4.5
neither Lessor nor Lessee will have any further obligation to the
other under this Agreement other than as expressly set out in this
Agreement, except that Lessor will repay to Lessee the Deposit and
shall return the warrant certificate representing the Warrant.
4.4 Licenses: Lessee will at its expense obtain all licenses, permits and
approvals which may be necessary to export the Aircraft from the Delivery
Location. Lessor will furnish such data and information as may be
reasonably requested by Lessee in connection with obtaining any such
license, permit or approval.
4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase
or lease agreement, Lessor will give Lessee an opportunity:-
(a) to inspect the Aircraft at the Delivery Location; and
(b) to assign up to 2 representatives to participate as observers in a
demonstration flight to demonstrate the condition of the Aircraft.
If Lessee notifies Lessor promptly prior to the Delivery Date of any
defect or non-conformity with Schedule 1 observed during the inspection or
demonstration flight, Lessor will correct or procure the correction of the
defect or non-conformity as promptly as practicable (except to the extent
otherwise agreed or to the extent in the opinion of Lessor it is
impracticable or prohibitively expensive to do so). Subject to Clause
4.3, Lessor may postpone the Delivery Date in such a case to the date
which Lessor notifies Lessee that the defect or non-conformity has been
rectified. Lessee will be entitled to terminate this Agreement if Lessor
notifies it that Lessor does not intend to correct the defect or non-
conformity.
4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from
and against all Claims (as defined in Clause 10) arising from death or
injury to any observer or any employee of Lessee in connection with any
demonstration flight or inspection of the Aircraft by Lessee.
5. PAYMENTS
5.1 Deposit: Lessee shall pay to Lessor a Deposit in the amount of $752,500 in
accordance with the following:-
(a) $215,000 the receipt of which is acknowledged;
(b) $322,500 payable on the date of this Agreement; and
(c) $215,000 not less than two days prior to the Delivery Date.
26
<PAGE>
5.2 Rental Periods: The first Rental Period will commence on the Delivery Date
and each subsequent Rental Period will commence on the date succeeding the
last day of the previous Rental Period. Each Rental Period will end on the
date immediately preceding the calendar day in the next month numerically
corresponding to the Delivery Date except that:-
(a) if there is no such numerically corresponding day in that month, it will
end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will end on
the Expiry Date.
5.3 Rent:
(a) Determination: Lessee will pay to Lessor or its order on each Rent Date
Rent in advance in the amount of $215,000 provided always that if on the
day which is two Business Days prior to the Delivery date (the "Quotation
Date") (I) Actual LIBOR is in excess of Assumed LIBOR, the said sum of
$215,000 shall be increased by $130 for each basis point by which, on the
Quotation Date, Actual LIBOR exceeds Assumed LIBOR and (ii) in the event
that Actual LIBOR falls below Assumed LIBOR, the said sum of $215,000
shall be decreased by $130 for each basis point by which, on the Quotation
Date, Actual LIBOR falls below Assumed LIBOR.
(b) Reference Definition: For the purposes of this Clause 5.3 "Assumed LIBOR"
means 6.2%; and "Actual LIBOR" means the rate of interest per annum at
which at or about 11:00 a.m. (London time) on the Quotation Date deposits
in Dollars are offered for a six month period on the Reuters "LIBO" page
or, if on the Quotation Date the Reuters "LIBO" page is not available or
does not display rates for the required period, the "Telerate" page.
(c) Time of Payment: Payment must be initiated adequately in advance of the
Rent Date to ensure that Lessor receives credit for the payment on the
Rent Date. If a Rental Period begins on a non-Business Day, the Rent
payable in respect of that Rental Period shall be paid on the Business Day
immediately preceding the date on which such Rental Period commences.
(d) Abatement: The Lessor hereby agrees that in respect of the first Rental
Period (the Rent for which shall be deemed to accrue pro-rata on a daily
basis throughout such period) the Rent shall be abated for the period of
10 days immediately following the Delivery Date or until the Aircraft
enters commercial airlines service, whichever occurs first.
27
<PAGE>
5.4 Maintenance Reserves:
(a) Amount: Lessee will further pay to Lessor Maintenance Reserves in relation
to each Rental Period (including without limitation the last Rental Period
of the Term) no later than the 10th day following the end of that Rental
Period as follows:-
(i) in respect of the Airframe, $77 for each Flight Hour operated by the
Aircraft during that Rental Period ("Airframe Maintenance
Reserves"); and
(ii) in respect of each Engine, $74 for each Flight Hour operated by that
Engine during that Rental Period ("Engine Maintenance Reserves");
and
(iii) in respect of the life-limited Parts ("LLP") for each Engine, $21
for each Flight Hour operated by that Engine during the Rental
Period ("Engine LLP Maintenance Reserves"); and
(iv) in respect of the Landing Gear, $12 for each Flight Hour operated by
the Landing Gear during that Rental Period ("Landing Gear
Maintenance Reserves"); and
(b) Adjustment: The Maintenance Reserves shall escalate at a rate of three per
cent (3%), compounded annually, commencing on the first annual anniversary
of the Delivery Date. Lessor and Lessee hereby acknowledge that the
Maintenance Reserves are based on the assumption that the operation of the
Aircraft during the Term will, on average, be not less than two Flight
Hours for each Cycle). In the event that the foregoing assumption proves
to be incorrect at any time during the Term based upon Lessee's actual
operating experience during the previous twelve (12) months, and the hour
cycle ratio differs from such assumption by more than 0.1 during such
twelve (12) month period, Lessor shall have the right, upon written notice
to Lessee, to adjust the Engine Maintenance Reserves and/or the Engine LLP
Maintenance Reserves in the case of a decrease in the ratio and Lessor,
upon written request from Lessee, will make an adjustment in the case of
an increase in the ratio. Any such adjustment shall be based upon the
following table:
<TABLE> ----------------------------------------------------------
PER ENGINE HOUR/CYCLE
----------------------------------------------------------
<S> <C> <C> <C>
1.5 2.0 2.5
----------------------------------------------------------
Engine Maintenance Reserves $ 78* $ 74* $ 70*
----------------------------------------------------------
Engine LLP Maintenance Reserve Rates $ 27* $ 21* $ 16*
----------------------------------------------------------
</TABLE>
(* denotes that the figure is to be escalated at a rate of three percent
(3%) compounded annually, commencing on the first annual anniversary of
the Delivery Date.)
Actual hour to cycle ratios may fall outside of the amount identified in
the table. In such case, the actual values shall be determined by
extrapolating the closest observed intervals in the table. (For example,
an hour to cycle ratio of 1.7:1 falls in between 1.5:1 and
28
<PAGE>
2.0:1 resulting in the extrapolated values of $76.40 for Engine
Maintenance Reserves Rates and $24.60 for Engine LLP Maintenance
Reserves.)
In the event that the Agreed Maintenance Program is materially revised,
Lessor may make such adjustment as Lessor determines is necessary in its
reasonable discretion to maintain the Reserves at levels which accurately
reflect the costs associated with obtaining maintenance services at
prevailing industry rates. Each such notice shall specify the revised
Maintenance Reserves and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, promptly following the occurrence of
any circumstances or events which would result in the foregoing
assumptions becoming incorrect at any time during the Term.
5.5 Payments: All payments by Lessee to Lessor under this Agreement will be
made for value on the due date in Dollars and in same day funds settled
through the New York Clearing House System or such other funds as may for
the time being be customary for the settlement in New York City of
international payments in Dollars by telegraphic transfer to Chase
Manhattan Bank N.A., 35th Floor, 1 Chase Manhattan Plaza, New York, NY,
10081; CHASUS 33; for the account of Bank of NT Butterfield, 65 Front
Street, Hamilton, Bermuda, Account Number 001-1-067808 for credit to GPA
DAF Bermuda Collection Account, Account Number 82757DD0101 or to such
other account as Lessor may advise Lessee in writing. Lessor will notify
Lessee of the details of the new account to which payments are to be made
under this Agreement, after the Adjustment Date, as soon as practical
after the Adjustment Date.
5.6 Gross-up:
(a) All payments by Lessee under or in connection with this Agreement or the
other Operative Documents will be made without set-off or counterclaim,
free and clear of and without deduction for or on account of all Taxes;
(b) all Taxes (other than Lessor Taxes) in respect of payments under this
Agreement or the other Operative Documents shall be for the account of and
will be paid by Lessee for its own account prior to the date on which
penalties apply; and
(c) if Lessee is compelled by law to make payment subject to any Tax and
Lessor does not actually receive for its own benefit on the due date a net
amount on an After-Tax Basis equal to the full amount provided for under
this Agreement, Lessee will pay all necessary additional amounts to ensure
receipt by Lessor of the full amount on an After-Tax Basis so provided
for.
5.7 Taxation: Lessee will on demand pay and indemnify Lessor against all Taxes
(other than Lessor Taxes) levied or imposed against or upon Lessor, Owner
or Lessee and relating to or attributable to Lessee, this Agreement or the
other Operative Documents (except for the Warrant and the side letter
dated as of October 20, 1995 specifically relating
29
<PAGE>
thereto but save in so far as any indemnity by Lessee in respect of Taxes
is specifically provided for therein) or the Aircraft directly or
indirectly in connection with the importation, exportation, registration,
ownership, leasing, sub-leasing, purchase, delivery, possession, use,
operation, repair, maintenance, overhaul, transportation, landing,
storage, presence or redelivery of the Aircraft or any part thereof or any
rent, receipts, insurance proceeds, income or other amounts arising
therefrom.
5.8 Value Added Tax:
(a) For the purposes of this sub-clause:-
(i) "VAT" means value added tax and any sales or turnover tax,
imposition or levy of a like nature;
(ii) "supply" includes anything on which VAT is chargeable;
(b) Lessee will pay to Lessor on an After-Tax Basis the amount of any VAT
chargeable in respect of any supply for VAT purposes under this Agreement;
and
(c) each amount stated as payable by Lessee under this Agreement is exclusive
of VAT (if any) and is accordingly to be construed as a reference to that
amount plus any VAT in respect of it.
5.9 Information: If Lessee is required by any applicable Law, or by any third
party, to deliver any report or return in connection with any Taxes,
Lessee will complete the same in a manner satisfactory to Lessor and in
particular will state therein that Lessee is exclusively responsible for
the use and operation of the Aircraft and for any Taxes arising therefrom,
and Lessee will, on request supply a copy of the report or return to
Lessor.
5.10 Taxation of Indemnity Payments:
(a) If and to the extent that any sums payable to Lessor by Lessee under this
Agreement by way of indemnity are insufficient, by reason of any Taxes
payable in respect of those sums, for Lessor to discharge the
corresponding liability to the relevant third party (including any
taxation authority), or to reimburse Lessor for the cost incurred by it to
a third party (including any taxation authority) Lessee will pay to Lessor
on an After-Tax Basis such sum as will after the tax liability has been
fully satisfied leave Lessor with the same amount as it would have been
entitled to receive in the absence of that liability together with
interest on the amount of the deficit at the rate of interest stated in
Clause 5.11 in respect of the period commencing on the date on which the
payment of taxation is finally due until payment by Lessee (both before
and after judgment); and
30
<PAGE>
(b) if and to the extent that any sums constituting (directly or indirectly)
an indemnity to Lessor but paid by Lessee to any person other than Lessor
are treated as taxable in the hands of Lessor, Lessee will pay to Lessor
such sum as will after the tax liability has been fully satisfied
indemnify Lessor on an After-Tax Basis to the same extent as it would have
been indemnified in the absence of such liability together with interest
on the amount payable by Lessee under this sub-clause at the rate of
interest stated in Clause 5.11 in respect of the period commencing on the
date on which the payment of taxation is finally due until payment by
Lessee (both before and after judgment).
5.11 Default Interest: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time to
Lessor interest (both before and after judgment) on that amount, from the
due date to the date of payment in full by Lessee to Lessor, at the rate
calculated by Lessor to be 1.5 percent per month, but in no event
exceeding the highest rate permitted by Law. All such interest will be
compounded monthly and calculated on the basis of the actual number of
days elapsed and a 360 day year.
5.12 Contest: If Lessee disputes the payment of any Taxes payable by Lessor for
which Lessee is responsible under this Agreement, Lessor will consider
with Lessee the taking of such action as Lessee may reasonably request at
Lessee's expense to contest that payment but will not be obliged to take
any such action:-
(a) which Lessor considers in its sole discretion may prejudice it; or
(b) which Lessor considers does not have a reasonable prospect of success; or
(c) for which Lessee has not made adequate provision to the satisfaction of
Lessor in respect of the expense concerned.
5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this
Agreement are absolute and unconditional irrespective of any contingency
whatsoever including (but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defense or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against Lessee's
use, operation or possession of the Aircraft;
(c) any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under the
laws of any relevant jurisdiction, or any Event of Loss in respect of or
any damage to the Aircraft;
31
<PAGE>
(d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceedings by or against Lessor
or Lessee;
(e) any invalidity or unenforceability or lack of due authorization of, or
other defect in, this Agreement;
(f) and Security Interests with respect to the Aircraft or Taxes; and/or
(g) any other cause which but for this provision would or might otherwise have
the effect of terminating or in any way affecting any obligation of Lessee
under this Agreement.
5.14 Security
(a) To the fullest extent permitted by Law and by way of continuing security
Lessee as sole beneficial owner charges the Deposit and the Maintenance
Reserves and all rights of Lessee to payment thereof and the debt
represented thereby (the "Charged Monies") to Lessor by way of first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements (the "Secured Liabilities"). Except as
expressly permitted under this Agreement, Lessee will not be entitled to
payment of the Charged Monies. Lessee will not assign, transfer or
otherwise dispose of all or part of its rights in the Charged Monies and
it will enter into any additional documents and instruments necessary or
advisable to evidence, create or perfect Lessor's rights to the Charged
Monies;
(b) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing, in addition to all rights
and remedies accorded to Lessor elsewhere in this Agreement and under Law
as a secured party in respect of the Charged Monies, Lessor may
immediately or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the payment or
discharge of the Secured Liabilities in such order as Lessor sees
fit; and
(c) If Lessor has exercised the set-off described in sub-clause (b) above,
Lessee shall, following a demand in writing from Lessor, restore the
Charged Monies to the level at which they stood immediately prior to such
set-off.
6. MANUFACTURER'S WARRANTIES
6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to
the benefit of each warranty, express or implied, with respect to the
Aircraft, any Engine or Part so far as concerns any manufacturer, vendor,
subcontractor or supplier. Except to the extent Lessor otherwise directs,
Lessor hereby authorizes Lessee to pursue any claim thereunder in relation
to defects affecting the Aircraft, any Engine or Part and Lessee
32
<PAGE>
agrees diligently to pursue any such claim which arises at its own cost.
Lessee will notify Lessor promptly upon becoming aware of any such claim.
6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor but
if and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) above only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case,
Lessee will procure that all engines, components, furnishings or equipment
provided by the manufacturer, vendor, subcontractor or supplier in
replacement of a defective Engine or Part pursuant to the terms of any
warranty will be installed promptly by Lessee and that title thereto free
of Security Interests vests in Lessor. On installation each part will be
deemed to be a Part. In the case of a Replacement Engine, Lessee will
satisfy and perform each of the conditions and covenants set forth in
Clause 11.1(c), and upon satisfaction of such conditions, such Replacement
Engine will be deemed an "Engine" for all purposes of this Agreement.
6.4 Agreement: To the extent any warranties relating to the Aircraft are made
available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant
to Clause 6.2 and pending such payment will hold the claim and the
proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the Term to
ensure the benefit of any of those warranties which have not expired are
vested in Lessor.
7. LESSOR'S COVENANTS
7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession
and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its
rights under or in connection with this Agreement will not constitute such
an interference. Lessor undertakes to deliver to Lessee on or promptly
after the Delivery Date a letter of quiet enjoyment addressed to Lessee by
the Owner in the form already notified by Lessor to Lessee prior to the
date hereof.
7.2 Release of Maintenance Reserves: Provided no Default has occurred and is
continuing Lessor will release funds to Lessee from the Maintenance
Reserves respecting
33
<PAGE>
maintenance work performed upon submission by Lessee to Lessor within 6
months of the commencement of that maintenance and before the Expiry Date
of an invoice and supporting documentation reasonably satisfactory to
Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterized by the
Manufacturer's maintenance planning document and best industry practice as
"D" Check and/or individual structural inspections having an interval of
not less than 20,000 Flight Hours or 6 years for the Aircraft (but not
including repairs arising as the result of operational or maintenance
mishandling), the lesser of (i) the amount of that invoice and (ii) the
amount equal to the aggregate amount of Airframe Maintenance Reserves paid
under this Agreement at the time of commencement of that maintenance less
the aggregate amount previously released by Lessor under this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of all shop visits requiring engine disassembly (other than (i)
repairs arising as a result of foreign object damage or operational or
maintenance mishandling and/or (ii) removal, installation, maintenance and
repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount
of that invoice and (ii) the amount equal to the aggregate amount of
Engine Maintenance Reserves paid in respect of that Engine under this
Agreement at the time of commencement of that maintenance less the
aggregate amount previously paid in respect of that Engine by Lessor under
this sub-clause;
(c) with respect to life limited parts within any Engine, the performance, in
accordance with this Agreement, of any such parts replacement or repair
(other than (i) repairs arising as a result of accidents or incidents
(whether or not eligible for recovery under Lessee's insurance), foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC kits) and/or (iii)
any elective parts replacement), the lesser of (i) the amount of that
invoice and (ii) the amount equal to the aggregate of Engine LLP
Maintenance Reserves paid in respect of that Engine under this Agreement
at the time of commencement of that maintenance less the aggregate amount
previously paid in respect of that Engine by Lessor under this sub-clause;
and
(d) with respect to the Landing Gear, the performance in accordance with this
Agreement, of all work on the landing gear in the nature of overhaul and
requiring removal and disassembly (other than repairs arising as the
result of operational or maintenance mishandling), the lesser of (i) the
amount of that invoice and (ii) the amount equal to the aggregate amount
of Landing Gear Maintenance Reserves paid under this Agreement at the time
of commencement of that maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
7.3 Lessor Obligations Following Expiry Date: Within 5 Business Days of:-
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
34
<PAGE>
(b) payment to Lessor of the Agreed Value following an Event of Loss after the
Delivery Date;
or in each case such later time as Lessor is reasonably satisfied Lessee
has irrevocably paid to Lessor all amounts which may then be outstanding
or become payable under this Agreement, the other Operative Documents, or
the Other Agreements and Lessee, Lessor will pay to Lessee:-
(i) the balance of the Deposit; and
(ii) the amount of any Rent received in respect of any period falling
after the date of redelivery of the Aircraft or payment of the
Agreed Value, as the case may be; and shall return to Lessee the
warrant certificate, if not previously exercised, representing the
Warrant.
8. LESSEE'S COVENANTS
8.1 Duration: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this Agreement
and thereafter to the extent of any accrued rights of Lessor in relation
to those undertakings.
8.2 Information: Lessee will:-
(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of its
obligations under this Agreement;
(b) furnish to Lessor:-
(i) upon request, the consolidated management accounts of Lessee
(comprising a balance sheet and profit and loss statement) prepared
for the most recent previous financial quarter;
(ii) as soon as available but not in any event later than 120 days after
the last day of each financial year of Lessee, its audited
consolidated balance sheet as of such day and its audited
consolidated profit and loss statement for the year ending on such
day;
(iii) at the same time as it is issued to the shareholders or creditors
of Lessee, a copy of each notice or circular issued to Lessee's
shareholders or creditors as a group; and
(iv) on request from time to time such other information regarding Lessee
and its business and affairs as Lessor may reasonably request;
35
<PAGE>
(c) keep Lessor informed as to current serial numbers of the Engines and
any engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part, its
use, location and condition including, without limitation, the hours
available on the Aircraft and any Engine until the next scheduled check,
inspection, overhaul, refurbishment or shop visit, as the case may be;
(e) on request, within 10 days after the end of any Rental Period, furnish to
Lessor evidence satisfactory to Lessor of payment of all Taxes due during
that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air traffic
control authorities, have been paid and discharged in full;
(g) within 7 days after the end of each calendar month during the Term,
provide Lessor with a monthly report on the Aircraft and each Engine in
the form set out in Schedule 7;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-
(i) any loss, theft, damage or destruction to the Aircraft, any Engine
or any Part, or any modification to the Aircraft if the potential
cost may exceed the Damage Notification Threshold; and
(ii) any claim or other occurrence likely to give rise to a claim under
the Insurances (but in the case of hull claims only in excess of the
Damage Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 Lawful and Safe Operation: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the Aircraft
(including without limitation Laws mandating insurance coverage) or, so
far as concerns the use and operation of the Aircraft or an owner or
operator thereof and take all reasonable steps to ensure that the Aircraft
is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of the
manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air Authority or for any purpose for
which the Aircraft is not designed or reasonably suitable;
36
<PAGE>
(c) ensure that the crew and engineers employed by it in connection with the
operation and maintenance of the Aircraft have the qualifications and hold
the licenses required by the Air Authority and applicable Law;
(d) use the Aircraft solely in commercial or other operations for which Lessee
is duly authorized by the Air Authority and applicable Law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet animals
carried in a suitable container to prevent the escape of any liquid
and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under the
"Restriction of Goods" schedule issued by I.A.T.A. from time to time
and provided that all the requirements for packaging or otherwise
contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could reasonably
be expected to cause damage to the Aircraft and which would not be
adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilize the Aircraft for purposes of training, qualifying or re-
confirming the status of cockpit personnel except for the benefit of
Lessee's cockpit personnel, and then only if the use of the Aircraft for
such purpose is not disproportionate to the use for such purpose of other
aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any location
which is for the time being the subject of a prohibition order (or any
similar order or directive) by:-
(i) any Government Entity of the State of Registration or the Habitual
Base; or
(ii) any Government Entity of the country in which such location is
situated; or
(iii) any Government Entity having jurisdiction over Owner, Lessor, the
Banks or the Aircraft;
(h) obtain and maintain in full force all certificates, licenses, permits and
authorizations required for the use and operation of the Aircraft for the
time being, and for the making of payments required by, and the compliance
by Lessee with its other obligations under, this Agreement;
37
<PAGE>
(i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to
or for any country or entity that is the subject of sanctions under the
U.S. International Economic Emergency Powers Act or U.N. Security Council
directives (presently Iraq, Iran, Libya, the Federal Republic of
Yugoslavia (Serbia and Montenegro) and the Unita Rebels of Angola).
Lessee also covenants and agrees (i) not to operate or locate, or suffer
or permit to be operated or located, the Aircraft in any country
restricted under the U.S. Trading with the Enemy Act and the U.S. Export
Administration Act except as may be permitted by operating in accordance
with the conditions specified by the U.S. Export Administration
Regulations (15CFR Parts 730-799), General License GATS (15 CFR Part
771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii)
not to operate the Aircraft between Cuba and the United States; and
(j) not use, operate, or locate the Aircraft, or cause suffer or permit the
Aircraft to be used, operated or located during the Term in any manner not
covered by the Insurances or in any area excluded from coverage by the
Insurances or in any manner which would prejudice the interests of the
Indemnitees in the Insurances, the Aircraft, any Engine or any Part.
8.4 Taxes and other Outgoings: Lessee will promptly pay:-
(a) all license and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with respect
to the Aircraft, including without limitation the purchase, ownership,
delivery, leasing, possession, use, operation, return, sale or other
disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts
in respect of any premises where the Aircraft or any Part thereof is
located from time to time;
except to the extent that in the reasonable opinion of Lessor such payment
is being contested in good faith by appropriate proceedings, in respect of
which adequate resources have been provided by Lessee and non-payment of
which does not give rise to any material likelihood of the Aircraft or any
interest therein being sold, forfeited or otherwise lost or of criminal
liability on the part of Lessor, Owner, Trustee or any Bank.
8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE
AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH
POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO
THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL
WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR
PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS
EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE
FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A
38
<PAGE>
TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY
FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL
REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS
AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8
AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO
AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A
CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF.
8.6 Inspection:
(a) Lessor and any person designated by Lessor may at any time visit, inspect
and survey the Aircraft, any Engine or any Part and for such purpose may,
subject to any applicable Air Authority regulation, travel on the flight
deck as observer;
(b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable
out-of-pocket expenses incurred by Lessor in connection with any such
visit, inspection or survey; and
(c) Lessor will:-
(i) have no duty or liability to make, or arising out of making or
failing to make, any such visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not exercise
such right other than on reasonable notice and so as not to disrupt
unreasonably the commercial operations of Lessee, provided, however,
Lessee will take such action as may be reasonably required to
facilitate Lessor's inspection.
8.7 Title: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit to be
omitted to be done any act or thing which might reasonably be expected to
jeopardize the rights of Owner as owner of the Aircraft or assignee of
this Agreement or the rights of Trustee as assignee of the Insurances or
the validity, enforceability or priority of the Assignments;
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by Owner;
(c) not at any time (i) represent or hold out and Indemnitee as carrying goods
or passengers on the Aircraft or as being in any way connected or
associated with any operation or carriage (whether for hire or reward or
gratuitously) which may be undertaken by Lessee or (ii) pledge the credit
of any Indemnitee;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7
cm.) in a reasonably prominent position in the cockpit of the Aircraft and
on each Engine stating:-
39
<PAGE>
"This Aircraft/Engine is owned by GPA Finance (Bermuda) Limited and is
leased to Frontier Airlines, Inc. and may not be operated by any other
person without the prior written consent of GPA Finance (Bermuda)
Limited";
(e) not create or permit to exist any Security Interest upon the Aircraft, any
Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected to
expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and without
prejudice to the foregoing, if any such penalty, forfeiture, impounding,
detention or appropriation, damage or destruction occurs, give Lessor
notice and use best endeavors to procure the immediate release of the
Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and payable
or make adequate provision by way of security or otherwise for all debts,
damages, claims and liabilities which have given or might give rise to a
Security Interest over or affecting the Aircraft, any Engine or any Part;
and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part; and
(j) obtain a waiver of any mechanic's lien or right thereto from any vendor
providing maintenance services for Lessee prior to delivering the Aircraft
or any Engine or Part to such vendor.
8.8 General: Lessee will:-
(a) not make any substantial change in the nature of the business in which it
is engaged, will preserve its corporate existence (other than in
connection with a solvent reconstruction the terms of which have been
approved by Lessor, such approval not to be unreasonably withheld), and
will conduct its business in an orderly and efficient and will maintain
all rights, privileges, licenses and franchises material thereto or
material to performing its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor;
(c) not without giving Lessor 30 days prior notice (in accordance with this
Agreement), change its chief executive office (as such term is defined in
Article 9 of the Uniform Commercial Code as in effect in the State of
Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United
States of America;
40
<PAGE>
(d) remain a Certified Air Carrier and maintain, without limitation, its
status so as to fall within the preview of Section 1110 of Title 11 of the
United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code.
8.9 Records: Lessee will:-
(a) procure that accurate, complete and current records of all flights made
by, and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) are kept; keep the records in such manner as the Air
Authority may from time to time require, and ensure that they comply with
the recommendations of the manufacturers of the Aircraft, any Engine or
any Part. All records must be maintained in English. The records will
form part of the Aircraft Documents; and
(b) procure access to a revision service in respect of, and will maintain with
appropriate revisions in English, all Aircraft Documents, records, logs,
and other materials required by applicable Laws and best practice of major
international air transport operators in respect of the Aircraft.
8.10 Protection: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority
reflecting (so far as permitted by applicable Law) the respective
interests of Owner and Lessor and not do or suffer to be done anything
which might adversely affect that registration; and
(b) do all acts and things (including, without limitation, making any filing
or registration with the Air Authority or any other Government Entity or
as required to comply with the Mortgage Convention where applicable) and
execute and deliver all documents (including, without limitation, any
amendment of this Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft or in the manner of securing the Owner's
and/or Lessor's obligations to the Banks; or
(ii) following any modification of the Aircraft, any Engine or any Part
or the permanent replacement of any Engine or Part in accordance
with this Agreement, so as to ensure that the rights of Lessor under
this Agreement and the rights of Owner under the Head Lease in
respect thereof apply with the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the rights of
Lessor under this Agreement or the interest of Owner in the Aircraft
and under the Head Lease and Owner and Trustee in the Assignments.
41
<PAGE>
8.11 Maintenance and Repair: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Agreed Maintenance Program or the schedule of the Agreed
Maintenance Program without the written consent of Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance Program
through the Agreed Maintenance Performer and perform (at the respective
intervals provided in the Agreed Maintenance Program) all Major Checks;
(d) maintain the Aircraft in accordance with FAR Part 121, Subpart L and any
other rules and regulations of the FAA and in at least the same manner and
with at least the same care, including, without limitation, maintenance
scheduling, modification status and technical condition, as is the case
with respect to similar aircraft owned or otherwise operated by Lessee and
as if Lessee were to retain and continue operating the Aircraft in its
fleet after the Expiry Date, including, without limitation, all
maintenance to the Airframe, any Engine or any Part required to maintain
all warranties, performance guarantees or service life policies in full
force and effect except to the extent of conflict with the rules and
regulations of the Air Authority;
(e) comply with all outstanding (i.e. at or prior to the Expiry Date)
mandatory inspection and modification requirements, airworthiness
directives and similar requirements applicable to the Aircraft, any Engine
or Part having a compliance date during the Term or within 180 days after
the Expiry Date and which are required by the Air Authority, and/or the
FAA and/or mandated by any manufacturer of the Aircraft, any Engine or
Part (an "Airworthiness Directive);
The Lessor shall, if the cost to Lessee of performing an inspection
resulting in modification or terminating action with regard to any
Airworthiness Directive or causing such inspection resulting in
modification or terminating action being performed with regard to such
Airworthiness Directive, exceeds $100,000 in respect of any individual
item of the same, provided no Default has occurred and is continuing, on
receipt by Lessor of evidence of payment for and completion of the
relevant work, reimburse Lessee with an amount equal to the solution to
the following formula:-
C x (N - R)
-----------
N
where "N" equals 96
"R" represents the remainder of the Term in months after completion of the
modification/terminating action
"C" equals the cost of the modification/terminating action in excess of
$100,000;
42
<PAGE>
(f) comply with all applicable Laws and the regulations of the Air Authority
and other aviation authorities with jurisdiction over Lessee or the
Aircraft, any Engine or Part regardless of upon whom such requirements are
imposed and which relate to the maintenance, condition, use or operation
of the Aircraft or require any modification or alteration to the Aircraft,
any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in the
appropriate category for the nature of the operations of the Aircraft) for
the Aircraft issued by the Air Authority except where the Aircraft is
undergoing maintenance, modification or repair required or permitted by
this Agreement and will from time to time provide to Lessor a copy on
request;
(h) if required by the Air Authority, maintain a current certification as to
maintenance issued by or on behalf of the Air Authority in respect of the
Aircraft and will from time to time provide to Lessor a copy on request;
and
(i) procure promptly the replacement of any Engine or Part which has become
time, cycle or calendar expired, lost, stolen, seized, confiscated,
destroyed, damaged beyond repair, unserviceable or permanently rendered
unfit for use, with an engine or part complying with the conditions set
out in Clause 8.13(a) and in the case of any Engine which suffers an
Engine Even of Loss, shall procure that such engine complies with the
provisions of Clause 11.1(c).
8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part
installed on the Aircraft is at any time removed from the Aircraft other
than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the Agreed
Maintenance Program; or
(c) (i) during the course of maintaining, servicing, repairing, overhauling
or testing that Engine or the Aircraft, as the case may be; or
(ii) as part of a normal engine or part rotation program; or
(iii) for the purpose of making such modifications to the Engine or the
Aircraft, as the case may be, as are permitted under this Agreement;
and then in each case (A) with respect to a Part, only if it is
reinstalled or replaced by a part complying with Clause 8.13(a) as soon as
practicable and in any event no later than the Expiry Date, and (B) with
respect to an Engine, title to such Engine shall remain vested in Lessor.
8.13 Installation of Engines and Parts: Lessee will:-
43
<PAGE>
(a) ensure that, except as permitted by this Agreement, no engine or part is
installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model as, or
an improved or advanced version of the Engine it replaces, which is
in the same or better operating condition, has substantially similar
hours available until the next scheduled checks, inspections,
overhauls and shop visits and has the same or greater value and
utility as the replaced Engine;
(ii) in the case of a part, it is in as good operating condition, has
substantially similar hours available until the next scheduled
checks, inspections, overhauls and shop visits, is of the same or a
more advanced make and model and is of the same interchangeable
modification status as the replaced Part;
(iii) in the case of a part, it has become and remains the property of
Owner free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head Lease and
this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
(b) if no Default has occurred which is continuing, be entitled to install any
engine or part on the Aircraft by way of replacement notwithstanding
Clause 8.13(a) if:-
(i) there is not available to Lessee at the time and in the place that
that engine or part is required to be installed on the Aircraft, a
replacement engine or, as the case may be, part complying with the
requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation of
the Aircraft and/or the business of Lessee to ground the Aircraft
until an engine or part, as the case may be, complying with Clause
8.13(a) becomes available for installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date, Lessee
removes any such engine or part and replaces it with the Engine or
Part replaced by it or by an engine or part, as the case may be,
complying with Clause 8.13(a).
8.14 Non-Installed Engines and Parts: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft (or
any other aircraft as permitted by this Agreement) is, except as expressly
permitted by this Agreement, properly and safely stored, and kept free
from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and, from
time to time, on request procure that any person to whom possession of an
Engine is given acknowledges in writing to Lessor, in form and substance
satisfactory to Lessor, that it
44
<PAGE>
will respect the interests of Owner and Lessor in the Engine and will not
seek to exercise any rights whatsoever in relation to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install any
Engine or Part on an aircraft, or in the case of a Part on an engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional sale
agreement on a long-term basis and on terms whereby Lessee has full
operational control of that aircraft or engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated by
Lessee, on terms that ownership of that aircraft or engine, as the
case may be, pursuant to a lease or conditional sale agreement, or a
Security Interest therein, is vested in or held by any other Person;
provided that in the case of (ii) and (iii):-
(1) the terms of any such lease, conditional sale agreement or Security
Interest will not have the effect of prejudicing the interests of
Owner or Lessor in that Engine or Part or the interests of Trustee
in respect thereof under the Assignments; and
(2) the lessor under such lease, the seller under such conditional sale
agreement or the holder of such Security Interest, as the case may
be, has confirmed and acknowledged in writing to Lessor, in form and
substance satisfactory to Lessor, that it will respect the interests
of Owner, Lessor and Trustee in respect of that Engine or Part and
that it will not seek to exercise any rights whatsoever in relation
thereto.
8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any
pooling agreement or arrangement in respect of an Engine or Part without
the prior written consent of Lessor.
8.16 Equipment Changes:
(a) Lessee will not make any modification or addition to the Aircraft (each an
"Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not diminish
the value, utility, condition, or airworthiness of the Aircraft;
45
<PAGE>
(b) So long as a Default has not occurred and is continuing, Lessee may remove
any Equipment Change if it can be removed from the Aircraft without
diminishing or impairing the value, utility, condition or airworthiness of
the Aircraft; and
(c) Lessee shall indemnify Owner, Lessor and Trustee on an After-Tax Basis for
any and all Taxes payable by Owner, Lessor or Trustee, as the case may be,
as a result of an Equipment Change.
8.17 Title on an Equipment Change:
(a) Title to all Parts installed on the Aircraft whether by way of
replacement, as the result of an Equipment Change or otherwise (except
those installed pursuant to Clause 8.13(b)) will on installation, without
further act, vest in Owner subject to the Head Lease and this Agreement
free and clear of all Security Interests. Lessee will at its own expense
take all such steps and execute, and procure the execution of, all such
instruments as Lessor may require and which are necessary to ensure that
title so passes to Owner according to all applicable Laws. At any time
when requested by Lessor, Lessee will provide evidence to Lessor's and
Owner's satisfaction (including the provision, if required, to Lessor and
Owner of one or more legal opinions) that title has so passed to Owner;
(b) Lessor may require Lessee to remove any Equipment Change and to restore
the Aircraft to its condition prior to that Equipment Change; and
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Owner until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable Laws, to
Owner subject to the Head Lease and this Agreement free of all Security
Interests whereupon title to the replaced Engine or Part, will, provided
no Default has occurred and is continuing, pass to Lessee.
8.18 Third Party: Lessee will procure that no person (other than Lessor, Owner,
Trustee, Security Agent or any Bank) will act in any manner inconsistent
with its obligations under this Agreement and that all persons will comply
with those obligations as if references to "Lessee" included a separate
reference to those persons.
9. INSURANCE
9.1 Insurances: Lessee will maintain in full force during the Term, and
thereafter as expressly required in this Agreement, insurances in respect
of the Aircraft in form and substance satisfactory to Lessor (the
"Insurances" which expression includes, where the context so admits, any
relevant re-insurance(s)) through such brokers and with such insurers and
having such deductibles and being subject to such exclusions as may be
approved by Lessor from time to time. The Insurances will be effected
either:-
(a) on a direct basis with insurers of recognized standing who normally
participate in aviation insurances in the leading international insurance
markets and led by reputable underwriter(s) approved by Lessor; or
46
<PAGE>
(b) with a single insurer or group of insurers approved by Lessor who does not
retain the risk but effects substantial reinsurance with reinsurers in the
leading international insurance markets and through brokers each of
recognized standing and acceptable to Lessor for a percentage acceptable
to Lessor of all risks insured (the "Reinsurances").
9.2 Requirements: Lessor's current requirements as to required Insurances are
as specified in this Clause and in Schedule 4. Lessor may from time to
time stipulate other requirements for the Insurances so that the scope and
level of cover is maintained in line with best industry practice and the
interests of Lessor, Owner and Trustee protected.
9.3 Change: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers
will consult with Lessee and Lessee's brokers (as for the time being
approved by Lessor) regarding whether that approval should be revoked to
protect the interests of the parties insured. If, following the
consultation, Lessor considers that any change should be made, Lessee will
then arrange or procure the arrangement of alternative cover satisfactory
to Lessor.
9.4 Insurance Covenants: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft, any
Engine or any Part which may from time to time be imposed by the laws of
the State of Registration or any state to, from or over which the Aircraft
may be flown, in so far as they affect or concern the operation of the
Aircraft, are complied with and in particular those requirements
compliance with which is necessary to ensure that (i) the Aircraft is not
in danger of detention or forfeiture, (ii) the Insurances remain valid and
in full force and effect, and (iii) the interests of the Indemnitees in
the Insurances and the Aircraft or any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be used
for any purpose or in any manner not covered by the Insurances or outside
any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances and
not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part of any
of the Insurances; or
(iii) brings any particular liability within the scope of an exclusion or
exception to the Insurances;
(d) not take out without the prior written approval of Lessor any insurance or
reinsurance in respect of the Aircraft other than those required under
this Agreement unless relating solely to hull total loss, business
interruption, profit commission and deductible risk;
47
<PAGE>
(e) commence renewal procedures at least 30 days prior to expiry of any of the
Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed telecopy confirmation of completion of renewal prior to each
expiry date; and
(iii) certificates of insurance (and where appropriate certificates of
reinsurance), and broker's (and any reinsurance brokers') letter of
undertaking in a form acceptable to Lessor in English, detailing the
coverage and confirming the insurers' (and any reinsurers')
agreement to the specified insurance requirements of this Agreement
within 7 days after each renewal date;
(f) on request, provide to Lessor copies of documents or other information
evidencing the Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums have
been paid;
(h) not make any modification or alteration to the Insurances material and
adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably require.
9.5 Failure to Insure: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be entitled
but not bound, (without prejudice to any other rights of Lessor under this
Agreement):-
(a) to pay the premiums due or to effect and maintain insurances satisfactory
to it or otherwise remedy Lessee's failure in such manner (including,
without limitation to effect and maintain an "owner's interest" policy) as
it considers appropriate. Any sums so expended by it will become
immediately due and payable by Lessee to Lessor on an After-Tax Basis
together with interest thereon at the rate specified in Clause 5.11, from
the date of expenditure by it up to the date of reimbursement by Lessee;
and
(b) at any time while such failure is continuing to require the Aircraft to
remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the
Expiry Date with respect to its liability under the Indemnity in Clause 10
for 2 years which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause
48
<PAGE>
shall not be affected by Lessee ceasing to be lessee of the Aircraft
and/or any of the Indemnitees ceasing to have any interest in respect of
the Aircraft.
9.7 Application of Insurance Proceeds:-
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss or
Engine Event of Loss occurring during the Term will be paid to Lessor and
Lessor will pay the balance of those amounts to Lessee after deduction of
all amounts which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the Aircraft,
any Engine or any Part occurring during the Term not constituting an Event
of Loss or Engine Event of Loss and in excess of the Damage Notification
Threshold will be applied in payment (or to reimburse Lessee) for repairs
or replacement property upon Lessor being satisfied that the repairs or
replacement have been effected in accordance with this Agreement.
Insurance proceeds in amounts below the Damage Notification Threshold may
be paid by the insurer directly to Lessee. Any balance remaining may be
retained by Lessor;
(c) all insurance proceeds in respect of third party liability will, except to
the extent paid by the insurers to the relevant third party, be paid to
Lessor to be paid directly in satisfaction of the relevant liability or to
Lessee in reimbursement of any payment so made; and
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment
of any such insurance proceeds a Default has occurred and is continuing,
all such proceeds will be paid to or retained by Lessor to be applied
toward payment of any amounts which may be or become payable by Lessee in
such order as Lessor sees fit or as Lessor may elect.
To the extent insurance proceeds are paid to Lessee, Lessee agrees to
comply with the foregoing provisions and apply or pay over such proceeds
as so required.
10. INDEMNITY
10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HAMLESS THE
INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS,
PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES,
PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE
OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):-
(A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY
AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY,
PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL,
MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL,
49
<PAGE>
LEASING, USE, OPERATION OR RETURN OF THE AIRCRAFT, ANY ENGINE OR
PART (EITHER IN THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM
MAY BE ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY
PART OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS
OF WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS
ATTRIBUTABLE TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY
INDEMNITEE;
(B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH
RENDERS VOIDABLE ANY OF THE INSURANCES; AND
(C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF
ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY
PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT,
COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH
OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON;
BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE
EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION
OF THIS AGREEMENT OR TO THE EXTENT IT ARISES SOLELY AS A RESULT OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR
A LESSOR LIEN.
10.2 Duration: The indemnities contained in this Agreement will continue in
full force following the end of the Term notwithstanding any breach or
repudiation by Lessor or Lessee of this Agreement or any termination of
the lease of the Aircraft hereunder.
11. EVENTS OF LOSS
11.1
(a) Pre-delivery: If an Event of Loss occurs prior to delivery of the to
Lessee, Lessor will have the option, exercisable by giving Lessee notice
in writing, to substitute an alternative aircraft of the same manufacture,
model, value and utility as the Aircraft. If Lessor exercises such option,
Lessee shall be obliged to lease such substitute aircraft pursuant to the
terms and conditions of this Agreement and such substitute aircraft shall
constitute the Aircraft for all purposes of this Agreement. Lessor shall
provide Lessee with details of the substitute aircraft as soon as may be
practicable after the occurrence of the Event of Loss. If Lessor advises
Lessee that Lessor does not wish to exercise such option, this Agreement
will immediately terminate and except as expressly stated in this
Agreement neither party will have any further obligation or liability
under this
50
<PAGE>
Agreement other than pursuant to Clause 16.9 except that Lessor will
return the Deposit to Lessee; and
(b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft
to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the
earlier of (i) 5 Business Days after the Event of Loss and (ii) the date
of receipt of insurance proceeds in respect of that Event of Loss. Subject
to the rights of any insurers and reinsurers or other third party, upon
irrevocable payment in full to Lessor of that amount and all other amounts
which may be or become payable to Lessor under this Agreement, Lessor will
without recourse or warranty (except as to Lessor's Liens) and without
further act, be deemed to have transferred to Lessee all of Lessor's
rights to any Engines and Parts not installed when the Event of Loss
occurred, all on an as-is where-is basis, and will at Lessee's expense,
execute and deliver such bills of sale and other documents and instruments
as Lessee may reasonably request to evidence (on the public record or
otherwise) the transfer and the vesting of Lessor's rights in such Engines
and Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
(c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss,
Lessee shall give Lessor prompt written notice thereof and shall, within
45 days after such occurrence, convey to Lessor, as replacement for the
Engine suffering such event, title to a Replacement Engine. Each
Replacement Engine shall be free of all Security Interests and shall be in
as good an operating condition as the Engine being replaced, assuming the
Engine being replaced was in the condition and repair required by the
terms hereof immediately prior to the Engine Event of Loss. Upon full
compliance by Lessee with the terms of this Clause 11.1(c), Lessor will
transfer to Lessee title to the Engine which suffered the Engine Event of
Loss. Prior to or at the time of any such conveyance, Lessee, at its own
expense, will promptly (i) furnish Lessor with a full warranty bill of
sale, in form and substance reasonably satisfactory to Lessor, with
respect to such Replacement Engine; (ii) cause a lease supplement (in form
and substance satisfactory to Lessor) subjecting such Replacement Engine
to this Agreement, to be duly executed by Lessee, and recorded pursuant to
applicable Law; (iii) furnish Lessor with such evidence of title to such
Replacement Engine as Lessor may reasonably request; (iv) furnish Lessor
with an opinion of Lessee's counsel to the effect that title to such
Replacement Engine has been duly conveyed to Owner subject to the Head
Lease and this Agreement, free and clear of all Security Interests, and
that such Replacement Engine is duly leased hereunder; (v) furnish a
certificate signed by a duly authorized financial officer or executive of
Lessee certifying that, upon consummation of such replacement, no Event of
Default will have occurred or be continuing; (vi) furnish Lessor with such
documents as Lessor may reasonably request in connection with the
consummation of the transactions contemplated by this Clause 11.1(c), in
each case in form and substance satisfactory to Lessor; and (vii) furnish
such Financing Statements incorporating the Replacement Engine as may be
requested by Lessor. For all purposes hereof, each such Replacement
Engine shall be deemed part of the property leased hereunder, shall be
deemed an "Engine" as defined herein and shall be deemed part of the same
Aircraft as was the Engine replaced thereof. No Engine Event of Loss
covered by this Clause
51
<PAGE>
11.1(c) shall result in any reduction in Rent or affect Lessee's
obligation to pay Engine Maintenance Reserves or the amount thereof to be
paid by Lessee.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of one or
more Engines pursuant to this Clause 11.1.
11.2 Substitute Aircraft:
(a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of
Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the
option, exercisable by giving Lessee notice in writing, to substitute an
alternative aircraft (the "Substitute Aircraft") of the same manufacture
and model as the Aircraft and having a value, utility and condition equal
to or greater than the Aircraft as at the date of occurrence of the Event
of Loss which Substitute Aircraft will be leased by Lessor to Lessee for
the remainder of the Term pursuant to the terms and conditions of this
Agreement. If Lessor exercises such option, the Substitute Aircraft will
constitute the Aircraft for all purposes of this Agreement in respect of
facts and circumstances arising after the date of delivery thereof to
Lessee. Lessor shall provide Lessee with details of the Substitute
Aircraft as soon as may be practicable after the occurrence of the Event
of Loss;
(b) Lessor will use all reasonable endeavors to deliver the Substitute
Aircraft to Lessee as soon as may be practicable following the date of
occurrence of the Event of Loss but not later than 3 months after such
date; and
(c) Lessee agrees to enter into such documentation as Lessor may require in
order to reflect the leasing of the Substitute Aircraft as aforesaid
including, without limitation, documentation in respect of the Insurances.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of the
Aircraft or Airframe pursuant to this Clause 11.2.
11.3 Requisition: During any requisition for use or hire of the Aircraft, any
Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not be
released from any of its other obligations under the Agreement (other than
operational obligations with which Lessee is unable to comply solely by
virtue of the requisition); and
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect of
the Term. Lessee will, as soon as practicable after the end of any such
requisition, cause the Aircraft to be put into the condition required by
this Agreement. Lessor will be entitled to all compensation payable by the
requisitioning authority in respect of any change in the structure, state
or condition of the Aircraft arising during the period of requisition, and
Lessor will apply
52
<PAGE>
such compensation in reimbursing Lessee for the cost of complying with its
obligations under this Agreement in respect of any such change, but so
that, if any Default has occurred and is continuing, Lessor may apply the
compensation or hire in or towards settlement of any amounts owing by
Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to
Clause 13.2 or termination of the leasing of the Aircraft under this
Agreement Lessee will, unless an Event of Loss has occurred, at its
expense, redeliver the Aircraft and Aircraft Documents to Lessor at the
Redelivery Location or such other airport as is mutually acceptable to the
parties hereto, in accordance with the procedures and in compliance with
the conditions set forth in Schedule 3, free and clear of all Security
Interests and Permitted Liens (other than Lessor Liens) and in a condition
qualifying for immediate certification of airworthiness by the FAA or as
otherwise agreed by Lessor and Lessee, and, if requested by Lessor,
thereupon cause the Aircraft to be deregistered by the Air Authority.
12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee
will make the Aircraft available to Lessor for inspection ("Final
Inspection") in order to verify that the condition of the Aircraft
complies with this Agreement. The Final Inspection will be long enough to
permit Lessor to:-
(a) inspect the Aircraft Documents;
(b) inspect the Aircraft and uninstalled Parts;
(c) inspect the Engines, including without limitation (i) a borescope
inspection of (A) the low pressure and high pressure compressors and (B)
turbine and combustion areas, (ii) engine condition runs and (iii) review
of Engine trend monitoring data and technical log reports covering the
last ninety (90) days of operation; and
(d) perform a complete borescope inspection of the APU; and
(e) observe a 2 hour demonstration flight (with Lessor's representatives as
on-board observers).
12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the
condition of the Aircraft does not comply with this Agreement, Lessee will
at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the non-
compliance extends beyond the Expiry Date, the Term will be automatically
extended and this Agreement will remain in force until the non-compliance
has been rectified with Lessee being obligated to pay Rent with respect to
the period of such extension on a per diem basis; or
53
<PAGE>
(b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax
Basis, and provide to Lessor's satisfaction cash as security for that
indemnity, against the cost of putting the Aircraft into the condition
required by this Agreement.
12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's
request, all documents necessary to export the Aircraft from the Habitual
Base (including, without limitation, a valid and subsisting export license
for the Aircraft) and required in relation to the deregistration of the
Aircraft with the Air Authority.
12.5 Acknowledgment: Provided Lessee has complied with its obligations under
this Agreement, following redelivery of the Aircraft by Lessee to Lessor
at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgment confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 Maintenance Program:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide
Lessor or its agent reasonable access to the Agreed Maintenance Program
and the Aircraft Documents in order to facilitate the Aircraft's
integration into any subsequent operator's fleet; and
(b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft
deliver to Lessor a certified true current and complete copy of the Agreed
Maintenance Program. Lessor agrees that it will not disclose the contents
of the Agreed Maintenance Program to any person or entity except to the
extent necessary to monitor Lessee's compliance with this Agreement and/or
to bridge the maintenance program for the Aircraft from the Agreed
Maintenance Program to another program after the Expiry Date.
12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Delivery Date and the Expiry Date
at the price then prevailing at the Redelivery Location.
13. DEFAULT
13.1 Events: Each of the following events will constitute an Event of Default
and a repudiation (but not a termination) of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or occurs
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
Government Entity). Lessee acknowledges that the occurrence of any Event
of Default would represent a material default in the performance of its
obligations under this Agreement:-
(a) Non-payment: Lessee fails to make any payment under this Agreement on the
due date; or
54
<PAGE>
(b) Insurance: Lessee fails to comply with any provision of Clause 9 or any
insurance required to be maintained under this Agreement is canceled or
terminated or notice of cancellation is given in respect of any such
insurance; or
(c) Breach: Lessee fails to comply with any other provision of this Agreement
and, if such failure is in the reasonable opinion of Lessor capable of
remedy, the failure continues for 5 days after notice from Lessor to
Lessee; or
(d) Representation: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any document or
certificate or statement is or proves to have been incorrect in any
material respect when made or deemed to be repeated; or
(e) Cross Default:
(i) a final judgment for the payment of money not covered by insurance
in excess of Two Hundred Fifty Thousand Dollars ($250,000), or final
judgments for the payment of money not covered by insurance in
excess of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate, shall be rendered against Lessee and the same shall
remain undischarged for a period of ninety (90) days during which
execution thereof shall not be effectively stayed by agreement of
the parties involved, stayed by court order or adequately bonded; or
(ii) attachments or other Security Interests shall be issued or entered
against substantially all of the property of Lessee and shall remain
undischarged or unbonded for ninety (90) days except for Security
Interests created in connection with monies borrowed or obligations
agreed to by Lessee in the ordinary course of its business; or
(iii) Lessee shall default in the payment of any sum which by itself is
in excess of $100,000 or any sums which in aggregate exceed $250,000
notwithstanding that any particular individual sum thereof does not
exceed $100,000 in respect of any one or more obligations for the
payment of borrowed money, for the deferred purchase price of
property or for the payment of rent or hire under any lease of
aircraft when the same becomes due if such nonpayment results in or
would permit an acceleration of such indebtedness, or Lessee shall
default in the performance of any other term, agreement, or
condition contained in any agreement or instrument under or by which
any such obligation is created, evidenced or secured, if the effect
of such default is to cause or permit such obligation to become due
prior to its stated maturity; or
(iv) any event of default or termination event, howsoever described,
occurs under the Other Agreements; or
55
<PAGE>
(f) Approvals: any consent, authorization, license, certificate or approval of
or registration with or declaration to any Government Entity in connection
with this Agreement (including, without limitation): -
(i) any authorization required by Lessee to obtain and transfer freely
Dollars (or any other relevant currency) out of any relevant
country; or
(ii) required by Lessee to authorize, or in connection with, the
execution, delivery, validity, enforceability or admissibility in
evidence of this Agreement or the performance by Lessee of its
obligations under this Agreement; or
(iii) the registration of the Aircraft; or
(iv) any airline license or air transport license including, without
limitation, authority to operate the Aircraft under FAR Part 121 and
a Certificate of Public Convenience and Necessity issued under
Section 41102 of Title 49 of the United States Code;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, canceled, withdrawn, terminated or not renewed, or
otherwise ceases to be in full force; or
(g) Bankruptcy, etc:
(i) Lessee or any Subsidiary consents to the appointment of a custodian,
receiver, trustee or liquidator of itself or all or any material
part of Lessee's property or Lessee's consolidated property, or
Lessee or any Subsidiary admits in writing its inability to, or is
unable to, or does not, pay its debts generally as they come due, or
makes a general assignment for the benefit of creditors, or Lessee
or any Subsidiary files a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization in a proceeding under any
bankruptcy or insolvency Laws (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed
against Lessee or any Subsidiary in any such proceeding, or Lessee
or any Subsidiary by voluntary petition, answer or consent seeks
relief under the provisions of any other bankruptcy, insolvency or
other similar Law providing for the reorganization or winding-up of
corporations, or provides for an agreement, composition, extension
or adjustment with its creditors, or any corporate action
(including, without limitation, any board of directors or
shareholder action) is taken by Lessee or any Subsidiary in
furtherance of any of the foregoing, whether or not the same is
fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any of its Subsidiaries, a
custodian, receiver, trustee or liquidator of Lessee or any
Subsidiary, or of all or any material part of Lessee's property or
Lessee's consolidated property is sequestered, and any such order,
56
<PAGE>
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30 days
after the date of entry thereof or at any time an order for relief
is granted; or
(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy Laws or other
insolvency Laws (as now or hereafter in effect) is filed and is not
withdrawn or dismissed within 30 days thereafter or at any time an
order for relief is granted in such proceeding, or if, under the
provisions of any Law providing for reorganization or winding-up of
corporations which may apply to Lessee or any Subsidiary, any court
of competent jurisdiction assumes jurisdiction over, or custody or
control of, Lessee or any Subsidiary or of all or any material part
of Lessee's property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect, unrelinquished,
unstayed or unterminated for a period of 30 days or at any time an
order for relief is granted in such proceeding; or
(h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations
under this Agreement or this Agreement becomes wholly or partly invalid or
unenforceable; or
(i) Suspension of Business: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a substantial
part of its business; or
(j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers
or threatens to dispose, convey or transfer of all or a material part of
its assets, liquidates or dissolves or consolidates or merges with any
other Person whether by one or a series of transactions, related or not,
other than for the purpose of a reorganization of the terms of which have
received the previous consent in writing of Lessor; or
(k) Rights and Remedies: the existence, validity, enforceability or priority
of the rights of Owner as owner and the rights of Lessor as lessor in
respect of the Aircraft or the rights of Owner as assignee of this
Agreement or Trustee as assignee under the Trustee Assignment are
challenged by Lessee or any other person claiming by or through Lessee; or
(l) Delivery: Lessee fails to timely comply with its obligations under Clause
4 to accept delivery of the Aircraft; or
(m) Ownership, Security Interests and Related Matters: Lessee fails to timely
comply with its obligations under Clause 8.7; or
(n) Transfer: Lessee makes or permits any assignment or transfer of this
Agreement, or any interest herein, or of the right to possession of the
Aircraft, the Airframe, or any Engine; or
(o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry
Date in accordance with Clause 12.
57
<PAGE>
(p) Adverse Change: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on the
financial condition or operations of Lessee and its Subsidiaries or on the
ability of Lessee to comply with its obligations under this Agreement; or
13.2 Rights: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at any
time thereafter (without notice to Lessee except as required under
applicable Law):-
(a) by notice to Lessee and with immediate effect on dispatch of such notice
terminate the letting of the Aircraft (but without prejudice to the
continuing obligations of Lessee under this Agreement), whereupon all
rights of Lessee under this Agreement shall cease; and/or
(b) proceed by appropriate court action or actions to enforce performance of
this Agreement, including, without limitation, the payment of all Rent and
all other amounts payable to Lessor or any Indemnitee pursuant to the
terms hereof; and/or
(c) proceed by appropriate court action or actions to recover damages for the
breach of this Agreement which shall include, without limitation: -
(i) all Rent and other amounts which are or become due and payable
hereunder prior to the date Lessor recovers possession of the
Aircraft ;
(ii) at Lessor's election, either one of the amounts determined pursuant
to Clause 13.2(e) or Clause 13.2(f) below or any lost profits
suffered by Lessor as a consequence of Lessor's inability to place
the Aircraft with another lessee on financial terms that are as
favorable to Lessor as the terms of this Agreement;
(iii) all costs associated with Lessor's exercise of its remedies
hereunder, including, but not limited to, repossession costs, legal
fees, Aircraft storage costs, Aircraft re-lease or sale costs and
Lessor's internal costs and expenses (including the cost of
personnel time calculated based upon the compensation paid to the
individuals involved on an annual basis and a general Lessor
overhead allocation);
(iv) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding any
financial instrument relating in whole or in part to Lessor's
financing of the Aircraft;
(v) any loss, cost, expense or liability sustained by Lessor due to
Lessee's failure to redeliver the Aircraft in the condition required
by this Agreement; and
(vi) any other losses (including lost profits), damage, expense, cost or
liability which Lessor suffers or incurs as a result of the Event of
Default and/or termination of this Agreement, including an amount
sufficient to fully
58
<PAGE>
compensate Lessor for any loss of or damage to Lessors residual
interest in the Aircraft caused by Lessee's default; and/or
(d) either: -
(i) enter upon the premises where all or any part of the Aircraft is
located and take immediate possession of and, at Lessor's sole
option, remove the same (and/or any engine which is not an Engine
but which is installed on the Airframe, subject to the rights of the
owner, lessor or secured party thereof) or cause it to be
redelivered to Lessor at a location in the United States identified
by Lessor (or such other location as Lessor may require) (the
"Return Location"), 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, or otherwise, caused by such entry or taking, except
damages caused by gross negligence or willful misconduct; and Lessor
is hereby irrevocably, by way of security for Lessee's obligations
under this Agreement, appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other pilots to
fly the Aircraft to that airport and will have all the powers and
authorizations necessary for taking that action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to Lessor
at Shannon International Airport, Ireland (or such other location as
Lessor may require); and/or
(e) sell at private or public sale, as Lessor may determine, or hold, use,
operate or lease to others the Aircraft as Lessor in its sole discretion
may determine, all free and clear of any rights of Lessee; and/or
(f) whether or not Lessor shall have exercised, or shall thereafter at any
time exercise, any of its rights under paragraph (a), paragraph (b),
paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2,
Lessor, by 30 days written notice to Lessee specifying a payment date, may
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the
payment date specified in such notice, as liquidated damages for loss of
bargain and not as a penalty (in lieu of the Rent due for the period
commencing after the date specified for payment in such notice), any
unpaid Rent for the Aircraft and other amounts owing under this Agreement
(prorated in the case of Rent on a daily basis) to and including the
payment date specified in such notice, plus the amount, if any, by which
the aggregate Rent for the remainder of the Term (determined without
reference to any right of Lessor to terminate the leasing of the Aircraft,
whether or not such right is exercised), discounted periodically (equal to
installment frequency) to present worth at the interest rate of 4 percent
(4%) per annum, exceeds the fair market rental value (determined pursuant
to the Appraisal Procedure) of the Aircraft for the remainder of the Term,
after discounting such fair market rental value periodically (equal to
installment frequency) to present worth as of the payment date specified
in such notice at the interest rate of 4 percent (4%) per annum; and/or
59
<PAGE>
(g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have
relet the Aircraft under a lease which extends at least to the date upon
which the Term for the Aircraft would have expired but for Lessee's
default, Lessor, in lieu of exercising its rights under Clause 13.2(f)
above with respect to the Aircraft, may, if it shall so elect, demand that
Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for
loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft
due after the time of reletting) any unpaid Rent for the Aircraft due up
to the date of reletting and any other amounts owing under this Agreement,
plus the amount, if any, by which the aggregate Rent for the Aircraft,
which would otherwise have become due over the remainder of the Term
(determined without reference to any right of Lessor to terminate the
leasing of the Aircraft, whether or not such right is exercised),
discounted periodically (equal to installment frequency) to present worth
as of the date of reletting at the interest rate of 4 percent (4%) per
annum, exceeds the aggregate basic rental payments to become due under the
reletting from the date of such reletting to the date upon which the Term
for the Aircraft would have expired but for Lessee's default, discounted
periodically (equal to installment frequency) to present worth as of the
date of the reletting at the interest rate of 4 percent (4%) per annum;
and/or
(h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f),
and (g) of this Clause 13.2, by 30 days written notice to Lessee
specifying a payment date, Lessor may demand that Lessee pay to Lessor,
and Lessee shall pay to Lessor on the payment date specified in such
notice as liquidated damages for loss of bargain and not as a penalty (in
lieu of the Rent due for the period commencing after the date specified
for payment in such notice), any unpaid Rent for the Aircraft and other
amounts payable under this Agreement (prorated in the case of Rent on a
daily basis) to and including the payment date specified in such notice,
plus an amount equaling the aggregate Rent for the remainder of the Term,
discounted periodically (equal to installment frequency) to present worth
at the interest rate of 4 per cent (4%) per annum;
(i) draw upon the Deposit or the Maintenance Reserves and apply such amounts
to amounts owing to Lessor hereunder.
Lessee, for itself and for its successors and assigns, hereby agrees that,
to the extent now or hereafter permitted by applicable Law,
notwithstanding any provision of the Federal Bankruptcy Code as amended
from time to time, the title of Lessor to the Aircraft and any right of
Lessor to take possession of the Aircraft in compliance with the
provisions of this Agreement, in each case, upon the occurrence and
continuance of an Event of Default, shall not be affected by the
provisions of the Federal Bankruptcy Code, as amended from time to time.
In addition to the foregoing, Lessee shall be liable for any and all
unpaid Rent and other amounts payable under this Agreement during or after
the exercise of any of the aforementioned remedies, together with interest
on such unpaid amounts at the rate set forth in Clause 5.11, and until
satisfaction of all of Lessee's obligations to Lessor hereunder and (on an
After-Tax Basis) for all reasonable legal fees and other reasonable costs
and expenses incurred by Lessor by reason of the occurrence of any Event
of
60
<PAGE>
Default or the exercise of Lessor's remedies with respect thereto,
including all costs and expenses incurred in connection with the return of
the Aircraft in accordance with the terms of Clause 12 hereof or in
placing the Aircraft in the condition and with airworthiness certification
as required by such Clause.
In effecting any repossession, Lessor and its representatives and agents,
to the extent permitted by Law, shall: (i) have the right to enter upon
any premises where it reasonably believes the Aircraft, the Airframe, an
Engine or Part to be located; (ii) not be liable, in conversion or
otherwise, for the taking of any personal property of Lessee which is in
or attached to the Aircraft, the Airframe, an Engine or Part which is
repossessed; provided, however, that Lessor shall return to Lessee all
personal property of Lessee or its passengers which was on the Aircraft at
the time Lessor re-takes possession of the Aircraft; (iii) not be liable
or responsible, in any manner, for any inadvertent damage or injury to any
of Lessee's property in repossessing and holding the Aircraft, the
Airframe, an Engine or Part, except for that caused by or in connection
with Lessor's gross negligence or willful acts; (iv) have the right to
maintain possession of and dispose of the Aircraft, the Airframe, an
Engine or Part on any premises owned by Lessee or under Lessee's control;
and (v) have the right to obtain a key to any premises at which the
Aircraft, the Airframe, an Engine or Part may be located from the landlord
or owner thereof.
If reasonably required by Lessor, Lessee, at its sole expense, shall
assemble and make the Aircraft, the Airframe, an Engine or Part available
at a place designated by Lessor in accordance with Clause 12 hereof.
Lessee hereby agrees that, in the event of the return to or repossession
by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in
any warranty (express or implied) previously assigned to Lessee or
otherwise held by Lessee shall without further act, notice or writing be
assigned or reassigned to Lessor, if assignable. Lessee shall be liable
to Lessor on an After-Tax Basis for all reasonable expenses,
disbursements, costs and fees incurred in (i) repossessing, storing,
preserving, shipping, maintaining, repairing and refurbishing the
Aircraft, the Airframe, an Engine or Part to the condition required by
Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine
or Part for sale or lease, advertising the sale or lease of the Aircraft,
the Airframe, an Engine or Part and selling or releasing the Aircraft,
the Airframe, an Engine or Part. Lessor is hereby authorized and
instructed, at its option, to make reasonable expenditures which Lessor
considers advisable to repair and restore the Aircraft, the Airframe, an
Engine or Part to the condition required by Clause 12 hereof, all at
Lessee's sole expense.
At any public sale of the Aircraft, the Airframe, an Engine or Part
pursuant to this Clause, Lessor may bid for and purchase such property and
Lessee agrees that the amounts paid therefor shall be used in the
computation contemplated herein.
With the exception that the remedy in Clause 13.2(g) can be elected only
if the remedy in Clause 13.2(f) is not elected and the remedy in Clause
13.2(h) can be elected only in lieu of all other remedies save the
remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this
Clause 13 is intended to be exclusive, but, to the extent permissible
61
<PAGE>
hereunder or under applicable Law, 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; provided, however, that nothing in this Clause 13 shall be
construed to permit Lessor to obtain a duplicate recovery of any element
of damages to which Lessor is entitled. No express or implied waiver by
Lessor of any Default or Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Default.
13.3 Deregistration: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or other
interest of Lessee as if this Agreement had never been made and Lessee
will at the request of Lessor take all steps necessary to effect (if
applicable) deregistration of the Aircraft and its export from the country
where the Aircraft is for the time being situated and any other steps
necessary to enable the Aircraft to be redelivered to Lessor in accordance
with this Agreement including without limitation execution and filing of a
certificate or other instrument of lease termination with the Air
Authority and; Lessee hereby irrevocably and by way of security for its
obligations under this Agreement appoints (which appointment is coupled
with an interest) Lessor as its attorney to execute and deliver any
documentation and to do any act or thing required in connection with the
foregoing.
14. ASSIGNMENT
14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR
INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO
EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its
rights under this Agreement and in the Aircraft. In the case of an
assignment other than by way of security, Lessor will be released from and
will have no further obligation under this Agreement following the
assignment of all its rights under this Agreement and the assumption by
the assignee or transferee of all of Lessor's obligations under this
Agreement. Notwithstanding any such assignment, Lessor will remain
entitled to the benefit of each indemnity and the liability insurances
effected under this Agreement. Lessee will comply with all reasonable
requests of Lessor, its successors and assigns in respect of any such
assignment. Lessor will promptly notify Lessee of any assignment.
14.3 Transfer: If Lessor desires to effect any assignment or transfer of its
rights and obligations under this Agreement, Lessee agrees to cooperate
and take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement and to acknowledge the release of
Lessor from its obligations hereunder as of the time of such assignment or
transfer.
62
<PAGE>
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give effect
to any of its obligations as contemplated by this Agreement or to continue
this Agreement, Lessor may by notice in writing to Lessee terminate the
leasing of the Aircraft under this Agreement and Lessee will forthwith
redeliver the Aircraft to Lessor in accordance with Clause 12. Without
prejudice to the foregoing Lessor will consult in good faith with Lessee
as to any steps which may be taken to restructure the transaction to avoid
that unlawfulness but will be under no obligation to take any such steps.
15A Lease Amendment
15A.1 As of, and with effect from, the Adjustment Date, this Agreement shall be
amended by the incorporation herein of the amendments set out in Schedule
8 to this Agreement.
15A.2 Lessee will arrange to have original certificates of insurance and, if
applicable, reinsurance and an undertaking or undertakings from the
Lessee's insurance brokers in accordance with the provisions of this
Agreement (as amended from the Adjustment Date in accordance with this
Clause 15A) made available to Lessor on or before the Adjustment Date,
provided that if original certificates and undertakings are not available
on or before the Adjustment Date, Lessor will accept copies thereof.
15A.3 Without prejudice to the generality of Clause 8.10(b) of this Agreement,
Lessee agrees to co-operate with Lessor in order to make any filing or
registration or to modify any existing filing or registration with the Air
Authority in order to reflect the release, on or after the Adjustment
Date, of any security created or to be created by the Lessor and/or Owner.
15A.4 Except as expressly set forth in Schedule 8 the notification by the Lessor
to the Lessee of the Adjustment Date shall not affect the rights and
obligations of the Lessee under this Agreement.
16. MISCELLANEOUS
16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any Law; and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not constitute
a waiver of that right.
16.2 Delegation: Lessor may delegate to any person or persons all or any of the
trusts, powers or discretions vested in it by these presents and any such
delegation may be made
63
<PAGE>
upon such terms and conditions and subject to such regulations (including
power to sub-delegate) as Lessor in its absolute discretion thinks fit.
16.3 Certificates: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or as to
any other amount payable under this Agreement will, in the absence of
manifest error, be conclusive and binding on Lessee.
16.4 Appropriation: If any sum paid or recovered in respect of the liabilities
of Lessee under this Agreement is less than the amount then due, Lessor
may apply that sum to amounts due under this Agreement in such proportions
and order and generally in such manner as Lessor may determine at its sole
discretion.
16.5 Currency:
Lessee acknowledges that the specification of Dollars in this Agreement is
of the essence and that Dollars shall be the currency of account in any
and all events. Lessee waives any right it may have in any jurisdiction
to pay any amount under this Agreement in a currency other than Dollars.
16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under
this Agreement, the Other Agreements to which Lessor is a party or under
any other agreement between Lessor (or any affiliate or associate of
Lessor) and Lessee (to the extent beneficially owned by Lessor) against
any obligation (whether or not matured) owed by Lessor to Lessee,
regardless of the place of payment or currency. If the obligations are in
different currencies, Lessor may convert either obligation at the market
rate of exchange available in New York or at its option London for the
purpose of the set-off. If an obligation is unascertained or unliquidated,
Lessor may in good faith estimate that obligation and set off in respect
of the estimate, subject to the relevant party accounting to the other
when the obligation is ascertained or liquidated. Lessor will not be
obliged to pay any amounts to Lessee under this Agreement so long as any
sums which are then due from Lessee under this Agreement, the Other
Agreements or under any other agreement between Lessor (or any affiliate
or associate of Lessor) and Lessee remain unpaid and any such amounts
which would otherwise be due will fall due only if and when Lessee has
paid all such sums except to the extent Lessor otherwise agrees or sets
off such amounts against such payment pursuant to the foregoing.
16.7 Severability: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
(a) the legality, validity or enforceability in that jurisdiction of any other
provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of that
or any other provision of this Agreement.
64
<PAGE>
16.8 Remedy: If Lessee fails to comply with any provision of this Agreement,
Lessor may, without being in any way obliged to do so or responsible for
so doing and without prejudice to the ability of Lessor to treat the non-
compliance as a Default or an Event of Default, effect compliance on
behalf of Lessee, whereupon Lessee shall become liable to pay immediately
any sums expended by Lessor together with all costs and expenses
(including legal costs) in connection therewith.
16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to
this Agreement, Lessee will pay to Lessor on an After-Tax Basis on
demand:-
(a) all costs associated with perfecting the Owner's, the Trustee's, the
Banks and/or the Lessor's rights in the Aircraft and/or this
Agreement in the State of Registration, the Habitual Base of the
Aircraft (and other states as appropriate given the operation of the
Aircraft), including (but not limited to) the provision of legal
opinions, tax advice, stamp duties, translations and registrations,
whether required by Lessor or Lessee.
(b) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor related to any amendment to
or extension of or other documentation in connection with, or the
granting of any waiver or consent under this Agreement requested by
Lessee or the monitoring of compliance by Lessee with this
Agreement; and
(c) all expenses (including legal, survey and other costs) payable or
incurred by Lessor in contemplation of, or otherwise in connection
with, the enforcement of or preservation of any of Lessor's or
Owner's rights under this Agreement, or in respect of the
repossession of the Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 Time of Essence: The time stipulated in this Agreement for all payments
payable by Lessee to Lessor and the prompt, punctual and performance of
Lessee's other obligations under this Agreement are of the essence of this
Agreement.
16.11 Notices: All notices under, or in connection with, this Agreement will,
unless otherwise stated, be given in writing by letter, facsimile or
SITA. Any such notice is deemed effectively to be given as follows:-
(i) if by letter, on the earlier of the date when delivered or the 7th
day after dispatch;
(ii) if by facsimile or SITA, when transmitted and full transmission has
been separately notified by telephone by the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee, Lessor and Owner are as follows:-
65
<PAGE>
<TABLE>
<S> <C> <C>
Lessee: Address: 12015 East 46th Avenue
Denver, Colorado 80239
United States of America
Attn: General Counsel
SITA: DENGAF9
Facsimile: (303) 371-7007
Telephone: (303) 371-7400
Lessor: Address: GPA House,
Shannon,
Co. Clare,
Ireland.
Attn: Company Secretary
SITA: SNNGAEI
Facsimile: 353-61-360888
Telephone: 353-61-360000
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Owner: Address: GPA House,
Shannon,
Co. Clare,
Ireland.
Attn: Company Secretary
SITA: SNNGAEI
Facsimile: 353-61-360888
Telephone: 353-61-360000
</TABLE>
16.12 Governing Law and Jurisdiction:
(a) THIS AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS IN ALL RESPECTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT
REFERENCE TO CONFLICT OF LAWS PRINCIPLES);
(b) For the benefit of Lessor, Lessee agrees that the courts of the United
States District Court for the Northern District of California and any
California state court sitting in the City of San Francisco, California
are to have nonexclusive jurisdiction to settle any disputes arising out
of or relating to this Agreement and the other Operative Documents and
submits itself and its property to the nonexclusive jurisdiction of the
foregoing courts with respect to such disputes;
(c) Without prejudice to any other mode of service, Lessee: -
(i) appoints The Prentice-Hall Corporation System, Inc., 1455 Response
Road, Suite 250, Sacramento, California, 95815 as its agent for
service of process relating to any proceedings before the California
courts in connection with this Agreement and agrees to maintain the
process agent in California notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such proceedings
by prepaid mailing of a copy of the process to Lessee's agent at the
address identified in paragraph (i) or by prepaid mailing by air
mail, certified or registered mail of a copy of the process to
Lessee at the address set forth in Clause 16.11;
(d) LESSEE: -
(i) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE COURTS REFERRED TO IN CLAUSE
16.12(b) ABOVE ON GROUNDS OF INCONVENIENT FORUM OR OTHERWISE AS
67
<PAGE>
REGARDS PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER
OPERATIVE DOCUMENTS;
(ii) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND/OR THE OTHER OPERATIVE DOCUMENTS BROUGHT IN THE COURTS REFERRED
TO IN CLAUSE 16.12(b);
(iii) AGREES THAT A JUDGMENT OR ORDER OF ANY COURT REFERRED TO IN CLAUSE
16.12(b) IN CONNECTION WITH THIS AGREEMENT AND/OR ANY OF THE OTHER
OPERATIVE DOCUMENTS IS CONCLUSIVE AND BINDING ON IT AND MAY BE
ENFORCED AGAINST IT IN THE COURTS OF ANY OTHER JURISDICTION;
(e) NOTHING IN THIS CLAUSE 16.12 LIMITS THE RIGHT OF LESSOR TO BRING
PROCEEDINGS AGAINST LESSEE IN CONNECTION WITH THIS AGREEMENT AND/OR
ANY OF THE OTHER OPERATIVE DOCUMENTS: -
(i) IN ANY OTHER COURT OF COMPETENT JURISDICTION; OR
(ii) CONCURRENTLY IN MORE THAN ONE JURISDICTION;
(f) LESSEE IRREVOCABLY AND UNCONDITIONALLY: -
(i) AGREES THAT IF LESSOR BRINGS LEGAL PROCEEDINGS AGAINST IT OR ITS
ASSETS IN RELATION TO THIS AGREEMENT AND/OR ANY OF THE OTHER
OPERATIVE DOCUMENTS NO IMMUNITY FROM SUCH LEGAL PROCEEDINGS (WHICH
WILL BE DEEMED TO INCLUDE WITHOUT LIMITATION, SUIT, ATTACHMENT PRIOR
TO JUDGMENT, OTHER ATTACHMENT, THE OBTAINING OF JUDGMENT, EXECUTION
OR OTHER ENFORCEMENT) WILL BE CLAIMED BY OR ON BEHALF OF ITSELF OR
WITH RESPECT TO ITS ASSETS;
(ii) WAIVES ANY SUCH RIGHT OF IMMUNITY WHICH IT OR ITS ASSETS NOW HAS OR
MAY IN THE FUTURE ACQUIRE;
(iii) CONSENTS GENERALLY IN RESPECT OF ANY SUCH PROCEEDINGS TO THE GIVING
OF ANY RELIEF OR THE ISSUE OF ANY PROCESS IN CONNECTION WITH SUCH
PROCEEDINGS INCLUDING, WITHOUT LIMITATION, THE MAKING, ENFORCEMENT
OR EXECUTION AGAINST ANY PROPERTY WHATSOEVER (IRRESPECTIVE OF ITS
USE OR INTENDED USE) OF ANY ORDER OR
68
<PAGE>
JUDGMENT WHICH MAY BE MADE OR GIVEN IN SUCH PROCEEDINGS.
16.13 Sole and Entire Agreement: This Agreement and the other Operative
Documents are the sole and entire agreement between Lessor and Lessee in
relation to the leasing of the Aircraft, and supersede all previous
agreements in relation to that leasing.
16.14 Indemnities: All rights expressed to be granted to each Indemnitee under
this Agreement (other than Lessor) are given to Lessor on behalf of that
Indemnitee.
16.15 Counterparts: This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. To the extent, if any, that this
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 Agreement may be created through the transfer or
possession of any counterpart other than the counterpart that has been
marked "Counterpart No. 1" on the cover page thereof.
16.16 Language: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between the
English version of this Agreement and any version in any other language,
the English version will prevail.
16.17 No Brokers: Lessee hereby represents and warrants that it has not paid,
agreed to pay or caused to be paid directly or indirectly in any form, any
commission, percentage, contingent fee, brokerage or other similar
payments of any kind, in connection with the establishment or operation of
this Agreement, to any employee of Lessor or to any person or entity in
the State of Registration or elsewhere, except to Excluded Persons, as
herein defined. Lessor hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessee or to any person or
entity in the State of Registration or elsewhere, except to Excluded
Persons, as herein defined. For the purposes hereof, the term "Excluded
Persons" shall mean (x) in the case of Lessor, any of its officers,
directors, employees, attorneys or other professional advisors, whether
located in the State of Registration or elsewhere, and (y) in the case of
Lessee, any of its officers, directors, employees, attorneys or other
professional advisors, whether located in the State of Registration or
elsewhere. Each party agrees to indemnify and hold the other harmless
from and against any and all claims, suits, damages, costs and expenses
(including, but not limited to reasonable attorneys' fees) asserted by any
agent, broker or other third party for any commission or compensation of
any nature whatsoever based upon this Agreement or the Operative Documents
or the Aircraft, if such claim damage, cost or expense arises out of any
action or alleged action by the indemnifying party, its employees or
agents.
69
<PAGE>
17. DISCLAIMERS AND WAIVERS
17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS,
WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY
STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO,
AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER
BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR
FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR
OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH
RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: -
(a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS,
OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE
LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY,
CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP,
THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS
TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED
(INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR
DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY
PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT
OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: -
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER
CIRCUMSTANCE IN CONNECTION THEREWITH;
(ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS
RELATING THERETO;
(iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED
PROFITS OR CONSEQUENTIAL DAMAGES;
(iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT
OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR
(v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
70
<PAGE>
17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS
RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER
ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR
PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR
THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE
2.4.
17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE
ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY
OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES (AS SUCH TERM IS DEFINED
IN SECTION 10520(B) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE) AS A RESULT
OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS,
REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE
OTHER OPERATIVE DOCUMENTS.
17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF
THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this Agreement
unless it had available to it the benefits of a lessor under Section 1110
of Title 11 of the United States Code. Lessee covenants and agrees with
Lessor that to better ensure the availability of such benefits, Lessee
shall support any motion, petition or application filed by Lessor with any
bankruptcy court having jurisdiction over Lessee, whereby Lessor seeks
recovery of possession of the Aircraft under said Section 1110 and shall
not in any way oppose such action by Lessor unless Lessee shall have
complied with the requirements of said Section 1110 to be fulfilled in
order to entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is
repealed and another statute is enacted in lieu thereof, Lessor and Lessee
agree to amend this Agreement and take such other action not inconsistent
with this Agreement as Lessor reasonably deems necessary so as to afford
to Lessor the rights and benefits as such amended or substituted statute
confers upon owners and lessors of aircraft similarly situated to Lessor.
19. USURY LAWS: The parties intend to contract in strict compliance with the
usury Laws of the States of California and Colorado and, to the extent
applicable, the United States of America. Notwithstanding anything to the
contrary in the Operative Documents, Lessee will not be obligated to pay
any interest in excess of the maximum non-usurious interest rate, as in
effect from time to time, which may by applicable Law be charged,
contracted for, reserved, received or collected by Lessor in connection
with
71
<PAGE>
the Operative Documents. During any period of time in which the then-
applicable highest lawful rate is lower than the rate specified in Clauses
5.11 or 13.2, interest will accrue and be payable at such highest lawful
rate; however, if at later times such highest lawful rate is greater than
the rate specified in Clauses 5.11 or 13.2, then Lessee will pay interest
at the highest lawful rate until the aggregate amount of interest paid by
Lessee equals the amount of interest that would have been payable in
accordance with the interest rate specified in Clauses 5.11 or 13.2.
20. MODIFICATION OR REVISION:
Neither this Agreement nor any term of this Agreement may be modified,
rescinded, changed waived, discharged or terminated except by a writing
signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provision of this Clause 20 by their initials below:-
LESSOR: /s/ Patricia Harwey LESSEE: /s/ (Signature)
--------------------- -----------------------
72
<PAGE>
21. IN WITNESS whereof the parties hereto have executed this Agreement on the
date shown at the beginning of this Agreement.
WITNESS SIGNED on behalf of GPA II LIMITED
By: /s/ Patricia Harwey
--------------------------------
Name: Patricia Harwey
------------------------------
Title: Attorney-in-fact
-----------------------------
WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC.
By: /s/ William B. Durlin
--------------------------------
Name: William B. Durlin
------------------------------
Title: Vice President
-----------------------------
73
<PAGE>
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
- --------
MANUFACTURER: Boeing
MODEL: 737-300
SERIAL NUMBER: 23177
ENGINES
- -------
ENGINE TYPE: CFM-56-3B1
SERIAL NOS: SN 721185; SN 720381
On the Delivery Date the Aircraft shall be in the following condition:-
(a) the Airframe will be ex a block "D" Check in accordance with Boeing
Maintenance Planning Document ("MPD");
(b) each Engine shall have not less than 3,500 Cycles to next scheduled life
limited part replacement;
(c) all logos shall be deleted from the Aircraft;
(d) components shall have not less than 12 months, 3,000 Flight Hours and
Cycles, or 100% of their approved life remaining, whichever is less in
accordance with the Previous Operator's Maintenance Program;
(e) have had accomplished all outstanding (i.e. at or prior to the Delivery
Date) mandatory inspection and modification requirements, airworthiness
directives and similar requirements applicable to the Aircraft, any Engine
or Part having a compliance date prior to the Delivery Date or within 180
days after the Delivery Date and which are required by the Air Authority,
and/or the FAA and/or mandated by any manufacturer of the Aircraft, any
Engine or Part;
(f) shall have no open, deferred, continued, carryover or placarded log book
items; and
[(g) equipped for operation under FAR Part 121 in accordance with the Previous
Operator's commercial service.]
74
<PAGE>
PART 2
AIRCRAFT DOCUMENTS
[SHANNON PREPARING]
[Such documents as shall be agreed between Lessor and Lessee prior to the
Delivery Date?]
75
<PAGE>
SCHEDULE 2
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on the date set out below by
Frontier Airlines, Inc. ("Lessee"), to GPA II Limited ("Lessor"), pursuant to
the Aircraft Lease Agreement dated as of the 20th of October 1995 between Lessor
and Lessee (the "Agreement"). The capitalized terms used in this Certificate
shall have the meaning given to such terms in the Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this
[ ] day of [ ], 199[ ], at [ ], accepted the following, in accordance with
the provisions of the Agreement:
(a) Boeing Model 737-300 airframe, Manufacturer's Serial No. 23177;
(b) CFM-56-3B1 Engines: -
Engine Manufacturer's Serial Nos.
1)
2)
(Each of which shall have more than 750 rated takeoff horsepower or the
equivalent of such horsepower);
(c) Fuel Status: Kilos [ ];
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee and
attached hereto; and
(e) Aircraft Documents: as per list signed by Lessor and Lessee and attached
hereto.
76
<PAGE>
2. HOURS AND CYCLES DATA (as of Delivery Date)
(a) Airframe:
---------
Number of Hours since last phase "D" Check (Heaviest Check): ______ hours
-----------------------------------------------------------
"C" Check (or Equivalent):
-------------------------
Interval: ___________________________
Time Since: _______________________
(b) Landing Gear Overhaul:
---------------------
Number of Cycles Since Last Overhaul:
Left Gear __________________________ cycles
Right Gear _________________________ cycles
Nose Gear _________________________ cycles
Center Gear ________________________ cycles
Interval: Left Gear _________________________
Right Gear _________________________
Nose Gear _________________________
Center Gear ________________________
(c) Engines:
-------
Number of Hours Since Last Heavy Shop Visit:
S/N ___________:______ hours
S/N ___________:______ hours
Number of Hours Since Last Hot Section Refurbishment:
S/N ___________:______ hours
S/N ___________:______ hours
Number of Hours Since Last Cold Section Refurbishment:
S/N ___________:______ hours
77
<PAGE>
S/N ___________:______ hours
Hot Section Inspection:
Interval: ___________________________
Time Since (S/N ______________): __________________________
Time Since (S/N ______________): __________________________
Time Remaining to First Restriction:
Engine S/N: __________
Hours:__________ Restriction: _______
Cycles:__________ Restriction: _______
Engine S/N: __________
Hours:__________ Restriction: _______
Cycles:__________ Restriction: _______
Average Cycles in Life Limited Parts (see attached Schedule):_________
(d) Auxiliary Power Unit:
--------------------
Number of APU Hours Since Last Heavy Shop Visit:
__________ hours Date accomplished __________
Hot Section Inspection:
Interval: ________________________
Time Since: ________________________
(e) Time Controlled Components: [See attached DUJX Report]
--------------------------
(f) Fuel on Board on Inspection Date: ________________________
--------------------------------
(g) Interior Equipment:
------------------
Number of Passenger Seats and Configuration:_______________
____________________
Number of Galleys and Location: _________ _______
78
<PAGE>
Number of Lavatories and Location: _________ __________
LOPA - Attached _________ __________
List of Loose Equipment on Board:
____________________________________________ _________________
____________________________________________ _________________
____________________________________________ _________________
____________________________________________ _________________
____________________________________________ _________________
____________________________________________ _________________
(h) Avionics:
--------
Description Model Part No.
----------- ----- --------
__________________________________ ____________ _____________
__________________________________ ____________ _____________
__________________________________ ____________ _____________
__________________________________ ____________ _____________
__________________________________ ____________ _____________
__________________________________ ____________ _____________
79
<PAGE>
3. ACCEPTANCE:
The undersigned hereby confirms that the Aircraft, Engines, Parts and
Aircraft Documents are acceptable to it, satisfy all of the Delivery
Condition Requirements and are in the condition for delivery to and
acceptance by Lessee as required under the Agreement. Lessee's execution
and delivery of this certificate signifies Lessee's absolute and
irrevocable acceptance of delivery of the Aircraft to it for all purposes
hereof and of the Agreement.
IN WITNESS WHEREOF, Lessee has, by its duly authorized representative,
executed this Certificate on the date in paragraph 1 above.
LESSEE: FRONTIER AIRLINES, INC.
By: _________________________
Title: ______________________
80
<PAGE>
SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear generally,
will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be in the same configuration as on the Delivery Date or as reasonably
requested by Lessor;
(b) be clean by airline standards;
(c) have installed the full complement of engines and other equipment, parts
and accessories as is normally installed in the Aircraft and the loose
equipment as was installed in the Aircraft at the time of Delivery, and be
in a condition suitable for immediate operation in commercial service;
(d) have in existence a valid certificate of airworthiness (or if required by
Lessor, a valid export certificate of airworthiness) with respect to the
Aircraft issued by the Air Authority;
(e) comply with the manufacturer's original specifications;
(f) have undergone, immediately prior to redelivery, a block 'C' Check so that
all Airframe inspections falling due within the next following 3,000
Flight Hours, 3,000 Cycles or the first 12 months of operation in
accordance with the Agreed Maintenance Program, have been accomplished;
(g) have had accomplished all outstanding (i.e. at or prior to the Expiry
Date) mandatory inspection and modification requirements, airworthiness
directives and similar requirements applicable to the Aircraft, any Engine
or Port having a compliance date during the Term or within 180 days after
the Expiry Date and which are required by the Air Authority, and/or the
FAA and/or mandated by any manufacturer of the Aircraft, any Engine or
Part;
(h) have installed all applicable vendor's and manufacturer's service bulletin
kits received free of charge by Lessee that are appropriate for the
Aircraft and to the extent not installed, those kits will be furnished
free of charge to Lessor;
(i) be in the Lessee's external livery, logos deleted; and
81
<PAGE>
(j) have all signs and decals clean, secure and legible.
(k) shall have no open, deferred, continued, carryover or placarded log book
items.
2. COMPONENTS
(a) Each life-limited component (other than the APU) shall have not less than
3,000 Flight Hours and Cycles or 100% of their approved life remaining
(whichever is less) to the next scheduled removal, in accordance with the
Agreed Maintenance Program;
(b) Each calendar-limited component will have not less than 12 months life
remaining to the next scheduled removal in accordance with the Agreed
Maintenance Program;
(c) Each "on-condition" and "condition monitored" component will be
serviceable;
(d) The APU will have not more than 2,000 Flight Hours since the last hot
section refurbishment and shall be free of any defects as determined by
manufacturer limits; and
(e) The installed components as a group will have an average of total flight
time since new of not more than that of the Airframe.
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Delivery Date will be accompanied by all documentation
Lessor may require to evidence that title thereto is properly vested in
Owner and will:-
(a) have not less than 3,500 Cycles to next scheduled life limited part
replacement and have an expected on-wing remaining life of 3,500 Cycles.
The expected life remaining will be determined by the inspection and
checks accomplished by Lessor in accordance with this Agreement;
(b) not be "on watch". (For purposes of the Agreement "on watch" shall mean
any maintenance condition that would require an Engine removal and/or
reinspection or airworthiness directive action that would require an
Engine removal within 3,500 Cycles of the Expiry Date); and
(c) be in a condition which can operate at maximum rated take off power at sea
level at a temperature of 45(degrees)C.
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions, temporary repairs,
and loose or pulled or missing rivets and any patches installed shall be
in accordance with the manufacturers approved data for permanent repair;
(b) Windows will be free of delamination, blemishes, crazing and will be
properly sealed; and
82
<PAGE>
(c) Doors will be free moving, correctly rigged and be fitted with serviceable
seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Control surfaces will be waxed and polished;
(c) Unpainted cowlings and fairings will be polished; and
(d) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks
and stains;
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR fire resistance regulations;
(c) Seats will be serviceable, in good condition and repainted as necessary;
and
(d) Emergency equipment having a calendar life will have a minimum of 1 year
or 100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Fairing panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Floor coverings will be clean and effectively sealed;
(c) Seat covers will be in good condition, clean and free of stains and will
conform to FAR fire resistance regulation; and
(d) Seats will be serviceable, in good condition and will be repainted as
necessary.
8. CARGO COMPARTMENTS
(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
The landing gear and wheel wells will be clean, free of leaks and repaired
as necessary. Wheels and brakes shall be in a half life condition or
better.
83
<PAGE>
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Program;
(b) The entire fuselage will be substantially free from corrosion and will be
adequately treated and an approved corrosion prevention program will be in
operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment program will be in operation.
84
<PAGE>
SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed Value
and with a deductible not exceeding $250,000, or such other amount agreed
by Lessor from time to time;
(b) [HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All
Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition by
the State of Registration for the Agreed Value, however, when the Aircraft
is being operated solely in or over the United States of America and/or
Canada, coverage may be limited to such perils as are customarily insured
by comparable airlines, operating similar equipment in similar
circumstances;]
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in
transit other than by air) property insurance on all Engines and Parts
when not installed on the Aircraft on an "agreed value" basis for their
full replacement value and including engine test and running risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL
AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a
Combined Single Limit (Bodily Injury/Property Damage) of an amount not
less than the Minimum Liability Coverage for the time being any one
occurrence (but in respect of products and personal injury liability this
limit may be an aggregate limit for any and all losses occurring during
the currency of the policy). [War and Allied Risks are also to be covered
under the Policy in line with prudent market practice for comparable
airlines, operating similar equipment in similar circumstances (AVN52C is
the current market language)];
(e) All required hull and spares insurance (as specified above), so far as it
relates to the Aircraft will: -
(i) name Lessor, Owner, Trustee and their respective successors and
assigns as additional assureds for their respective rights and
interests, warranted, each as to itself only, no operational
interest;
(ii) provide that any loss will be settled jointly with Lessor and
Lessee, subject to final prior approval of Security Agent and will
be payable in Dollars to Security Agent, for the account of all
interests except where the loss does not exceed the Damage
Notification Threshold, and neither Lessor nor Security Agent has
notified the insurers to the contrary, in which case the loss will
be settled with and paid to Lessee;
85
<PAGE>
(iii) include a notice and/or acknowledgment of assignment (relating to
the assignment of Lessor's interest in the Insurances to Trustee)
in a form acceptable to Lessor;
(iv) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(v) confirm that the insurers are not entitled to replace the Aircraft
in the event of an insured Event of Loss;
(vi) confirm that the insurers will not obtain a valid discharge of the
obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Lessor, Owner, the Trustee GECASI, GECASL, and their
respective successors and assigns and their respective
shareholders, subsidiaries, directors, officers, agents, employees
and indemnitees as additional insureds for their respective rights
and interests, warranted, each as to itself only, no operational
interest;
(ii) include a Severability of Interest Clause which provides that the
insurance, except for the limit of liability, will operate to give
each assured the same protection as if there was a separate policy
issued to each assured;
(iii) contain a provision confirming that the policy is primary without
right of contribution and the liability of the insurers will not be
affected by any other insurance of which Lessor, Owner, Trustee or
Lessee have the benefit so as to reduce the amount payable to the
additional insureds under such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons operating
similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies which
Lessor may reasonably require in relation to liability insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Owner and is subject to
the Head Lease and that the Insurances are subject to a security
assignment in favor of Owner;
86
<PAGE>
(v) provide that, in relation to the interests of each of the
additional assureds the Insurances will not be invalidated by any
act or omission by Lessee, or any other person other than the
respective additional assured seeking protection and shall insure
the interests of each of the additional assureds regardless of any
breach or violation by Lessee, or any other person other than the
respective additional assured seeking protection of any warranty,
declaration or condition, contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any rights
of recourse and/or subrogation against the additional assureds,
including GECASI and GECASL or to be subrogated to any rights of
Trustee against Lessor, Owner, GECASI, GECASL or Lessee;
(vii) provide that the additional assureds will have no obligation or
responsibility for the payment of any premiums due (but reserve the
right to pay the same should any of them elect so to do) and that
the insurers will not exercise any right of set-off or counter-
claim in respect of any premium due against the respective
interests of the additional assureds other than outstanding
premiums relating to the Aircraft, any Engine or Part the subject
of the relevant claim;
(viii) provide that the Insurances will continue unaltered for the benefit
of the additional assureds for at least 30 days after written
notice by registered mail or telex of any cancellation, change,
event of non-payment of premium or installment thereof has been
sent to Lessor, Owner and Security Agent, except in the case of war
risks for which 7 days (or such lesser period as is or may be
customarily available in respect of war risks or allied perils)
will be given, or in the case of war between the 5 great powers or
nuclear peril for which termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such reinsurance
will (i) be on the same terms as the original insurances and will
include the provisions of this Schedule, (ii) provide that
notwithstanding any bankruptcy, insolvency, liquidation,
dissolution or similar proceedings of or affecting the reinsured
that the reinsurers' liability will be to make such payments as
would have fallen due under the relevant policy of reinsurance if
the reinsured had (immediately before such bankruptcy, insolvency,
liquidation, dissolution or similar proceedings) discharged its
obligations in full under the original insurance policies in
respect of which the then relevant policy of reinsurance has been
effected; and (iii) contain a "cut-through" clause in the following
form (or otherwise, satisfactory to Lessor): "The Reinsurers and
the Reinsured hereby mutually agree that in the event of any claim
arising under the reinsurances in respect of a total loss or other
claim where as provided by the Aircraft Lease Agreement dated as of
October 20, 1995 and made between GPA II Limited and Frontier
Airlines, Inc. such claim is to be paid to the person named as sole
loss payee under the primary insurances, the Reinsurers will in
lieu of payment to the Reinsured, its successors in interest and
assigns pay to the person named
87
<PAGE>
as sole loss payee under the primary insurances effected by the
Reinsured that portion of any loss due for which the Reinsurers
would otherwise be liable to pay the Reinsured (subject to proof of
loss), it being understood and agreed that any such payment by the
Reinsurers will (to the extent of such payment) fully discharge and
release the Reinsurers from any and all further liability in
connection therewith"; subject to such provisions not contravening
any law of the State of Incorporation;
(x) contain a provision entitling Lessor, or any insured party to
initiate a claim under any policy in the event of the refusal or
failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of this Agreement and of
the Revolving Credit Agreement dated 13th September 1993 made
between Lessor, Owner and certain banks as amended from time to
time (Article 45.7) to the extent of the risks covered by the
policies.
88
<PAGE>
SCHEDULE 5
ACKNOWLEDGMENTS IN CONNECTION WITH FINANCING
PART 1
NOTICE OF ASSIGNMENT
From: GPA II Limited
To: Frontier Airlines, Inc.
[Date]
Dear Sirs,
We hereby give you notice that by an Assignment dated [ ], 19[] (the
"Assignment") between us and GPA Finance (Bermuda) Limited of GPA House,
Shannon, Co. Clare, Ireland ("Assignee") we have assigned absolutely to Assignee
all our right, title and interest in and to the Aircraft Lease Agreement dated
as of 20th October, 1995 (the "Lease") between ourselves and yourselves relating
to one Boeing 737-300 aircraft with manufacturer's serial number 23177 together
with the two installed CFM-56-3B1 engines (the "Aircraft").
Henceforth all monies that may be payable by you under the Lease shall continue
to be paid to the bank account specified in the Lease unless and until the
Assignee otherwise directs, whereupon you are authorized and required to comply
with the Assignee's directions.
This notice and the instructions herein contained are irrevocable. Please
acknowledge receipt of this notice to the Assignee on the enclosed
Acknowledgment. You are hereby authorized to assume the obligations expressed to
be assumed by you thereunder to the effect that, so far as the same would
otherwise be incompatible therewith, your obligations to us under the Lease will
be modified accordingly.
Yours faithfully,
For and on behalf of GPA II Limited
89
<PAGE>
PART 2
ACKNOWLEDGMENT
From: Frontier Airlines, Inc.
To: GPA Finance (Bermuda) Limited [Date]
Dear Sirs,
We acknowledge receipt of a Notice of Assignment dated [ ] (the "Assignment
Notice") relating to an assignment (the "Assignment") between GPA II Limited
(the "Assignor") and you. We acknowledge that we will not challenge the
effectiveness of the Assignment to confer on you all rights, title and interest
of the Assignor under the Aircraft Lease Agreement dated as of 20th October,
1995 between Assignor and ourselves (the "Lease") in respect of one Boeing 737-
300 aircraft with manufacturer's serial number 23177 together with the two
installed CFM-56-3B1 engines.
In consideration of payment to us of $1 and for other valuable consideration,
receipt of which we hereby acknowledge, we hereby agree as follows:-
If you issue to us a notice (a "Lessor Default Notice") that your rights as
assignee under the Assignment have become exercisable we agree that we will
thereafter (a) pay to you at such account as you may nominate all rentals and
other amounts from time to time payable by us under the Lease; (b) perform,
observe and comply with all our other undertakings and obligations under the
Lease in your favor and for your benefit as if you were named as Lessor therein
instead of the Assignor; and (c) if you so request, enter into a lease with you
or your nominee, on the same terms (mutatis mutandis) as the Lease.
If the Assignor is in breach of any of its obligations, express or implied,
under the Lease, or if any event occurs which would permit us to terminate,
cancel or surrender the Lease we will (a) immediately upon becoming aware of it,
give you notice of such breach or event, (b) accept as adequate remedy for any
such breach performance by you of such obligations within 7 days of our written
notice to you; and (c) if you so request, enter into a lease with you or your
nominee on terms identical to the Lease, mutatis mutandis.
We agree that after issue by you of any Lessor Default Notice, we will not
recognize the exercise by the Assignor of any of its rights and powers under the
Lease unless and until requested to do so by you.
90
<PAGE>
We agree that you will have the benefit of Clause 10 of the Lease (Indemnity)
and agree that we are bound by the terms of such clause, as though the same were
set out herein in full, mutatis mutandis.
Yours faithfully,
For and on behalf of Frontier Airlines, Inc.
91
<PAGE>
SCHEDULE 6
FORM OF LEGAL OPINION
To: GPA II Limited
GPA House
Shannon
County Clare
Ireland
National Westminster Bank plc
NWM Agency Group,
3rd Floor
Juno Court
24 Prescot Street
London EI 8BB England
on behalf of the Banks (as defined in the Lease)
[Date]
Dear Sirs,
1. You have asked us to render an opinion in connection with the transaction
governed, inter alia, by the under mentioned documents. Words and
expressions used herein will bear the same meanings as defined in an
Aircraft Lease Agreement (the "Lease") dated [ ] 1995 between [ ]
("Lessor") and Frontier Airlines, Inc. ("Lessee") in respect of one Boeing
737-300 aircraft with manufacturer's serial number 23177 together with the
two installed engines (the "Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the opinion
expressed below.
2. Having considered the documents listed in paragraph 1 above, and having
regard to the relevant laws of [State of California] [the State of
Colorado] we are pleased to advise that in our opinion:-
92
<PAGE>
(a) Lessee was duly incorporated in the State of [ ] on [ ] for an
indefinite period as a limited company and is a validly existing separate
legal entity, is subject to suit in its own name, and, to the best of our
knowledge, no steps have been, or are being, taken to appoint a receiver,
liquidator, trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has taken
all necessary corporate action to authorize the entry into, performance
and delivery of, the Lease and the transactions contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any document which is
binding upon Lessee or any of its assets or result in the creation
of any Security Interest over any of its assets.
(d) no authorizations, consents, licenses, approvals and registrations (other
than those which have been obtained and of which copies are attached
hereto) are necessary or desirable to be obtained from any governmental or
other regulatory authorities in the United States of America (the "United
States") to enable Lessee:-
(1) to enter into and perform the transactions contemplated by the
Lease;
(2) to import the Aircraft into the United States for the duration of
the Term;
(3) to operate the Aircraft in the United States for the transport of
fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for [the filing and recordation of the Agreement with the FAA and]
the filing of the Financing Statements with [ ] (which filing has been
duly made on or before this date) it is not necessary or desirable, to
ensure the priority, validity and enforceability of all the obligations of
Lessee under the Lease that the Lease be filed, registered, recorded or
notarized in any public office or elsewhere or that any other instrument
relating thereto be signed, delivered, filed, registered or recorded, that
any tax or duty be paid or that any other action whatsoever be taken;
(f) No steps are necessary or desirable to record or perfect either Lessor's
or Owner's interest in the Aircraft in the United States;
(g) a change in the shareholding in the Owner and/or Lessor will not have any
effect [on the [local jurisdiction] registration of the Aircraft,] on the
rights of the Lessor or Owner
93
<PAGE>
against Lessee and does not require to be notified to, or registered with,
or require consent, approval or a license from any registry or
governmental or regulatory authority in [local jurisdiction]
(h) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States;
without requiring any further consents, approvals or licenses from any
governmental or regulatory authority in [];
(i) the Lease has been properly signed and delivered on behalf of Lessee and
the obligations on the part of Lessee contained therein, are valid and
binding on and enforceable against Lessee respectively under the laws of
the United States;
(j) the events described in Clause 13.1(g) of the Lease comprise an accurate
and complete statement of all events and situations provided for by the
laws of the United States which may lead to the cessation of activities,
winding up or dissolution of Lessee;
(k) Lessee is a Certificated Air Carrier;
(l) Lessee is a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code;
(m) Lessor is entitled to the benefits of Section 1110 of Title 11 of the
United States Code;
(n) Lessee's chief executive office (as defined in the Uniform Commercial Code
in effect in [ ]) is located at [ ];
(o) the obligations of Lessee under the Lease rank at least pari passu with
all other present and future unsecured and unsubordinated (including
contingent obligations) of Lessee;
(p) there is no withholding tax or other Tax to be deducted from any payment
whatsoever which may be made by Lessee pursuant to the Lease; with respect
to any withholdings, the provisions of Clauses 5.6, 5.7 and 5.10 of the
Lease are fully effective; and the arrangements contemplated by the Lease
do not give rise to any charge whatsoever to Taxes in the United States;
(q) there is no applicable usury or interest limitation law in the United
States which may restrict the recovery of payments in accordance with the
Lease;
(r) there are no registration, stamp or other taxes or duties of any kind
payable in the United States in connection with the signature, performance
or enforcement by legal proceedings of the Lease;
94
<PAGE>
(s) Lessor will not violate any law or regulation in the United States nor
become liable to tax in the United States by reason of entering into the
Lease with Lessee, or performing its obligations thereunder;
(t) it is not necessary to establish a place of business in the United States
in order to enforce any provisions of the Lease;
(u) the choice of the Governing Law to govern the Lease will be upheld as a
valid choice of law in any action in the Courts of the United States;
(v) the consent to the jurisdiction by Lessee contained in the Lease is valid
and binding on Lessee and not subject to revocation;
(w) any judgment for a definite sum given by the Courts of the State of
California against Lessee would be recognized and accepted by the Courts
of the United States without re-trial or examination of the merits of the
case;
(x) (i) Lessee is subject to civil commercial law with respect to its
obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Lease by Lessee
constitute private and commercial acts; and
(y) there are no laws or other rules in the United States (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other person,
other than Lessor or any assignee of Lessor.
3. We do not purport to be experts on and do not purport to be generally
familiar with or qualified to express legal opinions based on any law
other than the laws of the United States and accordingly express no legal
opinion herein based upon any law other than the laws of the United
States.
Yours faithfully,
95
<PAGE>
SCHEDULE 7
FORM OF AIRCRAFT USAGE REPORT
FOR PERIOD BEGINNING ON __________, 199____
AND ENDING ON ___________, 199____
The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies
as follows:
1. This report is submitted to GPA II Limited ("Lessor") under that certain
Aircraft Lease Agreement dated as of October 20, 1995, between Lessor and Lessee
(the "Lease"), and capitalized terms used and not otherwise defined herein have
the meanings ascribed to them in the Lease.
2. The Aircraft covered by this report is:
Aircraft: Boeing 737-300
Serial No: 23177
Irish Reg. No.: ____________
3. During the period covered by this report, the Airframe which is the
subject of the Lease was operated for the following number of Flight Hours and
Cycles as such terms are defined in the Lease:
_________ Flight Hours __________ Cycles
4. During the period covered by this report, the CFM-56-B1 Engines Bearing
respective serial numbers 721185 and 720381 which are the subject of the Lease,
where each operated for the following number of Flight Hours and Cycles, as
defined in the Lease:
Flight Hours Cycles
------------ ------
SN 721185 ________________ ________________
SN 720381 ________________ ________________
This Aircraft Usage Report is dated __________________, 199_____,
FRONTIER AIRLINES, INC.
By:________________________________
Title:_______________________________
96
<PAGE>
SCHEDULE 8
As of, and with effect from, the Adjustment Date this Agreement will hereby be
amended as follows:
(a) save where otherwise specifically amended, references to "Security Agent"
and "Trustee" wherever they appear in the Lease shall be construed as
references to "Owner"; and references to any "Bank", the "Banks", the
"Owner Assignment", the "Trustee Assignment" and "the Assignments"
wherever they appear shall be deleted;
(b) In Clause 1.1 of this Agreement:
(i) the definitions of "Assignments", "Banks", "Owner Assignment",
"Security Agent", "Trustee" and "Trustee Assignment" shall be
deleted;
(ii) the definition of "Indemnitees" shall be replaced by the following
definition:
"Indemnitees" means Owner, Lessor, the Previous Financier, GE
Capital Aviation Services Limited GE Capital Aviation Services, Inc.
and such other persons (being the persons requiring indemnification
as parties connected with Lessor's refinancing of the Aircraft) as
shall have been notified in writing by Lessor to Lessee not less
than [ ] days prior to the Adjustment Date) and, in each case, their
respective successors and assigns, shareholders, subsidiaries,
affiliates, partners, contractors, directors, officers, servants,
agents and employees;"
(iii) a new definition shall be inserted as follows:
"'Previous Financiers' means (I) National Westminister Bank PLC;
(ii) NatWest Aerospace Trust Company Limited; and (iii) the banks
and financial institutions which provided finance for the Aircraft
and/or for whom NatWest Aerospace Trust Company Limited acted as
trustee in connection with security in the Aircraft and related
assets, prior to the Adjustment Date;"
(c) in Clause 8.4(b) of this Agreement by replacing the words "Lessor,
Owner, Trustee or any Bank" with the words "Lessor or Owner";
(d) in Clause 8.7(a) of this Agreement, the text beginning with the words
"expected to jeopardise" in line 2 and ending at the end of the paragraph
shall be replaced by the words:
"expected to jeopardise the rights of Owner as owner and Lessor as lessor
of the Aircraft;"
(e) Clause 8.10(b) of this Agreement shall be amended by:
97
<PAGE>
(i) deleting the text in lines 2 and 3 of sub-paragraph (i) thereof
which follows the words "financing of the Aircraft"; and
(ii) deleting sub-paragraph (iii) and replacing it with the following:
"to establish, maintain, preserve, perfect and protect the rights of
Lessor under this Agreement or the interest of Owner in the Aircraft
and under the Head Lease;"
(f) in proviso (1) to Clause 8.14(c), by deleting the words "or the interests
of Trustee in respect thereof under the Assignments" and by replacing the
words "Owner, Lessor and Trustee" with the words "Owner and Lessor" in
proviso (2) to Clause 8.14(c);
(g) in Clause 8.18, by replacing the words in parenthesis with the words
"(other than Lessor or Owner)";
(h) in Clause 9.2 of this Agreement, the words "Lessor, Owner and Trustee"
shall be replaced by "Lessor and the other Indemnitees";
(i) by the deletion of Clause 13.1(k) of this Agreement and the substitution
of the following therefor: "Rights: the existence, validity,
enforceability or priority of the rights of the Owner as owner and the
rights of Lessor as lessor in respect of the Aircraft are challenged by
Lessee or any other person claiming by or through Lessee;"
(j) in sub paragraph (e)(i) in Schedule 4 to this Agreement, the word
"Trustee" shall be deleted;
(k) by the deletion of sub-paragraph (e) (iii) in Schedule 4 to this Agreement
with the consequent re-numbering of the following sub-clauses; and
(l) in paragraphs f(i) and f(ii) of Schedule 4 to this Agreement, the
references to "Lessor, Owner, Trustee, GECASI, GECASL" and "Lessor, Owner,
Trustee" shall be construed as, and deemed replaced by, references to the
"Indemnitees";
(m) in paragraph (g) of Schedule 4 of this Agreement:
(i) in subparagraph (iv), by the deletion of the words "and that
Insurances are subject to a security assignment in favour
of Owner";
(ii) in sub-paragraph (vi), the words "or to be subrogated to any
rights of Trustee against Lessor, Owner, GECASI, GECASL or
Lessee" shall be deleted;
(iii) in sub-paragraph (viii), by replacing the words "Lessor, Owner
and Security Agent" with the words "Lessor and Owner", and
(iv) by deleting sub-paragraph (xi), and substituting the following
therefor:
"accept and insure the indemnity provisions of this Agreement to
the extent of the risks covered by the policies".
98
<PAGE>
AIRCRAFT LEASE AGREEMENT
Dated as of
October 20, 1995
between
GENERAL ELECTRIC CAPITAL CORPORATION
as
Lessor
and
FRONTIER AIRLINES, INC.
as
Lessee
in respect of
Aircraft: Boeing 737-301
Serial No: 23257
U.S. Reg. No.: N578US
Note: This Aircraft Lease Agreement has been executed in several counterparts
of which this is Counterpart No. [ ]. See Clause 16.15 hereof for
information concerning the distinction between various counterparts.
<PAGE>
INDEX
CLAUSE PAGE
- ------ ----
1. Interpretation.......................................................1
1.1 Definitions..................................................1
1.2 Construction.................................................15
2. Representations and Warranties.......................................16
2.1 Lessee's Representations and Warranties......................16
2.2 Lessee's Further Representations and Warranties..............17
2.3 Repetition...................................................19
2.4 Lessor's Representations and Warranties......................19
3. Conditions Precedent.................................................20
3.1 Conditions Precedent.........................................20
3.2 Further conditions precedent.................................23
3.3 Waiver.......................................................24
4. Commencement.........................................................24
4.1 Leasing......................................................24
4.2 Delivery.....................................................24
4.3 Delayed Delivery.............................................24
4.4 Licenses.....................................................25
4.5 Inspection...................................................25
4.6 Indemnity....................................................25
5. Payments.............................................................25
5.1 Deposit......................................................26
5.2 Rental Periods...............................................26
5.3 Rent.........................................................26
5.4 Maintenance Reserves.........................................26
5.5 Payments.....................................................27
5.6 Withholding..................................................27
5.7 General Tax Indemnity........................................27
5.8 Sales and Use Taxes..........................................28
5.9 Information..................................................29
5.10 Indemnity Payments to be Made on an After-Tax Basis.........29
5.11 Default Interest............................................30
5.12 Contest.....................................................30
5.13 Net Lease...................................................31
5.14 Security....................................................32
6. Manufacturer's Warranties............................................32
6.1 Assignment...................................................32
6.2 Proceeds.....................................................33
6.3 Parts........................................................33
6.4 Agreement....................................................33
7. Lessor's Covenants...................................................33
7.1 Quiet Enjoyment..............................................33
7.2 Release of Maintenance Reserves..............................34
7.3 Lessor Obligations Following Expiry Date.....................34
8. Lessee's Covenants...................................................35
8.1 Duration.....................................................35
8.2 Information..................................................35
8.3 Lawful and Safe Operation....................................36
I
<PAGE>
8.4 Taxes and Other Outgoings....................................38
8.5 Sub-Leasing and Wet-Leasing..................................38
8.6 Inspection...................................................39
8.7 Title........................................................39
8.8 General......................................................40
8.9 Records......................................................41
8.10 Protection..................................................41
8.11 Maintenance and Repair......................................42
8.12 Removal of Engines and Parts................................43
8.13 Installation of Engines and Parts...........................43
8.14 Non-Installed Engines and Parts.............................44
8.15 Pooling of Engines and Parts................................45
8.16 Equipment Changes...........................................45
8.17 Title on an Equipment Change................................45
8.18 Third Party.................................................46
9. Insurance............................................................46
9.1 Insurances...................................................46
9.2 Requirements.................................................46
9.3 Change.......................................................46
9.4 Insurance Covenants..........................................46
9.5 Failure to Insure............................................48
9.6 Continuing Indemnity.........................................48
9.7 Application of Insurance Proceeds............................48
10. Indemnity...........................................................49
10.1 General.....................................................49
10.2 Duration....................................................50
11. Events of Loss......................................................50
11.1 Events of Loss..............................................50
11.2 Substitute Aircraft.........................................51
11.3 Requisition.................................................52
12. Return of Aircraft..................................................52
12.1 Return......................................................52
12.2 Final Inspection............................................52
12.3 Non-Compliance..............................................53
12.4 Redelivery..................................................53
12.5 Acknowledgment..............................................53
12.6 Maintenance Program.........................................53
12.7 Fuel........................................................54
13. Default.............................................................54
13.1 Events......................................................54
13.2 Rights......................................................57
13.3 Deregistration..............................................61
14. Assignment..........................................................61
14.1 Lessee's Assignment.........................................61
14.2 Lessor's Assignment.........................................61
14.3 Transfer....................................................62
15. Illegality..........................................................62
16. Miscellaneous.......................................................62
16.1 Waivers, Remedies Cumulative................................62
16.2 Delegation..................................................62
16.3 Certificates................................................62
II
<PAGE>
16.4 Appropriation..............................................62
16.5 Currency...................................................63
16.6 Set-off....................................................63
16.7 Severability...............................................63
16.8 Remedy.....................................................63
16.9 Expenses...................................................63
16.10 Time of Essence...........................................64
16.11 Notices...................................................64
16.12 Governing Law and Jurisdiction............................65
16.13 Sole and Entire Agreement.................................67
16.14 Indemnities...............................................67
16.15 Counterparts..............................................67
16.16 Language..................................................67
16.17 No Brokers................................................67
17. Disclaimers and Waivers............................................68
17.1 Exclusion..................................................68
17.2 Waiver.....................................................69
17.3 Disclaimer of Consequential Damages........................69
17.4 Confirmation...............................................69
18. Section 1110.......................................................69
19. Usury Laws.........................................................70
20. Modification or Revision...........................................70
21. Witness............................................................71
SCHEDULES...............................................................72
SCHEDULE 1. Description of Aircraft....................................72
SCHEDULE 2. Certificate of Technical Acceptance........................77
SCHEDULE 3. Operating Condition at Redelivery..........................82
SCHEDULE 4. Insurances Requirements....................................86
SCHEDULE 5. Form of Legal Opinion......................................90
SCHEDULE 6. Lease Supplement No.___....................................94
SCHEDULE 7. Form of Lease Termination Certificate......................97
SCHEDULE 8. Form of Aircraft Usage Report..............................99
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AGREEMENT is made as of the 20th day of October, 1995 between:-
(1) GENERAL ELECTRIC CAPITAL CORPORATION, a company incorporated under the
laws of New York whose registered office is at 260 Long Ridge Road,
Stamford, Connecticut, 06927 ("Lessor"); and
(2) Frontier Airlines, Inc., a company incorporated under the laws of the
State of Colorado whose registered office is at 12015 East 46th Avenue,
Denver, Colorado, 80239, United States of America ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease
from Lessor the Aircraft on the terms of this Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
After-Tax Basis in the case of any amount payable on an
"After-Tax Basis" to or for the benefit of
any Person (including any amount payable
pursuant to this definition) (a "Required
Payment"), the total amount that must be
paid is the amount such that, after
deduction of the net amount of all Taxes
required to be paid by such Person with
respect to the receipt or accrual by it of
such amount (and assuming that such Person
is subject to (i) United States Federal
income tax at the highest marginal statutory
rate imposed on corporations for the
relevant period, (ii) United States state
and local income taxes at the composite of
the highest marginal statutory rates imposed
on such Person for the relevant period, as
such composite rate shall be certified by a
financial officer of such Person, and (iii)
income taxes (if any) imposed by countries
outside the United States at the actual
rates imposed on such Person) the net
1
<PAGE>
amount received is the amount of the
Required Payment.
Agreed Maintenance Performer the Lessee, Continental Airlines Inc., USAir
Inc., or any other person agreed to from
time to time in writing by Lessor.
Agreed Maintenance Program the Maintenance Program agreed to from time
to time in writing by Lessor.
Agreed Value the amount specified for Agreed Value in
Letter Agreement No. 1.
Air Authority Federal Aviation Administration ("FAA").
Aircraft the aircraft described in Part 1 of Schedule
1, (which term includes where the context
admits a separate reference to all Engines,
Parts and Aircraft Documents) or any
aircraft substituted in place thereof
pursuant to Clause 11.1 or 11.2.
Aircraft Documents the documents, data and records identified
in Part 2 of Schedule 1 and all additions,
renewals, revisions and replacements from
time to time made in accordance with this
Agreement.
Airframe the Aircraft, excluding the Engines and
Aircraft Documents.
Appraisal Procedure the following procedure for determining the
"fair market rental value" of the Aircraft:
(a) Lessor shall select an independent
aircraft appraiser who shall make a
determination of "fair market rental value"
of the Aircraft; and (b) the fees and
expenses of the appraiser shall be paid by
Lessee. "Fair market rental value" shall
mean the value determined by an appraisal
completed on an "as-is" and "where-is"
basis.
APU the auxiliary power unit installed on the
Aircraft on the Delivery Date and any
replacement auxiliary power unit installed
in accordance with this Agreement.
2
<PAGE>
Boeing The Boeing Company, a Delaware corporation
with its principal office in Seattle, State
of Washington, U.S.A.
Business Day a day (other than a Saturday or Sunday) on
which business of the nature required by
this Agreement is carried out in the State
of Incorporation or where used in relation
to payments on which banks are open for
business in San Francsico and New York.
Certificated Air Carrier any Person (except the United States
Government) that is a citizen of the United
States of America (as defined in Section
40102 of Title 49 of the United States Code)
and holding a Certificate of Public
Convenience and Necessity issued under
Section 41102 of Title 49 of the United
States Code by the Department of
Transportation or any predecessor or
successor agency thereto, or, in the event
such certificates shall no longer be issued,
any Person (except the United States
Government) that is a citizen of the United
States of America (as defined in Section
40102 of Title 49 of the United States Code)
and legally engaged in the business of
transporting for hire passengers or cargo by
air predominantly to, from or between points
within the United States of America, and, in
either event, operating commercial jet
aircraft capable of carrying ten or more
individuals or 6,000 pounds or more of
cargo, which also is certificated so as to
entitle Lessor, as a lessor, to the benefits
of Section 1110 of Title 11 of the United
States Code with respect to the Aircraft.
Cold Section Refurbishment with respect to any Engine the completion of
the following: completely unstacking either
high or low or both compressor sections, if
needed, and completing the following for the
appropriate section(s): visual inspection;
de-blading discs as necessary; visual
inspections of all discs; verification that
all snap diameters on discs are within
limits;
3
<PAGE>
inspection of all blades for proper
chord dimensions and cracking; repair or
replacement of blades below minimums;
inspection and repair of stators as
necessary; blade-up of discs using new lock
plates; assembly of rotors in the
compressor; balance of all rotors; and
installation of rotors in the engine.
Cycle one take-off and landing of the Aircraft.
Damage Notification Threshold the amount specified therefor in Letter
Agreement No. 1.
Default any Event of Default and any event which
with the giving of notice, lapse of time,
determination of materiality or fulfillment
of other condition would constitute an Event
of Default.
Delivery Condition
Requirements the requirements specified on Part 1 of
Schedule 1.
Delivery Date the date on which the Aircraft is tendered
for delivery by Lessor in accordance with
this Agreement.
Delivery Location Greensboro, North Carolina, United States or
such other location as may be nominated by
Lessor.
Deposit all amounts payable pursuant to Clause 5.1.
Dollars and $ the lawful currency of the United States of
America.
Engine whether or not installed on the Aircraft:-
(a) each engine of the manufacture and model
specified in Part 1 of Schedule 1 (each
of which has 750 or more rated takeoff
horsepower or the equivalent of such
horsepower) which Lessor elects to
tender to Lessee with the Aircraft on
the Delivery Date, such engines being
described as to serial numbers on the
4
<PAGE>
certificate of acceptance to be executed
by Lessee upon delivery of the Aircraft;
or
(b) any engine which has replaced that
engine, title to which has or should
have, passed to Lessor in accordance
with this Agreement;
and in each case includes all modules and
Parts from time to time belonging to or
installed in that engine but excludes any
properly replaced engine title to which has,
or should have, passed to Lessee pursuant to
this Agreement.
Engine Event of Loss the occurrence with respect to an Engine
only, whether or not installed on the
Airframe, of any of those events described
in provisions (a) through (d) of the
definition of Event of Loss.
Engine Flight Hour means each hour or part thereof an Engine is
operated, elapsing from the moment that
wheels of an aircraft on which such Engine
is installed leave the ground until the
wheels of such aircraft next touch the
ground.
Engine Refurbishment a complete disassembly, inspection and
repair of any module of an Engine per the
engine manufacturer's maintenance manual.
ERISA the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default an event or condition specified in Clause
13.1.
Event of Loss with respect to the Aircraft (including for
the purposes of this definition the
Airframe):-
(a) the actual or constructive total loss
of the Aircraft (including any damage
to the Aircraft which results in an
insurance settlement on the basis of a
total loss, or requisition for use or
hire which results in an insurance
5
<PAGE>
settlement on the basis of a total
loss); or
(b) it being destroyed, damaged beyond
repair or permanently rendered unfit
for normal use for any reason
whatsoever; or
(c) the requisition of title, or other
compulsory acquisition, capture,
seizure, deprivation, confiscation or
detention for any reason of the
Aircraft by the government of the State
of Registration or other competent
authority (whether de jure or de
facto), but excluding requisition for
use or hire not involving requisition
of title; or
(d) the hi-jacking, theft, condemnation,
confiscation, seizure or requisition
for use or hire of the Aircraft which
deprives any person permitted by this
Agreement to have possession and/or use
of the Aircraft of its possession
and/or use for more than 15 days (or,
if earlier, beyond the Expiry Date).
Excusable Delay with respect to delivery of the Aircraft,
delay or non-performance due to or arising
out of acts of God or public enemy, civil
war, insurrection or riot, fire, flood,
explosion, earthquake, accident, epidemic,
quarantine restriction, any act of
government, governmental priority,
allocation, regulation or order affecting
directly or indirectly, the Aircraft, any
manufacturer, Lessor or any materials or
facilities, strike or labor dispute causing
cessation, slowdown or interruption of work,
inability after due and timely diligence to
procure equipment, data or materials from
manufacturers, suppliers, any existing
owner, seller or lessee in a timely manner,
damage, destruction or loss, or any other
cause to the extent that such cause is
beyond the control of Lessor whether above
6
<PAGE>
mentioned or not and whether or not similar
to the foregoing.
Expiry Date the day preceding the numerically
corresponding day 52 months after the
Delivery Date or if earlier the date on
which:-
(a) the date Lessor, acting in accordance
with the terms of this Agreement
terminates the leasing of the Aircraft
to Lessee under this Agreement; or
(b) Lessor receives the Agreed Value
together with any other amounts then
due and unpaid by Lessee following an
Event of Loss.
FAA the Federal Aviation Administration of the
United States of America and any successor
thereof.
FAR the Federal Aviation Regulations set forth
in Title 14 of the United States Code of
Federal Regulations, as amended and modified
from time to time.
Federal Aviation Act The Transportation Laws of the United States
as set forth at 49 United States Code
et seq. or any similar legislation of the
-- ----
United States of America enacted in
substitution or replacement thereof.
Financing Statements Uniform Commercial Code Financing Statements
in respect of the Aircraft and Engines
leased hereunder prepared in a form
acceptable for filing with the applicable
Government Entities in the Habitual Base,
the state in which the chief executive
office (as that term is defined in Article 9
of the Uniform Commercial Code as in effect
in the Habitual Base) and such other
jurisdiction as Lessor shall reasonably
require.
Flight Hour each hour or part thereof (rounded up to two
decimal places) elapsing from the moment
7
<PAGE>
the wheels of the Aircraft leave the ground
on take off until the wheels of the Aircraft
next touch the ground.
GAAP generally accepted accounting principles in
the United States.
Governing Law the laws of the State of California.
Government Entity (a) any national government, political
subdivision thereof, or local
jurisdiction therein;
(b) any instrumentality, board, commission,
court, or agency of any thereof,
however constituted; and
(c) any association, organization, or
institution of which any of the above
is a member or to whose jurisdiction
any thereof is subject or in whose
activities any of the above is a
participant.
Gross Negligence means any intentional, conscious or
voluntary action or decision which is taken
with wanton, reckless, flagrant and culpable
disregard for the consequences of such
action or decision.
Habitual Base the State of Colorado or, subject to the
prior written consent of Lessor, any other
state, country or countries in which the
Aircraft is for the time being habitually
based.
Hot Section Refurbishment with respect to any Engine, the complete
visual inspection and repair as necessary of
the combustion section of an Engine in an
engine repair/overhaul station including
without limitation complete unstacking of
the high pressure or low pressure turbine or
both if needed; complete visual inspection;
de-blading of discs as required; visual
inspections of all discs; verification that
all snap diameters on discs are within
limits; inspection of all blades for proper
chord
8
<PAGE>
dimensions and cracking; repair or
replacement of all blades below minimums;
inspection and repair of stators as
necessary; blade-up of discs using new lock
plates; assembly of rotors in the turbine;
balance of all rotors; and installation of
rotors in the engine.
Indemnitee each of GE Capital Aviation Services, Inc.
("GECASI"), GE Capital Aviation Services
Limited ("GECASL"), Lessor, including, any
of their respective successors and assigns,
shareholders, subsidiaries, affiliates,
partners, contractors, directors, officers,
servants, agents and employees and
indemnitees; provided, however, that no such
Indemnitee shall be entitled to an
indemnification to the extent such
Indemnitee is manufacturer of the Aircraft,
any Engines, or Parts in its capacity as
such.
Insurances as defined in Clause 9.1 hereof.
Landing Gear the landing gear assembly of the Aircraft
excluding any rotable components.
Law shall mean and include (a) any statute,
decree, constitution, regulation, order
judgment or other directive of any
Governmental Entity; (b) any treaty, pact,
compact or other agreement to which any
Governmental Entity is a signatory or party;
(c) any judicial or administrative
interpretation or application of any Law
described in (a) or (b) above; and (d) any
amendment or revision of any Law described
in (a), (b) or (c) above.
Lease Supplement a Lease Supplement, substantially in the
form of Schedule 6 hereto, entered into
between Lessor and Lessee.
Lessor Lien (a) any Security Interest whatsoever from
time to time created by or through
Lessor in connection with the financing
of the Aircraft;
9
<PAGE>
(b) any other Security Interest in respect
of the Aircraft which results from acts
of or claims against Lessor not related
to the transactions contemplated by or
permitted under this Agreement; and
(c) Security Interests in respect of the
Aircraft for Lessor Taxes.
Lessor Taxes Taxes:-
(a) imposed as a direct result of
activities of Lessor in the
jurisdiction imposing the Tax unrelated
to Lessor's dealings with Lessee or to
the transactions contemplated by this
Agreement or the operation of the
Aircraft by Lessee; or
(b) imposed on the net income, profits or
gains of Lessor by any Government Entity
in the United State of America;
provided, however, that Lessor Taxes
-------- -------
shall not include any Tax imposed by any
government or taxing authority of any
jurisdiction if and to the extent that
such Tax results from (i) the use,
operation, presence or registration of
the Aircraft, the Airframe, any Engine
or any Part in the jurisdiction imposing
the Tax, or (ii) the situs of
organization, any place of business or
any activity of Lessee or any other
Person having use, possession or custody
of the Aircraft, the Airframe, any
Engine or any Part in the jurisdiction
imposing the Tax; or
(c) imposed with respect to any period
commencing or event occurring after the
Expiry Date and unrelated to Lessor's
dealings with Lessee or to the
transactions contemplated by this
Agreement;
10
<PAGE>
provided always, that Lessor Taxes shall not
include any income taxes or other amounts
payable and subject to indemnification in
favor of Lessor pursuant to the Tax
Indemnity Agreement.
Letter Agreement No. 1 that certain Letter Agreement No. 1 between
Lessor and Lessee dated as of the date
hereof.
Maintenance Program an Air Authority approved maintenance
program for the Aircraft encompassing
scheduled maintenance (including block
maintenance), condition monitored
maintenance, and/or on-condition maintenance
of Airframe, Engines and Parts, including
but not limited to, servicing, testing,
preventive maintenance, repairs, structural
inspections, system checks, overhauls,
approved modifications, service bulletins,
engineering orders, Airworthiness
directives, corrosion control, inspections
and treatments.
Maintenance Reserves all amounts payable under Clause 5.4(a).
Major Checks any C-Check, multiple C-Check, D-Check or
annual heavy maintenance visit or segment
thereof suggested for commercial aircraft of
the same model as the Aircraft by its
manufacturer (however denominated) as set
out in the Agreed Maintenance Program.
Manufacturer Boeing.
Minimum Liability Coverage the amount set forth therefore in Letter
Agreement No. 1.
Mortgage Convention shall mean the Convention for the
International Recognition of Rights in
Aircraft, signed (ad referendum) at Geneva,
Switzerland, on June 19, 1948, and amended
from time to time, but excluding the terms
of any adhesion thereto or ratification
thereof containing reservations to which the
United States of America does not accede.
11
<PAGE>
Operative Documents shall mean this Agreement, all Lease
Supplements hereto, Letter Agreement No. 1,
the Tax Indemnity Agreement, any schedules
or documents prepared in conformance to the
Schedules hereto, any side-letters related
hereto and any amendments, revisions,
supplements or modifications hereto or
thereto.
Other Agreements any agreement (other than this Agreement)
made or to be made between Lessor (or an
associate or affiliate thereof) or GPA Group
plc (or an associate or affiliate thereof)
and Lessee (or an associate or affiliate
thereof).
Part whether or not installed on the Aircraft:-
(a) any component, furnishing or equipment
(other than a complete Engine)
furnished with the Aircraft on the
Delivery Date; and
(b) any other component, furnishing or
equipment (other than a complete
Engine) title to which has, or should
have passed to Lessor pursuant to this
Agreement;
but excludes any such items title to
which has, or should have, passed to
Lessee pursuant to this Agreement.
Permitted Lien (a) any lien for Taxes not assessed or, if
assessed, not yet due and payable, or
being contested in good faith by
appropriate proceedings;
(b) any lien of a repairer, mechanic,
carrier, hangarkeeper or other similar
lien arising in the ordinary course of
business or by operation of Law in
respect of obligations which are not
overdue or are being contested in good
faith by appropriate proceedings; and
12
<PAGE>
(c) any Lessor Lien.
but only if (in the case of both (a) and
(b)) (i) adequate resources have been
provided by Lessee for the payment of the
Taxes or obligations; and (ii) such
proceedings, or the continued existence of
the lien, do not give rise to any likelihood
of the sale, forfeiture or other loss of the
Aircraft or any interest therein or of
criminal liability on Lessor.
Person any individual person, corporation,
partnership, firm, joint stock company,
joint venture, trust, estate, unincorporated
organization, association, Government
Entity, or organization or association of
which any of the above is a member or a
participant.
Previous Operator USAir.
Redelivery Location Shannon International Airport, Ireland or
such other location as Lessor and Lessee
shall agree.
Replacement Engine an engine of the same manufacturer and
model, and having equivalent value, utility,
modification status, time elapsed since Hot
Section Refurbishment and Cold Section
Refurbishment and remaining warranty status
as the Engine it is intended to replace
under Clause 11.1(c), or at Lessee's option,
an engine of the same manufacturer as such
Engine but of an improved model, and
otherwise of an equivalent value and utility
and suitable for installation and use on the
Airframe without impairing the value or
utility of the Airframe and compatible with
the remaining installed Engine.
Rent all amounts payable pursuant to Clause 5.3.
Rental Period each period ascertained in accordance with
Clause 5.2.
Rent Date the first day of each Rental Period.
13
<PAGE>
Return Occasion the date on which the Aircraft is
redelivered to Lessor in accordance with
Clause 12 hereof.
Scheduled Delivery Month October, 1995.
Security Interest any mortgage, charge, pledge, lien,
assignment, hypothecation, right of set-off
or any agreement or arrangement having the
effect of creating a Security Interest other
than a Permitted Lien.
State of Incorporation State of Colorado.
State of Registration United States of America.
Subsidiary (a) in relation to any reference to
accounts, any company whose accounts
are consolidated with the accounts of
Lessee in accordance with GAAP;
(b) for any other purpose an entity from
time to time:-
(i) of which another has direct or
indirect control or owns directly
or indirectly more than 50 per
cent of the voting share capital;
or
(ii) which is a direct or indirect
subsidiary of another under the
laws of the jurisdiction of its
incorporation.
Tax Indemnity Agreement the Tax Indemnity Agreement of even date
herewith between Lessee and Lessor
pertaining to U.S. Federal Income Taxes and
Lessee operations outside the United States
of America.
Taxes any and all present and future taxes,
duties, withholdings, levies, assessments,
imposts, fees and other governmental charges
of all kinds together with any penalties,
fines,
14
<PAGE>
surcharges and interest thereon and any
additions thereto.
Term the period commencing on the Delivery Date
and ending on the Expiry Date, except that
the Term may be extended beyond the Expiry
Date if the Return Occasion is delayed in
the circumstances specified, and subject to
the limitation described, in Clause 12.3.
United States the United States of America
Warrant the warrant referred to in Clause
3.1(a)(xii).
Wet Lease any arrangement whereby Lessee agrees to
furnish the Aircraft to a third party
pursuant to which the Aircraft (i) shall be
solely within the operational control of
Lessee and shall be operated solely by
regular employees of Lessee possessing all
current certificates and licenses that would
be required under the Federal Aviation Act
for the performance by such employees of
similar functions within the United States
of America, (ii) shall be maintained by
Lessee in accordance with the Agreed
Maintenance Program and (iii) shall be and
remain subject and subordinate to all other
terms and conditions of this Agreement;
provided, however, that Lessee shall remain
primarily liable for the performance of all
of the terms of this Agreement (including,
without limitation, its obligations set
forth in Clause 9 of this Agreement) to the
same extent as if such arrangement had not
been entered into.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a reference
to:-
(i) each of "Lessor" or "Lessee" or any other person includes without
prejudice to the provisions of this Agreement any successor in title
to it and any permitted assignee;
(ii) words importing the plural shall include the singular and vice
versa;
15
<PAGE>
(iii) any document shall include that document as amended, novated or
supplemented;
(iv) a Clause or a Schedule is a reference to a clause of or a schedule
to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and warrants to
Lessor that:-
(a) Status: Lessee is a corporation duly incorporated and validly existing
under the laws of the State of Incorporation and has the corporate power
to own its assets and carry on its business as it is being conducted and
is the holder of all necessary air transportation licenses required in
connection therewith and with the use and operation of the Aircraft;
(b) Power and authority: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) Legal validity: this Agreement has been duly entered into and delivered by
Lessee, and this Agreement does, and the Operative Documents when executed
and delivered by Lessee will, constitute legal, valid and binding
obligations of Lessee, enforceable in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting the enforcement
of creditors' rights generally, and, to the extent that certain remedies
require or may require enforcement by a court of equity, by such
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) as a court having
jurisdiction may impose and by Laws which may affect some of such remedies
by which do not make the available remedies inadequate for the substantial
realization of the benefits provided herein;
(d) Non-conflict: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding
upon Lessee or any of its assets nor result in the creation of any
Security Interest over any of its assets;
16
<PAGE>
(e) Authorization: all authorizations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are (or
will on their being obtained or effected be) in full force and effect;
(f) No Immunity:
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of this Agreement by
Lessee constitute private and commercial acts;
(g) Accounts: the audited consolidated accounts of Lessee and its
Subsidiaries most recently delivered to Lessor, including balance
sheets and statements of income and retained earnings:-
(i) have been prepared in accordance with GAAP; and
(ii) fairly represent the consolidated financial condition of Lessee and
its Subsidiaries as at the date to which they were drawn up;
(h) Restricted Countries: Lessee does not hold a contract or other obligation
to operate the Aircraft to or for any of the countries designated under
U.S. Code of Federal Regulations 31 CFR Chapter V including, without
limitation, Cuba, Iraq, Iran, Libya, North Korea, the Federal Republic of
Yugoslavia (Serbia and Montenegro) and the Unita Rebels of Angola.
(i) Chief Executive's Office: Lessee's Chief Executive Office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in the
State of Colorado) is located at 12015 East 46th Avenue, Denver, Colorado,
United States of America;
(j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits
of Section 1110 of Title 11 of the United States Code with respect to the
Aircraft; and
(j) Citizen of the United States: Lessee is a "citizen of the United States"
as defined in Section 40102 of Title 49 of the United States Code.
2.2 Lessee's Further Representations and Warranties: Lessee further represents
and warrants to Lessor that:-
(a) No Default:
(i) no Default has occurred and is continuing or might result from the
entry into or
17
<PAGE>
performance of the Operative Documents; and
(ii) no other event or condition has occurred and is continuing which
constitutes (or with the giving of notice, lapse of time,
determination of materiality or the fulfillment of any other
applicable condition or any combination of the foregoing, might
constitute) a material default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding on
Lessee or any assets of Lessee;
(b) Registration:
(i) except for the filing for recordation of this Agreement and a Lease
Supplement with the FAA, and the filing of any Financing Statements
required (and continuation statements at periodic intervals), no
further filing or recording of this Agreement or of any other
document (including any financing statement under Article 9 of the
Uniform Commercial Code) and no further action, is or will be
necessary under the Laws of the United States, the State of
Incorporation, and the State of Registration, the Habitual Base or
any other states in order to (A) fully establish, perfect and
protect Lessor's title to, and interest in, the Aircraft or any
Engine or Part as against Lessee or any third party, or (B) ensure
the validity, effectiveness and enforceability of this Agreement or
any other Operative Document to which the Lessee is a party; and
(ii) under the laws of the State of Incorporation, the State of
Registration and the Habitual Base the property rights of Lessor in
the Aircraft have been fully established, perfected and protected
and this Agreement will have priority in all respects over the
claims of all creditors of Lessee;
(c) Litigation: no litigation, arbitration or administrative proceedings
are pending or to its knowledge threatened against Lessee which, if
adversely determined, would have a material adverse effect upon its
financial condition or business or its ability to perform its
obligations under this Agreement;
(d) Pari Passu: the obligations of Lessee under the Operative Documents rank
at least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of Lessee,
with the exception of such obligations as are mandatorily preferred by law
and not by virtue of any contract;
(e) Material Adverse Change: there has been no material adverse change in the
consolidated financial condition of Lessee and its Subsidiaries or the
financial condition of Lessee since the date to which the accounts most
recently provided to Lessor on or prior to the Delivery Date were drawn
up;
18
<PAGE>
(f) Taxes: Lessee has delivered all necessary returns and payments due to the
tax authorities in the State of Incorporation, the State of Registration
and the Habitual Base and is not required by Law to deduct any Taxes from
any payments under this Agreement;
(g) Information: the financial and other information furnished by Lessee in
connection with this Agreement does not contain any untrue statement or
omit to state facts, the omission of which makes the statements therein,
in the light of the circumstances under which they were made, misleading,
nor omits to disclose any material matter to Lessor and all forecasts and
opinions contained therein were honestly made on reasonable grounds after
due and careful inquiry by Lessee;
(h) ERISA: Lessee is not engaged in any transaction in connection with which
it could be subjected to either a civil penalty assessed pursuant to
Section 502 of ERISA or any tax imposed by Section 4975 of the Internal
Revenue Code; no material liability to the Pension Benefit Guaranty
Corporation has been or is expected by Lessee to be incurred with respect
to any employee pension benefit plan (as defined in Section 3 of ERISA)
maintained by Lessee or by any trade or business (whether or not
incorporated) which together with Lessee would be treated as a single
employer under Section 4001 of ERISA and Section 414 of the Internal
Revenue Code; there has been no reportable event (as defined in Section
4043(b) of ERISA) with respect to any such employee pension benefit plan;
no notice of intent to terminate any such employee pension benefit plan
has been filed or is expected to be filed, nor has any such employee
pension benefit been terminated; no circumstance exists or is anticipated
that constitutes or would constitute grounds under Section 4042 of ERISA
for the Pension Benefit Guaranty Corporation to institute proceedings to
terminate, or to appoint a trustee to manage the administration of, such
an employee pension benefit plan; and no accumulated funding deficiency
(as defined in Section 302 of ERISA or Section 412 of the Internal Revenue
Code), whether or not waived, exists with respect to any such employee
pension benefit plan; and
(i) Equity Share Capital: Lessee has raised the additional equity share
capital (as contemplated in Form SB-2 Registration Statement filed by
Lessee on July 20, 1995 with the Securities Exchange Commission, as
amended, a copy of which was furnished to Lessor by Lessee prior to the
date of this Agreement) as evidenced by the Form 8-K dated September 22,
1995 filed by Lessee with the Securities Exchange Commission, a copy of
which was furnished to Lessor by Lessee prior to the date of this
Agreement.
2.3 Repetition: The representations and warranties in Clause 2.1 and Clause
2.2 will survive the execution of this Agreement. The representations and
warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be
repeated by Lessee on the Delivery Date with reference to the facts and
circumstances then existing. The representations and warranties contained
in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as
if made with reference to the facts and circumstances then existing.
2.4 Lessor's Representations and Warranties: Lessor represents and warrants to
Lessee that:-
19
<PAGE>
(a) Status: Lessor is a company duly incorporated and validly existing under
the laws of the State of New York and has the corporate power to own its
assets and carry on its business as it is now being conducted;
(b) Power and authority: Lessor has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, the Operative Documents and the
transactions contemplated by the Operative Documents;
(c) Legal validity: the Operative Documents constitute Lessor's legal, valid
and binding obligation;
(d) Non-conflict: the entry into and performance by Lessor of, and the
transactions contemplated by, the Operative Documents do not and will
not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any of
its assets;
(e) Authorization: so far as concerns the obligations of Lessor, all
authorizations, consents, registrations and notifications required under
the laws of the State of New York in connection with the entry into,
performance, validity and enforceability of, and the transactions
contemplated by, the Operative Documents by Lessor have been (or will on
or before the Delivery Date have been) obtained or effected (as
appropriate) and are (or will on their being obtained or effected be) in
full force and effect; and
(f) No Immunity:
(i) Lessor is subject to civil commercial law with respect to its
obligations under the Operative Documents; and
(ii) neither Lessor nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Operative
Documents by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 Conditions Precedent: Lessor's obligation to deliver and lease the
Aircraft under this Agreement is subject to satisfaction of each of the
following conditions:-
(a) receipt by Lessor from Lessee not later than 5 Business Days prior to the
Delivery Date of the following satisfactory in form and substance to
Lessor:-
20
<PAGE>
(i) Constitutional Documents: a copy of the constitutional documents of
Lessee including without limitation articles of incorporation,
bylaws and a current certificate of good standing issued by the
secretary of the state for the State of Incorporation;
(ii) Resolutions: a copy of a resolution of the board of directors of
Lessee approving the terms of, and the transactions contemplated by,
this Agreement, resolving that it enter into this Agreement, and
authorizing a specified person or persons to execute this Agreement
and the other Operative Documents and accept delivery of the
Aircraft on its behalf;
(iii) Opinion: evidence that opinions substantially in the form of
Schedule 5 will be issued on the Delivery Date by legal counsel
acceptable to Lessor;
(iv) FAA Opinion: a draft of an opinion of Crowe & Dunlevy P.C. or other
counsel acceptable to Lessor who are recognized specialists with
regard to FAA registration matters in form acceptable to Lessor as
to the due filing for recordation of this Agreement, to be delivered
in executed final form to Lessor and Lessee upon such filing and
recordation;
(v) Approvals: evidence of the issue of each approval, license and
consent which may be required in relation to, or in connection with,
the performance by Lessee of any of its obligations hereunder
(including, without limitation, any consent to the export of the
Aircraft from the Habitual Base and consent to the deregistration of
the Aircraft upon the termination of the leasing of the Aircraft
under this Agreement);
(vi) Licenses: copies of Lessee's Certificate of Convenience and
Necessity, Radio License, FAR Part 121 operator's certificates and
all other licenses, certificates and permits required by Lessee in
relation to, or in connection with, the operation of the Aircraft;
(vii) Process Agent: a letter from the process agent appointed by Lessee
in this Agreement accepting that appointment;
(viii) Certificate: a certificate of a duly authorized officer of
Lessee:-
(a) setting out a specimen of each signature referred to in
Clause 3.1(a)(ii);
(b) certifying that each copy document specified in this Clause
is correct, complete and in full force and effect;
(c) certifying that Lessee's representations and warranties
contained in Clause 2.1 and 2.2 are true and correct on the
Delivery Date as if given on such date; and
21
<PAGE>
(d) certifying that there has been no material change in Lessee's
Constitutional Documents since originally delivered by Lessee
to Lessor.
(ix) Air Traffic Control: a letter from Lessee addressed to Transport
Canada or other relevant air traffic control authority pursuant to
which Lessee authorizes the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of all
sums due by Lessee to the authority in respect of all aircraft
(including, without limitation, the Aircraft) operated by Lessee;
(x) Deregistration Power: an irrevocable power of attorney authorizing
Lessor or such other person as Lessor may from time to time specify
to do any thing or act or to give any consent or approval which may
be required to obtain deregistration of the Aircraft and to export
the Aircraft from the Habitual Base upon termination of the leasing
of the Aircraft under this Agreement, duly notarized and legalized;
(xi) Certificate of Lease Termination: a certificate of lease
termination executed by a duly authorized officer of Lessee,
substantially in the form of Schedule 7 hereto, acknowledging that
this Agreement is no longer in effect with respect to the Aircraft
and Engines, which certificate Lessor will hold in escrow to be
filed at the FAA upon the expiration of the Term or other
termination of the leasing of the Aircraft to the Lessee hereunder.
(xii) Warrant: evidence of the grant by Lessee to Lessor of a warrant
entitling Lessor to purchase 100,000 shares of Lessee's common stock
no par value at an aggregate purchase price for all such shares of
$500,000, such shares carrying demand registration rights by Lessor
and such other rights as Lessor may require. It is understood and
acknowledged that upon delivery of the Aircraft, such warrant shall
be deemed solely as additional consideration to induce Lessor to
deliver the Aircraft to Lessee and shall then and thereafter cease
to have any attribute or character of a security or other deposit;
(xiii) Equity Share Capital: evidence that the Lessee has raised on terms
and conditions acceptable to Lessor the additional equity share
capital as contemplated in its form SB-2 Registration Statement
filed on July 20, 1995 with the Securities Exchange Commission, as
amended, a copy of which was furnished to Lessor by Lessee prior to
the date of this Agreement.; and
(xiv) General: such other documents as Lessor may reasonably request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) Opinions: a signed original of each of the opinions referred to in
Clause 3.1(a)(iii) and 3.1(a)(iv);
22
<PAGE>
(ii) Payments: all sums due to Lessor under this Agreement on or before
the Delivery Date including, without limitation, the first payment
of Rent;
(iii) Insurances: certificates of insurance, an undertaking from Lessee's
insurance broker and other evidence satisfactory to Lessor that
Lessee is taking the required steps to ensure due compliance with
the provisions of this Agreement as to Insurances with effect on and
after the Delivery Date;
(iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be
dated the Delivery Date, fully completed and executed by Lessor and
Lessee, and filed for recording at the FAA;
(v) Certificate of Technical Acceptance: in the form of Schedule 2
hereto, to be dated and fully completed, and executed by Lessor and
Lessee certifying that Lessor has completed its inspection of the
Aircraft in accordance with Clause 4.5 hereof and that Aircraft
conforms to the provisions set forth therein and is in all respects
acceptable to Lessee, or if not so acceptable, then setting forth
discrepancies and corrective action to be taken;
(vi) Accounts: the latest available accounts of Lessee as described in
Clause 8.2(b)(i) and (ii);
(vii) Documents: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Delivery Date;
(viii) UCC-1 Financing Statements: in form acceptable to Lessor, and
suitable for filing in the States of Colorado and California and
signed by Lessee.
(ix) General: such other documents as Lessor may reasonably request;
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Program as Lessor may require and Lessor having
agreed the proposed Maintenance Program on or prior to the Delivery
Date; and
(d) evidence that on the Delivery Date that all filings, registrations,
recordings and other actions have been or will be taken which are
necessary or advisable to ensure the validity, effectiveness and
enforceability of this Agreement and the Assignments and to protect the
property rights of Lessor in the Aircraft or any Part.
3.2 Further conditions precedent: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are
correct and would be correct if repeated on delivery of the Aircraft under
this Agreement; and
(b) no Default has occurred and is continuing or might result from the leasing
of the Aircraft to Lessee under this Agreement.
23
<PAGE>
3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole
benefit of Lessor and may be waived or deferred in whole or in part and
with or without conditions by Lessor. If any of those conditions are not
satisfied on the Delivery Date and Lessor (in its absolute discretion)
nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure
that those conditions are fulfilled within 15 days after the Delivery Date
and Lessor may treat as an Event of Default the failure of Lessee to do
so.
4. COMMENCEMENT
4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the
Aircraft on lease in accordance with this Agreement for the duration of
the Term. Lessor will deliver and Lessee will accept the Aircraft on the
day in the Scheduled Delivery Month notified by Lessor to Lessee at least
5 Business Days in advance of such date or such other day as may be
agreed. In the event (a) Lessee is unwilling or unable to accept delivery
of the Aircraft on the date notified by Lessor as the Delivery Date, and
(b) the Aircraft meets Delivery Condition Requirements then Lessee's
obligation to pay Rent hereunder shall commence on such Delivery Date
notwithstanding that Lessee has not accepted possession of the Aircraft.
After delivery the Aircraft and every Part will be in every respect at the
sole risk of Lessee, who will bear all risk of loss, theft, damage or
destruction to the Aircraft from any cause whatsoever.
4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the
Delivery Location or such other location as may be agreed. Lessee will
effect acceptance of the Aircraft by execution and delivery to Lessor of
the duly completed and executed Certificate of Acceptance in the form of
Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the
form of Schedule 6 hereto and by authorizing the filing at the FAA of an
executed copy of such Lease Supplement with an executed copy of this
Agreement attached thereto.
4.3 Delayed Delivery: If owing to:-
(a) any seller, manufacturer or existing lessee of the Aircraft delaying in
the delivery of, or failing to deliver, the Aircraft to Lessor for any
reason (other than because of any default of Lessor in the performance of
its obligations under an agreement with that seller, manufacturer or
lessee unless the default arises from any act or omission of Lessee)
whether or not in circumstances entitling that seller, manufacturer or
lessee to terminate that agreement;
(b) any purchase agreement for the Aircraft terminating prior to delivery of
the Aircraft (other than because of any default of Lessor in the
performance of its obligations under that agreement unless the default
arises from any act or omission of Lessee);
(c) any Excusable Delay; or
(d) notification of any defect or non-conformity pursuant to Clause 4.5;
Lessor delays in the delivery of, or fails to deliver, the Aircraft under
this Agreement:-
24
<PAGE>
(i) Lessor will not be responsible for any losses, including loss of
profit, costs or expenses arising from or in connection with the
delay or failure suffered or incurred by Lessee;
(ii) subject to Clause 4.5, Lessee will not be entitled to terminate this
Agreement or to reject the Aircraft when tendered for delivery by
Lessor, on the grounds of any such delay;
(iii) in the case of termination of a purchase agreement, Lessor may at
any time after the termination terminate this Agreement; and
(iv) upon any such termination or termination pursuant to Clause 4.5
neither Lessor nor Lessee will have any further obligation to the
other under this Agreement other than as expressly set out in this
Agreement, except that Lessor will repay to Lessee the Deposit and
shall return the warrant certificate representing the Warrant.
4.4 Licenses: Lessee will at its expense obtain all licenses, permits and
approvals which may be necessary to export the Aircraft from the Delivery
Location. Lessor will furnish such data and information as may be
reasonably requested by Lessee in connection with obtaining any such
license, permit or approval.
4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase
or lease agreement, Lessor will give Lessee an opportunity:-
(a) to inspect the Aircraft at the Delivery Location; and
(b) to assign up to 2 representatives to participate as observers in a
demonstration flight to demonstrate the condition of the Aircraft.
If Lessee notifies Lessor promptly prior to the Delivery Date of any
defect or non-conformity with Schedule 1 observed during the inspection or
demonstration flight, Lessor will correct or procure the correction of the
defect or non-conformity as promptly as practicable (except to the extent
otherwise agreed or to the extent in the opinion of Lessor it is
impracticable or prohibitively expensive to do so). Subject to Clause
4.3, Lessor may postpone the Delivery Date in such a case to the date
which Lessor notifies Lessee that the defect or non-conformity has been
rectified. Lessee will be entitled to terminate this Agreement if Lessor
notifies it that Lessor does not intend to correct the defect or non-
conformity.
4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from
and against all Claims (as defined in Clause 10) arising from death or
injury to any observer or any employee of Lessee in connection with any
demonstration flight or inspection of the Aircraft by Lessee.
5. PAYMENTS
25
<PAGE>
5.1 Deposit: Lessee shall pay to Lessor a Deposit in the amounts set forth in
the definition of that term in Letter Agreement No. 1 and in accordance
with the schedule set forth therein.
5.2 Rental Periods: The Term will consist of consecutive whole or partial
Rental Periods set forth in Letter Agreement No. 1. The first Rental
Period will commence on the Delivery Date and each subsequent Rental
Period will commence on the date succeeding the last day of the previous
Rental Period. Each Rental Period will end on the date immediately
preceding the calendar day in the next month numerically corresponding to
the Delivery Date, except that:
(a) if there is no such numerically corresponding day in that month, it will
end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will end on
the Expiry Date.
5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in
advance in the amount specified as "Rent" in Letter Agreement No. 1.
Payment must be initiated adequately in advance of the Rent Date to ensure
that Lessor receives credit for the payment on the Rent Date. If a Rental
Period begins on a non-Business Day, the Rent payable in respect of that
Rental Period shall be paid on the Business Day immediately preceding the
date on which such Rental Period commences. The Lessor hereby agrees that
in respect of the first Rental Period (the Rent for which shall be deemed
to accrue pro-rata on a daily basis throughout such period) the Rent shall
be abated for the period of 10 days immediately following the Delivery
Date or until the Aircraft enters commercial airlines service, whichever
occurs first.
5.4 Maintenance Reserves:
(a) Amount: Lessee will further pay to Lessor Maintenance Reserves in relation
to each Rental Period (including without limitation the last Rental Period
of the Term) no later than the 10th day following the end of that Rental
Period as follows:-
(i) in respect of the Airframe, the product of the Airframe Maintenance
Reserve Rate specified in Letter Agreement No. 1 and the number of
Flight Hours operated by the Aircraft during that Rental Period
("Airframe Maintenance Reserves"); and
(ii) in respect of the life-limited Parts ("LLP") for each Engine, the
product of the Life-Limited Parts Reserve Rate specified in Letter
Agreement No. 1 and the number of Engine Flight Hours (or fraction
thereof) operated by the Engine during that Rental Period ("Engine
LLP Refurbishment Reserves"); and
(iii) in respect of Engine Refurbishment for each Engine, the product of
the Engine Refurbishment Reserve Rate specified in Letter Agreement
No. 1 and the
26
<PAGE>
number of Engine Flight Hours (or fraction thereof) operated by the
Engine during that Rental Period ("Engine Refurbishment Reserves");
and
(iv) in respect of the Landing Gear, the product of the Landing Gear
Reserve Rate specified in Letter Agreement No. 1 and the number of
Flight Hours operated by the Landing Gear during that Rental Period
("Landing Gear Maintenance Reserves").
(b) Adjustment: Lessor may adjust the amount of Maintenance Reserves after the
Delivery Date upon notice to Lessee not more frequently than annually
utilizing the Escalation Adjustment set forth in Letter Agreement No. 1.
The Engine Reserve Rate may be further adjusted not more frequently than
annually as provided in Section III of Letter Agreement No. 1.
5.5 Payments: All payments by Lessee to Lessor under this Agreement will be
made for value on the due date in Dollars and in same day funds settled
through the New York Clearing House System or such other funds as may for
the time being be customary for the settlement in New York City of
international payments in Dollars by telegraphic transfer to Bank of
America, San Francisco, California, ABA No. 121-000-358, Account No.
14993-03400 or to such other account as Lessor may advise Lessee in
writing.
5.6 Withholding: All payments by Lessee pursuant to the Operative Documents
shall be free of all withholdings of any nature whatsoever except to the
extent otherwise required by Law, and if any such withholding is so
required, Lessee shall pay on an After-Tax Basis an additional amount such
that after the deduction of all amounts required to be withheld, the net
amount actually received by Lessor on an After-Tax Basis will equal the
amount that Lessor would have received on an After-Tax Basis if such
withholding had not been required; provided, however, that if Lessee pays
any such additional amount to compensate for the withholding of any Lessor
Tax, Lessor shall repay to Lessee within 30 days after receipt of Lessee's
written request therefor (which request shall include a description in
reasonable detail of the Lessor Tax involved and the calculation of the
additional amount to be repaid) the amount of such additional amount to
the extent attributable to any Lessor Tax.
5.7 General Tax Indemnity:
General:
(i) Lessee will on demand pay and indemnify each Indemnitee against all
Taxes (other than Lessor Taxes) levied or imposed against or upon or
payable by such Indemnitee or Lessee and arising from, with respect
to or in connection with the transactions pursuant to the Operative
Documents (except for the Warrant and the side letter dated as of
October 20, 1995 specifically relating thereto, but save in so far
as any indemnity by Lessee in respect of Taxes is specifically
provided for therein, including (but not limited to) all Taxes
relating or attributable to Lessee, any Operative Document or the
Aircraft
27
<PAGE>
directly or indirectly in connection with the importation,
exportation, registration, ownership, leasing, sub-leasing,
purchase, delivery, possession, use, operation, repair, maintenance,
overhaul, transportation, landing, storage, presence or redelivery
of the Aircraft or any part thereof or any rent, receipts, insurance
proceeds, income or other amounts arising therefrom.
(ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by
Lessee directly to the appropriate taxing authority (to the extent
permitted by applicable Law) at or before the time prescribed by
applicable Law. After any payment by Lessee of any Tax directly to
a taxing authority, Lessee shall furnish to Lessor, on request, a
certified copy of a receipt for Lessee's payment of such Tax or such
other evidence of payment of such Tax as is reasonably obtainable by
Lessee and reasonably acceptable to Lessor.
(iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause
5.7 shall be paid within ten days after receipt of a written demand
therefor from the relevant Indemnitee accompanied by a written
statement describing in reasonable detail the basis for such
indemnity and the computation of the amount so payable, provided
that if an amount of any indemnified Tax is being contested in
accordance with Clause 5.12 and Lessee shall have duly performed
(and shall continue to perform) all its obligations under Clause
5.12 with respect to such contest, then payment of the indemnity
with respect to such Tax under Clause 5.12 shall , at Lessee's
election, be deferred until the date the contest has been completed.
5.8. Sales and Use Taxes:
(a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if
requested by Lessor, Lessee shall pay to the relevant tax authority for
the account of Lessor), in addition to the amounts specified as "Rent" in
Letter Agreement No. 1:
(i) all sales, use, rental, value added, goods and services and similar
taxes ("Sales Taxes") required to be paid to the tax authority of
the jurisdiction in which the Delivery Location is situated or to
the jurisdiction in which the Aircraft is habitually based with
respect to the lease of the Aircraft to Lessee pursuant to the
Operative Documents unless Lessee delivers to Lessor on or prior to
the Delivery Date such exemption certificate or other document as
may be acceptable to Lessor to evidence Lessee's entitlement to
exemption from all Sales Taxes imposed by such jurisdiction with
respect to the lease of the Aircraft pursuant to the Operative
Documents; and
(ii) all Sales Taxes required to be paid to the tax authority of any
jurisdiction in which the Aircraft may be used, operated or
otherwise located from time to time unless Lessee delivers to Lessor
such exemption certificates or other documents as may be required by
applicable Law to evidence Lessee's
28
<PAGE>
entitlement to exemption from all Sales Taxes imposed by each such
jurisdiction with respect to the lease of the Aircraft pursuant to
the Operative Documents.
(b) Lessee will cooperate with Lessor in connection with the preparation and
filing of any exemption application or similar document that is reasonably
necessary or desirable under applicable Law to avoid the imposition of any
Sales Taxes with respect to the transactions contemplated by the Operative
Documents.
(c) The specific obligations with respect to sales and use taxes set forth in
this Clause 5.8 are in addition to, and are not in substitution for, the
Lessee's obligation to indemnify for sales and use taxes pursuant to
Clause 5.7.
5.9 Information:
(a) If Lessee is required by any applicable Law, or by any third party, to
deliver any report or return in connection with any Taxes for which Lessee
would be obligated to indemnify Lessor under the Operative Documents,
Lessee will complete the same and, on request, supply a copy of the report
or return to Lessor.
(b) If any report, return or statement is required to be made by Lessor with
respect to any Tax for which there is an indemnity obligation of Lessee
under this Clause 5, Lessee will promptly notify Lessor of the requirement
and:
(i) if permitted by applicable Law, make and timely file such
report, return or statement (except for any report, return or
statement that Lessor has notified Lessee that Lessor intends to
prepare and file), prepare such return in such manner as will show
the ownership of the Aircraft in Lessor if required or appropriate,
and provide Lessor upon request a copy of each such report, return
or statement filed by Lessee, or
(ii) if Lessee is not permitted by applicable Law to file any such
report, return or statement, Lessee will prepare and deliver to
Lessor a proposed form of such report, return or statement within a
reasonable time prior to the time such report, return or statement
is to be filed.
Lessee will provide such information and documents as Lessor may
reasonably request to enable Lessor to comply with its tax filing, audit
and litigation obligations.
5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that,
with respect to any payment or indemnity pursuant to Clause 5.7 (Tax
Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to
or for the benefit of any Indemnitee, Lessee's indemnity obligations shall
include such amount as may be necessary to hold such Indemnitee harmless
on an After-Tax Basis from all Taxes required to be paid by such
Indemnitee with respect to such payment or indemnity (including any
payments pursuant to this Clause 5.10), determined based on the assumption
that at the time each such payment or indemnity is accrued by the relevant
Indemnitee, such payment or indemnity will be subject to (i) United States
Federal income tax at the highest marginal
29
<PAGE>
statutory tax rate applicable to corporations, (ii) United States state
and local income taxes at the composite of the highest marginal statutory
tax rates applicable to the Indemnitee and (iii) income taxes (if any)
imposed by countries outside the United States at the actual rates imposed
on the relevant Indemnitee.
5.11 Default Interest: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time to
Lessor interest (both before and after judgment) on that amount, from the
due date to the date of payment in full by Lessee to Lessor, at the
Interest Rate specified in Letter Agreement No. 1; provided, however, that
in no event shall such rate exceed the maximum permitted by Law. All such
interest will be compounded monthly and calculated on the basis of the
actual number of days elapsed in the month assuming a 30 day month and a
360 day year.
5.12 Contest:
(a) If an Indemnitee receives a written claim for any Tax for which Lessee
would be required to pay an indemnity pursuant to Clause 5.7 or Clause
5.8, such Indemnitee shall notify Lessee promptly of such claim, provided
that any failure to provide such notice will not relieve Lessee of any
indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If
requested by Lessee in writing promptly after receipt of such Indemnitee's
notice, such Indmenitee shall, upon receipt of indemnity satisfactory to
it and at the expense of Lessee (including, without limitation, all costs,
expenses, legal and accountants' fees and disbursements, and penalties,
interest and additions to tax incurred in contesting such claim) in good
faith contest or (if permitted by applicable Law) permit Lessee to contest
such claim by (i) resisting payment thereof if practicable and
appropriate, (ii) not paying the same except under protest if protest is
necessary and proper, or (iii) if payment is made, using reasonable
efforts to obtain a refund of such Taxes in appropriate administrative and
judicial proceedings. Such Indemnitee shall determine the method of any
contest conducted by such Indemnitee and (in good faith consultation with
Lessee) control the conduct thereof. Lessee shall determine the method of
any contest conducted by Lessee and (in good faith consultation with such
Indemnitee) control the conduct thereof. Lessee shall pay in full all
payments of Rent and other amounts payable pursuant to the Operative
Documents, without reduction for or on account of any Tax, while such
contest is continuing. Such Indemnitee shall not be required to contest,
or to continue to contest, a claim for Taxes under this Clause 5.12 if (x)
such contest would result in a risk of criminal penalties or of a sale,
forfeiture or loss of, or the imposition of a Lien (other than a Permitted
Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion
of independent tax counsel selected by such Indemnitee and reasonably
satisfactory to Lessee, that a reasonable basis exists for such contest,
or (z) a Default or an Event of Default shall be continuing (unless Lessee
shall have provided security reasonably satisfactory to such Indemnitee
securing Lessee's performance of its obligations under this Clause 5). If
such Indemnitee contests any claim for Taxes by making a payment and
seeking a refund thereof, then Lessee shall advance to such Indemnitee, on
an interest-free basis, an amount equal to the Taxes to be paid by such
Indemnitee in connection with the contest and shall indemnify such
Indemnitee on an After-Tax Basis for any adverse tax consequences to such
Indemnitee of such interest-
30
<PAGE>
free advance. Upon the final determination of any contest pursuant to this
Clause 5.12 in respect of any Taxes for which Lessee shall have made an
advance to such Indemnitee in accordance with the immediately preceding
sentence, the amount of Lessee's obligation shall be determined as if such
advance had not been made; any indemnity obligation of Lessee to such
Indemnitee under this Clause 5 and such Indemnitee's obligation to repay
the advance will be satisfied first by setoff against each other, and any
difference owing by either party shall be paid within ten days after such
final determination.
(b) If an Indemnitee obtains a refund of all or any part of any Taxes for
which a full indemnity was paid by Lessee, such Indemnitee shall pay
Lessee the amount of such refund, reduced by any Taxes imposed on such
Indemnitee on receipt or accrual of such refund and increased by any Taxes
saved by such Indemnitee by reason of the deductibility of such payment by
such Indemnitee. If, in addition to such refund, such Indemnitee receives
an amount of interest on such refund, such Indemnitee shall pay to Lessee
the portion of such interest which is fairly attributable to such refund,
reduced by any Taxes imposed by such Indemnitee on receipt or accrual of
such interest and increased by any Taxes saved by reason of the
deductibility of such payment by such Indemnitee. Such Indemnitee shall
not be required to make any payment to Lessee pursuant to this Clause 5.12
if, and for so long as, an Event of Default shall have occurred and be
continuing.
(c) Any Indemnitee in its sole discretion (by written notice to Lessee) may
waive its rights to indemnification pursuant to Clause 5.7 with respect to
any claim for any Tax and may refrain from contesting or continuing the
contest of such claim, in which event Lessee shall have no obligation to
indemnify such Indemnitee for the Taxes that are the subject of such
claim. If an Indmenitee agrees to a settlement of any contest conducted
pursuant to this Clause 5.11 without the prior written consent of Lessee,
which consent shall not be unreasonably withheld, then Lessor shall be
deemed to have waived its rights to the indemnification provided for in
Clause 5.7 with respect to the Tax liability accepted in such settlement.
5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this
Agreement are absolute and unconditional irrespective of any contingency
whatsoever including (but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defense or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against Lessee's
use, operation or possession of the Aircraft;
(c) any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under the
31
<PAGE>
laws of any relevant jurisdiction, or any Event of Loss in respect of or
any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceedings by or against Lessor
or Lessee;
(e) any invalidity or unenforceability or lack of due authorization of, or
other defect in, this Agreement;
(f) and Security Interests with respect to the Aircraft or Taxes; and/or
(g) any other cause which but for this provision would or might otherwise have
the effect of terminating or in any way affecting any obligation of Lessee
under this Agreement.
5.14 Security
(a) To the fullest extent permitted by Law and by way of continuing security
Lessee as sole beneficial owner charges the Deposit and the Maintenance
Reserves and all rights of Lessee to payment thereof and the debt
represented thereby (the "Charged Monies") to Lessor by way of first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements (the "Secured Liabilities"). Except as
expressly permitted under this Agreement, Lessee will not be entitled to
payment of the Charged Monies. Lessee will not assign, transfer or
otherwise dispose of all or part of its rights in the Charged Monies and
it will enter into any additional documents and instruments necessary or
advisable to evidence, create or perfect Lessor's rights to the Charged
Monies;
(b) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing, in addition to all rights
and remedies accorded to Lessor elsewhere in this Agreement and under Law
as a secured party in respect of the Charged Monies, Lessor may
immediately or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the payment or
discharge of the Secured Liabilities in such order as Lessor sees
fit; and
(c) If Lessor has exercised the set-off described in sub-clause (b) above,
Lessee shall, following a demand in writing from Lessor, restore the
Charged Monies to the level at which they stood immediately prior to such
set-off.
6. MANUFACTURER'S WARRANTIES
6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to
the benefit of each warranty, express or implied, with respect to the
Aircraft, any Engine or Part so
32
<PAGE>
far as concerns any manufacturer, vendor, subcontractor or supplier.
Except to the extent Lessor otherwise directs, Lessor hereby authorizes
Lessee to pursue any claim thereunder in relation to defects affecting the
Aircraft, any Engine or Part and Lessee agrees diligently to pursue any
such claim which arises at its own cost. Lessee will notify Lessor
promptly upon becoming aware of any such claim.
6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor but
if and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) above only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case,
Lessee will procure that all engines, components, furnishings or equipment
provided by the manufacturer, vendor, subcontractor or supplier in
replacement of a defective Engine or Part pursuant to the terms of any
warranty will be installed promptly by Lessee and that title thereto free
of Security Interests vests in Lessor. On installation each part will be
deemed to be a Part. In the case of a Replacement Engine, Lessee will
satisfy and perform each of the conditions and covenants set forth in
Clause 11.1(c), and upon satisfaction of such conditions, such Replacement
Engine will be deemed an "Engine" for all purposes of this Agreement.
6.4 Agreement: To the extent any warranties relating to the Aircraft are made
available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant
to Clause 6.2 and pending such payment will hold the claim and the
proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the Term to
ensure the benefit of any of those warranties which have not expired are
vested in Lessor.
7. LESSOR'S COVENANTS
7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession
and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its
rights under or in connection with this Agreement will not constitute such
an interference. Lessor will procure at Lessee's request an undertaking
of quiet enjoyment for the benefit of Lessee with respect to any
prospective Lessor Lien.
33
<PAGE>
7.2 Release of Maintenance Reserves: Provided no Default has occurred and is
continuing Lessor will release funds to Lessee from the Maintenance
Reserves respecting maintenance work performed upon submission by Lessee
to Lessor within 6 months of the commencement of that maintenance and
before the Expiry Date of an invoice and supporting documentation
reasonably satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterized by the
Manufacturer's maintenance planning document and best industry practice as
"D" Check and/or individual structural inspections having an interval of
not less than 20,000 Flight Hours or 6 years for the Aircraft (but not
including repairs arising as the result of operational or maintenance
mishandling), the lesser of (i) the amount of that invoice and (ii) the
amount equal to the aggregate amount of Airframe Maintenance Reserves paid
under this Agreement at the time of commencement of that maintenance less
the aggregate amount previously released by Lessor under this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of all shop visits requiring engine disassembly (other than (i)
repairs arising as a result of foreign object damage or operational or
maintenance mishandling and/or (ii) removal, installation, maintenance and
repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount
of that invoice and (ii) the amount equal to the aggregate amount of
Engine Refurbishment Reserves paid in respect of that Engine under this
Agreement at the time of commencement of that maintenance less the
aggregate amount previously paid in respect of that Engine by Lessor under
this sub-clause;
(c) with respect to life limited parts within any Engine, the performance, in
accordance with this Agreement, of any such parts replacement or repair
(other than (i) repairs arising as a result of accidents or incidents
(whether or not eligible for recovery under Lessee's insurance), foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC kits) and/or (iii)
any elective parts replacement), the lesser of (i) the amount of that
invoice and (ii) the amount equal to the aggregate of Engine LLP
Reburishment Reserves paid in respect of that Engine under this Agreement
at the time of commencement of that maintenance less the aggregate amount
previously paid in respect of that Engine by Lessor under this sub-clause;
and
(d) with respect to the Landing Gear, the performance in accordance with this
Agreement, of all work on the landing gear in the nature of overhaul and
requiring removal and disassembly (other than repairs arising as the
result of operational or maintenance mishandling), the lesser of (i) the
amount of that invoice and (ii) the amount equal to the aggregate amount
of Landing Gear Maintenance Reserves paid under this Agreement at the time
of commencement of that maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
7.3 Lessor Obligations Following Expiry Date: Within 5 Business Days of:-
34
<PAGE>
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after the
Delivery Date;
or in each case such later time as Lessor is reasonably satisfied Lessee
has irrevocably paid to Lessor all amounts which may then be outstanding
or become payable under this Agreement, the other Operative Documents or
the Other Agreements and Lessee, Lessor will pay to Lessee:-
(i) the balance of the Deposit; and
(ii) the amount of any Rent received in respect of any period falling
after the date of redelivery of the Aircraft or payment of the
Agreed Value, as the case may be; and shall return to Lessee the
warrant certificate, if not previously exercised, representing the
Warrant.
8. LESSEE'S COVENANTS
8.1 Duration: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this Agreement
and thereafter to the extent of any accrued rights of Lessor in relation
to those undertakings.
8.2 Information: Lessee will:-
(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of its
obligations under this Agreement;
(b) furnish to Lessor:-
(i) upon request, the consolidated management accounts of Lessee
(comprising a balance sheet and profit and loss statement) prepared
for the most recent previous financial quarter;
(ii) as soon as available but not in any event later than 120 days after
the last day of each financial year of Lessee, its audited
consolidated balance sheet as of such day and its audited
consolidated profit and loss statement for the year ending on such
day;
(iii) at the same time as it is issued to the shareholders or creditors
of Lessee, a copy of each notice or circular issued to Lessee's
shareholders or creditors as a group; and
35
<PAGE>
(iv) on request from time to time such other information regarding Lessee
and its business and affairs as Lessor may reasonably request;
(c) keep Lessor informed as to current serial numbers of the Engines and any
engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part, its
use, location and condition including, without limitation, the hours
available on the Aircraft and any Engine until the next scheduled check,
inspection, overhaul, refurbishment or shop visit, as the case may be;
(e) on request, within 10 days after the end of any Rental Period, furnish to
Lessor evidence satisfactory to Lessor of payment of all Taxes due during
that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air traffic
control authorities, have been paid and discharged in full;
(g) within 7 days after the end of each calendar month during the Term,
provide Lessor with a monthly report on the Aircraft and each Engine in
the form set out in Schedule 8 hereto;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-
(i) any loss, theft, damage or destruction to the Aircraft, any Engine
or any Part, or any modification to the Aircraft if the potential
cost may exceed the Damage Notification Threshold; and
(ii) any claim or other occurrence likely to give rise to a claim under
the Insurances (but in the case of hull claims only in excess of the
Damage Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 Lawful and Safe Operation: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the Aircraft
(including without limitation Laws mandating insurance coverage) or, so
far as concerns the use and operation of the Aircraft or an owner or
operator thereof and take all reasonable steps to ensure that the Aircraft
is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of the
manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air
36
<PAGE>
Authority or for any purpose for which the Aircraft is not designed or
reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with the
operation and maintenance of the Aircraft have the qualifications and hold
the licenses required by the Air Authority and applicable Law;
(d) use the Aircraft solely in commercial or other operations for which Lessee
is duly authorized by the Air Authority and applicable Law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet animals
carried in a suitable container to prevent the escape of any liquid
and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under the
"Restriction of Goods" schedule issued by I.A.T.A. from time to time
and provided that all the requirements for packaging or otherwise
contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could reasonably
be expected to cause damage to the Aircraft and which would not be
adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilize the Aircraft for purposes of training, qualifying or re-
confirming the status of cockpit personnel except for the benefit of
Lessee's cockpit personnel, and then only if the use of the Aircraft for
such purpose is not disproportionate to the use for such purpose of other
aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any location
which is for the time being the subject of a prohibition order (or any
similar order or directive) by:-
(i) any Government Entity of the State of Registration or the Habitual
Base; or
(ii) any Government Entity of the country in which such location is
situated; or
(iii) any Government Entity having jurisdiction over Lessor or the
Aircraft;
(h) obtain and maintain in full force all certificates, licenses, permits and
authorizations required for the use and operation of the Aircraft for the
time being, and for the making of payments required by, and the compliance
by Lessee with its other obligations under, this Agreement;
37
<PAGE>
(i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to
or for any country or entity that is the subject of sanctions under the
U.S. International Economic Emergency Powers Act or U.N. Security Council
directives (presently Iraq, Iran, Libya, the Federal Republic of
Yugoslavia (Serbia and Montenegro) and the Unita Rebels of Angola).
Lessee also covenants and agrees (i) not to operate or locate, or suffer
or permit to be operated or located, the Aircraft in any country
restricted under the U.S. Trading with the Enemy Act and the U.S. Export
Administration Act except as may be permitted by operating in accordance
with the conditions specified by the U.S. Export Administration
Regulations (15CFR Parts 730-799), General License GATS (15 CFR Part
771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii)
not to operate the Aircraft between Cuba and the United States; and
(j) not use, operate, or locate the Aircraft, or cause suffer or permit the
Aircraft to be used, operated or located during the Term in any manner not
covered by the Insurances or in any area excluded from coverage by the
Insurances or in any manner which would prejudice the interests of the
Indemnitees in the Insurances, the Aircraft, any Engine or any Part.
8.4 Taxes and other Outgoings: Lessee will promptly pay:-
(a) all license and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with respect
to the Aircraft, including without limitation the purchase, ownership,
delivery, leasing, possession, use, operation, return, sale or other
disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts
in respect of any premises where the Aircraft or any Part thereof is
located from time to time;
except to the extent that in the reasonable opinion of Lessor such payment
is being contested in good faith by appropriate proceedings, in respect of
which adequate resources have been provided by Lessee and non-payment of
which does not give rise to any material likelihood of the Aircraft or any
interest therein being sold, forfeited or otherwise lost or of criminal
liability on the part of Lessor.
8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE
AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH
POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO
THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL
WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR
PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS
EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE
FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A
38
<PAGE>
TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY
FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL
REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS
AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8
AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO
AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A
CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF.
8.6 Inspection:
(a) Lessor and any person designated by Lessor may at any time visit, inspect
and survey the Aircraft, any Engine or any Part and for such purpose may,
subject to any applicable Air Authority regulation, travel on the flight
deck as observer;
(b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable
out-of-pocket expenses incurred by Lessor in connection with any such
visit, inspection or survey; and
(c) Lessor will:-
(i) have no duty or liability to make, or arising out of making or
failing to make, any such visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not exercise
such right other than on reasonable notice and so as not to disrupt
unreasonably the commercial operations of Lessee, provided, however,
Lessee will take such action as may be reasonably required to
facilitate Lessor's inspection.
8.7 Title: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit to be
omitted to be done any act or thing which might reasonably be expected to
jeopardize the rights of Lessor as owner of the Aircraft;
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by
Lessor;
(c) not at any time (i) represent or hold out Lessor, GECASI or GACASLas
carrying goods or passengers on the Aircraft or as being in any way
connected or associated with any operation or carriage (whether for hire
or reward or gratuitously) which may be undertaken by Lessee or (ii)
pledge the credit of Lessor;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7
cm.) in a reasonably prominent position in the cockpit of the Aircraft and
on each Engine stating:-
39
<PAGE>
"This Aircraft/Engine is owned by General Electric Capital Corporation and
is leased to Frontier Airlines, Inc. and may not be operated by any other
person without the prior written consent of General Electric Capital
Corporation";
(e) not create or permit to exist any Security Interest upon the Aircraft, any
Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected to
expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and without
prejudice to the foregoing, if any such penalty, forfeiture, impounding,
detention or appropriation, damage or destruction occurs, give Lessor
notice and use best endeavors to procure the immediate release of the
Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and payable
or make adequate provision by way of security or otherwise for all debts,
damages, claims and liabilities which have given or might give rise to a
Security Interest over or affecting the Aircraft, any Engine or any Part;
and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part; and
(j) obtain a waiver of any mechanic's lien or right thereto from any vendor
providing maintenance services for Lessee prior to delivering the Aircraft
or any Engine or Part to such vendor.
8.8 General: Lessee will:-
(a) not make any substantial change in the nature of the business in which it
is engaged, will preserve its corporate existence (other than in
connection with a solvent reconstruction the terms of which have been
approved by Lessor, such approval not to be unreasonably withheld), and
will conduct its business in an orderly and efficient and will maintain
all rights, privileges, licenses and franchises material thereto or
material to performing its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor;
(c) not without giving Lessor 30 days prior notice (in accordance with this
Agreement), change its chief executive office (as such term is defined in
Article 9 of the Uniform Commercial Code as in effect in the State of
Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United
States of America;
40
<PAGE>
(d) remain a Certified Air Carrier and maintain, without limitation, its
status so as to fall within the preview of Section 1110 of Title 11 of the
United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code.
8.9 Records: Lessee will:-
(a) procure that accurate, complete and current records of all flights made
by, and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) are kept; keep the records in such manner as the Air
Authority may from time to time require, and ensure that they comply with
the recommendations of the manufacturers of the Aircraft, any Engine or
any Part. All records must be maintained in English. The records will
form part of the Aircraft Documents; and
(b) procure access to a revision service in respect of, and will maintain with
appropriate revisions in English, all Aircraft Documents, records, logs,
and other materials required by applicable Laws and best practice of major
international air transport operators in respect of the Aircraft.
8.10 Protection: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority
reflecting (so far as permitted by applicable Law) the interest of Lessor
and not do or suffer to be done anything which might adversely affect that
registration; and
(b) do all acts and things (including, without limitation, making any filing
or registration with the Air Authority or any other Government Entity or
as required to comply with the Mortgage Convention where applicable) and
execute and deliver all documents (including, without limitation, any
amendment of this Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft; or
(ii) following any modification of the Aircraft, any Engine or any Part
or the permanent replacement of any Engine or Part in accordance
with this Agreement, so as to ensure that the rights of Lessor under
this Agreement apply with the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the rights of
Lessor under this Agreement and the interest of Lessor in the
Aircraft.
41
<PAGE>
8.11 Maintenance and Repair: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Agreed Maintenance Program or the schedule of the Agreed
Maintenance Program without the written consent of Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance Program
through the Agreed Maintenance Performer and perform (at the respective
intervals provided in the Agreed Maintenance Program) all Major Checks;
(d) maintain the Aircraft in accordance required by the standard of
maintenance required by FAR Part 121, Subpart L and any other rules and
regulations of the FAA and in at least the same manner and with at least
the same care, including, without limitation, maintenance scheduling,
modification status and technical condition, as is the case with respect
to similar aircraft owned or otherwise operated by Lessee and as if Lessee
were to retain and continue operating the Aircraft in its fleet after the
Expiry Date, including, without limitation, all maintenance to the
Airframe, any Engine or any Part required to maintain all warranties,
performance guarantees or service life policies in full force and effect
except to the extent of conflict with the rules and regulations of the Air
Authority;
(e) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or
prior to the Expiry Date) mandatory inspection and modification
requirements, airworthiness directives and similar requirements applicable
to the Aircraft, any Engine or Part having a compliance date during the
Term or within 180 days after the Expiry Date and which are required by
the Air Authority and/or mandated by any manufacturer of the Aircraft, any
Engine or Part (an "Airworthiness Directive);
(f) comply with all applicable Laws and the regulations of the Air Authority
and other aviation authorities with jurisdiction over Lessee or the
Aircraft, any Engine or Part regardless of upon whom such requirements are
imposed and which relate to the maintenance, condition, use or operation
of the Aircraft or require any modification or alteration to the Aircraft,
any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in the
appropriate category for the nature of the operations of the Aircraft) for
the Aircraft issued by the Air Authority except where the Aircraft is
undergoing maintenance, modification or repair required or permitted by
this Agreement and will from time to time provide to Lessor a copy on
request;
(h) if required by the Air Authority, maintain a current certification as to
maintenance issued by or on behalf of the Air Authority in respect of the
Aircraft and will from time to time provide to Lessor a copy on request;
and
(i) procure promptly the replacement of any Engine or Part which has become
time, cycle or calendar expired, lost, stolen, seized, confiscated,
destroyed, damaged beyond repair, unserviceable or permanently rendered
unfit for use, with an engine or part complying
42
<PAGE>
with the conditions set out in Clause 8.13(a) and in the case of any
Engine which suffers an Engine Event of Loss, shall procure that such
engine complies with the provisions of Clause 11.1(c).
8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part
installed on the Aircraft is at any time removed from the Aircraft other
than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the Agreed
Maintenance Program; or
(c) (i) during the course of maintaining, servicing, repairing, overhauling
or testing that Engine or the Aircraft, as the case may be; or
(ii) as part of a normal engine or part rotation program; or
(iii) for the purpose of making such modifications to the Engine or the
Aircraft, as the case may be, as are permitted under this
Agreement;
and then in each case (A) with respect to a Part, only if it is
reinstalled or replaced by a part complying with Clause 8.13(a) as soon as
practicable and in any event no later than the Expiry Date, and (B) with
respect to an Engine, title to such Engine shall remain vested in Lessor.
8.13 Installation of Engines and Parts: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part is
installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model as, or
an improved or advanced version of the Engine it replaces, which is
in the same or better operating condition, has substantially similar
hours available until the next scheduled checks, inspections,
overhauls and shop visits and has the same or greater value and
utility as the replaced Engine;
(ii) in the case of a part, it is in as good operating condition, has
substantially similar hours available until the next scheduled
checks, inspections, overhauls and shop visits, is of the same or a
more advanced make and model and is of the same interchangeable
modification status as the replaced Part;
(iii) in the case of a part, it has become and remains the property of
Owner free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head Lease and
this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
43
<PAGE>
(b) if no Default has occurred which is continuing, be entitled to install any
engine or part on the Aircraft by way of replacement notwithstanding
Clause 8.13(a) if:-
(i) there is not available to Lessee at the time and in the place that
that engine or part is required to be installed on the Aircraft, a
replacement engine or, as the case may be, part complying with the
requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation of
the Aircraft and/or the business of Lessee to ground the Aircraft
until an engine or part, as the case may be, complying with Clause
8.13(a) becomes available for installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date, Lessee
removes any such engine or part and replaces it with the Engine or
Part replaced by it or by an engine or part, as the case may be,
complying with Clause 8.13(a).
8.14 Non-Installed Engines and Parts: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft (or
any other aircraft as permitted by this Agreement) is, except as expressly
permitted by this Agreement, properly and safely stored, and kept free
from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and, from
time to time, on request procure that any person to whom possession of an
Engine is given acknowledges in writing to Lessor, in form and substance
satisfactory to Lessor, that it will respect the interest of Lessor in
the Engine and will not seek to exercise any rights whatsoever in relation
to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install any
Engine or Part on an aircraft, or in the case of a Part on an engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional sale
agreement on a long-term basis and on terms whereby Lessee has full
operational control of that aircraft or engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated by
Lessee, on terms that ownership of that aircraft or engine, as the
case may be, pursuant to a lease or conditional sale agreement, or a
Security Interest therein, is vested in or held by any other Person;
provided that in the case of (ii) and (iii):-
44
<PAGE>
(1) the terms of any such lease, conditional sale agreement or Security
Interest will not have the effect of prejudicing the interest of
Lessor in that Engine or Part; and
(2) the lessor under such lease, the seller under such conditional sale
agreement or the holder of such Security Interest, as the case may
be, has confirmed and acknowledged in writing to Lessor, in form and
substance satisfactory to Lessor, that it will respect the interest
of Lessor in respect of that Engine or Part and that it will not
seek to exercise any rights whatsoever in relation thereto.
8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any
pooling agreement or arrangement in respect of an Engine or Part without
the prior written consent of Lessor.
8.16 Equipment Changes:
(a) Lessee will not make any modification or addition to the Aircraft (each an
"Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not diminish
the value, utility, condition, or airworthiness of the Aircraft;
(b) So long as a Default has not occurred and is continuing, Lessee may remove
any Equipment Change if it can be removed from the Aircraft without
diminishing or impairing the value, utility, condition or airworthiness of
the Aircraft; and
(c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes
payable by Lessor as the case may be, as a result of an Equipment Change.
8.17 Title on an Equipment Change:
(a) Title to all Parts installed on the Aircraft whether by way of
replacement, as the result of an Equipment Change or otherwise (except
those installed pursuant to Clause 8.13(b)) will on installation, without
further act, vest in Lessor subject to this Agreement free and clear of
all Security Interests. Lessee will at its own expense take all such steps
and execute, and procure the execution of, all such instruments as Lessor
may require and which are necessary to ensure that title so passes to
Lessor according to all applicable Laws. At any time when requested by
Lessor, Lessee will provide evidence to Lessor's satisfaction (including
the provision, if required, to Lessor of one or more legal opinions) that
title has so passed to Lessor;
(b) Lessor may require Lessee to remove any Equipment Change and to restore
the Aircraft to its condition prior to that Equipment Change; and
45
<PAGE>
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Owner until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable Laws, to
Owner subject to the Head Lease and this Agreement free of all Security
Interests whereupon title to the replaced Engine or Part, will, provided
no Default has occurred and is continuing, pass to Lessee.
8.18 Third Party: Lessee will procure that no person (other than Lessor) will
act in any manner inconsistent with its obligations under this Agreement
and that all persons will comply with those obligations as if references
to "Lessee" included a separate reference to those persons.
9. INSURANCE
9.1 Insurances: Lessee will maintain in full force during the Term, and
thereafter as expressly required in this Agreement, insurances in respect
of the Aircraft in form and substance satisfactory to Lessor (the
"Insurances" which expression includes, where the context so admits, any
relevant re-insurance(s)) through such brokers and with such insurers and
having such deductibles and being subject to such exclusions as may be
approved by Lessor from time to time. The Insurances will be effected
either:-
(a) on a direct basis with insurers of recognized standing who normally
participate in aviation insurances in the leading international insurance
markets and led by reputable underwriter(s) approved by Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who does not
retain the risk but effects substantial reinsurance with reinsurers in the
leading international insurance markets and through brokers each of
recognized standing and acceptable to Lessor for a percentage acceptable
to Lessor of all risks insured (the "Reinsurances").
9.2 Requirements: Lessor's current requirements as to required Insurances are
as specified in this Clause and in Schedule 4. Lessor may from time to
time stipulate other requirements for the Insurances so that the scope and
level of cover is maintained in line with best industry practice and the
interests of Lessor protected.
9.3 Change: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers
will consult with Lessee and Lessee's brokers (as for the time being
approved by Lessor) regarding whether that approval should be revoked to
protect the interests of the parties insured. If, following the
consultation, Lessor considers that any change should be made, Lessee will
then arrange or procure the arrangement of alternative cover satisfactory
to Lessor.
9.4 Insurance Covenants: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft, any
Engine or any Part which may from time to time be imposed by the laws of
the State of Registration or any state to, from or over which the Aircraft
may be flown, in so far as they affect or concern
46
<PAGE>
the operation of the Aircraft, are complied with and in particular those
requirements compliance with which is necessary to ensure that (i) the
Aircraft is not in danger of detention or forfeiture, (ii) the Insurances
remain valid and in full force and effect, and (iii) the interests of the
Indemnitees in the Insurances and the Aircraft or any Part are not thereby
prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be used
for any purpose or in any manner not covered by the Insurances or outside
any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances and
not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part of any
of the Insurances; or
(iii) brings any particular liability within the scope of an exclusion or
exception to the Insurances;
(d) not take out without the prior written approval of Lessor any insurance or
reinsurance in respect of the Aircraft other than those required under
this Agreement unless relating solely to hull total loss, business
interruption, profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any of the
Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed telecopy confirmation of completion of renewal prior to each
expiry date; and
(iii) certificates of insurance (and where appropriate certificates of
reinsurance), and broker's (and any reinsurance brokers') letter of
undertaking in a form acceptable to Lessor in English, detailing the
coverage and confirming the insurers' (and any reinsurers')
agreement to the specified insurance requirements of this Agreement
within 7 days after each renewal date;
(f) on request, provide to Lessor copies of documents or other information
evidencing the Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums have
been paid;
(h) not make any modification or alteration to the Insurances material and
adverse to the interests of any of the Indemnitees;
47
<PAGE>
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably require.
9.5 Failure to Insure: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be entitled
but not bound, (without prejudice to any other rights of Lessor under this
Agreement):-
(a) to pay the premiums due or to effect and maintain insurances satisfactory
to it or otherwise remedy Lessee's failure in such manner (including,
without limitation to effect and maintain an "owner's interest" policy) as
it considers appropriate. Any sums so expended by it will become
immediately due and payable by Lessee to Lessor on an After-Tax Basis
together with interest thereon at the rate specified in Clause 5.11, from
the date of expenditure by it up to the date of reimbursement by Lessee;
and
(b) at any time while such failure is continuing to require the Aircraft to
remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the
Expiry Date with respect to its liability under the Indemnity in Clause 10
for 2 years which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by
Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees
ceasing to have any interest in respect of the Aircraft.
9.7 Application of Insurance Proceeds:-
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss or
Engine Event of Loss occurring during the Term will be paid to Lessor and
Lessor will pay the balance of those amounts to Lessee after deduction of
all amounts which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the Aircraft,
any Engine or any Part occurring during the Term not constituting an Event
of Loss or Engine Event of Loss and in excess of the Damage Notification
Threshold will be applied in payment (or to reimburse Lessee) for repairs
or replacement property upon Lessor being satisfied that the repairs or
replacement have been effected in accordance with this Agreement.
Insurance proceeds in amounts below the Damage Notification Threshold may
be paid by the insurer directly to Lessee. Any balance remaining may be
retained by Lessor;
(c) all insurance proceeds in respect of third party liability will, except to
the extent paid by the insurers to the relevant third party, be paid to
Lessor to be paid directly in satisfaction of the relevant liability or to
Lessee in reimbursement of any payment so made; and
48
<PAGE>
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment
of any such insurance proceeds a Default has occurred and is continuing,
all such proceeds will be paid to or retained by Lessor to be applied
toward payment of any amounts which may be or become payable by Lessee in
such order as Lessor sees fit or as Lessor may elect.
To the extent insurance proceeds are paid to Lessee, Lessee agrees to
comply with the foregoing provisions and apply or pay over such proceeds
as so required.
10. INDEMNITY
10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE
INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS,
PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES,
PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE
OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):-
(A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY
AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY,
PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL,
MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE,
OPERATION OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN
THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE
ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART
OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF
WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE
TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE;
(B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH
RENDERS VOIDABLE ANY OF THE INSURANCES; AND
(C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF
ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY
PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT,
COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH
OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON;
BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE
EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION
OF THIS AGREEMENT OR TO THE
49
<PAGE>
EXTENT IT ARISES SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN.
10.2 Duration: The indemnities contained in this agreement will continue in
full force following the end of the Term notwithstanding any breach or
repudiation by Lessor or Lessee of this Agreement or any termination of
the lease of the Aircraft hereunder.
11. EVENTS OF LOSS
11.1
(a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft
to Lessee, Lessor will have the option, exercisable by giving Lessee
notice in writing, to substitute an alternative aircraft of the same
manufacture, model, value and utility as the Aircraft. If Lessor exercises
such option, Lessee shall be obliged to lease such substitute aircraft
pursuant to the terms and conditions of this Agreement and such substitute
aircraft shall constitute the Aircraft for all purposes of this Agreement.
Lessor shall provide Lessee with details of the substitute aircraft as
soon as may be practicable after the occurrence of the Event of Loss. If
Lessor advises Lessee that Lessor does not wish to exercise such option,
this Agreement will immediately terminate and except as expressly stated
in this Agreement neither party will have any further obligation or
liability under this Agreement other than pursuant to Clause 16.9 except
that Lessor will return the Deposit to Lessee; and
(b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft
to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the
earlier of (i) 5 Business Days after the Event of Loss and (ii) the date
of receipt of insurance proceeds in respect of that Event of Loss. Subject
to the rights of any insurers and reinsurers or other third party, upon
irrevocable payment in full to Lessor of that amount and all other amounts
which may be or become payable to Lessor under this Agreement, Lessor will
without recourse or warranty (except as to Lessor's Liens) and without
further act, be deemed to have transferred to Lessee all of Lessor's
rights to any Engines and Parts not installed when the Event of Loss
occurred, all on an as-is where-is basis, and will at Lessee's expense,
execute and deliver such bills of sale and other documents and instruments
as Lessee may reasonably request to evidence (on the public record or
otherwise) the transfer and the vesting of Lessor's rights in such Engines
and Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
(c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss,
Lessee shall give Lessor prompt written notice thereof and shall, within
45 days after such occurrence, convey to Lessor, as replacement for the
Engine suffering such event, title to a Replacement Engine. Each
Replacement Engine shall be free of all Security Interests and shall be in
as good an operating condition as the Engine being replaced, assuming the
Engine being replaced was in the condition and repair required by the
terms hereof immediately prior to the Engine Event of Loss. Upon full
compliance by Lessee with the
50
<PAGE>
terms of this Clause 11.1(c), Lessor will transfer to Lessee title to the
Engine which suffered the Engine Event of Loss. Prior to or at the time of
any such conveyance, Lessee, at its own expense, will promptly (i) furnish
Lessor with a full warranty bill of sale, in form and substance reasonably
satisfactory to Lessor, with respect to such Replacement Engine; (ii)
cause a lease supplement (in form and substance satisfactory to Lessor)
subjecting such Replacement Engine to this Agreement, to be duly executed
by Lessee, and recorded pursuant to applicable Law; (iii) furnish Lessor
with such evidence of title to such Replacement Engine as Lessor may
reasonably request; (iv) furnish Lessor with an opinion of Lessee's
counsel to the effect that title to such Replacement Engine has been duly
conveyed to Lessor subject to this Agreement, free and clear of all
Security Interests, and that such Replacement Engine is duly leased
hereunder; (v) furnish a certificate signed by a duly authorized financial
officer or executive of Lessee certifying that, upon consummation of such
replacement, no Event of Default will have occurred or be continuing; (vi)
furnish Lessor with such documents as Lessor may reasonably request in
connection with the consummation of the transactions contemplated by this
Clause 11.1(c), in each case in form and substance satisfactory to Lessor;
and (vii) furnish such Financing Statements incorporating the Replacement
Engine as may be requested by Lessor. For all purposes hereof, each such
Replacement Engine shall be deemed part of the property leased hereunder,
shall be deemed an "Engine" as defined herein and shall be deemed part of
the same Aircraft as was the Engine replaced thereof. No Engine Event of
Loss covered by this Clause 11.1(c) shall result in any reduction in Rent
or affect Lessee's obligation to pay Engine Maintenance Reserves or the
amount thereof to be paid by Lessee.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of one or
more Engines pursuant to this Clause 11.1.
11.2 Substitute Aircraft:
(a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of
Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the
option, exercisable by giving Lessee notice in writing, to substitute an
alternative aircraft (the "Substitute Aircraft") of the same manufacture
and model as the Aircraft and having a value, utility and condition equal
to or greater than the Aircraft as at the date of occurrence of the Event
of Loss which Substitute Aircraft will be leased by Lessor to Lessee for
the remainder of the Term pursuant to the terms and conditions of this
Agreement. If Lessor exercises such option, the Substitute Aircraft will
constitute the Aircraft for all purposes of this Agreement in respect of
facts and circumstances arising after the date of delivery thereof to
Lessee. Lessor shall provide Lessee with details of the Substitute
Aircraft as soon as may be practicable after the occurrence of the Event
of Loss;
(b) Lessor will use all reasonable endeavors to deliver the Substitute
Aircraft to Lessee as soon as may be practicable following the date of
occurrence of the Event of Loss but not later than 3 months after such
date; and
51
<PAGE>
(c) Lessee agrees to enter into such documentation as Lessor may require in
order to reflect the leasing of the Substitute Aircraft as aforesaid
including, without limitation, documentation in respect of the Insurances.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of the
Aircraft or Airframe pursuant to this Clause 11.2.
11.3 Requisition: During any requisition for use or hire of the Aircraft, any
Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not be
released from any of its other obligations under the Agreement (other than
operational obligations with which Lessee is unable to comply solely by
virtue of the requisition); and
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect of
the Term. Lessee will, as soon as practicable after the end of any such
requisition, cause the Aircraft to be put into the condition required by
this Agreement. Lessor will be entitled to all compensation payable by the
requisitioning authority in respect of any change in the structure, state
or condition of the Aircraft arising during the period of requisition, and
Lessor will apply such compensation in reimbursing Lessee for the cost of
complying with its obligations under this Agreement in respect of any such
change, but so that, if any Default has occurred and is continuing, Lessor
may apply the compensation or hire in or towards settlement of any amounts
owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to
Clause 13.2 or termination of the leasing of the Aircraft under this
Agreement Lessee will, unless an Event of Loss has occurred, at its
expense, redeliver the Aircraft and Aircraft Documents to Lessor at the
Redelivery Location or such other airport as is mutually acceptable to the
parties hereto, in accordance with the procedures and in compliance with
the conditions set forth in Schedule 3, free and clear of all Security
Interests and Permitted Liens (other than Lessor Liens) and in a condition
qualifying for immediate certification of airworthiness by the FAA or as
otherwise agreed by Lessor and Lessee, and, if requested by Lessor,
thereupon cause the Aircraft to be deregistered by the Air Authority.
12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee
will make the Aircraft available to Lessor for inspection ("Final
Inspection") in order to verify that the condition of the Aircraft
complies with this Agreement. The Final Inspection will be long enough to
permit Lessor to:-
(a) inspect the Aircraft Documents;
52
<PAGE>
(b) inspect the Aircraft and uninstalled Parts;
(c) inspect the Engines, including without limitation (i) a borescope
inspection of (A) the low pressure and high pressure compressors and (B)
turbine and combustion areas, (ii) engine condition runs and (iii) review
of Engine trend monitoring data and technical log reports covering the
last ninety (90) days of operation; and
(d) perform a complete borescope inspection of the APU; and
(e) observe a 2 hour demonstration flight (with Lessor's representatives as
on-board observers).
12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the
condition of the Aircraft does not comply with this Agreement, Lessee will
at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the non-
compliance extends beyond the Expiry Date, the Term will be automatically
extended and this Agreement will remain in force until the non-compliance
has been rectified with Lessee being obligated to pay Rent with respect to
the period of such extension on a per diem basis; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax
Basis, and provide to Lessor's satisfaction cash as security for that
indemnity, against the cost of putting the Aircraft into the condition
required by this Agreement.
12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's
request, all documents necessary to export the Aircraft from the Habitual
Base (including, without limitation, a valid and subsisting export license
for the Aircraft) and required in relation to the deregistration of the
Aircraft with the Air Authority.
12.5 Acknowledgment: Provided Lessee has complied with its obligations under
this Agreement, following redelivery of the Aircraft by Lessee to Lessor
at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgment confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 Maintenance Program:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide
Lessor or its agent reasonable access to the Agreed Maintenance Program
and the Aircraft Documents in order to facilitate the Aircraft's
integration into any subsequent operator's fleet; and
(b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft
deliver to Lessor a certified true current and complete copy of the Agreed
Maintenance Program. Lessor agrees that it will not disclose the contents
of the Agreed Maintenance Program to any person or entity except to the
extent necessary to monitor Lessee's compliance with this Agreement and/or
to bridge the maintenance program for the Aircraft from the Agreed
Maintenance Program to another program after the Expiry Date.
53
<PAGE>
12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Delivery Date and the Expiry Date
at the price then prevailing at the Redelivery Location.
13. DEFAULT
13.1 Events: Each of the following events will constitute an Event of Default
and a repudiation (but not a termination) of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or occurs
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
Government Entity). Lessee acknowledges that the occurrence of any Event
of Default would represent a material default in the performance of its
obligations under this Agreement:-
(a) Non-payment: Lessee fails to make any payment under this Agreement on the
due date; or
(b) Insurance: Lessee fails to comply with any provision of Clause 9 or any
insurance required to be maintained under this Agreement is canceled or
terminated or notice of cancellation is given in respect of any such
insurance; or
(c) Breach: Lessee fails to comply with any other provision of this Agreement
and, if such failure is in the reasonable opinion of Lessor capable of
remedy, the failure continues for 5 days after notice from Lessor to
Lessee; or
(d) Representation: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any document or
certificate or statement is or proves to have been incorrect in any
material respect when made or deemed to be repeated; or
(e) Cross Default:
(i) a final judgment for the payment of money not covered by insurance
in excess of Two Hundred Fifty Thousand Dollars ($250,000), or final
judgments for the payment of money not covered by insurance in
excess of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate, shall be rendered against Lessee and the same shall
remain undischarged for a period of ninety (90) days during which
execution thereof shall not be effectively stayed by agreement of
the parties involved, stayed by court order or adequately bonded; or
(ii) attachments or other Security Interests shall be issued or entered
against substantially all of the property of Lessee and shall remain
undischarged or unbonded for ninety (90) days except for Security
Interests created in connection with monies borrowed or obligations
agreed to by Lessee in the ordinary course of its business; or
54
<PAGE>
(iii) Lessee shall default in the payment of any sum which by itself is
in excess of $100,000 or any sums which in aggregate exceed $250,000
notwithstanding that any particular individual sum thereof does not
exceed $100,000 of any one or more obligations for the payment of
borrowed money, for the deferred purchase price of property or for
the payment of rent or hire under any lease of aircraft when the
same becomes due if such nonpayment results in or would permit an
acceleration of such indebtedness, or Lessee shall default in the
performance of any other term, agreement, or condition contained in
any agreement or instrument under or by which any such obligation is
created, evidenced or secured, if the effect of such default is to
cause or permit such obligation to become due prior to its stated
maturity; or
(iv) any event of default or termination event, howsoever described,
occurs under the Other Agreements; or
(f) Approvals: any consent, authorization, license, certificate or approval of
or registration with or declaration to any Government Entity in connection
with this Agreement (including, without limitation): -
(i) any authorization required by Lessee to obtain and transfer freely
Dollars (or any other relevant currency) out of any relevant
country; or
(ii) required by Lessee to authorize, or in connection with, the
execution, delivery, validity, enforceability or admissibility in
evidence of this Agreement or the performance by Lessee of its
obligations under this Agreement; or
(iii) the registration of the Aircraft; or
(iv) any airline license or air transport license including, without
limitation, authority to operate the Aircraft under FAR Part 121 and
a Certificate of Public Convenience and Necessity issued under
Section 41102 of Title 49 of the United States Code;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, canceled, withdrawn, terminated or not renewed, or
otherwise ceases to be in full force; or
(g) Bankruptcy, etc:
(i) Lessee or any Subsidiary consents to the appointment of a custodian,
receiver, trustee or liquidator of itself or all or any material
part of Lessee's property or Lessee's consolidated property, or
Lessee or any Subsidiary admits in writing its inability to, or is
unable to, or does not, pay its debts generally as they come due, or
makes a general assignment for the benefit of creditors, or Lessee
or any Subsidiary files a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization in a proceeding under any
bankruptcy or insolvency Laws (as now or hereafter in effect) or an
answer admitting the material
55
<PAGE>
allegations of a petition filed against Lessee or any Subsidiary in
any such proceeding, or Lessee or any Subsidiary by voluntary
petition, answer or consent seeks relief under the provisions of any
other bankruptcy, insolvency or other similar Law providing for the
reorganization or winding-up of corporations, or provides for an
agreement, composition, extension or adjustment with its creditors,
or any corporate action (including, without limitation, any board of
directors or shareholder action) is taken by Lessee or any
Subsidiary in furtherance of any of the foregoing, whether or not
the same is fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any of its Subsidiaries, a
custodian, receiver, trustee or liquidator of Lessee or any
Subsidiary, or of all or any material part of Lessee's property or
Lessee's consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30 days
after the date of entry thereof or at any time an order for relief
is granted; or
(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy Laws or other
insolvency Laws (as now or hereafter in effect) is filed and is not
withdrawn or dismissed within 30 days thereafter or at any time an
order for relief is granted in such proceeding, or if, under the
provisions of any Law providing for reorganization or winding-up of
corporations which may apply to Lessee or any Subsidiary, any court
of competent jurisdiction assumes jurisdiction over, or custody or
control of, Lessee or any Subsidiary or of all or any material part
of Lessee's property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect, unrelinquished,
unstayed or unterminated for a period of 30 days or at any time an
order for relief is granted in such proceeding; or
(h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations
under this Agreement or this Agreement becomes wholly or partly invalid or
unenforceable; or
(i) Suspension of Business: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a substantial
part of its business; or
(j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers
or threatens to dispose, convey or transfer of all or a material part of
its assets, liquidates or dissolves or consolidates or merges with any
other Person whether by one or a series of transactions, related or not,
other than for the purpose of a reorganization of the terms of which have
received the previous consent in writing of Lessor; or
(k) Rights and Remedies: the existence, validity, enforceability or priority
of the rights of Lessor as owner and the rights of Lessor as lessor in
respect of the Aircraft are challenged by Lessee or any other person
claiming by or through Lessee; or
56
<PAGE>
(l) Delivery: Lessee fails to timely comply with its obligations under Clause
4 to accept delivery of the Aircraft; or
(m) Ownership, Security Interests and Related Matters: Lessee fails to timely
comply with its obligations under Clause 8.7; or
(n) Transfer: Lessee makes or permits any assignment or transfer of this
Agreement, or any interest herein, or of the right to possession of the
Aircraft, the Airframe, or any Engine; or
(o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry
Date in accordance with Clause 12.
(p) Adverse Change: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on the
financial condition or operations of Lessee and its Subsidiaries or on the
ability of Lessee to comply with its obligations under this Agreement; or
13.2 Rights: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at any
time thereafter (without notice to Lessee except as required under
applicable Law):-
(a) by notice to Lessee and with immediate effect on dispatch of such notice
terminate the letting of the Aircraft (but without prejudice to the
continuing obligations of Lessee under this Agreement), whereupon all
rights of Lessee under this Agreement shall cease; and/or
(b) proceed by appropriate court action or actions to enforce performance of
this Agreement, including, without limitation, the payment of all Rent and
all other amounts payable to Lessor or any Indemnitee pursuant to the
terms hereof; and/or
(c) proceed by appropriate court action or actions to recover damages for the
breach of this Agreement which shall include, without limitation: -
(i) all Rent and other amounts which are or become due and payable
hereunder prior to the date Lessor recovers possession of the
Aircraft;
(ii) at Lessor's election, either one of the amounts determined pursuant
to Clause 13.2(e) or Clause 13.2(f) below or any lost profits
suffered by Lessor as a consequence of Lessor's inability to place
the Aircraft with another lessee on financial terms that are as
favorable to Lessor as the terms of this Agreement;
(iii) all costs associated with Lessor's exercise of its remedies
hereunder, including, but not limited to, repossession costs, legal
fees, Aircraft storage costs, Aircraft re-lease or sale costs and
Lessor's internal costs and expenses (including the cost of
personnel time calculated based upon the compensation
57
<PAGE>
paid to the individuals involved on an annual basis and a general
Lessor overhead allocation);
(iv) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding any
financial instrument relating in whole or in part to Lessor's
financing of the Aircraft;
(v) any loss, cost, expense or liability sustained by Lessor due to
Lessee's failure to redeliver the Aircraft in the condition required
by this Agreement; and
(vi) any other losses (including lost profits), damage, expense, cost or
liability which Lessor suffers or incurs as a result of the Event of
Default and/or termination of this Agreement, including an amount
sufficient to fully compensate Lessor for any loss of or damage to
Lessors residual interest in the Aircraft caused by Lessee's
default; and/or
(d) either: -
(i) enter upon the premises where all or any part of the Aircraft is
located and take immediate possession of and, at Lessor's sole
option, remove the same (and/or any engine which is not an Engine
but which is installed on the Airframe, subject to the rights of the
owner, lessor or secured party thereof) or cause it to be
redelivered to Lessor at a location in the United States identified
by Lessor (or such other location as Lessor may require) (the
"Return Location"), 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, or otherwise, caused by such entry or taking, except
damages caused by gross negligence or willful misconduct; and Lessor
is hereby irrevocably, by way of security for Lessee's obligations
under this Agreement, appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other pilots to
fly the Aircraft to that airport and will have all the powers and
authorizations necessary for taking that action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to Lessor
at Shannon International Airport, Ireland (or such other location as
Lessor may require); and/or
(e) sell at private or public sale, as Lessor may determine, or hold, use,
operate or lease to others the Aircraft as Lessor in its sole discretion
may determine, all free and clear of any rights of Lessee; and/or
(f) whether or not Lessor shall have exercised, or shall thereafter at any
time exercise, any of its rights under paragraph (a), paragraph (b),
paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2,
Lessor, by 30 days written notice to Lessee specifying a payment date, may
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor,
58
<PAGE>
on the payment date specified in such notice, as liquidated damages for
loss of bargain and not as a penalty (in lieu of the Rent due for the
period commencing after the date specified for payment in such notice),
any unpaid Rent for the Aircraft and other amounts owing under this
Agreement (prorated in the case of Rent on a daily basis) to and including
the payment date specified in such notice, plus the amount, if any, by
which the aggregate Rent for the remainder of the Term (determined without
reference to any right of Lessor to terminate the leasing of the Aircraft,
whether or not such right is exercised), discounted periodically (equal to
installment frequency) to present worth at the interest rate of 4 percent
(4%) per annum, exceeds the fair market rental value (determined pursuant
to the Appraisal Procedure) of the Aircraft for the remainder of the Term,
after discounting such fair market rental value periodically (equal to
installment frequency) to present worth as of the payment date specified
in such notice at the interest rate of 4 percent (4%) per annum; and/or
(g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have
relet the Aircraft under a lease which extends at least to the date upon
which the Term for the Aircraft would have expired but for Lessee's
default, Lessor, in lieu of exercising its rights under Clause 13.2(f)
above with respect to the Aircraft, may, if it shall so elect, demand that
Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for
loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft
due after the time of reletting) any unpaid Rent for the Aircraft due up
to the date of reletting and any other amounts owing under this Agreement,
plus the amount, if any, by which the aggregate Rent for the Aircraft,
which would otherwise have become due over the remainder of the Term
(determined without reference to any right of Lessor to terminate the
leasing of the Aircraft, whether or not such right is exercised),
discounted periodically (equal to installment frequency) to present worth
as of the date of reletting at the interest rate of 4 percent (4%) per
annum, exceeds the aggregate basic rental payments to become due under the
reletting from the date of such reletting to the date upon which the Term
for the Aircraft would have expired but for Lessee's default, discounted
periodically (equal to installment frequency) to present worth as of the
date of the reletting at the interest rate of 4 percent (4%) per annum;
and/or
(h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f),
and (g) of this Clause 13.2, by 30 days written notice to Lessee
specifying a payment date, Lessor may demand that Lessee pay to Lessor,
and Lessee shall pay to Lessor on the payment date specified in such
notice as liquidated damages for loss of bargain and not as a penalty (in
lieu of the Rent due for the period commencing after the date specified
for payment in such notice), any unpaid Rent for the Aircraft and other
amounts payable under this Agreement (prorated in the case of Rent on a
daily basis) to and including the payment date specified in such notice,
plus an amount equaling the aggregate Rent for the remainder of the Term,
discounted periodically (equal to installment frequency) to present worth
at the interest rate of 4 per cent (4%) per annum;
(i) draw upon the Deposit or the Maintenance Reserves and apply such amounts
to amounts owing to Lessor hereunder.
59
<PAGE>
Lessee, for itself and for its successors and assigns, hereby agrees that,
to the extent now or hereafter permitted by applicable Law,
notwithstanding any provision of the Federal Bankruptcy Code as amended
from time to time, the title of Lessor to the Aircraft and any right of
Lessor to take possession of the Aircraft in compliance with the
provisions of this Agreement, in each case, upon the occurrence and
continuance of an Event of Default, shall not be affected by the
provisions of the Federal Bankruptcy Code, as amended from time to time.
In addition to the foregoing, Lessee shall be liable for any and all
unpaid Rent and other amounts payable under this Agreement during or after
the exercise of any of the aforementioned remedies, together with interest
on such unpaid amounts at the Interest Rate set forth in Letter Agreement
No. 1, and until satisfaction of all of Lessee's obligations to Lessor
hereunder and (on an After-Tax Basis) for all reasonable legal fees and
other reasonable costs and expenses incurred by Lessor by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies
with respect thereto, including all costs and expenses incurred in
connection with the return of the Aircraft in accordance with the terms of
Clause 12 hereof or in placing the Aircraft in the condition and with
airworthiness certification as required by such Clause.
In effecting any repossession, Lessor and its representatives and agents,
to the extent permitted by Law, shall: (i) have the right to enter upon
any premises where it reasonably believes the Aircraft, the Airframe, an
Engine or Part to be located; (ii) not be liable, in conversion or
otherwise, for the taking of any personal property of Lessee which is in
or attached to the Aircraft, the Airframe, an Engine or Part which is
repossessed; provided, however, that Lessor shall return to Lessee all
personal property of Lessee or its passengers which was on the Aircraft at
the time Lessor re-takes possession of the Aircraft; (iii) not be liable
or responsible, in any manner, for any inadvertent damage or injury to any
of Lessee's property in repossessing and holding the Aircraft, the
Airframe, an Engine or Part, except for that caused by or in connection
with Lessor's gross negligence or willful acts; (iv) have the right to
maintain possession of and dispose of the Aircraft, the Airframe, an
Engine or Part on any premises owned by Lessee or under Lessee's control;
and (v) have the right to obtain a key to any premises at which the
Aircraft, the Airframe, an Engine or Part may be located from the landlord
or owner thereof.
If reasonably required by Lessor, Lessee, at its sole expense, shall
assemble and make the Aircraft, the Airframe, an Engine or Part available
at a place designated by Lessor in accordance with Clause 12 hereof.
Lessee hereby agrees that, in the event of the return to or repossession
by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in
any warranty (express or implied) previously assigned to Lessee or
otherwise held by Lessee shall without further act, notice or writing be
assigned or reassigned to Lessor, if assignable. Lessee shall be liable
to Lessor on an After-Tax Basis for all reasonable expenses,
disbursements, costs and fees incurred in (i) repossessing, storing,
preserving, shipping, maintaining, repairing and refurbishing the
Aircraft, the Airframe, an Engine or Part to the condition required by
Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine
or Part for sale or lease, advertising the sale or lease of the Aircraft,
60
<PAGE>
the Airframe, an Engine or Part and selling or releasing the Aircraft,
the Airframe, an Engine or Part. Lessor is hereby authorized and
instructed, at its option, to make reasonable expenditures which Lessor
considers advisable to repair and restore the Aircraft, the Airframe, an
Engine or Part to the condition required by Clause 12 hereof, all at
Lessee's sole expense.
At any public sale of the Aircraft, the Airframe, an Engine or Part
pursuant to this Clause, Lessor may bid for and purchase such property and
Lessee agrees that the amounts paid therefor shall be used in the
computation contemplated herein.
With the exception that the remedy in Clause 13.2(g) can be elected only
if the remedy in Clause 13.2(f) is not elected and the remedy in Clause
13.2(h) can be elected only in lieu of all other remedies save the
remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this
Clause 13 is intended to be exclusive, but, to the extent permissible
hereunder or under applicable Law, 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; provided, however, that nothing in this Clause 13 shall be
construed to permit Lessor to obtain a duplicate recovery of any element
of damages to which Lessor is entitled. No express or implied waiver by
Lessor of any Default or Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Default.
13.3 Deregistration: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or other
interest of Lessee as if this Agreement had never been made and Lessee
will at the request of Lessor take all steps necessary to effect (if
applicable) deregistration of the Aircraft and its export from the country
where the Aircraft is for the time being situated and any other steps
necessary to enable the Aircraft to be redelivered to Lessor in accordance
with this Agreement including without limitation execution and filing of a
certificate or other instrument of lease termination with the Air
Authority and; Lessee hereby irrevocably and by way of security for its
obligations under this Agreement appoints (which appointment is coupled
with an interest) Lessor as its attorney to execute and deliver any
documentation and to do any act or thing required in connection with the
foregoing.
14. ASSIGNMENT
14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR
INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO
EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its
rights under this Agreement and in the Aircraft. In the case of an
assignment other than by way of security, Lessor will be released from and
will have no further obligation under this Agreement following the
assignment of all its rights under this Agreement and the
61
<PAGE>
assumption by the assignee or transferee of all of Lessor's obligations
under this Agreement. Notwithstanding any such assignment, Lessor will
remain entitled to the benefit of each indemnity and the liability
insurances effected under this Agreement. Lessee will comply with all
reasonable requests of Lessor, its successors and assigns in respect of
any such assignment. Lessor will promptly notify Lessee of any assignment.
14.3 Transfer: If Lessor desires to effect any assignment or transfer of its
rights and obligations under this Agreement, Lessee agrees to cooperate
and take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement and to acknowledge the release of
Lessor from its obligations hereunder as of the time of such assignment or
transfer.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give effect
to any of its obligations as contemplated by this Agreement or to continue
this Agreement, Lessor may by notice in writing to Lessee terminate the
leasing of the Aircraft under this Agreement and Lessee will forthwith
redeliver the Aircraft to Lessor in accordance with Clause 12. Without
prejudice to the foregoing Lessor will consult in good faith with Lessee
as to any steps which may be taken to restructure the transaction to avoid
that unlawfulness but will be under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any Law; and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not constitute
a waiver of that right.
16.2 Delegation: Lessor may delegate to any person or persons all or any of the
trusts, powers or discretions vested in it by these presents and any such
delegation may be made upon such terms and conditions and subject to such
regulations (including power to sub-delegate) as Lessor in its absolute
discretion thinks fit.
16.3 Certificates: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or as to
any other amount payable under this Agreement will, in the absence of
manifest error, be conclusive and binding on Lessee.
16.4 Appropriation: If any sum paid or recovered in respect of the liabilities
of Lessee under this Agreement is less than the amount then due, Lessor
may apply that sum to amounts
62
<PAGE>
due under this Agreement in such proportions and order and generally in
such manner as Lessor may determine at its sole discretion.
16.5 Currency:
Lessee acknowledges that the specification of Dollars in this Agreement is
of the essence and that Dollars shall be the currency of account in any
and all events. Lessee waives any right it may have in any jurisdiction
to pay any amount under this Agreement in a currency other than Dollars.
16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under
this Agreement, the Other Agreements to which Lessor is a party or under
any other agreement between Lessor (or any affiliate or associate of
Lessor) and Lessee (to the extent beneficially owned by Lessor) against
any obligation (whether or not matured) owed by Lessor to Lessee,
regardless of the place of payment or currency. If the obligations are in
different currencies, Lessor may convert either obligation at the market
rate of exchange available in New York or at its option London for the
purpose of the set-off. If an obligation is unascertained or unliquidated,
Lessor may in good faith estimate that obligation and set off in respect
of the estimate, subject to the relevant party accounting to the other
when the obligation is ascertained or liquidated. Lessor will not be
obliged to pay any amounts to Lessee under this Agreement so long as any
sums which are then due from Lessee under this Agreement, the Other
Agreements or under any other agreement between Lessor (or any affiliate
or associate of Lessor) and Lessee remain unpaid and any such amounts
which would otherwise be due will fall due only if and when Lessee has
paid all such sums except to the extent Lessor otherwise agrees or sets
off such amounts against such payment pursuant to the foregoing.
16.7 Severability: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
(a) the legality, validity or enforceability in that jurisdiction of any other
provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of that
or any other provision of this Agreement.
16.8 Remedy: If Lessee fails to comply with any provision of this Agreement,
Lessor may, without being in any way obliged to do so or responsible for
so doing and without prejudice to the ability of Lessor to treat the non-
compliance as a Default or an Event of Default, effect compliance on
behalf of Lessee, whereupon Lessee shall become liable to pay immediately
any sums expended by Lessor together with all costs and expenses
(including legal costs) in connection therewith.
16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to
this Agreement, Lessee will pay to Lessor on an After-Tax Basis on
demand:-
63
<PAGE>
(a) all costs associated with perfecting Lessor's rights in the Aircraft
and/or this Agreement in the State of Registration, the Habitual
Base of the Aircraft (and other states as appropriate given the
operation of the Aircraft), including (but not limited to) the
provision of legal opinions, tax advice, stamp duties, translations
and registrations, whether required by Lessor or Lessee.
(b) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor related to any amendment to
or extension of or other documentation in connection with, or the
granting of any waiver or consent under this Agreement requested by
Lessee or the monitoring of compliance by Lessee with this
Agreement; and
(c) all expenses (including legal, survey and other costs) payable or
incurred by Lessor in contemplation of, or otherwise in connection
with, the enforcement of or preservation of any of Lessor's or
Owner's rights under this Agreement, or in respect of the
repossession of the Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 Time of Essence: The time stipulated in this Agreement for all payments
payable by Lessee to Lessor and the prompt, punctual and performance of
Lessee's other obligations under this Agreement are of the essence of this
Agreement.
16.11 Notices: All notices under, or in connection with, this Agreement will,
unless otherwise stated, be given in writing by letter, facsimile or SITA.
Any such notice is deemed effectively to be given as follows:-
(i) if by letter, on the earlier of the date when delivered or the 7th
day after dispatch;
(ii) if by facsimile or SITA, when transmitted and full transmission has
been separately notified by telephone by the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee, Lessor and Owner are as follows:-
64
<PAGE>
Lessee: Address: 12015 East 46th Avenue
Denver, Colorado 80239
United States of America
Attn: General Counsel
SITA: DENGAF9
Facsimile: (303) 371-7007
Telephone: (303) 371-7400
Lessor: Address: General Electric Capital Corporation
c/o GE Capital Aviation Services, Inc.
263 Tresser Blvd, 7th Floor
One Stamford Plaza
Stamford, CT 06927
Attn: Senior Vice President-Portfolio and
Risk Management, North America
Facsimile: (203) 961-5965
Telephone: (203) 357-4585
With a copy to: Address GE Capital Aviation Services, Inc.
201 Mission Street
Suite 2700
San Francisco, CA 94105
Attn: Senior Vice President-Marketing
Facsimile: (415) 284-7477
Telephone: (415) 284-7400
16.12 Governing Law and Jurisdiction:
(a) THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE GOVERNING LAW (WITHOUT REFERENCE TO CONFLICT OF LAWS
PRINCIPLES);
(b) For the benefit of Lessor, Lessee agrees that the courts of the United
States District Court for the Northern District of California and any
California state court sitting in the City of San Francisco, California
are to have nonexclusive jurisdiction to settle any disputes arising out
of or relating to this Agreement and submits itself and its property to
the nonexclusive jurisdiction of the foregoing courts with respect to such
disputes;
(c) Without prejudice to any other mode of service, Lessee: -
(i) appoints The Prentice-Hall Corporation System, Inc., 1455 Response
Road, Suite 250, Sacramento, California, 95815 as its agent for
service of process relating to any proceedings before the California
courts in connection with this Agreement and agrees to maintain the
process agent in California notified to Lessor;
65
<PAGE>
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such proceedings
by prepaid mailing of a copy of the process to Lessee's agent at the
address identified in paragraph (i) or by prepaid mailing by air
mail, certified or registered mail of a copy of the process to
Lessee at the address set forth in Clause 16.11;
(d) LESSEE: -
(i) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE COURTS REFERRED TO IN CLAUSE
16.12(b) ABOVE ON GROUNDS OF INCONVENIENT FORUM OR OTHERWISE AS
REGARDS PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT;
(ii) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
BROUGHT IN THE COURTS REFERRED TO IN CLAUSE 16.12(b);
(iii) AGREES THAT A JUDGMENT OR ORDER OF ANY COURT REFERRED TO IN CLAUSE
16.12(b) IN CONNECTION WITH THIS AGREEMENT IS CONCLUSIVE AND
BINDING ON IT AND MAY BE ENFORCED AGAINST IT IN THE COURTS OF ANY
OTHER JURISDICTION;
(e) NOTHING IN THIS CLAUSE 16.12 LIMITS THE RIGHT OF LESSOR TO BRING
PROCEEDINGS AGAINST LESSEE IN CONNECTION WITH THIS AGREEMENT: -
(i) IN ANY OTHER COURT OF COMPETENT JURISDICTION; OR
(ii) CONCURRENTLY IN MORE THAN ONE JURISDICTION;
(f) LESSEE IRREVOCABLY AND UNCONDITIONALLY: -
(i) AGREES THAT IF LESSOR BRINGS LEGAL PROCEEDINGS AGAINST IT OR ITS
ASSETS IN RELATION TO THIS AGREEMENT NO IMMUNITY FROM SUCH LEGAL
PROCEEDINGS (WHICH WILL BE DEEMED TO INCLUDE WITHOUT LIMITATION,
SUIT, ATTACHMENT PRIOR TO JUDGMENT, OTHER ATTACHMENT, THE OBTAINING
OF JUDGMENT, EXECUTION OR OTHER ENFORCEMENT) WILL BE CLAIMED BY OR
ON BEHALF OF ITSELF OR WITH RESPECT TO ITS ASSETS;
66
<PAGE>
(ii) WAIVES ANY SUCH RIGHT OF IMMUNITY WHICH IT OR ITS ASSETS NOW HAS OR
MAY IN THE FUTURE ACQUIRE;
(iii) CONSENTS GENERALLY IN RESPECT OF ANY SUCH PROCEEDINGS TO THE GIVING
OF ANY RELIEF OR THE ISSUE OF ANY PROCESS IN CONNECTION WITH SUCH
PROCEEDINGS INCLUDING, WITHOUT LIMITATION, THE MAKING, ENFORCEMENT
OR EXECUTION AGAINST ANY PROPERTY WHATSOEVER (IRRESPECTIVE OF ITS
USE OR INTENDED USE) OF ANY ORDER OR JUDGMENT WHICH MAY BE MADE OR
GIVEN IN SUCH PROCEEDINGS.
16.13 Sole and Entire Agreement: This Agreement and the other Operative
Documents are the sole and entire agreement between Lessor and Lessee in
relation to the leasing of the Aircraft, and supersede all previous
agreements in relation to that leasing.
16.14 Indemnities: All rights expressed to be granted to each Indemnitee under
this Agreement (other than Lessor) are given to Lessor on behalf of that
Indemnitee.
16.15 Counterparts: This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. To the extent, if any, that this
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 Agreement may be created through the transfer or
possession of any counterpart other than the counterpart that has been
marked "Counterpart No. 1" on the cover page thereof.
16.16 Language: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between the
English version of this Agreement and any version in any other language,
the English version will prevail.
16.17 No Brokers: Lessee hereby represents and warrants that it has not paid,
agreed to pay or caused to be paid directly or indirectly in any form, any
commission, percentage, contingent fee, brokerage or other similar
payments of any kind, in connection with the establishment or operation of
this Agreement, to any employee of Lessor or to any person or entity in
the State of Registration or elsewhere, except to Excluded Persons, as
herein defined. Lessor hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessee or to any person or
entity in the State of Registration or elsewhere, except to Excluded
Persons, as herein defined. For the purposes hereof, the term "Excluded
Persons" shall mean (x) in the case of Lessor, any of its officers,
directors, employees, attorneys or other professional advisors, whether
located in the State of Registration or elsewhere, and (y)
67
<PAGE>
in the case of Lessee, any of its officers, directors, employees,
attorneys or other professional advisors, whether located in the State of
Registration or elsewhere. Each party agrees to indemnify and hold the
other harmless from and against any and all claims, suits, damages, costs
and expenses (including, but not limited to reasonable attorneys' fees)
asserted by any agent, broker or other third party for any commission or
compensation of any nature whatsoever based upon this Agreement or the
Operative Documents or the Aircraft, if such claim damage, cost or expense
arises out of any action or alleged action by the indemnifying party, its
employees or agents.
17. DISCLAIMERS AND WAIVERS
17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS,
WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY
STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO,
AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER
BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR
FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR
OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH
RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: -
(a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS,
OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE
LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY,
CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP,
THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS
TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED
(INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR
DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY
PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT
OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: -
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER
CIRCUMSTANCE IN CONNECTION THEREWITH;
(ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS
RELATING THERETO;
68
<PAGE>
(iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED
PROFITS OR CONSEQUENTIAL DAMAGES;
(iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT
OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR
(v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS
RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER
ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR
PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR
THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE
2.4.
17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE
ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY
OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES (AS SUCH TERM IS DEFINED
IN SECTION 10520(B) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE) AS A RESULT
OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS,
REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE
OTHER OPERATIVE DOCUMENTS.
17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF
THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this Agreement
unless it had available to it the benefits of a lessor under Section 1110
of Title 11 of the United States Code. Lessee covenants and agrees with
Lessor that to better ensure the availability of such benefits, Lessee
shall support any motion, petition or application filed by Lessor with any
bankruptcy court having jurisdiction over Lessee, whereby Lessor seeks
recovery of possession of the Aircraft under said Section 1110 and shall
not in any way oppose such action by Lessor unless Lessee shall have
complied with the requirements of said Section 1110 to be fulfilled in
order to entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is
repealed and another statute is enacted in lieu thereof, Lessor and Lessee
agree to amend this Agreement and take such other action not inconsistent
with this
69
<PAGE>
Agreement as Lessor reasonably deems necessary so as to afford to Lessor
the rights and benefits as such amended or substituted statute confers
upon owners and lessors of aircraft similarly situated to Lessor.
19. USURY LAWS: The parties intend to contract in strict compliance with the
usury Laws of the States of California and Colorado and, to the extent
applicable, the United States of America. Notwithstanding anything to the
contrary in the Operative Documents, Lessee will not be obligated to pay
any interest in excess of the maximum non-usurious interest rate, as in
effect from time to time, which may by applicable Law be charged,
contracted for, reserved, received or collected by Lessor in connection
with the Operative Documents. During any period of time in which the
then-applicable highest lawful rate is lower than the rate specified in
Clauses 5.11 or 13.2, interest will accrue and be payable at such highest
lawful rate; however, if at later times such highest lawful rate is
greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will
pay interest at the highest lawful rate until the aggregate amount of
interest paid by Lessee equals the amount of interest that would have been
payable in accordance with the interest rate specified in Clauses 5.11 or
13.2.
20. MODIFICATION OR REVISION:
Neither this Agreement nor any term of this Agreement may be modified,
rescinded, changed waived, discharged or terminated except by a writing
signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provision of this Clause 20 by their initials below: -
LESSOR: /s/ James Johnson LESSEE: /s/ William B. Darlin
----------------- ---------------------
70
<PAGE>
21. IN WITNESS whereof the parties hereto have executed this Agreement on the
date shown at the beginning of this Agreement.
WITNESS SIGNED on behalf of
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ James Johnson
---------------------------
Name: James Johnson
---------------------------
Title: Vice President
---------------------------
WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC.
By: /s/ William B. Darlin
---------------------------
Name: William B. Darlin
---------------------------
Title: Vice President
---------------------------
71
<PAGE>
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
--------
MANUFACTURER: Boeing
MODEL: 737-301
SERIAL NUMBER: 23257
ENGINES
-------
ENGINE TYPE: CFM-56-3B1
SERIAL NOS: SN 721160; SN 725729;
On the Delivery Date the Aircraft shall be in the following condition:-
(a) the Airframe will be ex a block "C" Check in accordance with Boeing
Maintenance Planning Document ("MPD");
(b) each Engine shall have not less than 3,500 Cycles to next scheduled
life limited part replacement;
(c) all logos shall be deleted from the Aircraft;
(d) components shall have not less than 12 months, 3,000 Flight Hours and
Cycles, or 100% of their approved life remaining, whichever is less
in accordance with the Previous Operator's Maintenance Program;
(e) have had accomplished all outstanding (i.e. at or prior to the
Delivery Date) mandatory inspection and modification requirements,
airworthiness directives and similar requirements applicable to the
Aircraft, any Engine or Part having a compliance date prior to the
Delivery Date or within 180 days after the Delivery Date and which
are required by the Air Authority, and/or the FAA and/or mandated by
any manufacturer of the Aircraft, any Engine or Part;
(f) shall have no open, deferred, continued, carryover or placarded log
book items; and
[(g) equipped for operation under FAR Part 121 in accordance with the
Previous Operator's commercial service.]
72
<PAGE>
PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
o FAA Certificate of Airworthiness (on board aircraft)
o Current Aircraft Registration Certificate (on board aircraft)
B. AIRCRAFT STATUS SUMMARIES
o Aircraft record of flight time and cycles (listing of accumulated
hours and cycles as of specific dates)
o Airworthiness Directive Applicability and Compliance Report
o Supplemental Structural Inspection (SSID) Status (if applicable)
o Corrosion Prevention and Control Program Task Status
o List of Major Repairs and Alterations
o List and Status of Life Limited Components
o Check/Inspection Status
o List and Current Status of Time-Controlled Components
o Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
C. AIRCRAFT MAINTENANCE RECORDS
Airframe inspection, maintenance, modification, and repair documents with
maintenance and/or inspection signatures (as required) and description of
work done.
o Last "A", "B", "C" and "D" Checks (or equivalents)
(In the event that a check is performed in phases, all phases
necessary to constitute a complete block check are required. In the
event that check content varies by multiples of the check, all
multiples necessary to constitute a complete cycle are required.)
o Airworthiness Directive, Service Bulletin and modification compliance
documents including engineering orders, drawings, shop cards, etc., as
necessary to establish method of compliance, quality control
acceptance, and approval authority
73
<PAGE>
o Supplemental Structural Inspection (SSID) compliance documents and
findings (if applicable)
o Corrosion Prevention and Control Program compliance documents and
findings
o Documentation of major repairs and alterations including engineering
orders, drawings, Supplemental Type Certificates, Master Change
Notice, etc., as necessary to define work done, certification basis,
and approval authority.
o Aircraft weighing records
D. AIRCRAFT HISTORY RECORDS
o Service Difficulty Reports
o Accident or Incident Reports
E. ENGINE RECORDS (for each engine)
o Engine Master Record (record of installation and removal and
accumulated flight time and cycles)
o Airworthiness Directive Applicability and Compliance Report
o Manufacturer Service Bulletin Compliance Report
o List of Operator Modifications Incorporated, if any
o List of Major Repairs and Alterations, if any
o List of Current Status of Life Limited Components
o Check/Inspection Status
o List and Status of Time Controlled Components
o Serialization On-Condition/Condition Monitored Components Inventory of
Installed Units
o Repair, overhaul and inspection documents including FAA Forms 337
o Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
o Test Cell Records for last test
74
<PAGE>
F. APU RECORDS
o APU Master Record (record of installation and removal and accumulated
time and cycles)
o Airworthiness Directive Applicability and Compliance Report
o Manufacturer Service Bulletin Compliance Report
o List of Operator Modifications Incorporated, if any
o List and Current Status of Life Limited Components
o List and Status of Time Controlled Components
o Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
o Repair, overhaul and inspection documents including FAA Forms 337
o Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
G. COMPONENT RECORDS
o Time Controlled Component Historical Records with installation and
serviceability tags
o Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
o Installation records and serviceability tags for Serialized On-
condition/Condition Monitored Components (minimum of last twelve
months)
H. MANUALS
Airplane Delivered Used:
o Airplane Flight Manual
o Weight and Balance Control and Loading Manual
o Maintenance Manual (microfilm)
75
<PAGE>
o Wiring Diagram Manual (microfilm)
o Illustrated Parts Catalog (microfilm)
o Structural Repair Manual (microfilm)
o Engine Maintenance Manual (microfilm)
o Engine Illustrated Parts Manual (microfilm)
o Operator Weight and Balance Manual
o Pilots Handbook
o Minimum Equipment List
I. MISCELLANEOUS TECHNICAL DOCUMENTS
o Maintenance Program Specifications
o Engine Build Specifications
o Reference material necessary for interpretation of status summaries,
i.e. Operator Part Number Cross Reference
o Interior configuration drawings
o Boeing Aircraft Readiness Log
o Loose Equipment Inventory
o FAA Burn Certificates of Aircraft Interiors
76
<PAGE>
SCHEDULE 2
CERTIFICATE OF TECHNICAL ACCEPTANCE
This Certificate of Technical Acceptance is delivered, on the date set out below
by Frontier Airlines, Inc. ("Lessee"), to GENERAL ELECTRIC CAPITAL CORPORATION
("Lessor"), pursuant to the Aircraft Lease Agreement dated as of the 20th of
October 1995 between Lessor and Lessee (the "Agreement"). The capitalized terms
used in this Certificate shall have the meaning given to such terms in the
Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this [
] day of [ ], 199[ ], at [ ], accepted the following, in accordance with
the provisions of the Agreement:
(a) Boeing Model 737-301 airframe, Manufacturer's Serial No. 23257;
(b) CFM-56-3B1 Engines: -
Engine Manufacturer's Serial Nos.
1) 721160
2) 725729
(Each of which shall have more than 750 rated takeoff horsepower or the
equivalent of such horsepower);
(c) Fuel Status: Kilos [ ];
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee and
attached hereto; and
(e) Aircraft Documents: as per list signed by Lessor and Lessee and attached
hereto.
77
<PAGE>
2. HOURS AND CYCLES DATA (as of Delivery Date)
(a) Airframe:
---------
Number of Hours since last phase "D" Check (Heaviest Check): ______ hours
-----------------------------------------------------------
"C" Check (or Equivalent):
-------------------------
Interval: ___________________________
Time Since: _______________________
(b) Landing Gear Overhaul:
---------------------
Number of Cycles Since Last Overhaul:
Left Gear __________________________ cycles
Right Gear _________________________ cycles
Nose Gear __________________________ cycles
Center Gear ________________________ cycles
Interval: Left Gear _________________________
Right Gear _________________________
Nose Gear _________________________
Center Gear ________________________
(c) Engines:
-------
Number of Hours Since Last Heavy Shop Visit:
S/N ___________:______ hours
S/N ___________:______ hours
Number of Hours Since Last Hot Section Refurbishment:
S/N ___________:______ hours
S/N ___________:______ hours
Number of Hours Since Last Cold Section Refurbishment:
S/N ___________:______ hours
78
<PAGE>
S/N ___________:______ hours
Hot Section Inspection:
Interval: ___________________________
Time Since (S/N ________):__________________________
Time Since (S/N ________):__________________________
Time Remaining to First Restriction:
Engine S/N: ________
Hours: __________ Restriction: _______
Cycles: __________ Restriction: _______
Engine S/N: ________
Hours: __________ Restriction: _______
Cycles: __________ Restriction: _______
Average Cycles in Life Limited Parts (see attached Schedule):_________
(d) Auxiliary Power Unit:
--------------------
Number of APU Hours Since Last Heavy Shop Visit:
__________ hours Date accomplished __________
Hot Section Inspection:
Interval: ________________________
Time Since: ________________________
(e) Time Controlled Components: [See attached DUJX Report]
--------------------------
(f) Fuel on Board on Inspection Date: ________________________
--------------------------------
(g) Interior Equipment:
------------------
Number of Passenger Seats and Configuration:_______________
____________________
Number of Galleys and Location: _________ _________
79
<PAGE>
Number of Lavatories and Location: _________ _________
LOPA - Attached _________ _________
List of Loose Equipment on Board:
----------------------------- -----------------
----------------------------- -----------------
----------------------------- -----------------
----------------------------- -----------------
----------------------------- -----------------
----------------------------- -----------------
(h) Avionics:
--------
Description Model Part No.
----------- ----- --------
----------------------------- ----------------- -----------------
----------------------------- ----------------- -----------------
----------------------------- ----------------- -----------------
----------------------------- ----------------- -----------------
----------------------------- ----------------- -----------------
----------------------------- ----------------- -----------------
80
<PAGE>
3. ACCEPTANCE:
The undersigned hereby confirms that the Aircraft, Engines, Parts and
Aircraft Documents are acceptable to it, satisfy all of the Delivery
Condition Requirements and are in the condition for delivery to and
acceptance by Lessee as required under the Agreement. Lessee's execution
and delivery of this certificate signifies Lessee's absolute and
irrevocable acceptance of delivery of the Aircraft to it for all purposes
hereof and of the Agreement.
IN WITNESS WHEREOF, Lessee has, by its duly authorized representative,
executed this Certificate on the date in paragraph 1 above.
LESSEE: FRONTIER AIRLINES, INC.
By: _________________________
Title: _________________________
81
<PAGE>
SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear generally,
will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be in the same configuration as on the Delivery Date or as reasonably
requested by Lessor;
(b) be clean by airline standards;
(c) have installed the full complement of engines and other equipment, parts
and accessories as is normally installed in the Aircraft and the loose
equipment as was installed in the Aircraft at the time of Delivery, and be
in a condition suitable for immediate operation in commercial service;
(d) have in existence a valid certificate of airworthiness (or if required by
Lessor, a valid export certificate of airworthiness) with respect to the
Aircraft issued by the Air Authority;
(e) comply with the manufacturer's original specifications;
(f) have undergone, immediately prior to redelivery, a block 'C' Check so that
all Airframe inspections falling due within the next following 3,000
Flight Hours, 3,000 Cycles or the first 12 months of operation in
accordance with the Agreed Maintenance Program, have been accomplished;
(g) have had accomplished all outstanding (i.e. at or prior to the Expiry
Date) mandatory inspection and modification requirements, airworthiness
directives and similar requirements applicable to the Aircraft, any Engine
or Port having a compliance date during the Term or within 180 days after
the Expiry Date and which are required by the Air Authority, and/or the
FAA and/or mandated by any manufacturer of the Aircraft, any Engine or
Part;
(h) have installed all applicable vendor's and manufacturer's service bulletin
kits received free of charge by Lessee that are appropriate for the
Aircraft and to the extent not installed, those kits will be furnished
free of charge to Lessor;
(i) be in the Lessee's external livery, logos deleted; and
82
<PAGE>
(j) have all signs and decals clean, secure and legible.
(k) shall have no open, deferred, continued, carryover or placarded log book
items.
2. COMPONENTS
(a) Each life-limited component (other than the APU) shall have not less than
3,000 Flight Hours and Cycles or 100% of their approved life remaining
(whichever is less) to the next scheduled removal, in accordance with the
Agreed Maintenance Program;
(b) Each calendar-limited component will have not less than 12 months life
remaining to the next scheduled removal in accordance with the Agreed
Maintenance Program;
(c) Each "on-condition" and "condition monitored" component will be
serviceable;
(d) The APU will have not more than 2,000 Flight Hours since the last hot
section refurbishment and shall be free of any defects as determined by
manufacturer limits; and
(e) The installed components as a group will have an average of total flight
time since new of not more than that of the Airframe.
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Delivery Date will be accompanied by all documentation
Lessor may require to evidence that title thereto is properly vested in
Owner and will:-
(a) have not less than 3,500 Cycles to next scheduled life limited part
replacement and have an expected on-wing remaining life of 3,500 Cycles.
The expected life remaining will be determined by the inspection and
checks accomplished by Lessor in accordance with this Agreement;
(b) not be "on watch". (For purposes of the Agreement "on watch" shall mean
any maintenance condition that would require an Engine removal and/or
reinspection or airworthiness directive action that would require an
Engine removal within 3,500 Cycles of the Expiry Date); and
(c) be in a condition which can operate at maximum rated take off power at sea
level at a temperature of 45oC.
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions, temporary repairs,
and loose or pulled or missing rivets and shall be in accordance with the
manufacturers approved data for permanent repair;
(b) Windows will be free of delamination, blemishes, crazing and will be
properly sealed; and
83
<PAGE>
(c) Doors will be free moving, correctly rigged and be fitted with serviceable
seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Control surfaces will be waxed and polished;
(c) Unpainted cowlings and fairings will be polished; and
(d) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks
and stains;
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR fire resistance regulations;
(c) Seats will be serviceable, in good condition and repainted as necessary;
and
(d) Emergency equipment having a calendar life will have a minimum of 1 year
or 100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Fairing panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Floor coverings will be clean and effectively sealed;
(c) Seat covers will be in good condition, clean and free of stains and will
conform to FAR fire resistance regulation; and
(d) Seats will be serviceable, in good condition and will be repainted as
necessary.
8. CARGO COMPARTMENTS
(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
The landing gear and wheel wells will be clean, free of leaks and repaired
as necessary. Wheels and brakes shall be in a half life condition or
better.
84
<PAGE>
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Program;
(b) The entire fuselage will be substantially free from corrosion and will be
adequately treated and an approved corrosion prevention program will be in
operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment program will be in operation.
85
<PAGE>
SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed Value
and with a deductible not exceeding the Deductible Amount set forth in
Letter Agreement No. 1, or such other amount agreed by Lessor from time to
time;
(b) [HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All
Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition by
the State of Registration for the Agreed Value, however, when the Aircraft
is being operated solely in or over the United States of America and/or
Canada, coverage may be limited to such perils as are customarily insured
by comparable airlines, operating similar equipment in similar
circumstances;]
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in
transit other than by air) property insurance on all Engines and Parts
when not installed on the Aircraft on an "agreed value" basis for their
full replacement value and including engine test and running risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL
AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a
Combined Single Limit (Bodily Injury/Property Damage) of an amount not
less than the Minimum Liability Coverage for the time being any one
occurrence (but in respect of products and personal injury liability this
limit may be an aggregate limit for any and all losses occurring during
the currency of the policy). [War and Allied Risks are also to be covered
under the Policy in line with prudent market practice for comparable
airlines, operating similar equipment in similar circumstances];
(e) All required hull and spares insurance (as specified above), so far as it
relates to the Aircraft will: -
(i) name Lessor and its successors and assigns as additional assureds
for their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) provide that any loss will be settled jointly with Lessor and Lessee
and will be payable in Dollars to Lessor except where the loss does
not exceed the Damage Notification Threshold, and Lessor has not
notified the insurers to the contrary, in which case the loss will
be settled with and paid to Lessee;
86
<PAGE>
(iii) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(iv) confirm that the insurers are not entitled to replace the Aircraft
in the event of an insured Event of Loss;
(v) confirm that the insurers will not obtain a valid discharge of the
obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Lessor, GECASI, GECASL and their respective successors and
assigns and their respective shareholders, subsidiaries, directors,
officers, agents, employees and indemnitees as additional insureds
for their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) include a Severability of Interest Clause which provides that the
insurance, except for the limit of liability, will operate to give
each assured the same protection as if there was a separate policy
issued to each assured;
(iii) contain a provision confirming that the policy is primary without
right of contribution and the liability of the insurers will not be
affected by any other insurance of which Lessor or Lessee have the
benefit so as to reduce the amount payable to the additional
insureds under such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons operating
similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies which
Lessor may reasonably require in relation to liability insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Lessor;
(v) provide that, in relation to the interests of each of the additional
assureds the Insurances will not be invalidated by any act or
omission by Lessee, or any other person other than the respective
additional assured seeking protection and shall insure the interests
of each of the additional assureds regardless of any breach or
violation by Lessee, or any other person other than the
87
<PAGE>
respective additional assured seeking protection of any warranty,
declaration or condition, contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any rights of
recourse and/or subrogation against the additional assureds,
including GECASI and GECASL or to be subrogated to any rights of
Lessor against Lessee;
(vii) provide that the additional assureds will have no obligation or
responsibility for the payment of any premiums due (but reserve the
right to pay the same should any of them elect so to do) and that
the insurers will not exercise any right of set-off or counter-claim
in respect of any premium due against the respective interests of
the additional assureds other than outstanding premiums relating to
the Aircraft, any Engine or Part the subject of the relevant claim;
(viii)provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any cancellation,
change, event of non-payment of premium or installment thereof has
been sent to Lessor, except in the case of war risks for which 7
days (or such lesser period as is or may be customarily available in
respect of war risks or allied perils) will be given, or in the case
of war between the 5 great powers or nuclear peril for which
termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such reinsurance
will (i) be on the same terms as the original insurances and will
include the provisions of this Schedule, (ii) provide that
notwithstanding any bankruptcy, insolvency, liquidation, dissolution
or similar proceedings of or affecting the reinsured that the
reinsurers' liability will be to make such payments as would have
fallen due under the relevant policy of reinsurance if the reinsured
had (immediately before such bankruptcy, insolvency, liquidation,
dissolution or similar proceedings) discharged its obligations in
full under the original insurance policies in respect of which the
then relevant policy of reinsurance has been effected; and (iii)
contain a "cut-through" clause in the following form (or otherwise,
satisfactory to Lessor): "The Reinsurers and the Reinsured hereby
mutually agree that in the event of any claim arising under the
reinsurances in respect of a total loss or other claim where as
provided by the Aircraft Lease Agreement dated [ ] 1995 and made
between [Lessor] and [Lessee] such claim is to be paid to the person
named as sole loss payee under the primary insurances, the
Reinsurers will in lieu of payment to the Reinsured, its successors
in interest and assigns pay to the person named as sole loss payee
under the primary insurances effected by the Reinsured that portion
of any loss due for which the Reinsurers would otherwise be liable
to pay the Reinsured (subject to proof of loss), it being understood
and agreed that any such payment by the Reinsurers will (to the
extent of such payment) fully discharge and release the Reinsurers
from any and all further liability in connection therewith"; subject
to such provisions not contravening any law of the State of
Incorporation;
88
<PAGE>
(x) contain a provision entitling Lessor or any insured party to
initiate a claim under any policy in the event of the refusal or
failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of this Agreement to the
extent of the risks covered by the policies.
89
<PAGE>
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Program;
(b) The entire fuselage will be substantially free from corrosion and will be
adequately treated and an approved corrosion prevention program will be in
operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment program will be in operation.
85
<PAGE>
SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed Value
and with a deductible not exceeding the Deductible Amount set forth in
Letter Agreement No. 1, or such other amount agreed by Lessor from time to
time;
(b) [HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All
Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition by
the State of Registration for the Agreed Value, however, when the Aircraft
is being operated solely in or over the United States of America and/or
Canada, coverage may be limited to such perils as are customarily insured
by comparable airlines, operating similar equipment in similar
circumstances;]
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in
transit other than by air) property insurance on all Engines and Parts
when not installed on the Aircraft on an "agreed value" basis for their
full replacement value and including engine test and running risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL
AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a
Combined Single Limit (Bodily Injury/Property Damage) of an amount not
less than the Minimum Liability Coverage for the time being any one
occurrence (but in respect of products and personal injury liability this
limit may be an aggregate limit for any and all losses occurring during
the currency of the policy). [War and Allied Risks are also to be covered
under the Policy in line with prudent market practice for comparable
airlines, operating similar equipment in similar circumstances];
(e) All required hull and spares insurance (as specified above), so far as it
relates to the Aircraft will: -
(i) name Lessor and its successors and assigns as additional assureds
for their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) provide that any loss will be settled jointly with Lessor and Lessee
and will be payable in Dollars to Lessor except where the loss does
not exceed the Damage Notification Threshold, and Lessor has not
notified the insurers to the contrary, in which case the loss will
be settled with and paid to Lessee;
86
<PAGE>
(iii) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(iv) confirm that the insurers are not entitled to replace the Aircraft
in the event of an insured Event of Loss;
(v) confirm that the insurers will not obtain a valid discharge of the
obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Lessor, GECASI, GECASL and their respective successors and
assigns and their respective shareholders, subsidiaries, directors,
officers, agents, employees and indemnitees as additional insureds
for their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) include a Severability of Interest Clause which provides that the
insurance, except for the limit of liability, will operate to give
each assured the same protection as if there was a separate policy
issued to each assured;
(iii) contain a provision confirming that the policy is primary without
right of contribution and the liability of the insurers will not be
affected by any other insurance of which Lessor or Lessee have the
benefit so as to reduce the amount payable to the additional
insureds under such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons operating
similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies which
Lessor may reasonably require in relation to liability insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Lessor;
(v) provide that, in relation to the interests of each of the additional
assureds the Insurances will not be invalidated by any act or
omission by Lessee, or any other person other than the respective
additional assured seeking protection and shall insure the interests
of each of the additional assureds regardless of any breach or
violation by Lessee, or any other person other than the
87
<PAGE>
respective additional assured seeking protection of any warranty,
declaration or condition, contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any rights of
recourse and/or subrogation against the additional assureds,
including GECASI and GECASL or to be subrogated to any rights of
Lessor against Lessee;
(vii) provide that the additional assureds will have no obligation or
responsibility for the payment of any premiums due (but reserve the
right to pay the same should any of them elect so to do) and that
the insurers will not exercise any right of set-off or counter-claim
in respect of any premium due against the respective interests of
the additional assureds other than outstanding premiums relating to
the Aircraft, any Engine or Part the subject of the relevant claim;
(viii)provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any cancellation,
change, event of non-payment of premium or installment thereof has
been sent to Lessor, except in the case of war risks for which 7
days (or such lesser period as is or may be customarily available in
respect of war risks or allied perils) will be given, or in the case
of war between the 5 great powers or nuclear peril for which
termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such reinsurance
will (i) be on the same terms as the original insurances and will
include the provisions of this Schedule, (ii) provide that
notwithstanding any bankruptcy, insolvency, liquidation, dissolution
or similar proceedings of or affecting the reinsured that the
reinsurers' liability will be to make such payments as would have
fallen due under the relevant policy of reinsurance if the reinsured
had (immediately before such bankruptcy, insolvency, liquidation,
dissolution or similar proceedings) discharged its obligations in
full under the original insurance policies in respect of which the
then relevant policy of reinsurance has been effected; and (iii)
contain a "cut-through" clause in the following form (or otherwise,
satisfactory to Lessor): "The Reinsurers and the Reinsured hereby
mutually agree that in the event of any claim arising under the
reinsurances in respect of a total loss or other claim where as
provided by the Aircraft Lease Agreement dated [ ] 1995 and made
between [Lessor] and [Lessee] such claim is to be paid to the person
named as sole loss payee under the primary insurances, the
Reinsurers will in lieu of payment to the Reinsured, its successors
in interest and assigns pay to the person named as sole loss payee
under the primary insurances effected by the Reinsured that portion
of any loss due for which the Reinsurers would otherwise be liable
to pay the Reinsured (subject to proof of loss), it being understood
and agreed that any such payment by the Reinsurers will (to the
extent of such payment) fully discharge and release the Reinsurers
from any and all further liability in connection therewith"; subject
to such provisions not contravening any law of the State of
Incorporation;
88
<PAGE>
(x) contain a provision entitling Lessor or any insured party to
initiate a claim under any policy in the event of the refusal or
failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of this Agreement to the
extent of the risks covered by the policies.
89
<PAGE>
SCHEDULE 5
FORM OF LEGAL OPINION
To: General Electric Capital Corporation
[Date]
Dear Sirs,
1. You have asked us to render an opinion in connection with the transaction
governed, inter alia, by the under mentioned documents. Words and
expressions used herein will bear the same meanings as defined in an
Aircraft Lease Agreement (the "Lease") dated [ ] 1995 between General
Electric Capital Corporation ("Lessor") and Frontier Airlines, Inc.
("Lessee") in respect of one Boeing 737-301 aircraft with manufacturer's
serial number 23257 together with the two installed engines (the
"Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the opinion
expressed below.
2. Having considered the documents listed in paragraph 1 above, and having
regard to the relevant laws of [the State of California] [the State of
Colorado] we are pleased to advise that in our opinion:-
(a) Lessee was duly incorporated in the State of [ ] on [ ] for an
indefinite period as a limited company and is a validly existing separate
legal entity, is subject to suit in its own name, and, to the best of our
knowledge, no steps have been, or are being, taken to appoint a receiver,
liquidator, trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has taken
all necessary corporate action to authorize the entry into, performance
and delivery of, the Lease and the transactions contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
90
<PAGE>
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any document which is
binding upon Lessee or any of its assets or result in the creation
of any Security Interest over any of its assets.
(d) no authorizations, consents, licenses, approvals and registrations (other
than those which have been obtained and of which copies are attached
hereto) are necessary or desirable to be obtained from any governmental or
other regulatory authorities in the United States of America (the "United
States") to enable Lessee:-
(1) to enter into and perform the transactions contemplated by the
Lease;
(2) to import the Aircraft into the United States for the duration of
the Term;
(3) to operate the Aircraft in the United States for the transport of
fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for [the filing and recordation of the Agreement with the FAA and]
the filing of the Financing Statements with [ ] (which filing has been
duly made on or before this date) it is not necessary or desirable, to
ensure the priority, validity and enforceability of all the obligations of
Lessee under the Lease that the Lease be filed, registered, recorded or
notarized in any public office or elsewhere or that any other instrument
relating thereto be signed, delivered, filed, registered or recorded, that
any tax or duty be paid or that any other action whatsoever be taken;
(f) No steps are necessary or desirable to record or perfect Lessor's interest
in the Aircraft in the United States;
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States;
without requiring any further consents, approvals or licenses from any
governmental or regulatory authority in [];
(h) the Lease has been properly signed and delivered on behalf of Lessee and
the obligations on the part of Lessee contained therein, are valid and
binding on and enforceable against Lessee respectively under the laws of
the United States;
91
<PAGE>
(i) the events described in Clause 13.1(g) of the Lease comprise an accurate
and complete statement of all events and situations provided for by the
laws of the United States which may lead to the cessation of activities,
winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
(k) Lessee is a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code;
(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of the
United States Code;
(m) Lessee's chief executive office (as defined in the Uniform Commercial Code
in effect in [ ]) is located at [ ];
(n) the obligations of Lessee under the Lease rank at least pari passu with
all other present and future unsecured and unsubordinated (including
contingent obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any payment
whatsoever which may be made by Lessee pursuant to the Lease; with respect
to any withholdings, the provisions of Clauses 5.6, 5.7 and 5.10 of the
Lease are fully effective; and the arrangements contemplated by the Lease
do not give rise to any charge whatsoever to Taxes in the United States;
(p) there is no applicable usury or interest limitation law in the United
States which may restrict the recovery of payments in accordance with the
Lease;
(q) there are no registration, stamp or other taxes or duties of any kind
payable in the United States in connection with the signature, performance
or enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in the United States nor
become liable to tax in the United States by reason of entering into the
Lease with Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in the United States
in order to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld as a
valid choice of law in any action in the Courts of the United States;
(u) the consent to the jurisdiction by Lessee contained in the Lease is valid
and binding on Lessee and not subject to revocation;
92
<PAGE>
(v) any judgment for a definite sum given by the Courts of the State of
California against Lessee would be recognized and accepted by the Courts
of the United States without re-trial or examination of the merits of the
case;
(w) (i) Lessee is subject to civil commercial law with respect to its
obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Lease by Lessee
constitute private and commercial acts; and
(x) there are no laws or other rules in the United States (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other person,
other than Lessor or any assignee of Lessor.
3. We do not purport to be experts on and do not purport to be generally
familiar with or qualified to express legal opinions based on any law
other than the laws of the United States and accordingly express no legal
opinion herein based upon any law other than the laws of the United
States.
Yours faithfully,
93
<PAGE>
SCHEDULE 6.
LEASE SUPPLEMENT NO. __
LEASE SUPPLEMENT NO. ___, dated _______________, 1995, between General
Electric Capital Corporation, a corporation organized under the laws of New York
(Lessor"), and Frontier Airlines, Inc. a corporation organized under the laws of
the State of Colorado (Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of October 20, 1995 (herein referred to as the "Agreement"
and the defined terms therein being hereinafter used with the same meaning). The
Agreement provides for the execution and delivery from time to time of a Lease
Supplement substantially in the form hereof for the purpose of leasing the
aircraft described below under the Agreement as and when delivered by Lessor to
Lessee in accordance with the terms thereof.
The Agreement and this Lease Supplement relate to the Aircraft, Engines
and Parts as more precisely described below. A counterpart of the Agreement is
attached hereto and this Lease Supplement and the Agreement shall form one
document.
In consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows: -
1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee
hereby accepts, acknowledges receipt of possession and leases from Lessor
under the Agreement, that certain Boeing Model 737-301 commercial jet
Aircraft, and the two (2) CFM International CFM-56-3-B1 Engines (each of
which Engines has 750 or more rated takeoff horsepower or the equivalent
of such horsepower) described in Schedule 1 hereto, together with the
Aircraft Documents described in the Agreement (the "Delivered Aircraft").
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Term for the Delivered Aircraft shall commence on the Delivery Date
and shall end on the Expiry Date.
4. The amount of Rent for the Delivered Aircraft is set forth in Letter
Agreement No. 1 to the Agreement.
5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each
delivered Engine have been duly marked in accordance with the terms of
---------
Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required
by the Agreement, (iii) the representations and warranties of Lessee
referred to in Clause 2 of the Agreement are hereby repeated with effect
as of the date first above written, (iv) having inspected the
94
<PAGE>
Delivered Aircraft, Lessee acknowledges that the Delivered Aircraft
satisfies all conditions required for Lessee's acceptance of delivery as
set forth in the Agreement, except as noted in the Discrepancy List
attached to the Certificate of Technical Acceptance, and (v) the execution
and delivery of this Lease Supplement signifies absolute and irrevocable
acceptance by Lessee of the Delivered Aircraft for all purposes hereof and
of the Agreement.
6. All of the terms and provisions of the Agreement are hereby incorporated
by reference in this Lease Supplement to the same extent as if fully set
forth herein.
7. This Lease Supplement may be executed in any number of counterparts, each
of such counterparts, shall for all purposes be deemed to be an original;
and all such counterparts shall together constitute but one and the same
Lease Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No.__ to be duly executed as of the day and year first above written.
LESSOR, LESSEE,
GENERAL ELECTRIC CAPITAL FRONTIER AIRLINES, INC.
CORPORATION
By:_____________________________ By:_________________________
Name:__________________________ Name:______________________
Title:__________________________ Title:________________________
95
<PAGE>
SCHEDULE 1
TO
LEASE SUPPLEMENT NO._
One
Used Boeing 737-301
Airframe
Registration Mark
-----------------
N578US
Manufacturer's
Serial No. Total Time* Total Cycles*
---------- ---------- ------------
23257 _________ _________
Installed CFM International, Inc.
Engines
-------------------------
Model No. Serial No. Total Time* Total Cycles*
- ------------- ---------- ----------- -------------
CFM-56-3-B1.. 721160 __________ ____________
CFM-56-3-B1.. 725729 __________ ____________
Each of the above-described Aircraft Engines is 750 or more rated takeoff
horsepower or its equivalent.
* The total time and total cycles referred to above are as of _______________
Time, __________, ____. Such times and cycles are within _____ hours and
_____ cycles of the actual hours and cycles at the time of this Lease
Supplement.
96
<PAGE>
SCHEDULE 7
FORM OF
LEASE TERMINATION CERTIFICATE
The undersigned hereby certify that the Aircraft Lease Agreement dated as of
October 20, 1995 between the undersigned Lessor and undersigned Lessee, and as
further described in the Appendix attached hereto, has terminated and the
aircraft and aircraft engines covered thereby are no longer subject to the terms
thereof. This certificate may be executed in one or more counterparts each of
which when taken together shall constitute one and the same instrument.
DATED this __________ day of ____________________, __________
LESSOR LESSEE
GENERAL ELECTRIC CAPITAL FRONTIER AIRLINES, INC.
CORPORATION
By:________________________________ By:___________________________
Title:_____________________________ Title:_________________________
97
<PAGE>
APPENDIX
--------
FAA Recording Date FAA Conveyance No.
- ------------------ ------------------
98
<PAGE>
SCHEDULE 8
FORM OF AIRCRAFT USAGE REPORT
FOR PERIOD BEGINNING ON __________, 199____
AND ENDING ON ___________, 199____
The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies
as follows:
1. This report is submitted to General Electric Capital Corporation
("Lessor") under that certain Aircraft Lease Agreement dated as of October 20,
1995, between Lessor and Lessee (the "Lease"), and capitalized terms used and
not otherwise defined herein have the meanings ascribed to them in the Lease.
2. The Aircraft covered by this report is:
Aircraft: Boeing 737-301
Serial No: 23257
U.S. Reg. No.: N578US
3. During the period covered by this report, the Airframe which is the
subject of the Lease was operated for the following number of Flight Hours and
Cycles as such terms are defined in the Lease:
_________ Flight Hours __________ Cycles
4. During the period covered by this report, the CFM-56-B1 Engines Bearing
respective serial numbers __________ and ____________ which are the subject of
the Lease, where each operated for the following number of Engine Flight Hours
and Cycles, as defined in the Lease:
Engine Flight Hours Cycles
------------------- ------
SN ________ _______________ ____________________________
SN ________ _______________ ____________________________
This Aircraft Usage Report is dated __________________, 199_____,
FRONTIER AIRLINES, INC.
By:________________________________
Title:_______________________________
99
<PAGE>
AIRCRAFT LEASE AGREEMENT
Dated as of
May 1, 1996
between
POLARIS HOLDING COMPANY
as
Lessor
and
FRONTIER AIRLINES, INC.
as
Lessee
in respect of
Aircraft : Boeing 737-2L9
Serial No: 22733
U.S. Reg. No.: N170PL (to be changed to N270FL)
Note: This Aircraft Lease Agreement has been executed in several counterparts
of which this is Counterpart No. [ ]. See Clause 16.15 hereof for
information concerning the distinction between various counterparts.
<PAGE>
CLAUSE PAGE
- ------ ----
[S] [C]
1. Interpretation...................................................... 1
1.1 Definitions............................................... 1
1.2 Construction.............................................. 16
2. Representations and Warranties...................................... 16
2.1 Lessee's Representations and Warranties................... 16
2.2 Lessee's Further Representations and Warranties........... 18
2.3 Repetition................................................ 19
2.4 Lessor's Representations and Warranties................... 20
3. Conditions Precedent................................................ 20
3.1 Conditions Precedent...................................... 20
3.2 Further conditions precedent.............................. 23
3.3 Waiver.................................................... 24
4. Commencement........................................................ 24
4.1 Leasing................................................... 24
4.2 Delivery.................................................. 24
4.3 Delayed Delivery.......................................... 24
4.4 Licenses.................................................. 25
4.5 Inspection................................................ 25
4.6 Indemnity................................................. 25
5. Payments............................................................ 26
5.1 Deposit................................................... 26
5.2 Rental Periods............................................ 26
5.3 Rent...................................................... 26
5.4 Maintenance Reserves...................................... 26
5.5 Payments.................................................. 27
5.6 Withholding............................................... 27
5.7 General Tax indemnity..................................... 27
5.8 Sales and Use Taxes....................................... 28
5.9 Information............................................... 29
5.10 Indemnity Payments to be Made on an After-Tax Basis...... 29
5.11 Default Interest......................................... 30
5.12 Contest.................................................. 30
5.13 Net Lease................................................ 31
5.14 Security................................................. 32
6. Manufacturer's Warranties........................................... 32
6.1 Assignment................................................ 32
6.2 Proceeds.................................................. 33
6.3 Parts..................................................... 33
6.4 Agreement................................................. 33
7. Lessor's Covenants.................................................. 33
7.1 Quiet Enjoyment........................................... 33
7.2 Release of Maintenance Reserves........................... 34
7.3 Lessor Obligations Following Expiry Date.................. 34
8. Lessee's Covenants.................................................. 35
8.1 Duration.................................................. 35
8.2 Information............................................... 35
8.3 Lawful and Safe Operation................................. 36
I
<PAGE>
8.4 Taxes and other Outgoings................................. 38
8.5 Sub-Leasing and Wet-Leasing............................... 38
8.6 Inspection................................................ 39
8.7 Title..................................................... 39
8.8 General................................................... 40
8.9 Records................................................... 41
8.10 Protection............................................... 41
8.11 Maintenance and Repair................................... 42
8.12 Removal of Engines and Parts............................. 43
8.13 Installation of Engines and Parts........................ 43
8.14 Non-Installed Engines and Parts.......................... 44
8.15 Pooling of Engines and Parts............................. 45
8.16 Equipment Changes........................................ 45
8.17 Title on an Equipment Change............................. 45
8.18 Third Party.............................................. 46
9. Insurance........................................................... 46
9.1 Insurances................................................ 46
9.2 Requirements.............................................. 46
9.3 Change.................................................... 46
9.4 Insurance Covenants....................................... 46
9.5 Failure to Insure......................................... 48
9.6 Continuing Indemnity...................................... 48
9.7 Application of Insurance Proceeds......................... 48
10. Indemnity........................................................... 49
10.1 General.................................................. 49
10.2 Duration................................................. 50
11. Events of Loss...................................................... 50
11.1 Events of Loss........................................... 50
11.2 Substitute Aircraft...................................... 51
11.3 Requisition.............................................. 52
12. Return of Aircraft.................................................. 52
12.1 Return................................................... 52
12.2 Final Inspection......................................... 52
12.3 Non-Compliance........................................... 53
12.4 Redelivery............................................... 53
12.5 Acknowledgment........................................... 53
12.6 Maintenance Program...................................... 53
12.7 Fuel..................................................... 54
12.8 Automatic Extension of Term.............................. 54
13. Default............................................................. 54
13.1 Events................................................... 54
13.2 Rights................................................... 57
13.3 Deregistration........................................... 61
14. Assignment.......................................................... 62
14.1 Lessee's Assignment...................................... 62
14.2 Lessor's Assignment...................................... 62
14.3 Transfer................................................. 62
15. Illegality.......................................................... 62
16. Miscellaneous....................................................... 62
16.1 Waivers, Remedies Cumulative............................. 62
16.2 Delegation............................................... 63
II
<PAGE>
16.3 Certificates............................................. 63
16.4 Appropriation............................................ 63
16.5 Currency................................................. 63
16.6 Set-off.................................................. 63
16.7 Severability............................................. 63
16.8 Remedy................................................... 64
16.9 Expenses................................................. 64
16.10 Time of Essence......................................... 64
16.11 Notices................................................. 64
16.12 Governing Law and Jurisdiction.......................... 65
16.13 Sole and Entire Agreement............................... 67
16.14 Indemnities............................................. 67
16.15 Counterparts............................................ 67
16.16 Language................................................ 67
16.17 No Brokers.............................................. 68
17. Disclaimers and Waivers............................................ 68
17.1 Exclusion................................................ 68
17.2 Waiver................................................... 69
17.3 Disclaimer of Consequential Damages...................... 69
17.4 Confirmation............................................. 69
18. Section 1110....................................................... 70
19. Usury Laws......................................................... 70
20. Modification or Revision........................................... S
21. Witness............................................................ S
SCHEDULES
SCHEDULE 1. Description of Aircraft....................................... 1-1
SCHEDULE 2. Certificate of Technical Acceptance........................... 2-1
SCHEDULE 3. Operating Condition at Redelivery............................. 3-1
SCHEDULE 4. Insurances Requirements....................................... 4-1
SCHEDULE 5. Form of Legal Opinion......................................... 5-1
SCHEDULE 6. Lease Supplement No. ____..................................... 6-1
SCHEDULE 7. Form of Lease Termination Certificate......................... 7-1
SCHEDULE 8. Form of Aircraft Usage Report................................. 8-1
III
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AGREEMENT is made as of the 1st day of May, 1996 between:-
(1) POLARIS HOLDING COMPANY, a company incorporated under the laws of Delaware
with an office at 201 Mission Street, Suite 2700, San Francisco,
California, 94105 ("Lessor"); and
(2) FRONTIER AIRLINES, INC., a company incorporated under the laws of the
State of Colorado whose registered office is at 12015 East 46th Avenue,
Denver, Colorado, 80239, United States of America ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease
from Lessor the Aircraft on the terms of this Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
After-Tax Basis in the case of any amount payable on an
"After-Tax Basis" to or for the benefit of
any Person (including any amount payable
pursuant to this definition) (a "Required
Payment"), the total amount that must be
paid is the amount such that, after
deduction of the net amount of all Taxes
required to be paid by such Person with
respect to the receipt or accrual by it of
such amount (and assuming that such Person
is subject to (i) United States Federal
income tax at the highest marginal statutory
rate imposed on corporations for the
relevant period, (ii) United States state
and local income taxes at the composite of
the highest marginal statutory rates imposed
on such Person for the relevant period, as
such composite rate shall be certified by a
financial officer of such Person, and (iii)
income taxes (if any) imposed by countries
outside the United States at the actual
rates imposed on such Person) the net amount
received is the amount of the Required
Payment.
1
<PAGE>
Agreed Maintenance Performer the Lessee, Continental Airlines Inc., USAir
Inc., or any other person agreed to from
time to time in writing by Lessor.
Agreed Maintenance Program the Maintenance Program agreed to from time
to time in writing by Lessor.
Agreed Value the amount specified for Agreed Value in
Letter Agreement No. 1.
Air Authority Federal Aviation Administration ("FAA").
Aircraft the aircraft described in Part 1 of
Schedule 1, (which term includes where the
context admits a separate reference to all
Engines, Parts and Aircraft Documents) or
any aircraft substituted in place thereof
pursuant to Clause 11.1 or 11.2.
Aircraft Documents the documents, data and records identified
in Part 2 of Schedule 1 and all additions,
renewals, revisions and replacements from
time to time made in accordance with this
Agreement.
Airframe the Aircraft, excluding the Engines and
Aircraft Documents.
Appraisal Procedure the following procedure for determining the
"fair market rental value" of the Aircraft:
(a) Lessor shall select an independent
aircraft appraiser who shall make a
determination of "fair market rental value"
of the Aircraft; and (b) the fees and
expenses of the appraiser shall be paid by
Lessee. "Fair market rental value" shall
mean the value determined by an appraisal
completed on an "as-is" and "where-is"
basis.
APU the auxiliary power unit installed on the
Aircraft on the Delivery Date and any
replacement auxiliary power unit installed
in accordance with this Agreement.
2
<PAGE>
Boeing The Boeing Company, a Delaware corporation
with its principal office in Seattle, State
of Washington, U.S.A.
Business Day a day (other than a Saturday or Sunday) on
which business of the nature required by
this Agreement is carried out in the State
of Incorporation or where used in relation
to payments on which banks are open for
business in San Francisco and New York.
Certificated Air Carrier any Person (except the United States
Government) that is a citizen of the United
States of America (as defined in Section
40102 of Title 49 of the United States Code)
and holding a Certificate of Public
Convenience and Necessity issued under
Section 41102 of Title 49 of the United
States Code by the Department of
Transportation or any predecessor or
successor agency thereto, or, in the event
such certificates shall no longer be issued,
any Person (except the United States
Government) that is a citizen of the United
States of America (as defined in Section
40102 of Title 49 of the United States Code)
and legally engaged in the business of
transporting for hire passengers or cargo by
air predominantly to, from or between points
within the United States of America, and, in
either event, operating commercial jet
aircraft capable of carrying ten or more
individuals or 6,000 pounds or more of
cargo, which also is certificated so as to
entitle Lessor, as a lessor, to the benefits
of Section 1110 of Title 11 of the United
States Code with respect to the Aircraft.
Cold Section Refurbishment with respect to any Engine the completion of
the following: completely unstacking either
high or low or both compressor sections, if
needed, and completing the following for the
appropriate section(s): visual inspection;
de-blading discs as necessary; visual
inspections of all discs; verification that
all snap diameters on discs are within
limits;
3
<PAGE>
inspection of all blades for proper
chord dimensions and cracking; repair or
replacement of blades below minimums;
inspection and repair of stators as
necessary; blade-up of discs using new lock
plates; assembly of rotors in the
compressor; balance of all rotors; and
installation of rotors in the engine.
Cycle one take-off and landing of the Aircraft.
Damage Notification Threshold the amount specified therefor in Letter
Agreement No. 1.
Default any Event of Default and any event which
with the giving of notice, lapse of time,
determination of materiality or fulfillment
of other condition would constitute an Event
of Default.
Delivery Condition
Requirements the requirements specified on Part 1 of
Schedule 1.
Delivery Date the date on which the Aircraft is tendered
for delivery by Lessor in accordance with
this Agreement.
Delivery Location Oklahoma City, Oklahoma, United States.
Deposit all amounts payable pursuant to Clause 5.1.
Dollars and $ the lawful currency of the United States of
America.
Engine whether or not installed on the Aircraft:-
(a) each engine of the manufacture and model
specified in Part 1 of Schedule 1 (each
of which has 750 or more rated takeoff
horsepower or the equivalent of such
horsepower) which Lessor elects to
tender to Lessee with the Aircraft on
the Delivery Date, such engines being
described as to serial numbers on the
certificate of acceptance to be executed
4
<PAGE>
by Lessee upon delivery of the Aircraft;
or
(b) any engine which has replaced that
engine, title to which has or should
have, passed to Lessor in accordance
with this Agreement;
and in each case includes all modules and
Parts from time to time belonging to or
installed in that engine but excludes any
properly replaced engine title to which has,
or should have, passed to Lessee pursuant to
this Agreement.
Engine Event of Loss the occurrence with respect to an Engine
only, whether or not installed on the
Airframe, of any of those events described
in provisions (a) through (d) of the
definition of Event of Loss.
Engine Flight Hour means each hour or part thereof an Engine
is operated, elapsing from the moment that
wheels of an aircraft on which such Engine
is installed leave the ground until the
wheels of such aircraft next touch the
ground.
Engine Refurbishment a complete disassembly, inspection and
repair of any module of an Engine per the
engine manufacturer's maintenance manual.
ERISA the Employee Retirement Income Security
Act of 1974, as amended.
Event of Default an event or condition specified in Clause
13.1.
Event of Loss with respect to the Aircraft (including for
the purposes of this definition the
Airframe):-
(a) the actual or constructive total loss
of the Aircraft (including any damage
to the Aircraft which results in an
insurance settlement on the basis of a
total loss, or requisition for use or
hire which results in an insurance
5
<PAGE>
settlement on the basis of a total
loss); or
(b) it being destroyed, damaged beyond
repair or permanently rendered unfit
for normal use for any reason
whatsoever; or
(c) the requisition of title, or other
compulsory acquisition, capture,
seizure, deprivation, confiscation or
detention for any reason of the
Aircraft by the government of the State
of Registration or other competent
authority (whether de jure or de
facto), but excluding requisition for
use or hire not involving requisition
of title; or
(d) the hi-jacking, theft, condemnation,
confiscation, seizure or requisition
for use or hire of the Aircraft which
deprives any person permitted by this
Agreement to have possession and/or use
of the Aircraft of its possession
and/or use for more than 15 days (or,
if earlier, beyond the Expiry Date).
Excusable Delay with respect to delivery of the Aircraft,
delay or non-performance due to or arising
out of acts of God or public enemy, civil
war, insurrection or riot, fire, flood,
explosion, earthquake, accident, epidemic,
quarantine restriction, any act of
government, governmental priority,
allocation, regulation or order affecting
directly or indirectly, the Aircraft, any
manufacturer, Lessor or any materials or
facilities, strike or labor dispute causing
cessation, slowdown or interruption of work,
inability after due and timely diligence to
procure equipment, data or materials from
manufacturers, suppliers, any existing
owner, seller or lessee in a timely manner,
damage, destruction or loss, or any other
cause to the extent that such cause is
beyond the control of Lessor whether above
6
<PAGE>
mentioned or not and whether or not similar
to the foregoing.
Expiry Date the day preceding the day which is the 60th
monthly anniversary of the Delivery Date or
if earlier the date on which:-
(a) the date Lessor, acting in accordance
with the terms of this Agreement
terminates the leasing of the Aircraft
to Lessee under this Agreement; or
(b) Lessor receives the Agreed Value
together with any other amounts then
due and unpaid by Lessee following an
Event of Loss.
FAA the Federal Aviation Administration of the
United States of America and any successor
thereof.
FAR the Federal Aviation Regulations set forth
in Title 14 of the United States Code of
Federal Regulations, as amended and modified
from time to time.
Federal Aviation Act The Transportation Laws of the United
States as set forth at 49 United States Code
et seq. or any similar legislation of the
-- ---
United States of America enacted in
substitution or replacement thereof.
Financing Statements Uniform Commercial Code Financing
Statements in respect of the Aircraft and
Engines leased hereunder prepared in a form
acceptable for filing with the applicable
Government Entities in the Habitual Base,
the state in which the chief executive
office (as that term is defined in Article 9
of the Uniform Commercial Code as in effect
in the Habitual Base) and such other
jurisdiction as Lessor shall reasonably
require.
Flight Hour each hour or part thereof (rounded up to
two decimal places) elapsing from the moment
the wheels of the Aircraft leave the ground
7
<PAGE>
on take off until the wheels of the Aircraft
next touch the ground.
GAAP generally accepted accounting principles
in the United States.
Governing Law the laws of the State of California.
Government Entity (a) any national government, political
subdivision thereof, or local
jurisdiction therein;
(b) any instrumentality, board, commission,
court, or agency of any thereof,
however constituted; and
(c) any association, organization, or
institution of which any of the above
is a member or to whose jurisdiction
any thereof is subject or in whose
activities any of the above is a
participant.
Gross Negligence means any intentional, conscious or
voluntary action or decision which is taken
with wanton, reckless, flagrant and culpable
disregard for the consequences of such
action or decision.
Habitual Base the State of Colorado or, subject to the
prior written consent of Lessor, any other
state, country or countries in which the
Aircraft is for the time being habitually
based.
Hot Section Refurbishment with respect to any Engine, the complete
visual inspection and repair as necessary of
the combustion section of an Engine in an
engine repair/overhaul station including
without limitation complete unstacking of
the high pressure or low pressure turbine or
both if needed; complete visual inspection;
de-blading of discs as required; visual
inspections of all discs; verification that
all snap diameters on discs are within
limits; inspection of all blades for proper
chord dimensions and cracking; repair or
8
<PAGE>
replacement of all blades below minimums;
inspection and repair of stators as
necessary; blade-up of discs using new
retaining rings; assembly of rotors in the
turbine; balance of all rotors; and
installation of rotors in the engine.
Indemnitee each of GE Capital Aviation Services, Inc.
("GECASI"), GE Capital Aviation Services
Limited ("GECASL") and Lessor, including,
any of their respective successors and
assigns, shareholders, subsidiaries,
affiliates, partners, contractors,
directors, officers, servants, agents and
employees and indemnitees; provided,
however, that no such Indemnitee shall be
entitled to an indemnification to the extent
such Indemnitee is manufacturer of the
Aircraft, any Engines, or Parts in its
capacity as such.
Insurances as defined in Clause 9.1 hereof.
Landing Gear the landing gear assembly of the Aircraft
excluding any rotable components.
Law shall mean and include (a) any statute,
decree, constitution, regulation, order
judgment or other directive of any
Governmental Entity; (b) any treaty, pact,
compact or other agreement to which any
Governmental Entity is a signatory or party;
(c) any judicial or administrative
interpretation or application of any Law
described in (a) or (b) above; and (d) any
amendment or revision of any Law described
in (a), (b) or (c) above.
Lease Supplement a Lease Supplement, substantially in the
form of Schedule 6 hereto, entered into
between Lessor and Lessee.
Lessor Lien (a) any Security Interest whatsoever from
time to time created by or through
Lessor in connection with the financing
of the Aircraft;
9
<PAGE>
(b) any other Security Interest in respect
of the Aircraft which results from acts
of or claims against Lessor not related
to the transactions contemplated by or
permitted under this Agreement; and
(c) Security Interests in respect of the
Aircraft for Lessor Taxes.
Lessor Taxes Taxes:-
(a) imposed as a direct result of
activities of Lessor in the
jurisdiction imposing the Tax unrelated
to Lessor's dealings with Lessee or to
the transactions contemplated by this
Agreement or the operation of the
Aircraft by Lessee; or
(b) imposed on the net income, profits or
gains of Lessor by any Government Entity
in the United State of America;
provided, however, that Lessor Taxes
-------- -------
shall not include any Tax imposed by any
government or taxing authority of any
jurisdiction if and to the extent that
such Tax results from (i) the use,
operation, presence or registration of
the Aircraft, the Airframe, any Engine
or any Part in the jurisdiction imposing
the Tax, or (ii) the situs of
organization, any place of business or
any activity of Lessee or any other
Person having use, possession or custody
of the Aircraft, the Airframe, any
Engine or any Part in the jurisdiction
imposing the Tax; or
(c) imposed with respect to any period
commencing or event occurring after the
Expiry Date and unrelated to Lessor's
dealings with Lessee or to the
transactions contemplated by this
Agreement;
10
<PAGE>
provided always, that Lessor Taxes shall not
include any income taxes or other amounts
payable and subject to indemnification in
favor of Lessor pursuant to the Tax
Indemnity Agreement.
Letter Agreement No. 1 that certain Letter Agreement No. 1
between Lessor and Lessee dated as of the
date hereof.
Maintenance Program an Air Authority approved maintenance
program for the Aircraft encompassing
scheduled maintenance (including block
maintenance), condition monitored
maintenance, and/or on-condition maintenance
of Airframe, Engines and Parts, including
but not limited to, servicing, testing,
preventive maintenance, repairs, structural
inspections, system checks, overhauls,
approved modifications, service bulletins,
engineering orders, Airworthiness
directives, corrosion control, inspections
and treatments.
Maintenance Reserves all amounts payable under Clause 5.4(a).
Major Checks any C-Check, multiple C-Check, D-Check or
annual heavy maintenance visit or segment
thereof suggested for commercial aircraft of
the same model as the Aircraft by its
manufacturer (however denominated) as set
out in the Agreed Maintenance Program.
Manufacturer Boeing.
Minimum Liability Coverage the amount set forth therefore in Letter
Agreement No. 1.
Mortgage Convention shall mean the Convention for the
International Recognition of Rights in
Aircraft, signed (ad referendum) at Geneva,
Switzerland, on June 19, 1948, and amended
from time to time, but excluding the terms
of any adhesion thereto or ratification
thereof containing reservations to which the
United States of America does not accede.
11
<PAGE>
Operative Documents shall mean this Agreement, all Lease
Supplements hereto, Letter Agreement No. 1,
the Tax Indemnity Agreement, that certain
Letter Agreement Concerning Warrants dated
as of April 3, 1996 by Lessee to Lessor, the
Warrant Certificate dated April 3, 1996
issued by Lessee to Lessor, any schedules or
documents prepared in conformance to the
Schedules hereto, any side-letters related
hereto and any amendments, revisions,
supplements or modifications hereto or
thereto.
Other Agreements any agreement (other than this Agreement)
made or to be made between Lessor (or an
associate or affiliate thereof including
without limitation General Electric Capital
Corporation) or GPA Group plc (or an
associate or affiliate thereof) and Lessee
(or an associate or affiliate thereof).
Part whether or not installed on the Aircraft:-
(a) any component, furnishing or equipment
(other than a complete Engine)
furnished with the Aircraft on the
Delivery Date; and
(b) any other component, furnishing or
equipment (other than a complete
Engine) title to which has, or should
have passed to Lessor pursuant to this
Agreement;
but excludes any such items title to
which has, or should have, passed to
Lessee pursuant to this Agreement.
Permitted Lien (a) any lien for Taxes not assessed or, if
assessed, not yet due and payable, or
being contested in good faith by
appropriate proceedings;
(b) any lien of a repairer, mechanic,
carrier, hangarkeeper or other similar
lien arising in the ordinary course of
business or by operation of Law in
respect of obligations which are not
12
<PAGE>
overdue or are being contested in good
faith by appropriate proceedings; and
(c) any Lessor Lien.
but only if (in the case of both (a) and
(b)) (i) adequate resources have been
provided by Lessee for the payment of the
Taxes or obligations; and (ii) such
proceedings, or the continued existence of
the lien, do not give rise to any likelihood
of the sale, forfeiture or other loss of the
Aircraft or any interest therein or of
criminal liability on Lessor.
Person any individual person, corporation,
partnership, firm, joint stock company,
joint venture, trust, estate, unincorporated
organization, association, Government
Entity, or organization or association of
which any of the above is a member or a
participant.
Previous Operator Aero Costa Rica, S.A. (ACORI).
Redelivery Location A location designated by Lessor in the
continental United States no further
distance from Denver, Colorado than is JFK
International Airport, New York City, New
York or such other location as Lessor and
Lessee shall agree.
Replacement Engine an engine of the same manufacturer and
model, and having equivalent value, utility,
modification status, time elapsed since Hot
Section Refurbishment and Cold Section
Refurbishment and remaining warranty status
as the Engine it is intended to replace
under Clause 11.1(c), or at Lessee's option,
an engine of the same manufacturer as such
Engine but of an improved model, and
otherwise of an equivalent value and utility
and suitable for installation and use on the
Airframe without impairing the value or
utility of the Airframe and compatible with
the remaining installed Engine.
13
<PAGE>
Rent all amounts payable pursuant to Clause 5.3.
Rental Period each period ascertained in accordance with
Clause 5.2.
Rent Date the first day of each Rental Period.
Return Occasion the date on which the Aircraft is
redelivered to Lessor in accordance with
Clause 12 hereof.
Scheduled Delivery Month May, 1996.
Security Interest any mortgage, charge, pledge, lien,
assignment, hypothecation, right of set-off
or any agreement or arrangement having the
effect of creating a Security Interest other
than a Permitted Lien.
State of Incorporation State of Colorado.
State of Registration United States of America.
Subsidiary (a) in relation to any reference to
accounts, any company whose accounts
are consolidated with the accounts of
Lessee in accordance with GAAP;
(b) for any other purpose an entity from
time to time:-
(i) of which another has direct or
indirect control or owns directly
or indirectly more than 50 per
cent of the voting share capital;
or
(ii) which is a direct or indirect
subsidiary of another under the
laws of the jurisdiction of its
incorporation.
Tax Indemnity Agreement the Tax Indemnity Agreement of even date
herewith between Lessee and Lessor
pertaining to U.S. Federal Income Taxes and
14
<PAGE>
Lessee operations outside the United States
of America.
Taxes any and all present and future taxes,
duties, withholdings, levies,
assessments, imposts, fees and other
governmental charges of all kinds together
with any penalties, fines, surcharges and
interest thereon and any additions thereto.
Term the period commencing on the Delivery Date
and ending on the Expiry Date, except that
the Term may be extended beyond the Expiry
Date if the Return Occasion is delayed in
the circumstances specified, and subject to
the limitation described, in Clause 12.3.
United States the United States of America
Warrant the warrant referred to in Clause
3.1(a)(xii).
Wet Lease any arrangement whereby Lessee agrees to
furnish the Aircraft to a third party
pursuant to which the Aircraft (i) shall be
solely within the operational control of
Lessee and shall be operated solely by
regular employees of Lessee possessing all
current certificates and licenses that would
be required under the Federal Aviation Act
for the performance by such employees of
similar functions within the United States
of America, (ii) shall be maintained by
Lessee in accordance with the Agreed
Maintenance Program and (iii) shall be and
remain subject and subordinate to all other
terms and conditions of this Agreement;
provided, however, that Lessee shall remain
primarily liable for the performance of all
of the terms of this Agreement (including,
without limitation, its obligations set
forth in Clause 9 of this Agreement) to the
same extent as if such arrangement had not
been entered into.
15
<PAGE>
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a reference
to:-
(i) each of "Lessor" or "Lessee" or any other person includes without
prejudice to the provisions of this Agreement any successor
in title to it and any permitted assignee;
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated or
supplemented;
(iv) a Clause or a Schedule is a reference to a clause of or a schedule
to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and warrants to
Lessor that:-
(a) Status: Lessee is a corporation duly incorporated and validly existing
under the laws of the State of Incorporation and has the corporate power
to own its assets and carry on its business as it is being conducted and
is the holder of all necessary air transportation licenses required in
connection therewith and with the use and operation of the Aircraft;
(b) Power and authority: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) Legal validity: this Agreement has been duly entered into and delivered by
Lessee, and this Agreement does, and the Operative Documents when executed
and delivered by Lessee will, constitute legal, valid and binding
obligations of Lessee, enforceable in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting the enforcement
of creditors' rights generally, and, to the extent that certain remedies
require or may require enforcement by a court of equity, by such
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) as a court having
jurisdiction may impose and by Laws which may affect some of such remedies
but which do not make the available remedies inadequate for the
substantial realization of the benefits provided herein;
(d) Non-conflict: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
16
<PAGE>
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding
upon Lessee or any of its assets nor result in the creation of any
Security Interest over any of its assets;
(e) Authorization: all authorizations, consents, registrations and
notifications required in connection with the entry into,
performance, validity and enforceability of, this Agreement and the
transactions contemplated by this Agreement, have been (or will on
or before the Delivery Date have been) obtained or effected (as
appropriate) and are (or will on their being obtained or effected
be) in full force and effect;
(f) No Immunity:
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of this Agreement by
Lessee constitute private and commercial acts;
(g) Accounts: the audited consolidated accounts of Lessee and its
Subsidiaries most recently delivered to Lessor, including balance
sheets and statements of income and retained earnings:-
(i) have been prepared in accordance with GAAP; and
(ii) fairly represent the consolidated financial condition of Lessee and
its Subsidiaries as at the date to which they were drawn up;
(h) Restricted Countries: Lessee does not hold a contract or other obligation
to operate the Aircraft to or for any of the countries designated under
U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without
limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb
controlled areas of the Republic of Bosnia and Herzegovina and the Unita
Rebels of Angola.
(i) Chief Executive's Office: Lessee's Chief Executive Office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in the
State of Colorado) is located at 12015 East 46th Avenue, Denver, Colorado,
United States of America;
(j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits
of Section 1110 of Title 11 of the United States Code with respect to the
Aircraft; and
17
<PAGE>
(j) Citizen of the United States: Lessee is a "citizen of the United States"
as defined in Section 40102 of Title 49 of the United States Code.
2.2 Lessee's Further Representations and Warranties: Lessee further represents
and warrants to Lessor that:-
(a) No Default:
(i) no Default has occurred and is continuing or might result from the
entry into or performance of the Operative Documents; and
(ii) no other event or condition has occurred and is continuing which
constitutes (or with the giving of notice, lapse of time,
determination of materiality or the fulfillment of any other
applicable condition or any combination of the foregoing, might
constitute) a material default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding
on Lessee or any assets of Lessee;
(b) Registration:
(i) except for the filing for recordation of this Agreement and a
Lease Supplement with the FAA, and the filing of any Financing
Statements required (and continuation statements at periodic
intervals), no further filing or recording of this Agreement or of
any other document (including any financing statement under Article
9 of the Uniform Commercial Code) and no further action, is or will
be necessary under the Laws of the United States, the State of
Incorporation, and the State of Registration, the Habitual Base or
any other states in order to (A) fully establish, perfect and
protect Lessor's title to, and interest in, the Aircraft or any
Engine or Part as against Lessee or any third party, or (B) ensure
the validity, effectiveness and enforceability of this Agreement or
any other Operative Document to which the Lessee is a party; and
(ii) under the laws of the State of Incorporation, the State of
Registration and the Habitual Base the property rights of Lessor in
the Aircraft have been fully established, perfected and protected
and this Agreement will have priority in all respects over the
claims of all creditors of Lessee;
(c) Litigation: no litigation, arbitration or administrative proceedings are
pending or to its knowledge threatened against Lessee which, if adversely
determined, would have a material adverse effect upon its financial
condition or business or its ability to perform its obligations under this
Agreement;
(d) Pari Passu: the obligations of Lessee under the Operative Documents rank
at least pari passu with all other present and future unsecured and
unsubordinated obligations
18
<PAGE>
(including contingent obligations) of Lessee, with the exception of such
obligations as are mandatorily preferred by law and not by virtue of any
contract;
(e) Material Adverse Change: there has been no material adverse change in the
consolidated financial condition of Lessee and its Subsidiaries or the
financial condition of Lessee since the date to which the accounts most
recently provided to Lessor on or prior to the Delivery Date were drawn
up;
(f) Taxes: Lessee has delivered all necessary returns and payments due to the
tax authorities in the State of Incorporation, the State of Registration
and the Habitual Base and is not required by Law to deduct any Taxes from
any payments under this Agreement;
(g) Information: the financial and other information furnished by Lessee in
connection with this Agreement does not contain any untrue statement or
omit to state facts, the omission of which makes the statements therein,
in the light of the circumstances under which they were made, misleading,
nor omits to disclose any material matter to Lessor and all forecasts and
opinions contained therein were honestly made on reasonable grounds after
due and careful inquiry by Lessee; and
(h) ERISA: Lessee is not engaged in any transaction in connection with which
it could be subjected to either a civil penalty assessed pursuant to
Section 502 of ERISA or any tax imposed by Section 4975 of the Internal
Revenue Code; no material liability to the Pension Benefit Guaranty
Corporation has been or is expected by Lessee to be incurred with respect
to any employee pension benefit plan (as defined in Section 3 of ERISA)
maintained by Lessee or by any trade or business (whether or not
incorporated) which together with Lessee would be treated as a single
employer under Section 4001 of ERISA and Section 414 of the Internal
Revenue Code; there has been no reportable event (as defined in Section
4043(b) of ERISA) with respect to any such employee pension benefit plan;
no notice of intent to terminate any such employee pension benefit plan
has been filed or is expected to be filed, nor has any such employee
pension benefit been terminated; no circumstance exists or is anticipated
that constitutes or would constitute grounds under Section 4042 of ERISA
for the Pension Benefit Guaranty Corporation to institute proceedings to
terminate, or to appoint a trustee to manage the administration of, such
an employee pension benefit plan; and no accumulated funding deficiency
(as defined in Section 302 of ERISA or Section 412 of the Internal Revenue
Code), whether or not waived, exists with respect to any such employee
pension benefit plan; and
2.3 Repetition: The representations and warranties in Clause 2.1 and Clause
2.2 will survive the execution of this Agreement. The representations and
warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be
repeated by Lessee on the Delivery Date with reference to the facts and
circumstances then existing. The representations and warranties contained
in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as
if made with reference to the facts and circumstances then existing.
19
<PAGE>
2.4 Lessor's Representations and Warranties: Lessor represents and warrants to
Lessee that:-
(a) Status: Lessor is a company duly incorporated and validly existing under
the laws of the State of Delaware and has the corporate power to own its
assets and carry on its business as it is now being conducted;
(b) Power and authority: Lessor has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, the Operative Documents and the
transactions contemplated by the Operative Documents;
(c) Legal validity: the Operative Documents constitute Lessor's legal, valid
and binding obligation;
(d) Non-conflict: the entry into and performance by Lessor of, and the
transactions contemplated by, the Operative Documents do not and will
not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any of
its assets;
(e) Authorization: so far as concerns the obligations of Lessor, all
authorizations, consents, registrations and notifications required
under the laws of the State of Delaware in connection with the entry
into, performance, validity and enforceability of, and the
transactions contemplated by, the Operative Documents by Lessor have
been (or will on or before the Delivery Date have been) obtained or
effected (as appropriate) and are (or will on their being obtained
or effected be) in full force and effect; and
(f) No Immunity:
(i) Lessor is subject to civil commercial law with respect to its
obligations under the Operative Documents; and
(ii) neither Lessor nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Operative
Documents by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 Conditions Precedent: Lessor's obligation to deliver and lease the
Aircraft under this Agreement is subject to satisfaction of each of the
following conditions:-
(a) Receipt by Lessor from Lessee not later than 5 Business Days prior to the
Delivery Date of the following satisfactory in form and substance to
Lessor:-
20
<PAGE>
(i) Constitutional Documents: a copy of the constitutional documents
of Lessee including without limitation articles of incorporation,
bylaws and a current certificate of good standing issued by the
secretary of the state for the State of Incorporation;
(ii) Resolutions: a copy of a resolution of the board of directors of
Lessee approving the terms of, and the transactions contemplated
by, this Agreement, resolving that it enter into this Agreement,
and authorizing a specified person or persons to execute this
Agreement and the other Operative Documents and accept delivery of
the Aircraft on its behalf;
(iii) Opinion: evidence that opinions substantially in the form of
Schedule 5 will be issued on the Delivery Date by legal counsel
acceptable to Lessor;
(iv) FAA Opinion: a draft of an opinion of Crowe & Dunlevy P.C. or
other counsel acceptable to Lessor who are recognized specialists
with regard to FAA registration matters in form acceptable to
Lessor as to the due filing for recordation of this Agreement, to
be delivered in executed final form to Lessor and Lessee upon such
filing and recordation;
(v) Approvals: evidence of the issue of each approval, license and
consent which may be required in relation to, or in connection
with, the performance by Lessee of any of its obligations
hereunder (including, without limitation, any consent to the
export of the Aircraft from the Habitual Base and consent to the
deregistration of the Aircraft upon the termination of the leasing
of the Aircraft under this Agreement);
(vi) Licenses: copies of Lessee's Certificate of Convenience and
Necessity, Radio License, FAR Part 121 operator's certificates and
all other licenses, certificates and permits required by Lessee in
relation to, or in connection with, the operation of the Aircraft;
(vii) Process Agent: a letter from the process agent appointed by Lessee
in this Agreement accepting that appointment;
(viii) Certificate: a certificate of a duly authorized officer of
Lessee:-
(a) setting out a specimen of each signature referred to in
Clause 3.1(a)(ii);
(b) certifying that each copy document specified in this Clause
is correct, complete and in full force and effect;
21
<PAGE>
(c) certifying that Lessee's representations and warranties
contained in Clause 2.1 and 2.2 are true and correct on the
Delivery Date as if given on such date; and
(d) certifying that there has been no material change in
Lessee's Constitutional Documents since originally
delivered by Lessee to Lessor.
(ix) Air Traffic Control: a letter from Lessee addressed to Transport
Canada or other relevant air traffic control authority pursuant to
which Lessee authorizes the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of all
sums due by Lessee to the authority in respect of all aircraft
(including, without limitation, the Aircraft) operated by Lessee;
(x) Deregistration Power: an irrevocable power of attorney authorizing
Lessor or such other person as Lessor may from time to time
specify to do any thing or act or to give any consent or approval
which may be required to obtain deregistration of the Aircraft and
to export the Aircraft from the Habitual Base upon termination of
the leasing of the Aircraft under this Agreement, duly notarized
and legalized;
(xi) Certificate of Lease Termination: a certificate of lease
termination executed by a duly authorized officer of Lessee,
substantially in the form of Schedule 7 hereto, acknowledging that
this Agreement is no longer in effect with respect to the Aircraft
and Engines, which certificate Lessor will hold in escrow to be
filed at the FAA upon the expiration of the Term or other
termination of the leasing of the Aircraft to the Lessee
hereunder;
(xii) Warrant: evidence of the grant by Lessee to Lessor of a warrant
entitling Lessor to purchase 70,000 shares of Lessee's common
stock no par value at an exercise price for each such shares of
$7.19, such shares carrying demand registration rights by Lessor
and such other rights as Lessor may require. It is understood and
acknowledged that upon delivery of the Aircraft, such warrant
shall be deemed solely as additional consideration to induce
Lessor to deliver the Aircraft to Lessee and shall then and
thereafter cease to have any attribute or character of a security
or other deposit. Such warrant shall expire at 5:00 pm, Denver,
Colorado, local time on the Expiry Date; and
(xiii) General: such other documents as Lessor may reasonably request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) Opinions: a signed original of each of the opinions referred to
in Clause 3.1(a)(iii) and 3.1(a)(iv);
(ii) Payments: all sums due to Lessor under this Agreement on or before
the Delivery Date including, without limitation, the first payment
of Rent;
22
<PAGE>
(iii) Insurances: certificates of insurance, an undertaking from
Lessee's insurance broker and other evidence satisfactory to
Lessor that Lessee is taking the required steps to ensure due
compliance with the provisions of this Agreement as to Insurances
with effect on and after the Delivery Date;
(iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be
dated the Delivery Date, fully completed and executed by Lessor
and Lessee, and filed for recording at the FAA;
(v) Certificate of Technical Acceptance: in the form of Schedule 2
hereto, to be dated and fully completed, and executed by Lessor
and Lessee certifying that Lessee has completed its inspection of
the Aircraft in accordance with Clause 4.5 hereof and that
Aircraft conforms to the provisions set forth therein and is in
all respects acceptable to Lessee, or if not so acceptable, then
setting forth discrepancies and corrective action to be taken;
(vi) Accounts: the latest available accounts of Lessee as described in
Clause 8.2(b)(i) and (ii);
(vii) Documents: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Delivery Date;
(viii) UCC-1 Financing Statements: in form acceptable to Lessor, and
suitable for filing in the States of Colorado and California and
signed by Lessee.
(ix) General: such other documents as Lessor may reasonably request;
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Program as Lessor may require and Lessor having
agreed the proposed Maintenance Program on or prior to the Delivery Date;
and
(d) evidence that on the Delivery Date that all filings, registrations,
recordings and other actions have been or will be taken which are
necessary or advisable to ensure the validity, effectiveness and
enforceability of this Agreement and to protect the property rights of
Lessor in the Aircraft or any Part.
3.2 Further conditions precedent: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are
correct and would be correct if repeated on delivery of the Aircraft under
this Agreement; and
(b) no Default has occurred and is continuing or might result from the leasing
of the Aircraft to Lessee under this Agreement.
3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole
benefit of Lessor and may be waived or deferred in whole or in part and
with or without conditions
23
<PAGE>
by Lessor. If any of those conditions are not satisfied on the Delivery
Date and Lessor (in its absolute discretion) nonetheless agrees to deliver
the Aircraft to Lessee, Lessee will ensure that those conditions are
fulfilled within 15 days after the Delivery Date and Lessor may treat as
an Event of Default the failure of Lessee to do so.
4. COMMENCEMENT
4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the
Aircraft on lease in accordance with this Agreement for the duration of
the Term. Lessor will deliver and Lessee will accept the Aircraft on the
day in the Scheduled Delivery Month notified by Lessor to Lessee at least
5 Business Days in advance of such date or such other day as may be
agreed. In the event (a) Lessee is unwilling or unable to accept delivery
of the Aircraft on the date notified by Lessor as the Delivery Date, and
(b) the Aircraft meets Delivery Condition Requirements then Lessee's
obligation to pay Rent hereunder shall commence on such Delivery Date
notwithstanding that Lessee has not accepted possession of the Aircraft.
After delivery the Aircraft and every Part will be in every respect at the
sole risk of Lessee, who will bear all risk of loss, theft, damage or
destruction to the Aircraft from any cause whatsoever.
4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the
Delivery Location or such other location as may be agreed. Lessee will
effect acceptance of the Aircraft by execution and delivery to Lessor of
the duly completed and executed Certificate of Acceptance in the form of
Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the
form of Schedule 6 hereto and by authorizing the filing at the FAA of an
executed copy of such Lease Supplement with an executed copy of this
Agreement attached thereto.
4.3 Delayed Delivery: If owing to:-
(a) any seller, manufacturer or existing lessee of the Aircraft delaying in
the delivery of, or failing to deliver, the Aircraft to Lessor for any
reason (other than because of any default of Lessor in the performance of
its obligations under an agreement with that seller, manufacturer or
lessee unless the default arises from any act or omission of Lessee)
whether or not in circumstances entitling that seller, manufacturer or
lessee to terminate that agreement;
(b) any purchase agreement for the Aircraft terminating prior to delivery of
the Aircraft (other than because of any default of Lessor in the
performance of its obligations under that agreement unless the default
arises from any act or omission of Lessee);
(c) any Excusable Delay; or
(d) notification of any defect or non-conformity pursuant to Clause 4.5;
Lessor delays in the delivery of, or fails to deliver, the Aircraft under
this Agreement:-
24
<PAGE>
(i) Lessor will not be responsible for any losses, including loss of
profit, costs or expenses arising from or in connection with the
delay or failure suffered or incurred by Lessee;
(ii) subject to Clause 4.5, Lessee will not be entitled to terminate
this Agreement or to reject the Aircraft when tendered for delivery
by Lessor, on the grounds of any such delay;
(iii) in the case of termination of a purchase agreement, Lessor may at
any time after the termination terminate this Agreement; and
(iv) upon any such termination or termination pursuant to Clause 4.5
neither Lessor nor Lessee will have any further obligation to the
other under this Agreement other than as expressly set out in this
Agreement, except that Lessor will repay to Lessee the Deposit and
shall return the warrant certificate representing the Warrant.
4.4 Licenses: Lessee will at its expense obtain all licenses, permits and
approvals which may be necessary to export the Aircraft from the Delivery
Location. Lessor will furnish such data and information as may be
reasonably requested by Lessee in connection with obtaining any such
license, permit or approval.
4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase
or lease agreement, Lessor will give Lessee an opportunity:-
(a) to inspect the Aircraft at the Delivery Location; and
(b) to assign up to 2 representatives to participate as observers in a
demonstration flight to demonstrate the condition of the Aircraft.
If Lessee notifies Lessor promptly prior to the Delivery Date of any
defect or non-conformity with Schedule 1 observed during the inspection or
demonstration flight, Lessor will correct or procure the correction of the
defect or non-conformity as promptly as practicable (except to the extent
otherwise agreed or to the extent in the opinion of Lessor it is
impracticable or prohibitively expensive to do so). Subject to Clause
4.3, Lessor may postpone the Delivery Date in such a case to the date
which Lessor notifies Lessee that the defect or non-conformity has been
rectified. Lessee will be entitled to terminate this Agreement if Lessor
notifies it that Lessor does not intend to correct the defect or non-
conformity.
4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from and
against all Claims (as defined in Clause 10) arising from death or injury
to any observer or any employee of Lessee in connection with any
demonstration flight or inspection of the Aircraft by Lessee.
25
<PAGE>
5. PAYMENTS
5.1 Deposit: Lessee shall pay to Lessor a Deposit in the amounts set forth in
the definition of that term in Letter Agreement No. 1 and in accordance
with the schedule set forth therein. So long as no Default or Event of
Default then exists, Lessor shall refund to Lessee all Deposits then held
by Lessor upon return and final acceptance of the Aircraft by Lessor on
the Expiry Date or promptly after receipt of the Agreed Value after an
Event of Loss.
5.2 Rental Periods: The Term will consist of consecutive whole or partial
Rental Periods set forth in Letter Agreement No. 1. The first Rental
Period will commence on the Delivery Date and each subsequent Rental
Period will commence on the date succeeding the last day of the previous
Rental Period. Each Rental Period will end on the date immediately
preceding the calendar day in the next month numerically corresponding to
the Delivery Date, except that:
(a) if there is no such numerically corresponding day in that month, it will
end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will end on
the Expiry Date.
5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in
advance in the amount specified as "Rent" in Letter Agreement No. 1.
Payment must be initiated adequately in advance of the Rent Date to ensure
that Lessor receives credit for the payment on the Rent Date. If a Rental
Period begins on a non-Business Day, the Rent payable in respect of that
Rental Period shall be paid on the Business Day immediately preceding the
date on which such Rental Period commences.
5.4 Maintenance Reserves:
(a) Amount: Lessee will further pay to Lessor Maintenance Reserves in
relation to each calendar month or portion thereof during the Term (and
for the last Rental Period of the Term, or portion thereof, payment shall
be on the Expiry Date) no later than the 10th day following the end of
that calendar month as follows:-
(i) in respect of the Airframe, the product of the Airframe
Maintenance Reserve Rate specified in Letter Agreement No. 1 and
the number of Flight Hours operated by the Aircraft during that
calendar month ("Airframe Maintenance Reserves"); and
(ii) in respect of the life-limited Parts ("LLP") for each Engine, the
product of the Life-Limited Parts Reserve Rate specified in Letter
Agreement No. 1 and the number of Engine Flight Hours (or fraction
thereof) operated by the Engine during that calendar month
("Engine LLP Refurbishment Reserves"); and
26
<PAGE>
(iii) in respect of Engine Refurbishment for each Engine, the product of
the Engine Refurbishment Reserve Rate specified in Letter
Agreement No. 1 and the number of Engine Flight Hours (or fraction
thereof) operated by the Engine during that calendar month
("Engine Refurbishment Reserves"); and
(iv) in respect of the Landing Gear, the product of the Landing Gear
Reserve Rate specified in Letter Agreement No. 1 and the number of
Flight Hours operated by the Landing Gear during that calendar
month ("Landing Gear Maintenance Reserves").
(b) Adjustment: Lessor may adjust the amount of Maintenance Reserves after
the Delivery Date upon notice to Lessee not more frequently than annually
utilizing the Escalation Adjustment set forth in Letter Agreement No. 1.
The Engine Reserve Rate may be further adjusted not more frequently than
annually as provided in Section III of Letter Agreement No. 1.
5.5 Payments: All payments by Lessee to Lessor under this Agreement will be
made for value on the due date in Dollars and in same day funds settled
through the New York Clearing House System or such other funds as may for
the time being be customary for the settlement in New York City of
international payments in Dollars by telegraphic transfer to Bank of
America, San Francisco, California, ABA No. 121-000-358, Account No.
14993-03400 or to such other account as Lessor may advise Lessee in
writing.
5.6 Withholding: All payments by Lessee pursuant to the Operative Documents
shall be free of all withholdings of any nature whatsoever except to the
extent otherwise required by Law, and if any such withholding is so
required, Lessee shall pay on an After-Tax Basis an additional amount such
that after the deduction of all amounts required to be withheld, the net
amount actually received by Lessor on an After-Tax Basis will equal the
amount that Lessor would have received on an After-Tax Basis if such
withholding had not been required; provided, however, that if Lessee pays
any such additional amount to compensate for the withholding of any Lessor
Tax, Lessor shall repay to Lessee within 30 days after receipt of Lessee's
written request therefor (which request shall include a description in
reasonable detail of the Lessor Tax involved and the calculation of the
additional amount to be repaid) the amount of such additional amount to
the extent attributable to any Lessor Tax.
5.7 General Tax Indemnity:
General:
(i) Lessee will on demand pay and indemnify each Indemnitee against all
Taxes (other than Lessor Taxes) levied or imposed against or upon or
payable by such Indemnitee or Lessee and arising from, with respect
to or in connection with the transactions pursuant to the Operative
Documents (except for the Warrant and the side letter dated as of
April 3, 1996 specifically relating thereto, but save in so far as
any indemnity by Lessee in respect of Taxes is
27
<PAGE>
specifically provided for therein, including (but not limited to)
all Taxes relating or attributable to Lessee, any Operative
Document or the Aircraft directly or indirectly in connection with
the importation, exportation, registration, ownership, leasing,
sub-leasing, purchase, delivery, possession, use, operation,
repair, maintenance, overhaul, transportation, landing, storage,
presence or redelivery of the Aircraft or any part thereof or any
rent, receipts, insurance proceeds, income or other amounts arising
therefrom.
(ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by
Lessee directly to the appropriate taxing authority (to the extent
permitted by applicable Law) at or before the time prescribed by
applicable Law. After any payment by Lessee of any Tax directly to
a taxing authority, Lessee shall furnish to Lessor, on request, a
certified copy of a receipt for Lessee's payment of such Tax or
such other evidence of payment of such Tax as is reasonably
obtainable by Lessee and reasonably acceptable to Lessor.
(iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause
5.7 shall be paid within ten days after receipt of a written demand
therefor from the relevant Indemnitee accompanied by a written
statement describing in reasonable detail the basis for such
indemnity and the computation of the amount so payable, provided
that if an amount of any indemnified Tax is being contested in
accordance with Clause 5.12 and Lessee shall have duly performed
(and shall continue to perform) all its obligations under Clause
5.12 with respect to such contest, then payment of the indemnity
with respect to such Tax under Clause 5.12 shall , at Lessee's
election, be deferred until the date the contest has been
completed.
5.8. Sales and Use Taxes:
(a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if
requested by Lessor, Lessee shall pay to the relevant tax authority for
the account of Lessor), in addition to the amounts specified as "Rent" in
Letter Agreement No. 1:
(i) all sales, use, rental, value added, goods and services and similar
taxes ("Sales Taxes") required to be paid to the tax authority of
the jurisdiction in which the Delivery Location is situated or to
the jurisdiction in which the Aircraft is habitually based with
respect to the lease of the Aircraft to Lessee pursuant to the
Operative Documents unless Lessee delivers to Lessor on or prior to
the Delivery Date such exemption certificate or other document as
may be acceptable to Lessor to evidence Lessee's entitlement to
exemption from all Sales Taxes imposed by such jurisdiction with
respect to the lease of the Aircraft pursuant to the Operative
Documents; and
(ii) all Sales Taxes required to be paid to the tax authority of any
jurisdiction in which the Aircraft may be used, operated or
otherwise located from time to time unless Lessee delivers to
Lessor such exemption certificates or other
28
<PAGE>
documents as may be required by applicable Law to evidence Lessee's
entitlement to exemption from all Sales Taxes imposed by each such
jurisdiction with respect to the lease of the Aircraft pursuant to
the Operative Documents.
(b) Lessee will cooperate with Lessor in connection with the preparation and
filing of any exemption application or similar document that is reasonably
necessary or desirable under applicable Law to avoid the imposition of any
Sales Taxes with respect to the transactions contemplated by the Operative
Documents.
(c) The specific obligations with respect to sales and use taxes set forth in
this Clause 5.8 are in addition to, and are not in substitution for, the
Lessee's obligation to indemnify for sales and use taxes pursuant to
Clause 5.7.
5.9 Information:
(a) If Lessee is required by any applicable Law, or by any third party, to
deliver any report or return in connection with any Taxes for which Lessee
would be obligated to indemnify Lessor under the Operative Documents,
Lessee will complete the same and, on request, supply a copy of the report
or return to Lessor.
(b) If any report, return or statement is required to be made by Lessor with
respect to any Tax for which there is an indemnity obligation of Lessee
under this Clause 5, Lessee will promptly notify Lessor of the requirement
and:
(i) if permitted by applicable Law, make and timely file such
report, return or statement (except for any report, return or
statement that Lessor has notified Lessee that Lessor intends to
prepare and file), prepare such return in such manner as will show
the ownership of the Aircraft in Lessor if required or appropriate,
and provide Lessor upon request a copy of each such report, return
or statement filed by Lessee, or
(ii) if Lessee is not permitted by applicable Law to file any such
report, return or statement, Lessee will prepare and deliver to
Lessor a proposed form of such report, return or statement within a
reasonable time prior to the time such report, return or statement
is to be filed.
Lessee will provide such information and documents as Lessor may
reasonably request to enable Lessor to comply with its tax filing, audit
and litigation obligations.
5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that,
with respect to any payment or indemnity pursuant to Clause 5.7 (Tax
Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to
or for the benefit of any Indemnitee, Lessee's indemnity obligations shall
include such amount as may be necessary to hold such Indemnitee harmless
on an After-Tax Basis from all Taxes required to be paid by such
Indemnitee with respect to such payment or indemnity (including any
payments pursuant to this Clause 5.10), determined based on the assumption
that at the time each such payment or indemnity accrues to the relevant
Indemnitee, such payment or
29
<PAGE>
indemnity will be subject to (i) United States Federal income tax at the
highest marginal statutory tax rate applicable to corporations, (ii)
United States state and local income taxes at the composite of the highest
marginal statutory tax rates applicable to the Indemnitee and (iii) income
taxes (if any) imposed by countries outside the United States at the
actual rates imposed on the relevant Indemnitee.
5.11 Default Interest: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time to
Lessor interest (both before and after judgment) on that amount, from the
due date to the date of payment in full by Lessee to Lessor, at the
Interest Rate specified in Letter Agreement No. 1; provided, however, that
in no event shall such rate exceed the maximum permitted by Law. All such
interest will be compounded monthly and calculated on the basis of the
actual number of days elapsed in the month assuming a 30 day month and a
360 day year.
5.12 Contest:
(a) If an Indemnitee receives a written claim for any Tax for which Lessee
would be required to pay an indemnity pursuant to Clause 5.7 or Clause
5.8, such Indemnitee shall notify Lessee promptly of such claim, provided
that any failure to provide such notice will not relieve Lessee of any
indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If
requested by Lessee in writing promptly after receipt of such Indemnitee's
notice, such Indemnitee shall, upon receipt of indemnity satisfactory to
it and at the expense of Lessee (including, without limitation, all costs,
expenses, legal and accountants' fees and disbursements, and penalties,
interest and additions to tax incurred in contesting such claim) in good
faith contest or (if permitted by applicable Law) permit Lessee to contest
such claim by (i) resisting payment thereof if practicable and
appropriate, (ii) not paying the same except under protest if protest is
necessary and proper, or (iii) if payment is made, using reasonable
efforts to obtain a refund of such Taxes in appropriate administrative and
judicial proceedings. Such Indemnitee shall determine the method of any
contest conducted by such Indemnitee and (in good faith consultation with
Lessee) control the conduct thereof. Lessee shall determine the method of
any contest conducted by Lessee and (in good faith consultation with such
Indemnitee) control the conduct thereof. Lessee shall pay in full all
payments of Rent and other amounts payable pursuant to the Operative
Documents, without reduction for or on account of any Tax, while such
contest is continuing. Such Indemnitee shall not be required to contest,
or to continue to contest, a claim for Taxes under this Clause 5.12 if (x)
such contest would result in a risk of criminal penalties or of a sale,
forfeiture or loss of, or the imposition of a Lien (other than a Permitted
Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion
of independent tax counsel selected by such Indemnitee and reasonably
satisfactory to Lessee, that a reasonable basis exists for such contest,
or (z) a Default or an Event of Default shall be continuing (unless Lessee
shall have provided security reasonably satisfactory to such Indemnitee
securing Lessee's performance of its obligations under this Clause 5). If
such Indemnitee contests any claim for Taxes by making a payment and
seeking a refund thereof, then Lessee shall advance to such Indemnitee, on
an interest-free basis, an amount equal to the Taxes to be paid by such
Indemnitee in connection with the contest and shall indemnify such
Indemnitee on an
30
<PAGE>
After-Tax Basis for any adverse tax consequences to such Indemnitee of
such interest-free advance. Upon the final determination of any contest
pursuant to this Clause 5.12 in respect of any Taxes for which Lessee
shall have made an advance to such Indemnitee in accordance with the
immediately preceding sentence, the amount of Lessee's obligation shall be
determined as if such advance had not been made; any indemnity obligation
of Lessee to such Indemnitee under this Clause 5 and such Indemnitee's
obligation to repay the advance will be satisfied first by setoff against
each other, and any difference owing by either party shall be paid within
ten days after such final determination.
(b) If an Indemnitee obtains a refund of all or any part of any Taxes for
which a full indemnity was paid by Lessee, such Indemnitee shall pay
Lessee the amount of such refund, reduced by any Taxes imposed on such
Indemnitee on receipt or accrual of such refund and increased by any Taxes
saved by such Indemnitee by reason of the deductibility of such payment by
such Indemnitee. If, in addition to such refund, such Indemnitee receives
an amount of interest on such refund, such Indemnitee shall pay to Lessee
the portion of such interest which is fairly attributable to such refund,
reduced by any Taxes imposed on such Indemnitee on receipt or accrual of
such interest and increased by any Taxes saved by reason of the
deductibility of such payment by such Indemnitee. Such Indemnitee shall
not be required to make any payment to Lessee pursuant to this Clause 5.12
if, and for so long as, an Event of Default shall have occurred and be
continuing.
(c) Any Indemnitee in its sole discretion (by written notice to Lessee) may
waive its rights to indemnification pursuant to Clause 5.7 with respect to
any claim for any Tax and may refrain from contesting or continuing the
contest of such claim, in which event Lessee shall have no obligation to
indemnify such Indemnitee for the Taxes that are the subject of such
claim. If an Indemnitee agrees to a settlement of any contest conducted
pursuant to this Clause 5.11 without the prior written consent of Lessee,
which consent shall not be unreasonably withheld, then Lessor shall be
deemed to have waived its rights to the indemnification provided for in
Clause 5.7 with respect to the Tax liability accepted in such settlement.
5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this
Agreement are absolute and unconditional irrespective of any contingency
whatsoever including (but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defense or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against Lessee's
use, operation or possession of the Aircraft;
(c) any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under the
31
<PAGE>
laws of any relevant jurisdiction, or any Event of Loss in respect of or
any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceedings by or against Lessor
or Lessee;
(e) any invalidity or unenforceability or lack of due authorization of, or
other defect in, this Agreement;
(f) and Security Interests with respect to the Aircraft or Taxes; and/or
(g) any other cause which but for this provision would or might otherwise have
the effect of terminating or in any way affecting any obligation of Lessee
under this Agreement.
5.14 Security
(a) To the fullest extent permitted by Law and by way of continuing security
Lessee as sole beneficial owner charges the Deposit and the Maintenance
Reserves and all rights of Lessee to payment thereof and the debt
represented thereby (the "Charged Monies") to Lessor by way of first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements (the "Secured Liabilities"). Except as
expressly permitted under this Agreement, Lessee will not be entitled to
payment of the Charged Monies. Lessee will not assign, transfer or
otherwise dispose of all or part of its rights in the Charged Monies and
it will enter into any additional documents and instruments necessary or
advisable to evidence, create or perfect Lessor's rights to the Charged
Monies;
(b) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing, in addition to all rights
and remedies accorded to Lessor elsewhere in this Agreement and under Law
as a secured party in respect of the Charged Monies, Lessor may
immediately or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the payment or
discharge of the Secured Liabilities in such order as Lessor sees
fit; and
(c) If Lessor has exercised the set-off described in sub-clause (b) above,
Lessee shall, following a demand in writing from Lessor, restore the
Charged Monies to the level at which they stood immediately prior to such
set-off.
6. MANUFACTURER'S WARRANTIES
6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to
the benefit of each warranty, express or implied, with respect to the
Aircraft, any Engine or Part so
32
<PAGE>
far as concerns any manufacturer, vendor, subcontractor or supplier.
Except to the extent Lessor otherwise directs, Lessor hereby authorizes
Lessee to pursue any claim thereunder in relation to defects affecting the
Aircraft, any Engine or Part and Lessee agrees diligently to pursue any
such claim which arises at its own cost. Lessee will notify Lessor
promptly upon becoming aware of any such claim.
6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor but
if and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) above only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case,
Lessee will procure that all engines, components, furnishings or equipment
provided by the manufacturer, vendor, subcontractor or supplier in
replacement of a defective Engine or Part pursuant to the terms of any
warranty will be installed promptly by Lessee and that title thereto free
of Security Interests vests in Lessor. On installation each part will be
deemed to be a Part. In the case of a Replacement Engine, Lessee will
satisfy and perform each of the conditions and covenants set forth in
Clause 11.1(c), and upon satisfaction of such conditions, such Replacement
Engine will be deemed an "Engine" for all purposes of this Agreement.
6.4 Agreement: To the extent any warranties relating to the Aircraft are made
available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant
to Clause 6.2 and pending such payment will hold the claim and the
proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the Term to
ensure the benefit of any of those warranties which have not expired are
vested in Lessor.
7. LESSOR'S COVENANTS
7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession
and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its
rights under or in connection with this Agreement will not constitute such
an interference. Lessor will procure at Lessee's request an undertaking
of quiet enjoyment for the benefit of Lessee with respect to any
prospective Lessor Lien.
33
<PAGE>
7.2 Release of Maintenance Reserves: Provided no Default has occurred and is
continuing Lessor will release funds to Lessee from the Maintenance
Reserves respecting maintenance work performed upon submission by Lessee
to Lessor within 6 months of the commencement of that maintenance and
before the Expiry Date of an invoice and supporting documentation
reasonably satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterized by the
Manufacturer's maintenance planning document and best industry practice as
"D" Check and/or individual structural inspections having an interval of
not less than 20,000 Flight Hours or 6 years for the Aircraft (but not
including repairs arising as the result of operational or maintenance
mishandling or repairs involving the parts or components of a hushkit),
the lesser of (i) the amount of that invoice and (ii) the amount equal to
the aggregate amount of Airframe Maintenance Reserves paid under this
Agreement at the time of commencement of that maintenance less the
aggregate amount previously released by Lessor under this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of all shop visits requiring engine disassembly (other than (i)
repairs arising as a result of foreign object damage or operational or
maintenance mishandling and/or (ii) removal, installation, maintenance and
repair of Quick Engine Change ("QEC") kits or hushkits), the lesser of (i)
the amount of that invoice and (ii) the amount equal to the aggregate
amount of Engine Refurbishment Reserves paid in respect of that Engine
under this Agreement at the time of commencement of that maintenance less
the aggregate amount previously paid in respect of that Engine by Lessor
under this sub-clause;
(c) with respect to life limited parts within any Engine, the performance, in
accordance with this Agreement, of any such parts replacement or repair
(other than (i) repairs arising as a result of accidents or incidents
(whether or not eligible for recovery under Lessee's insurance), foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC kits or hushkits)
and/or (iii) any elective parts replacement), the lesser of (i) the amount
of that invoice and (ii) the amount equal to the aggregate of Engine LLP
Refurbishment Reserves paid in respect of that Engine under this Agreement
at the time of commencement of that maintenance less the aggregate amount
previously paid in respect of that Engine by Lessor under this sub-clause;
and
(d) with respect to the Landing Gear, the performance in accordance with this
Agreement, of all work on the landing gear in the nature of overhaul and
requiring removal and disassembly (other than repairs arising as the
result of operational or maintenance mishandling), the lesser of (i) the
amount of that invoice and (ii) the amount equal to the aggregate amount
of Landing Gear Maintenance Reserves paid under this Agreement at the time
of commencement of that maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
7.3 Lessor Obligations Following Expiry Date: Within 5 Business Days of:-
34
<PAGE>
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after the
Delivery Date;
or in each case such later time as Lessor is reasonably satisfied Lessee
has irrevocably paid to Lessor all amounts which may then be outstanding
or become payable under this Agreement, the other Operative Documents or
the Other Agreements and Lessee, Lessor will pay to Lessee:-
(i) the balance of the Deposit; and
(ii) the amount of any Rent received in respect of any period falling
after the date of redelivery of the Aircraft or payment of the
Agreed Value, as the case may be; and shall return to Lessee the
warrant certificate, if not previously exercised, representing the
Warrant.
8. LESSEE'S COVENANTS
8.1 Duration: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this Agreement
and thereafter to the extent of any accrued rights of Lessor in relation
to those undertakings.
8.2 Information: Lessee will:-
(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of its
obligations under this Agreement;
(b) furnish to Lessor:-
(i) upon request, the consolidated management accounts of Lessee
(comprising a balance sheet and profit and loss statement) prepared
for the most recent previous financial quarter;
(ii) as soon as available but not in any event later than 120 days after
the last day of each financial year of Lessee, its audited
consolidated balance sheet as of such day and its audited
consolidated profit and loss statement for the year ending on such
day;
(iii) at the same time as it is issued to the shareholders or creditors
of Lessee, a copy of each notice or circular issued to Lessee's
shareholders or creditors as a group; and
35
<PAGE>
(iv) on request from time to time such other information regarding Lessee
and its business and affairs as Lessor may reasonably request;
(c) keep Lessor informed as to current serial numbers of the Engines and
any engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part, its
use, location and condition including, without limitation, the hours
available on the Aircraft and any Engine until the next scheduled check,
inspection, overhaul, refurbishment or shop visit, as the case may be;
(e) on request, within 10 days after the end of any Rental Period, furnish to
Lessor evidence satisfactory to Lessor of payment of all Taxes due during
that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air traffic
control authorities, have been paid and discharged in full;
(g) within 7 days after the end of each calendar month during the Term,
provide Lessor with a monthly report on the Aircraft and each Engine in
the form set out in Schedule 8 hereto;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-
(i) any loss, theft, damage or destruction to the Aircraft, any Engine
or any Part, or any modification to the Aircraft if the potential
cost may exceed the Damage Notification Threshold; and
(ii) any claim or other occurrence likely to give rise to a claim under
the Insurances (but in the case of hull claims only in excess of the
Damage Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 Lawful and Safe Operation: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the Aircraft
(including without limitation Laws mandating insurance coverage) or, so
far as concerns the use and operation of the Aircraft or an owner or
operator thereof and take all reasonable steps to ensure that the Aircraft
is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of the
manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air
36
<PAGE>
Authority or for any purpose for which the Aircraft is not designed or
reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with the
operation and maintenance of the Aircraft have the qualifications and hold
the licenses required by the Air Authority and applicable Law;
(d) use the Aircraft solely in commercial or other operations for which Lessee
is duly authorized by the Air Authority and applicable Law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet animals
carried in a suitable container to prevent the escape of any liquid
and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under the
"Restriction of Goods" schedule issued by I.A.T.A. from time to
time and provided that all the requirements for packaging or
otherwise contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could reasonably
be expected to cause damage to the Aircraft and which would not be
adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilize the Aircraft for purposes of training, qualifying or
re-confirming the status of cockpit personnel except for the benefit of
Lessee's cockpit personnel, and then only if the use of the Aircraft for
such purpose is not disproportionate to the use for such purpose of other
aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any location
which is for the time being the subject of a prohibition order (or any
similar order or directive) by:-
(i) any Government Entity of the State of Registration or the Habitual
Base; or
(ii) any Government Entity of the country in which such location is
situated; or
(iii) any Government Entity having jurisdiction over Lessor or the
Aircraft;
(h) obtain and maintain in full force all certificates, licenses, permits and
authorizations required for the use and operation of the Aircraft for the
time being, and for the making of payments required by, and the compliance
by Lessee with its other obligations under, this Agreement;
37
<PAGE>
(i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to
or for any country or entity that is the subject of sanctions under the
U.S. International Economic Emergency Powers Act or U.N. Security Council
directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas
of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola).
Lessee also covenants and agrees (i) not to operate or locate, or suffer
or permit to be operated or located, the Aircraft in any country
restricted under the U.S. Trading with the Enemy Act and the U.S. Export
Administration Act except as may be permitted by operating in accordance
with the conditions specified by the U.S. Export Administration
Regulations (15 CFR Parts 730-799), General License GATS (15 CFR Part
771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii)
not to operate the Aircraft between Cuba and the United States; and
(j) not use, operate, or locate the Aircraft, or cause suffer or permit the
Aircraft to be used, operated or located during the Term in any manner not
covered by the Insurances or in any area excluded from coverage by the
Insurances or in any manner which would prejudice the interests of the
Indemnitees in the Insurances, the Aircraft, any Engine or any Part.
8.4 Taxes and other Outgoings: Lessee will promptly pay:-
(a) all license and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with respect
to the Aircraft, including without limitation the purchase, ownership,
delivery, leasing, possession, use, operation, return, sale or other
disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts
in respect of any premises where the Aircraft or any Part thereof is
located from time to time;
except to the extent that in the reasonable opinion of Lessor such payment
is being contested in good faith by appropriate proceedings, in respect of
which adequate resources have been provided by Lessee and non-payment of
which does not give rise to any material likelihood of the Aircraft or any
interest therein being sold, forfeited or otherwise lost or of criminal
liability on the part of Lessor.
8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE
AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH
POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO
THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL
WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR
PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS
EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE
FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A
38
<PAGE>
TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY
FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL
REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS
AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8
AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO
AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A
CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF.
8.6 Inspection:
(a) Lessor and any person designated by Lessor may at any time visit, inspect
and survey the Aircraft, any Engine or any Part and for such purpose may,
subject to any applicable Air Authority regulation, travel on the flight
deck as observer;
(b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable
out-of-pocket expenses incurred by Lessor in connection with any such
visit, inspection or survey; and
(c) Lessor will:-
(i) have no duty or liability to make, or arising out of making or
failing to make, any such visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not exercise
such right other than on reasonable notice and so as not to disrupt
unreasonably the commercial operations of Lessee, provided, however,
Lessee will take such action as may be reasonably required to
facilitate Lessor's inspection.
8.7 Title: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit to be
omitted to be done any act or thing which might reasonably be expected to
jeopardize the rights of Lessor as owner of the Aircraft;
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by
Lessor;
(c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as
carrying goods or passengers on the Aircraft or as being in any way
connected or associated with any operation or carriage (whether for hire
or reward or gratuitously) which may be undertaken by Lessee or (ii)
pledge the credit of Lessor;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7
cm.) in a reasonably prominent position in the cockpit of the Aircraft and
on each Engine stating:-
39
<PAGE>
"This Aircraft/Engine is owned by Polaris Holding Company and is leased to
Frontier Airlines, Inc. and may not be operated by any other person
without the prior written consent of Polaris Holding Company";
(e) not create or permit to exist any Security Interest upon the Aircraft, any
Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected to
expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and without
prejudice to the foregoing, if any such penalty, forfeiture, impounding,
detention or appropriation, damage or destruction occurs, give Lessor
notice and use best endeavors to procure the immediate release of the
Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and payable
or make adequate provision by way of security or otherwise for all debts,
damages, claims and liabilities which have given or might give rise to a
Security Interest over or affecting the Aircraft, any Engine or any Part;
and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part; and
(j) obtain a waiver of any mechanic's lien or right thereto from any vendor
providing maintenance services for Lessee prior to delivering the Aircraft
or any Engine or Part to such vendor.
8.8 General: Lessee will:-
(a) not make any substantial change in the nature of the business in which it
is engaged, will preserve its corporate existence (other than in
connection with a solvent reconstruction the terms of which have been
approved by Lessor, such approval not to be unreasonably withheld), and
will conduct its business in an orderly and efficient and will maintain
all rights, privileges, licenses and franchises material thereto or
material to performing its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor;
(c) not without giving Lessor 30 days prior notice (in accordance with this
Agreement), change its chief executive office (as such term is defined in
Article 9 of the Uniform Commercial Code as in effect in the State of
Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United
States of America;
40
<PAGE>
(d) remain a Certified Air Carrier and maintain, without limitation, its
status so as to fall within the preview of Section 1110 of Title 11 of the
United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code.
8.9 Records: Lessee will:-
(a) procure that accurate, complete and current records of all flights made
by, and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) are kept; keep the records in such manner as the Air
Authority may from time to time require. All records must be maintained
in English. The records will form part of the Aircraft Documents; and
(b) maintain, with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required by applicable Laws and best
practice of major international air transport operators in respect of the
Aircraft.
8.10 Protection: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority
reflecting (so far as permitted by applicable Law) the interest of Lessor
and not do or suffer to be done anything which might adversely affect that
registration; and
(b) do all acts and things (including, without limitation, making any filing
or registration with the Air Authority or any other Government Entity or
as required to comply with the Mortgage Convention where applicable) and
execute and deliver all documents (including, without limitation, any
amendment of this Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft; or
(ii) following any modification of the Aircraft, any Engine or any Part
or the permanent replacement of any Engine or Part in accordance
with this Agreement, so as to ensure that the rights of Lessor
under this Agreement apply with the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the rights of
Lessor under this Agreement and the interest of Lessor in the
Aircraft.
41
<PAGE>
8.11 Maintenance and Repair: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Agreed Maintenance Program or the schedule of the Agreed
Maintenance Program without the written consent of Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance Program
through the Agreed Maintenance Performer and perform (at the respective
intervals provided in the Agreed Maintenance Program) all Major Checks;
(d) maintain the Aircraft in accordance with the standard of maintenance
required by FAR Part 121, Subpart L and any other rules and regulations of
the FAA and in at least the same manner and with at least the same care,
including, without limitation, maintenance scheduling, modification status
and technical condition, as is the case with respect to similar aircraft
owned or otherwise operated by Lessee and as if Lessee were to retain and
continue operating the Aircraft in its fleet after the Expiry Date,
including, without limitation, all maintenance to the Airframe, any Engine
or any Part required to maintain all warranties, performance guarantees or
service life policies in full force and effect except to the extent of
conflict with the rules and regulations of the Air Authority;
(e) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or
prior to the Expiry Date) mandatory inspection and modification
requirements, airworthiness directives and similar requirements applicable
to the Aircraft, any Engine or Part having a compliance date during the
Term or within 180 days after the Expiry Date and which are required by
the Air Authority and/or mandated by any manufacturer of the Aircraft, any
Engine or Part (an "Airworthiness Directive);
(f) comply with all applicable Laws and the regulations of the Air Authority
and other aviation authorities with jurisdiction over Lessee or the
Aircraft, any Engine or Part regardless of upon whom such requirements are
imposed and which relate to the maintenance, condition, use or operation
of the Aircraft or require any modification or alteration to the Aircraft,
any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in the
appropriate category for the nature of the operations of the Aircraft) for
the Aircraft issued by the Air Authority except where the Aircraft is
undergoing maintenance, modification or repair required or permitted by
this Agreement and will from time to time provide to Lessor a copy on
request;
(h) if required by the Air Authority, maintain a current certification as to
maintenance issued by or on behalf of the Air Authority in respect of the
Aircraft and will from time to time provide to Lessor a copy on request;
and
(i) procure promptly the replacement of any Engine or Part which has become
time, cycle or calendar expired, lost, stolen, seized, confiscated,
destroyed, damaged beyond repair, unserviceable or permanently rendered
unfit for use, with an engine or part complying
42
<PAGE>
with the conditions set out in Clause 8.13(a) and in the case of any
Engine which suffers an Engine Event of Loss, shall procure that such
engine complies with the provisions of Clause 11.1(c).
8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part
installed on the Aircraft is at any time removed from the Aircraft other
than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the Agreed
Maintenance Program; or
(c) (i) during the course of maintaining, servicing, repairing,
overhauling or testing that Engine or the Aircraft, as the case
may be; or
(ii) as part of a normal engine or part rotation program; or
(iii) for the purpose of making such modifications to the Engine or the
Aircraft, as the case may be, as are permitted under this
Agreement;
and then in each case (A) with respect to a Part, only if it is
reinstalled or replaced by a part complying with Clause 8.13(a) as soon as
practicable and in any event no later than the Expiry Date, and (B) with
respect to an Engine, title to such Engine shall remain vested in Lessor.
8.13 Installation of Engines and Parts: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part is
installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model as, or
an improved or advanced version of the Engine it replaces, which is
in the same or better operating condition, has substantially
similar hours available until the next scheduled checks,
inspections, overhauls and shop visits and has the same or greater
value and utility as the replaced Engine;
(ii) in the case of a part, it is in as good operating condition, has
substantially similar hours available until the next scheduled
checks, inspections, overhauls and shop visits, is of the same or a
more advanced make and model and is of the same interchangeable
modification status as the replaced Part;
(iii) in the case of a part, it has become and remains the property of
Owner free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head Lease and
this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
43
<PAGE>
(b) if no Default has occurred which is continuing, be entitled to install
any engine or part on the Aircraft by way of replacement notwithstanding
Clause 8.13(a) if:-
(i) there is not available to Lessee at the time and in the place that
that engine or part is required to be installed on the Aircraft, a
replacement engine or, as the case may be, part complying with the
requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation of
the Aircraft and/or the business of Lessee to ground the Aircraft
until an engine or part, as the case may be, complying with Clause
8.13(a) becomes available for installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date, Lessee
removes any such engine or part and replaces it with the Engine or
Part replaced by it or by an engine or part, as the case may be,
complying with Clause 8.13(a).
8.14 Non-Installed Engines and Parts: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft (or
any other aircraft as permitted by this Agreement) is, except as expressly
permitted by this Agreement, properly and safely stored, and kept free
from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and, from
time to time, on request procure that any person to whom possession of an
Engine is given acknowledges in writing to Lessor, in form and substance
satisfactory to Lessor, that it will respect the interest of Lessor in
the Engine and will not seek to exercise any rights whatsoever in relation
to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install any
Engine or Part on an aircraft, or in the case of a Part on an engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional sale
agreement on a long-term basis and on terms whereby Lessee has full
operational control of that aircraft or engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated by
Lessee, on terms that ownership of that aircraft or engine, as the
case may be, pursuant to a lease or conditional sale agreement, or
a Security Interest therein, is vested in or held by any other
Person;
provided that in the case of (ii) and (iii):-
44
<PAGE>
(1) the terms of any such lease, conditional sale agreement or Security
Interest will not have the effect of prejudicing the interest of
Lessor in that Engine or Part; and
(2) the lessor under such lease, the seller under such conditional sale
agreement or the holder of such Security Interest, as the case may
be, has confirmed and acknowledged in writing to Lessor, in form and
substance satisfactory to Lessor, that it will respect the interest
of Lessor in respect of that Engine or Part and that it will not
seek to exercise any rights whatsoever in relation thereto.
8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any
pooling agreement or arrangement in respect of an Engine or Part without
the prior written consent of Lessor.
8.16 Equipment Changes:
(a) Lessee will not make any modification or addition to the Aircraft (each an
"Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not diminish
the value, utility, condition, or airworthiness of the Aircraft;
(b) So long as a Default has not occurred and is continuing, Lessee may
remove any Equipment Change if it can be removed from the Aircraft without
diminishing or impairing the value, utility, condition or airworthiness of
the Aircraft; and
(c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes
payable by Lessor as the case may be, as a result of an Equipment Change.
8.17 Title on an Equipment Change:
(a) Title to all Parts installed on the Aircraft whether by way of
replacement, as the result of an Equipment Change or otherwise (except
those installed pursuant to Clause 8.13(b)) will on installation, without
further act, vest in Lessor subject to this Agreement free and clear of
all Security Interests. Lessee will at its own expense take all such steps
and execute, and procure the execution of, all such instruments as Lessor
may require and which are necessary to ensure that title so passes to
Lessor according to all applicable Laws. At any time when requested by
Lessor, Lessee will provide evidence to Lessor's satisfaction (including
the provision, if required, to Lessor of one or more legal opinions) that
title has so passed to Lessor;
(b) Lessor may require Lessee to remove any Equipment Change and to restore
the Aircraft to its condition prior to that Equipment Change; and
45
<PAGE>
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Lessor until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable Laws, to
Lessor subject to this Agreement and free of all Security Interests. Upon
title to such replacement so passing to Lessor, title to the replaced
Engine or Part, will, provided no Default has occurred and is continuing,
pass to Lessee.
8.18 Third Party: Lessee will procure that no person (other than Lessor) will
act in any manner inconsistent with its obligations under this Agreement
and that all persons will comply with those obligations as if references
to "Lessee" included a separate reference to those persons.
9. INSURANCE
9.1 Insurances: Lessee will maintain in full force during the Term, and
thereafter as expressly required in this Agreement, insurances in respect
of the Aircraft in form and substance satisfactory to Lessor (the
"Insurances" which expression includes, where the context so admits, any
relevant re-insurance(s)) through such brokers and with such insurers and
having such deductibles and being subject to such exclusions as may be
approved by Lessor from time to time. The Insurances will be effected
either:-
(a) on a direct basis with insurers of recognized standing who normally
participate in aviation insurances in the leading international insurance
markets and led by reputable underwriter(s) approved by Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who does not
retain the risk but effects substantial reinsurance with reinsurers in the
leading international insurance markets and through brokers each of
recognized standing and acceptable to Lessor for a percentage acceptable
to Lessor of all risks insured (the "Reinsurances").
9.2 Requirements: Lessor's current requirements as to required Insurances are
as specified in this Clause and in Schedule 4. Lessor may from time to
time stipulate other requirements for the Insurances so that the scope and
level of cover is maintained in line with best industry practice and the
interests of Lessor protected.
9.3 Change: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers
will consult with Lessee and Lessee's brokers (as for the time being
approved by Lessor) regarding whether that approval should be revoked to
protect the interests of the parties insured. If, following the
consultation, Lessor considers that any change should be made, Lessee will
then arrange or procure the arrangement of alternative cover satisfactory
to Lessor.
9.4 Insurance Covenants: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft, any
Engine or any Part which may from time to time be imposed by the laws of
the State of Registration or any state to, from or over which the Aircraft
may be flown, in so far as they affect or concern
46
<PAGE>
the operation of the Aircraft, are complied with and in particular those
requirements compliance with which is necessary to ensure that (i) the
Aircraft is not in danger of detention or forfeiture, (ii) the Insurances
remain valid and in full force and effect, and (iii) the interests of the
Indemnitees in the Insurances and the Aircraft or any Part are not thereby
prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be used
for any purpose or in any manner not covered by the Insurances or outside
any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances and
not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part of any
of the Insurances; or
(iii) brings any particular liability within the scope of an exclusion or
exception to the Insurances;
(d) not take out without the prior written approval of Lessor any
insurance or reinsurance in respect of the Aircraft other than those
required under this Agreement unless relating solely to hull total
loss, business interruption, profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any of the
Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed telecopy confirmation of completion of renewal prior to
each expiry date; and
(iii) certificates of insurance (and where appropriate certificates of
reinsurance), and broker's (and any reinsurance brokers') letter of
undertaking in a form acceptable to Lessor in English, detailing
the coverage and confirming the insurers' (and any reinsurers')
agreement to the specified insurance requirements of this Agreement
within 7 days after each renewal date;
(f) on request, provide to Lessor copies of documents or other information
evidencing the Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums have
been paid;
(h) not make any modification or alteration to the Insurances material and
adverse to the interests of any of the Indemnitees;
47
<PAGE>
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably require.
9.5 Failure to Insure: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be entitled
but not bound, (without prejudice to any other rights of Lessor under this
Agreement):-
(a) to pay the premiums due or to effect and maintain insurances satisfactory
to it or otherwise remedy Lessee's failure in such manner (including,
without limitation to effect and maintain an "owner's interest" policy) as
it considers appropriate. Any sums so expended by it will become
immediately due and payable by Lessee to Lessor on an After-Tax Basis
together with interest thereon at the rate specified in Clause 5.11, from
the date of expenditure by it up to the date of reimbursement by Lessee;
and
(b) at any time while such failure is continuing to require the Aircraft to
remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the
Expiry Date with respect to its liability under the Indemnity in Clause 10
for 2 years which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by
Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees
ceasing to have any interest in respect of the Aircraft.
9.7 Application of Insurance Proceeds:-
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss or
Engine Event of Loss occurring during the Term will be paid to Lessor and
Lessor will pay the balance of those amounts to Lessee after deduction of
all amounts which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the Aircraft,
any Engine or any Part occurring during the Term not constituting an Event
of Loss or Engine Event of Loss and in excess of the Damage Notification
Threshold will be applied in payment (or to reimburse Lessee) for repairs
or replacement property upon Lessor being satisfied that the repairs or
replacement have been effected in accordance with this Agreement.
Insurance proceeds in amounts below the Damage Notification Threshold may
be paid by the insurer directly to Lessee. Any balance remaining may be
retained by Lessor;
(c) all insurance proceeds in respect of third party liability will, except to
the extent paid by the insurers to the relevant third party, be paid to
Lessor to be paid directly in satisfaction of the relevant liability or to
Lessee in reimbursement of any payment so made; and
48
<PAGE>
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment
of any such insurance proceeds a Default has occurred and is continuing,
all such proceeds will be paid to or retained by Lessor to be applied
toward payment of any amounts which may be or become payable by Lessee in
such order as Lessor sees fit or as Lessor may elect.
To the extent insurance proceeds are paid to Lessee, Lessee agrees to
comply with the foregoing provisions and apply or pay over such proceeds
as so required.
10. INDEMNITY
10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE
INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS,
PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES,
PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE
OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):-
(A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY
AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY,
PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL,
MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE,
OPERATION OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN
THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE
ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART
OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF
WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE
TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE;
(B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH
RENDERS VOIDABLE ANY OF THE INSURANCES; AND
(C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF
ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY
PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT,
COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH
OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON;
BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE
EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION
OF THIS AGREEMENT OR TO THE
49
<PAGE>
EXTENT IT ARISES SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN.
10.2 Duration: The indemnities contained in this agreement will continue in
full force following the end of the Term notwithstanding any breach or
repudiation by Lessor or Lessee of this Agreement or any termination of
the lease of the Aircraft hereunder.
11. EVENTS OF LOSS
11.1
(a) Pre-delivery: If an Event of Loss occurs prior to delivery of the
Aircraft to Lessee, Lessor will have the option, exercisable by giving
Lessee notice in writing, to substitute an alternative aircraft of the
same manufacture, model, value and utility as the Aircraft. If Lessor
exercises such option, Lessee shall be obliged to lease such substitute
aircraft pursuant to the terms and conditions of this Agreement and such
substitute aircraft shall constitute the Aircraft for all purposes of this
Agreement. Lessor shall provide Lessee with details of the substitute
aircraft as soon as may be practicable after the occurrence of the Event
of Loss. If Lessor advises Lessee that Lessor does not wish to exercise
such option, this Agreement will immediately terminate and except as
expressly stated in this Agreement neither party will have any further
obligation or liability under this Agreement other than pursuant to Clause
16.9 except that Lessor will return the Deposit to Lessee; and
(b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft
to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the
earlier of (i) 5 Business Days after the Event of Loss and (ii) the date
of receipt of insurance proceeds in respect of that Event of Loss. Subject
to the rights of any insurers and reinsurers or other third party, upon
irrevocable payment in full to Lessor of that amount and all other amounts
which may be or become payable to Lessor under this Agreement, Lessor will
without recourse or warranty (except as to Lessor's Liens) and without
further act, be deemed to have transferred to Lessee all of Lessor's
rights to any Engines and Parts not installed when the Event of Loss
occurred, all on an as-is where-is basis, and will at Lessee's expense,
execute and deliver such bills of sale and other documents and instruments
as Lessee may reasonably request to evidence (on the public record or
otherwise) the transfer and the vesting of Lessor's rights in such Engines
and Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
(c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss,
Lessee shall give Lessor prompt written notice thereof and shall, within
45 days after such occurrence, convey to Lessor, as replacement for the
Engine suffering such event, title to a Replacement Engine. Each
Replacement Engine shall be free of all Security Interests and shall be in
as good an operating condition as the Engine being replaced, assuming the
Engine being replaced was in the condition and repair required by the
terms hereof immediately prior to the Engine Event of Loss. Upon full
compliance by Lessee with the
50
<PAGE>
terms of this Clause 11.1(c), Lessor will transfer to Lessee title to the
Engine which suffered the Engine Event of Loss. Prior to or at the time of
any such conveyance, Lessee, at its own expense, will promptly (i) furnish
Lessor with a full warranty bill of sale, in form and substance reasonably
satisfactory to Lessor, with respect to such Replacement Engine;
(ii) cause a lease supplement (in form and substance satisfactory to
Lessor) subjecting such Replacement Engine to this Agreement, to be duly
executed by Lessee, and recorded pursuant to applicable Law; (iii) furnish
Lessor with such evidence of title to such Replacement Engine as Lessor
may reasonably request; (iv) furnish Lessor with an opinion of Lessee's
counsel to the effect that title to such Replacement Engine has been duly
conveyed to Lessor subject to this Agreement, free and clear of all
Security Interests, and that such Replacement Engine is duly leased
hereunder; (v) furnish a certificate signed by a duly authorized financial
officer or executive of Lessee certifying that, upon consummation of such
replacement, no Event of Default will have occurred or be continuing;
(vi) furnish Lessor with such documents as Lessor may reasonably request
in connection with the consummation of the transactions contemplated by
this Clause 11.1(c), in each case in form and substance satisfactory to
Lessor; and (vii) furnish such Financing Statements incorporating the
Replacement Engine as may be requested by Lessor. For all purposes hereof,
each such Replacement Engine shall be deemed part of the property leased
hereunder, shall be deemed an "Engine" as defined herein and shall be
deemed part of the same Aircraft as was the Engine replaced thereof. No
Engine Event of Loss covered by this Clause 11.1(c) shall result in any
reduction in Rent or affect Lessee's obligation to pay Engine Maintenance
Reserves or the amount thereof to be paid by Lessee.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of one or
more Engines pursuant to this Clause 11.1.
11.2 Substitute Aircraft:
(a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of
Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the
option, exercisable by giving Lessee notice in writing, to substitute an
alternative aircraft (the "Substitute Aircraft") of the same manufacture
and model as the Aircraft and having a value, utility and condition equal
to or greater than the Aircraft as at the date of occurrence of the Event
of Loss which Substitute Aircraft will be leased by Lessor to Lessee for
the remainder of the Term pursuant to the terms and conditions of this
Agreement. If Lessor exercises such option, the Substitute Aircraft will
constitute the Aircraft for all purposes of this Agreement in respect of
facts and circumstances arising after the date of delivery thereof to
Lessee. Lessor shall provide Lessee with details of the Substitute
Aircraft as soon as may be practicable after the occurrence of the Event
of Loss;
(b) Lessor will use all reasonable endeavors to deliver the Substitute
Aircraft to Lessee as soon as may be practicable following the date of
occurrence of the Event of Loss but not later than 3 months after such
date; and
51
<PAGE>
(c) Lessee agrees to enter into such documentation as Lessor may require in
order to reflect the leasing of the Substitute Aircraft as aforesaid
including, without limitation, documentation in respect of the Insurances.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of the
Aircraft or Airframe pursuant to this Clause 11.2.
11.3 Requisition: During any requisition for use or hire of the Aircraft, any
Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not be
released from any of its other obligations under the Agreement (other than
operational obligations with which Lessee is unable to comply solely by
virtue of the requisition); and
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect of
the Term. Lessee will, as soon as practicable after the end of any such
requisition, cause the Aircraft to be put into the condition required by
this Agreement. Lessor will be entitled to all compensation payable by the
requisitioning authority in respect of any change in the structure, state
or condition of the Aircraft arising during the period of requisition, and
Lessor will apply such compensation in reimbursing Lessee for the cost of
complying with its obligations under this Agreement in respect of any such
change, but so that, if any Default has occurred and is continuing, Lessor
may apply the compensation or hire in or towards settlement of any amounts
owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to
Clause 13.2 or termination of the leasing of the Aircraft under this
Agreement Lessee will, unless an Event of Loss has occurred, at its
expense, redeliver the Aircraft and Aircraft Documents to Lessor at the
Redelivery Location or such other airport as is mutually acceptable to the
parties hereto, in accordance with the procedures and in compliance with
the conditions set forth in Schedule 3, free and clear of all Security
Interests and Permitted Liens (other than Lessor Liens) and in a condition
qualifying for immediate certification of airworthiness by the FAA or as
otherwise agreed by Lessor and Lessee.
12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee
will make the Aircraft available to Lessor for inspection ("Final
Inspection") in order to verify that the condition of the Aircraft
complies with this Agreement. The Final Inspection will be long enough to
permit Lessor to:-
(a) inspect the Aircraft Documents and uninstalled Parts;
(b) inspect the Aircraft, provided that such inspection will not interfere
with the scheduled operation of the Aircraft;
52
<PAGE>
(c) inspect the Engines, including without limitation (i) a borescope
inspection of (A) the low pressure and high pressure compressors and
(B) turbine and combustion areas, (ii) engine condition runs and
(iii) review of Engine trend monitoring data and technical log reports
covering the last ninety (90) days of operation; and
(d) perform a complete borescope inspection of the APU; and
(e) observe a 2 hour demonstration flight (with Lessor's representatives as
on-board observers).
12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the
condition of the Aircraft does not comply with this Agreement, Lessee will
at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the non-
compliance extends beyond the Expiry Date, the Term will be automatically
extended and this Agreement will remain in force until the non-compliance
has been rectified; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax
Basis, and provide to Lessor's satisfaction cash as security for that
indemnity, against the cost of putting the Aircraft into the condition
required by this Agreement.
12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's
request, all documents necessary to export the Aircraft from the Habitual
Base (including, without limitation, a valid and subsisting export license
for the Aircraft) and required in relation to the deregistration of the
Aircraft with the Air Authority.
12.5 Acknowledgment: Provided Lessee has complied with its obligations under
this Agreement, following redelivery of the Aircraft by Lessee to Lessor
at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgment confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 Maintenance Program:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide
Lessor or its agent reasonable access to the Agreed Maintenance Program
and the Aircraft Documents in order to facilitate the Aircraft's
integration into any subsequent operator's fleet; and
(b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft
deliver to Lessor a certified true current and complete copy of the Agreed
Maintenance Program. Lessor agrees that it will not disclose the contents
of the Agreed Maintenance Program to any person or entity except to the
extent necessary to monitor Lessee's compliance with this Agreement and/or
to bridge the maintenance program for the Aircraft from the Agreed
Maintenance Program to another program after the Expiry Date.
53
<PAGE>
12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Delivery Date and the Expiry Date
at the price then prevailing at the Redelivery Location.
12.8 Automatic Extension of Term: In the event of Lessee's failure to make the
Aircraft available to Lessor for timely inspection pursuant to Clauses
12.2 hereof, non-compliance of the condition of the Aircraft under Clause
12.3 hereof or any other failure of Lessee which prevents timely
Redelivery of the Aircraft to Lessor, the Term of this Agreement will be
automatically extended and this Agreement will remain in force until such
non-compliance has been rectified, with Lessee being obligated to pay Rent
at a rate specified in Clause 5.3 plus 50 percent on a per diem basis with
respect to the period of such extension.
13. DEFAULT
13.1 Events: Each of the following events will constitute an Event of Default
and a repudiation (but not a termination) of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or occurs
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
Government Entity). Lessee acknowledges that the occurrence of any Event
of Default would represent a material default in the performance of its
obligations under this Agreement:-
(a) Non-payment: Lessee fails to make any payment under this Agreement or any
of the Operative Documents on the due date; or
(b) Insurance: Lessee fails to comply with any provision of Clause 9 or any
insurance required to be maintained under this Agreement is canceled or
terminated or notice of cancellation is given in respect of any such
insurance; or
(c) Breach: Lessee fails to comply with any other provision of this Agreement
or any of the Operative Documents and, if such failure is in the
reasonable opinion of Lessor capable of remedy, the failure continues for
5 days after notice from Lessor to Lessee; or
(d) Representation: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any document or
certificate or statement is or proves to have been incorrect in any
material respect when made or deemed to be repeated; or
(e) Cross Default:
(i) a final judgment for the payment of money not covered by insurance
in excess of Two Hundred Fifty Thousand Dollars ($250,000), or final
judgments for the payment of money not covered by insurance in
excess of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate, shall be rendered against Lessee and the same shall
remain undischarged for a period of ninety (90) days
54
<PAGE>
during which execution thereof shall not be effectively stayed by
agreement of the parties involved, stayed by court order or
adequately bonded; or
(ii) attachments or other Security Interests shall be issued or entered
against substantially all of the property of Lessee and shall remain
undischarged or unbonded for ninety (90) days except for Security
Interests created in connection with monies borrowed or obligations
agreed to by Lessee in the ordinary course of its business; or
(iii) Lessee shall default in the payment of any sum which by itself is
in excess of $100,000 or any sums which in aggregate exceed $250,000
notwithstanding that any particular individual sum thereof does not
exceed $100,000 of any one or more obligations for the payment of
borrowed money, for the deferred purchase price of property or for
the payment of rent or hire under any lease of aircraft when the
same becomes due if such nonpayment results in or would permit an
acceleration of such indebtedness, or Lessee shall default in the
performance of any other term, agreement, or condition contained in
any agreement or instrument under or by which any such obligation is
created, evidenced or secured, if the effect of such default is to
cause or permit such obligation to become due prior to its stated
maturity; or
(iv) any event of default or termination event, howsoever described,
occurs under the Other Agreements; or
(f) Approvals: any consent, authorization, license, certificate or approval of
or registration with or declaration to any Government Entity in connection
with this Agreement (including, without limitation): -
(i) any authorization required by Lessee to obtain and transfer freely
Dollars (or any other relevant currency) out of any relevant
country; or
(ii) required by Lessee to authorize, or in connection with, the
execution, delivery, validity, enforceability or admissibility in
evidence of this Agreement or the performance by Lessee of its
obligations under this Agreement; or
(iii) the registration of the Aircraft; or
(iv) any airline license or air transport license including, without
limitation, authority to operate the Aircraft under FAR Part 121 and
a Certificate of Public Convenience and Necessity issued under
Section 41102 of Title 49 of the United States Code;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, canceled, withdrawn, terminated or not renewed, or
otherwise ceases to be in full force; or
55
<PAGE>
(g) Bankruptcy, etc:
(i) Lessee or any Subsidiary consents to the appointment of a custodian,
receiver, trustee or liquidator of itself or all or any material
part of Lessee's property or Lessee's consolidated property, or
Lessee or any Subsidiary admits in writing its inability to, or is
unable to, or does not, pay its debts generally as they come due, or
makes a general assignment for the benefit of creditors, or Lessee
or any Subsidiary files a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization in a proceeding under any
bankruptcy or insolvency Laws (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed
against Lessee or any Subsidiary in any such proceeding, or Lessee
or any Subsidiary by voluntary petition, answer or consent seeks
relief under the provisions of any other bankruptcy, insolvency or
other similar Law providing for the reorganization or winding-up of
corporations, or provides for an agreement, composition, extension
or adjustment with its creditors, or any corporate action
(including, without limitation, any board of directors or
shareholder action) is taken by Lessee or any Subsidiary in
furtherance of any of the foregoing, whether or not the same is
fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any of its Subsidiaries, a
custodian, receiver, trustee or liquidator of Lessee or any
Subsidiary, or of all or any material part of Lessee's property or
Lessee's consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30 days
after the date of entry thereof or at any time an order for relief
is granted; or
(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy Laws or other
insolvency Laws (as now or hereafter in effect) is filed and is not
withdrawn or dismissed within 30 days thereafter or at any time an
order for relief is granted in such proceeding, or if, under the
provisions of any Law providing for reorganization or winding-up of
corporations which may apply to Lessee or any Subsidiary, any court
of competent jurisdiction assumes jurisdiction over, or custody or
control of, Lessee or any Subsidiary or of all or any material part
of Lessee's property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect, unrelinquished,
unstayed or unterminated for a period of 30 days or at any time an
order for relief is granted in such proceeding; or
(h) Unlawful: it becomes unlawful for Lessee to perform any of its
obligations under this Agreement or this Agreement becomes wholly or
partly invalid or unenforceable; or
(i) Suspension of Business: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a substantial
part of its business; or
56
<PAGE>
(j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers
or threatens to dispose, convey or transfer of all or a material part of
its assets, liquidates or dissolves or consolidates or merges with any
other Person whether by one or a series of transactions, related or not,
other than for the purpose of a reorganization of the terms of which have
received the previous consent in writing of Lessor; or
(k) Rights and Remedies: the existence, validity, enforceability or priority
of the rights of Lessor as owner and the rights of Lessor as lessor in
respect of the Aircraft are challenged by Lessee or any other person
claiming by or through Lessee; or
(l) Delivery: Lessee fails to timely comply with its obligations under Clause
4 to accept delivery of the Aircraft; or
(m) Ownership, Security Interests and Related Matters: Lessee fails to timely
comply with its obligations under Clause 8.7; or
(n) Transfer: Lessee makes or permits any assignment or transfer of this
Agreement, or any interest herein, or of the right to possession of the
Aircraft, the Airframe, or any Engine; or
(o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry
Date in accordance with Clause 12.
(p) Adverse Change: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on the
financial condition or operations of Lessee and its Subsidiaries or on the
ability of Lessee to comply with its obligations under this Agreement; or
13.2 Rights: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at any
time thereafter (without notice to Lessee except as required under
applicable Law):-
(a) by notice to Lessee and with immediate effect on dispatch of such notice
terminate the letting of the Aircraft (but without prejudice to the
continuing obligations of Lessee under this Agreement), whereupon all
rights of Lessee under this Agreement shall cease; and/or
(b) proceed by appropriate court action or actions to enforce performance of
this Agreement, including, without limitation, the payment of all Rent and
all other amounts payable to Lessor or any Indemnitee pursuant to the
terms hereof; and/or
(c) proceed by appropriate court action or actions to recover damages for the
breach of this Agreement which shall include, without limitation: -
(i) all Rent and other amounts which are or become due and payable
hereunder prior to the date Lessor recovers possession of the
Aircraft;
57
<PAGE>
(ii) at Lessor's election, either one of the amounts determined pursuant
to Clause 13.2(e) or Clause 13.2(f) below or any lost profits
suffered by Lessor as a consequence of Lessor's inability to place
the Aircraft with another lessee on financial terms that are as
favorable to Lessor as the terms of this Agreement;
(iii) all costs associated with Lessor's exercise of its remedies
hereunder, including, but not limited to, repossession costs, legal
fees, Aircraft storage costs, Aircraft re-lease or sale costs and
Lessor's internal costs and expenses (including the cost of
personnel time calculated based upon the compensation paid to the
individuals involved on an annual basis and a general Lessor
overhead allocation);
(iv) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding any
financial instrument relating in whole or in part to Lessor's
financing of the Aircraft;
(v) any loss, cost, expense or liability sustained by Lessor due to
Lessee's failure to redeliver the Aircraft in the condition required
by this Agreement; and
(vi) any other losses (including lost profits), damage, expense, cost or
liability which Lessor suffers or incurs as a result of the Event of
Default and/or termination of this Agreement, including an amount
sufficient to fully compensate Lessor for any loss of or damage to
Lessors residual interest in the Aircraft caused by Lessee's
default; and/or
(d) either: -
(i) enter upon the premises where all or any part of the Aircraft is
located and take immediate possession of and, at Lessor's sole
option, remove the same (and/or any engine which is not an Engine
but which is installed on the Airframe, subject to the rights of the
owner, lessor or secured party thereof) or cause it to be
redelivered to Lessor at a location in the United States identified
by Lessor (or such other location as Lessor may require) (the
"Return Location"), 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, or otherwise, caused by such entry or taking, except
damages caused by gross negligence or willful misconduct; and Lessor
is hereby irrevocably, by way of security for Lessee's obligations
under this Agreement, appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other pilots to
fly the Aircraft to that airport and will have all the powers and
authorizations necessary for taking that action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to Lessor
at a point within the continental United States designated by
Lessor; and/or
58
<PAGE>
(e) sell at private or public sale, as Lessor may determine, or hold, use,
operate or lease to others the Aircraft as Lessor in its sole discretion
may determine, all free and clear of any rights of Lessee; and/or
(f) whether or not Lessor shall have exercised, or shall thereafter at any
time exercise, any of its rights under paragraph (a), paragraph (b),
paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2,
Lessor, by 30 days written notice to Lessee specifying a payment date, may
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the
payment date specified in such notice, as liquidated damages for loss of
bargain and not as a penalty (in lieu of the Rent due for the period
commencing after the date specified for payment in such notice), any
unpaid Rent for the Aircraft and other amounts owing under this Agreement
(prorated in the case of Rent on a daily basis) to and including the
payment date specified in such notice, plus the amount, if any, by which
the aggregate Rent for the remainder of the Term (determined without
reference to any right of Lessor to terminate the leasing of the Aircraft,
whether or not such right is exercised), discounted periodically (equal to
installment frequency) to present worth at the interest rate of 4 percent
(4%) per annum, exceeds the fair market rental value (determined pursuant
to the Appraisal Procedure) of the Aircraft for the remainder of the Term,
after discounting such fair market rental value periodically (equal to
installment frequency) to present worth as of the payment date specified
in such notice at the interest rate of 4 percent (4%) per annum; and/or
(g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have
relet the Aircraft under a lease which extends at least to the date upon
which the Term for the Aircraft would have expired but for Lessee's
default, Lessor, in lieu of exercising its rights under Clause 13.2(f)
above with respect to the Aircraft, may, if it shall so elect, demand that
Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for
loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft
due after the time of reletting) any unpaid Rent for the Aircraft due up
to the date of reletting and any other amounts owing under this Agreement,
plus the amount, if any, by which the aggregate Rent for the Aircraft,
which would otherwise have become due over the remainder of the Term
(determined without reference to any right of Lessor to terminate the
leasing of the Aircraft, whether or not such right is exercised),
discounted periodically (equal to installment frequency) to present worth
as of the date of reletting at the interest rate of 4 percent (4%) per
annum, exceeds the aggregate basic rental payments to become due under the
reletting from the date of such reletting to the date upon which the Term
for the Aircraft would have expired but for Lessee's default, discounted
periodically (equal to installment frequency) to present worth as of the
date of the reletting at the interest rate of 4 percent (4%) per annum;
and/or
(h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f),
and (g) of this Clause 13.2, by 30 days written notice to Lessee
specifying a payment date, Lessor may demand that Lessee pay to Lessor,
and Lessee shall pay to Lessor on the payment date specified in such
notice as liquidated damages for loss of bargain and not as a penalty (in
lieu of the Rent due for the period commencing after the date specified
for payment in such notice), any unpaid Rent for the Aircraft and other
amounts payable under this
59
<PAGE>
Agreement (prorated in the case of Rent on a daily basis) to and including
the payment date specified in such notice, plus an amount equaling the
aggregate Rent for the remainder of the Term, discounted periodically
(equal to installment frequency) to present worth at the interest rate of
4 per cent (4%) per annum;
(i) draw upon the Deposits or the Maintenance Reserves furnished under this
Agreement or the Other Agreements and apply such amounts to amounts owing
to Lessor hereunder.
Lessee, for itself and for its successors and assigns, hereby agrees that,
to the extent now or hereafter permitted by applicable Law,
notwithstanding any provision of the Federal Bankruptcy Code as amended
from time to time, the title of Lessor to the Aircraft and any right of
Lessor to take possession of the Aircraft in compliance with the
provisions of this Agreement, in each case, upon the occurrence and
continuance of an Event of Default, shall not be affected by the
provisions of the Federal Bankruptcy Code, as amended from time to time.
In addition to the foregoing, Lessee shall be liable for any and all
unpaid Rent and other amounts payable under this Agreement during or after
the exercise of any of the aforementioned remedies, together with interest
on such unpaid amounts at the Interest Rate set forth in Letter Agreement
No. 1, and until satisfaction of all of Lessee's obligations to Lessor
hereunder and (on an After-Tax Basis) for all reasonable legal fees and
other reasonable costs and expenses incurred by Lessor by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies
with respect thereto, including all costs and expenses incurred in
connection with the return of the Aircraft in accordance with the terms of
Clause 12 hereof or in placing the Aircraft in the condition and with
airworthiness certification as required by such Clause.
In effecting any repossession, Lessor and its representatives and agents,
to the extent permitted by Law, shall: (i) have the right to enter upon
any premises where it reasonably believes the Aircraft, the Airframe, an
Engine or Part to be located; (ii) not be liable, in conversion or
otherwise, for the taking of any personal property of Lessee which is in
or attached to the Aircraft, the Airframe, an Engine or Part which is
repossessed; provided, however, that Lessor shall return to Lessee all
personal property of Lessee or its passengers which was on the Aircraft at
the time Lessor re-takes possession of the Aircraft; (iii) not be liable
or responsible, in any manner, for any inadvertent damage or injury to any
of Lessee's property in repossessing and holding the Aircraft, the
Airframe, an Engine or Part, except for that caused by or in connection
with Lessor's gross negligence or willful acts; (iv) have the right to
maintain possession of and dispose of the Aircraft, the Airframe, an
Engine or Part on any premises owned by Lessee or under Lessee's control;
and (v) have the right to obtain a key to any premises at which the
Aircraft, the Airframe, an Engine or Part may be located from the landlord
or owner thereof.
If reasonably required by Lessor, Lessee, at its sole expense, shall
assemble and make the Aircraft, the Airframe, an Engine or Part available
at a place designated by Lessor in accordance with Clause 12 hereof.
Lessee hereby agrees that, in the event of the return
<PAGE>
to or repossession by Lessor of the Aircraft, the Airframe, an Engine or
Part, any rights in any warranty (express or implied) previously assigned
to Lessee or otherwise held by Lessee shall without further act, notice or
writing be assigned or reassigned to Lessor, if assignable. Lessee shall
be liable to Lessor on an After-Tax Basis for all reasonable expenses,
disbursements, costs and fees incurred in (i) repossessing, storing,
preserving, shipping, maintaining, repairing and refurbishing the
Aircraft, the Airframe, an Engine or Part to the condition required by
Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine
or Part for sale or lease, advertising the sale or lease of the Aircraft,
the Airframe, an Engine or Part and selling or releasing the Aircraft, the
Airframe, an Engine or Part. Lessor is hereby authorized and instructed,
at its option, to make reasonable expenditures which Lessor considers
advisable to repair and restore the Aircraft, the Airframe, an Engine or
Part to the condition required by Clause 12 hereof, all at Lessee's sole
expense.
At any public sale of the Aircraft, the Airframe, an Engine or Part
pursuant to this Clause, Lessor may bid for and purchase such property and
Lessee agrees that the amounts paid therefor shall be used in the
computation contemplated herein.
With the exception that the remedy in Clause 13.2(g) can be elected only
if the remedy in Clause 13.2(f) is not elected and the remedy in Clause
13.2(h) can be elected only in lieu of all other remedies save the
remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this
Clause 13 is intended to be exclusive, but, to the extent permissible
hereunder or under applicable Law, 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; provided, however, that nothing in this Clause 13 shall be
construed to permit Lessor to obtain a duplicate recovery of any element
of damages to which Lessor is entitled. No express or implied waiver by
Lessor of any Default or Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Default.
13.3 Deregistration: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or other
interest of Lessee as if this Agreement had never been made and Lessee
will at the request of Lessor take all steps necessary to effect (if
applicable) deregistration of the Aircraft and its export from the country
where the Aircraft is for the time being situated and any other steps
necessary to enable the Aircraft to be redelivered to Lessor in accordance
with this Agreement including without limitation execution and filing of a
certificate or other instrument of lease termination with the Air
Authority and; Lessee hereby irrevocably and by way of security for its
obligations under this Agreement appoints (which appointment is coupled
with an interest) Lessor as its attorney to execute and deliver any
documentation and to do any act or thing required in connection with the
foregoing.
61
<PAGE>
14. ASSIGNMENT
14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR
INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO
EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its
rights under this Agreement and in the Aircraft. In the case of an
assignment other than by way of security, Lessor will be released from and
will have no further obligation under this Agreement following the
assignment of all its rights under this Agreement and the assumption by
the assignee or transferee of all of Lessor's obligations under this
Agreement. Notwithstanding any such assignment, Lessor will remain
entitled to the benefit of each indemnity and the liability insurances
effected under this Agreement. Lessee will comply with all reasonable
requests of Lessor, its successors and assigns in respect of any such
assignment. Lessor will promptly notify Lessee of any assignment.
14.3 Transfer: If Lessor desires to effect any assignment or transfer of its
rights and obligations under this Agreement, Lessee agrees to cooperate
and take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement and to acknowledge the release of
Lessor from its obligations hereunder as of the time of such assignment or
transfer.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give effect
to any of its obligations as contemplated by this Agreement or to continue
this Agreement, Lessor may by notice in writing to Lessee terminate the
leasing of the Aircraft under this Agreement and Lessee will forthwith
redeliver the Aircraft to Lessor in accordance with Clause 12. Without
prejudice to the foregoing Lessor will consult in good faith with Lessee
as to any steps which may be taken to restructure the transaction to avoid
that unlawfulness but will be under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any Law; and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not constitute
a waiver of that right.
62
<PAGE>
16.2 Delegation: Lessor may delegate to any person or persons all or any of the
trusts, powers or discretions vested in it by these presents and any such
delegation may be made upon such terms and conditions and subject to such
regulations (including power to sub-delegate) as Lessor in its absolute
discretion thinks fit.
16.3 Certificates: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or as to
any other amount payable under this Agreement will, in the absence of
manifest error, be conclusive and binding on Lessee.
16.4 Appropriation: If any sum paid or recovered in respect of the liabilities
of Lessee under this Agreement is less than the amount then due, Lessor
may apply that sum to amounts due under this Agreement in such proportions
and order and generally in such manner as Lessor may determine at its sole
discretion.
16.5 Currency:
Lessee acknowledges that the specification of Dollars in this Agreement is
of the essence and that Dollars shall be the currency of account in any
and all events. Lessee waives any right it may have in any jurisdiction
to pay any amount under this Agreement in a currency other than Dollars.
16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under
this Agreement, the Other Agreements to which Lessor is a party or under
any other agreement between Lessor (or any affiliate or associate of
Lessor) and Lessee (to the extent beneficially owned by Lessor) against
any obligation (whether or not matured) owed by Lessor to Lessee,
regardless of the place of payment or currency. If the obligations are in
different currencies, Lessor may convert either obligation at the market
rate of exchange available in New York or at its option London for the
purpose of the set-off. If an obligation is unascertained or unliquidated,
Lessor may in good faith estimate that obligation and set off in respect
of the estimate, subject to the relevant party accounting to the other
when the obligation is ascertained or liquidated. Lessor will not be
obliged to pay any amounts to Lessee under this Agreement so long as any
sums which are then due from Lessee under this Agreement, the Other
Agreements or under any other agreement between Lessor (or any affiliate
or associate of Lessor) and Lessee remain unpaid and any such amounts
which would otherwise be due will fall due only if and when Lessee has
paid all such sums except to the extent Lessor otherwise agrees or sets
off such amounts against such payment pursuant to the foregoing.
16.7 Severability: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
(a) the legality, validity or enforceability in that jurisdiction of any other
provision of this Agreement; or
63
<PAGE>
(b) the legality, validity or enforceability in any other jurisdiction of
that or any other provision of this Agreement.
16.8 Remedy: If Lessee fails to comply with any provision of this Agreement,
Lessor may, without being in any way obliged to do so or responsible for
so doing and without prejudice to the ability of Lessor to treat the non-
compliance as a Default or an Event of Default, effect compliance on
behalf of Lessee, whereupon Lessee shall become liable to pay immediately
any sums expended by Lessor together with all costs and expenses
(including legal costs) in connection therewith.
16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to
this Agreement, Lessee will pay to Lessor on an After-Tax Basis on
demand:-
(a) all costs associated with perfecting Lessor's rights in the
Aircraft and/or this Agreement in the State of Registration, the
Habitual Base of the Aircraft (and other states as appropriate
given the operation of the Aircraft), including (but not limited
to) the provision of legal opinions, tax advice, stamp duties,
translations and registrations, whether required by Lessor or
Lessee.
(b) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor related to any amendment to
or extension of or other documentation in connection with, or the
granting of any waiver or consent under this Agreement requested by
Lessee or the monitoring of compliance by Lessee with this
Agreement; and
(c) all expenses (including legal, survey and other costs) payable or
incurred by Lessor in contemplation of, or otherwise in connection
with, the enforcement of or preservation of any of Lessor's or
Owner's rights under this Agreement, or in respect of the
repossession of the Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 Time of Essence: The time stipulated in this Agreement for all payments
payable by Lessee to Lessor and the prompt, punctual and performance of
Lessee's other obligations under this Agreement are of the essence of
this Agreement.
16.11 Notices: All notices under, or in connection with, this Agreement will,
unless otherwise stated, be given in writing by letter, facsimile or
SITA. Any such notice is deemed effectively to be given as follows:-
(i) if by letter, on the earlier of the date when delivered or the 7th
day after dispatch;
(ii) if by facsimile or SITA, when transmitted and full transmission has
been separately notified by telephone by the transmitting party.
64
<PAGE>
The address, telex numbers, SITA, facsimile and telephone numbers of Lessee,
Lessor and Owner are as follows:-
Lessee: Address: Frontier Airlines, Inc.
12015 East 46th Avenue
Denver, Colorado 80239
United States of America
Attn: General Counsel
SITA: DENGAF9
Facsimile: (303) 371-7007
Telephone: (303) 371-7400
Lessor: Address Polaris Holding Company
c/o GE Capital Aviation Services, Inc.
201 Mission Street
Suite 2700
San Francisco, CA 94105
Attn: Senior Vice President-Marketing
Facsimile: (415) 284-7477
Telephone: (415) 284-7400
With a copy to: Address: GE Capital Aviation Services, Inc.
201 High Ridge Road
Stamford, CT 06927-4900
Attn: Senior Vice President-Portfolio and
Risk Management, North America
Facsimile: (203) 961-5965
Telephone: (203) 357-4585
16.12 Governing Law and Jurisdiction:
(a) THIS AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS IN ALL RESPECTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT
REFERENCE TO CONFLICT OF LAWS PRINCIPLES);
(b) For the benefit of Lessor, Lessee agrees that the courts of the United
States District Court for the Northern District of California and any
California state court sitting in the City of San Francisco, California
are to have nonexclusive jurisdiction to settle any disputes arising out
of or relating to this Agreement and the other Operative Documents and
submits itself and its property to the nonexclusive jurisdiction of the
foregoing courts with respect to such disputes;
65
<PAGE>
(c) Without prejudice to any other mode of service, Lessee: -
(i) appoints The Prentice-Hall Corporation System, Inc., 1455 Response
Road, Suite 250, Sacramento, California, 95815 as its agent for
service of process relating to any proceedings before the California
courts in connection with this Agreement and the other Operative
Documents and agrees to maintain the process agent in California
notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such proceedings
by prepaid mailing of a copy of the process to Lessee's agent at the
address identified in paragraph (i) or by prepaid mailing by air
mail, certified or registered mail of a copy of the process to
Lessee at the address set forth in Clause 16.11;
(d) LESSEE: -
(i) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE COURTS REFERRED TO IN CLAUSE
16.12(b) ABOVE ON GROUNDS OF INCONVENIENT FORUM OR OTHERWISE AS
REGARDS PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER
OPERATIVE DOCUMENTS;
(ii) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND/OR THE OTHER OPERATIVE DOCUMENTS BROUGHT IN THE COURTS REFERRED
TO IN CLAUSE 16.12(b);
(iii) AGREES THAT A JUDGMENT OR ORDER OF ANY COURT REFERRED TO IN CLAUSE
16.12(b) IN CONNECTION WITH THIS AGREEMENT AND/OR ANY OF THE OTHER
OPERATIVE DOCUMENTS IS CONCLUSIVE AND BINDING ON IT AND MAY BE
ENFORCED AGAINST IT IN THE COURTS OF ANY OTHER JURISDICTION;
(e) NOTHING IN THIS CLAUSE 16.12 LIMITS THE RIGHT OF LESSOR TO BRING
PROCEEDINGS AGAINST LESSEE IN CONNECTION WITH THIS AGREEMENT AND/OR
ANY OF THE OTHER OPERATIVE DOCUMENTS: -
(i) IN ANY OTHER COURT OF COMPETENT JURISDICTION; OR
(ii) CONCURRENTLY IN MORE THAN ONE JURISDICTION;
66
<PAGE>
(f) LESSEE IRREVOCABLY AND UNCONDITIONALLY: -
(i) AGREES THAT IF LESSOR BRINGS LEGAL PROCEEDINGS AGAINST IT OR ITS
ASSETS IN RELATION TO THIS AGREEMENT AND/OR ANY OF THE OTHER
OPERATIVE DOCUMENTS NO IMMUNITY FROM SUCH LEGAL PROCEEDINGS (WHICH
WILL BE DEEMED TO INCLUDE WITHOUT LIMITATION, SUIT, ATTACHMENT
PRIOR TO JUDGMENT, OTHER ATTACHMENT, THE OBTAINING OF JUDGMENT,
EXECUTION OR OTHER ENFORCEMENT) WILL BE CLAIMED BY OR ON BEHALF OF
ITSELF OR WITH RESPECT TO ITS ASSETS;
(ii) WAIVES ANY SUCH RIGHT OF IMMUNITY WHICH IT OR ITS ASSETS NOW HAS OR
MAY IN THE FUTURE ACQUIRE;
(iii) CONSENTS GENERALLY IN RESPECT OF ANY SUCH PROCEEDINGS TO THE GIVING
OF ANY RELIEF OR THE ISSUE OF ANY PROCESS IN CONNECTION WITH SUCH
PROCEEDINGS INCLUDING, WITHOUT LIMITATION, THE MAKING, ENFORCEMENT
OR EXECUTION AGAINST ANY PROPERTY WHATSOEVER (IRRESPECTIVE OF ITS
USE OR INTENDED USE) OF ANY ORDER OR JUDGMENT WHICH MAY BE MADE OR
GIVEN IN SUCH PROCEEDINGS.
16.13 Sole and Entire Agreement: This Agreement and the other Operative
Documents are the sole and entire agreement between Lessor and
Lessee in relation to the leasing of the Aircraft, and supersede all
previous agreements in relation to that leasing.
16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under
this Agreement (other than Lessor) are given to Lessor on behalf of that
Indemnitee.
16.15 Counterparts: This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. To the extent, if any, that
this 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 Agreement may be created through the transfer
or possession of any counterpart other than the counterpart that has been
marked "Counterpart No. 1" on the cover page thereof.
16.16 Language: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between the
English version of this Agreement and any version in any other language,
the English version will prevail.
67
<PAGE>
16.17 No Brokers: Lessee hereby represents and warrants that it has not paid,
agreed to pay or caused to be paid directly or indirectly in any form,
any commission, percentage, contingent fee, brokerage or other similar
payments of any kind, in connection with the establishment or operation
of this Agreement, to any employee of Lessor or to any person or entity
in the State of Registration or elsewhere, except to Excluded Persons, as
herein defined. Lessor hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessee or to any person
or entity in the State of Registration or elsewhere, except to Excluded
Persons, as herein defined. For the purposes hereof, the term "Excluded
Persons" shall mean (x) in the case of Lessor, any of its officers,
directors, employees, attorneys or other professional advisors, whether
located in the State of Registration or elsewhere, and (y) in the case of
Lessee, any of its officers, directors, employees, attorneys or other
professional advisors, whether located in the State of Registration or
elsewhere. Each party agrees to indemnify and hold the other harmless
from and against any and all claims, suits, damages, costs and expenses
(including, but not limited to reasonable attorneys' fees) asserted by
any agent, broker or other third party for any commission or compensation
of any nature whatsoever based upon this Agreement or the Operative
Documents or the Aircraft, if such claim damage, cost or expense arises
out of any action or alleged action by the indemnifying party, its
employees or agents.
17. DISCLAIMERS AND WAIVERS
17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS,
WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY
STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO,
AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER
BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR
FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR
OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH
RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: -
(a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS,
OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE
LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY,
CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR
WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE
OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE
AIRCRAFT, ANY ENGINE OR ANY PART; OR
68
<PAGE>
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT
OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: -
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER
CIRCUMSTANCE IN CONNECTION THEREWITH;
(ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS
RELATING THERETO;
(iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED
PROFITS OR CONSEQUENTIAL DAMAGES;
(iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR,
IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY
PART; OR
(v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS
RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND
WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION,
OPERATION OR PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS
AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING
UNDER CLAUSE 2.4.
17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE
ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT
MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES (AS SUCH TERM IS
DEFINED IN SECTION 10520(B) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE) AS
A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE
AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS
AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS.
17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF
THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
69
<PAGE>
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this
Agreement unless it had available to it the benefits of a lessor under
Section 1110 of Title 11 of the United States Code. Lessee covenants and
agrees with Lessor that to better ensure the availability of such
benefits, Lessee shall support any motion, petition or application filed
by Lessor with any bankruptcy court having jurisdiction over Lessee,
whereby Lessor seeks recovery of possession of the Aircraft under said
Section 1110 and shall not in any way oppose such action by Lessor unless
Lessee shall have complied with the requirements of said Section 1110 to
be fulfilled in order to entitle Lessee to continued use and possession
of the Aircraft hereunder. In the event said Section 1110 is amended, or
if it is repealed and another statute is enacted in lieu thereof, Lessor
and Lessee agree to amend this Agreement and take such other action not
inconsistent with this Agreement as Lessor reasonably deems necessary so
as to afford to Lessor the rights and benefits as such amended or
substituted statute confers upon owners and lessors of aircraft similarly
situated to Lessor.
19. USURY LAWS: The parties intend to contract in strict compliance with the
usury Laws of the States of California and Colorado and, to the extent
applicable, the United States of America. Notwithstanding anything to the
contrary in the Operative Documents, Lessee will not be obligated to pay
any interest in excess of the maximum non-usurious interest rate, as in
effect from time to time, which may by applicable Law be charged,
contracted for, reserved, received or collected by Lessor in connection
with the Operative Documents. During any period of time in which the the
applicable highest lawful rate is lower than the rate specified in
Clauses 5.11 or 13.2, interest will accrue and be payable at such highest
lawful rate; however, if at later times such highest lawful rate is
greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will
pay interest at the highest lawful rate until the aggregate amount of
interest paid by Lessee equals the amount of interest that would have
been payable in accordance with the interest rate specified in Clauses
5.11 or 13.2.
70
<PAGE>
20. MODIFICATION OR REVISION:
Neither this Agreement nor any term of this Agreement may be modified,
rescinded, changed waived, discharged or terminated except by a writing
signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provision of this Clause 20 by their initials below: -
LESSOR: __________ LESSEE: [SIGNATURE TO COME]
-------------------
21. IN WITNESS whereof the parties hereto have executed this Agreement as of
the date shown at the beginning of this Agreement.
WITNESS SIGNED on behalf of
POLARIS HOLDING COMPANY
By: [SIGNATURE TO COME]
--------------------------
Name: [NAME TO COME]
------------------------
Title: Vice President
-----------------------
WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC.
By: /s/ William B. Darlin
--------------------------
Name: William B. Darlin
------------------------
Title: Vice President
-----------------------
S
<PAGE>
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
- --------
MANUFACTURER: Boeing
MODEL: 737-2L9
SERIAL NUMBER: 22733
ENGINES
- -------
ENGINE TYPE: Pratt & Whitney JT8D-17
SERIAL NOS: SN 688456; SN 688130;
On the Delivery Date the Aircraft shall be in the following condition:-
1. GENERAL CONDITION:
(a) The Airframe will be ex a block "C" Check in accordance with Boeing
Maintenance Planning Document ("MPD");
(b) Each Engine shall have not less than 4,000 Engine Flight Hours or 4,000
Cycles (whichever is the more restrictive factor) to next scheduled life
limited part replacement;
(c) All logos shall be deleted from the Aircraft;
(d) Components shall have not less than 12 months, 3,000 Flight Hours
and Cycles, or 100% of their approved life remaining, whichever is
less in accordance with the Previous Operator's Maintenance Program;
(e) The Aircraft shall have had accomplished all outstanding (i.e. at or prior
to the Delivery Date) mandatory inspection and modification requirements,
airworthiness directives and similar requirements applicable to the
Aircraft, any Engine or Part having a compliance date prior to the
Delivery Date or within 180 days after the Delivery Date and which are
required by the Air Authority, and/or the FAA and/or mandated by any
manufacturer of the Aircraft, any Engine or Part;
(f) There shall be no open, deferred, continued, carryover or placarded log
book items;
(g) Each on condition or condition monitored component will be serviceable;
1-1
<PAGE>
(h) No engine will be "on watch" (see Schedule 3, paragraph 3(b) for
definition of "on watch");
(i) The Aircraft shall be equipped for domestic passenger operation under FAR
Part 121; and
(j) Emergency equipment have a calendar life will have a minimum of 1 year or
100% of its approved life, whichever is less, remaining.
2. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions, temporary repairs,
and loose or pulled or missing rivets and shall be in accordance with the
manufacturers approved data for permanent repair;
(b) Windows will be free of delamination, blemishes, crazing and will be
properly sealed; and
(c) Doors will be free moving, correctly rigged and be fitted with serviceable
seals.
3. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Unpainted cowlings and fairings will be polished; and
(c) Wings will be free of fuel leaks.
4. COCKPIT
(a) Fairing panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Floor coverings will be clean and effectively sealed;
(c) Seat covers will be in good condition, clean and free of stains and will
conform to FAR fire resistance regulation; and
(d) Seats will be serviceable, in good condition and will be repainted as
necessary.
5. CARGO COMPARTMENTS
(a) Panels will be in good condition; and
(b) Nets will be in good condition.
6. LANDING GEAR
1-2
<PAGE>
The landing gear and wheel wells will be clean, free of leaks and repaired as
necessary. Wheels and brakes shall be in a half life condition or better.
7. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Program;
(b) The entire fuselage will be substantially free from corrosion and will be
adequately treated and an approved corrosion prevention program will be in
operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment program will be in operation.
1-3
<PAGE>
PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
o FAA Certificate of Airworthiness (on board aircraft)
o Current Aircraft Registration Certificate (on board aircraft)
B. AIRCRAFT STATUS SUMMARIES
o Aircraft record of flight time and cycles (listing of accumulated
hours and cycles as of specific dates)
o Airworthiness Directive Applicability and Compliance Report
o Supplemental Structural Inspection (SSID) Status (if applicable)
o Corrosion Prevention and Control Program Task Status
o List of Major Repairs and Alterations
o List and Status of Life Limited Components
o Check/Inspection Status
o List and Current Status of Time-Controlled Components
o Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
C. AIRCRAFT MAINTENANCE RECORDS
Airframe inspection, maintenance, modification, and repair documents with
maintenance and/or inspection signatures (as required) and description of
work done.
o Last "A", "B", "C" and "D" Checks (or equivalents)
(In the event that a check is performed in phases, all phases
necessary to constitute a complete block check are required. In the
event that check content varies by multiples of the check, all
multiples necessary to constitute a complete cycle are required.)
o Airworthiness Directive, Service Bulletin and modification compliance
documents including engineering orders, drawings, shop cards, etc., as
necessary to establish method of compliance, quality control
acceptance, and approval authority
1-4
<PAGE>
o Supplemental Structural Inspection (SSID) compliance documents and
findings (if applicable)
o Corrosion Prevention and Control Program compliance documents and
findings
o Documentation of major repairs and alterations including engineering
orders, drawings, Supplemental Type Certificates, Master Change
Notice, etc., as necessary to define work done, certification basis,
and approval authority.
o Aircraft weighing records
D. AIRCRAFT HISTORY RECORDS
o Service Difficulty Reports
o Accident or Incident Reports
E. ENGINE RECORDS (for each engine)
o Engine Master Record (record of installation and removal and
accumulated flight time and cycles)
o Airworthiness Directive Applicability and Compliance Report
o Manufacturer Service Bulletin Compliance Report
o List of Operator Modifications Incorporated, if any
o List of Major Repairs and Alterations, if any
o List of Current Status of Life Limited Components
o Check/Inspection Status
o List and Status of Time Controlled Components
o Serialization On-Condition/Condition Monitored Components Inventory of
Installed Units
o Repair, overhaul and inspection documents including FAA Forms 337
o Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
o Test Cell Records for last test
1-5
<PAGE>
F. APU RECORDS
o APU Master Record (record of installation and removal and accumulated
time and cycles)
o Airworthiness Directive Applicability and Compliance Report
o Manufacturer Service Bulletin Compliance Report
o List of Operator Modifications Incorporated, if any
o List and Current Status of Life Limited Components
o List and Status of Time Controlled Components
o Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
o Repair, overhaul and inspection documents including FAA Forms 337
G. COMPONENT RECORDS
o Time Controlled Component Historical Records with installation and
serviceability tags
o Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
o Installation records and serviceability tags for Serialized On-
condition/Condition Monitored Components (minimum of last twelve
months)
H. MANUALS
Airplane Delivered Used:
o Airplane Flight Manual
o Weight and Balance Control and Loading Manual
o Maintenance Manual (microfilm)
o Wiring Diagram Manual (paper)
o Illustrated Parts Catalog (microfilm)
1-6
<PAGE>
o Operator Weight and Balance Manual
o Minimum Equipment List
I. MISCELLANEOUS TECHNICAL DOCUMENTS
o Maintenance Program Specifications
o Interior configuration drawings including FAA approval of such
drawings
o Boeing Aircraft Readiness Log
o Loose Equipment Inventory
o FAA Burn Certificates of Aircraft Interiors
o FAA Burn and Flotation Certificates for passenger seat cushions
1-7
<PAGE>
SCHEDULE 2
CERTIFICATE OF TECHNICAL ACCEPTANCE
This Certificate of Technical Acceptance is delivered, on the date set out below
by Frontier Airlines, Inc. ("Lessee"), to POLARIS HOLDING COMPANY ("Lessor"),
pursuant to the Aircraft Lease Agreement dated as of the May 1, 1996 between
Lessor and Lessee (the "Agreement"). The capitalized terms used in this
Certificate shall have the meaning given to such terms in the Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this
[ ] day of [ ], 199[ ], at [ ], accepted the following, in accordance
with the provisions of the Agreement:
(a) Boeing Model 737-2L9 airframe, Manufacturer's Serial No. 22733;
(b) Pratt & Whitney JT8D-17 Engines: -
Engine Manufacturer's Serial Nos.
1) 688456
2) 688130
(Each of which shall have more than 750 rated takeoff horsepower or the
equivalent of such horsepower);
(c) Fuel Status: Kilos [ ];
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee and
attached hereto; and
(e) Aircraft Documents: as per list signed by Lessor and Lessee and attached
hereto.
2-1
<PAGE>
2. HOURS AND CYCLES DATA (as of Delivery Date)
(a) Airframe:
---------
Number of Hours since last phase "D" Check (Heaviest Check): ______ hours
-----------------------------------------------------------
"C" Check (or Equivalent):
-------------------------
Interval: ___________________________
Time Since: _______________________
(b) Landing Gear Overhaul:
---------------------
Number of Cycles Since Last Overhaul:
Left Gear __________________________ cycles
Right Gear _________________________ cycles
Nose Gear _________________________ cycles
Center Gear ________________________ cycles
Interval: Left Gear _________________________
Right Gear _________________________
Nose Gear _________________________
Center Gear ________________________
(c) Engines:
-------
Number of Hours Since Last Heavy Shop Visit:
S/N 688456:______ hours
S/N 688130:______ hours
Number of Hours Since Last Hot Section Refurbishment:
S/N 688456:______ hours
S/N 688130:______ hours
Number of Hours Since Last Cold Section Refurbishment:
S/N 688456:______ hours
2-2
<PAGE>
S/N 688130:______ hours
Hot Section Inspection:
Interval:___________________________
Time Since (S/N 688456):__________________
Time Since (S/N 688130):__________________
Time Remaining to First Restriction:
Engine S/N: 688456
Hours: _________ Restriction: _______
Cycles: __________ Restriction: _______
Engine S/N: 688130
Hours: __________ Restriction: _______
Cycles: __________ Restriction: _______
Average Cycles in Life Limited Parts (see attached Schedule):_________
(d) Auxiliary Power Unit:
--------------------
Number of APU Hours Since Last Heavy Shop Visit:
__________ hours Date accomplished_____________
Hot Section Inspection:
Interval: ________________________
Time Since: ________________________
(e) Time Controlled Components: [See attached DUJX Report]
--------------------------
(f) Fuel on Board on Inspection Date:
--------------------------------- -------------------------------
(g) Interior Equipment:
------------------
Number of Passenger Seats and Configuration:_____________________
-----------------------
Number of Galleys and Location: _______________ ______________
2-3
<PAGE>
Number of Lavatories and Location: ____________ _______________
LOPA - Attached ____________ _______________
List of Loose Equipment on Board:
_______________________________________________ _______________
_______________________________________________ _______________
_______________________________________________ _______________
_______________________________________________ _______________
_______________________________________________ _______________
_______________________________________________ _______________
(h) Avionics:
--------
Description Model Part No.
----------- ----- --------
_______________________________________________ _______________
_______________________________________________ _______________
_______________________________________________ _______________
_______________________________________________ _______________
_______________________________________________ _______________
_______________________________________________ _______________
2-4
<PAGE>
3. ACCEPTANCE:
The undersigned hereby confirms that the Aircraft, Engines, Parts and
Aircraft Documents are acceptable to it, satisfy all of the Delivery
Condition Requirements and are in the condition for delivery to and
acceptance by Lessee as required under the Agreement. Lessee's execution
and delivery of this certificate signifies Lessee's absolute and
irrevocable acceptance of delivery of the Aircraft to it for all purposes
hereof and of the Agreement.
IN WITNESS WHEREOF, Lessee has, by its duly authorized representative,
executed this Certificate on the date in paragraph 1 above.
LESSEE: FRONTIER AIRLINES, INC.
By: _________________________
Title: ______________________
2-5
<PAGE>
SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear generally,
will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be in the same configuration as on the Delivery Date or as reasonably
requested by Lessor;
(b) be clean by airline standards;
(c) have installed the full complement of engines and other equipment, parts
and accessories as is normally installed in the Aircraft and the loose
equipment as was installed in the Aircraft at the time of Delivery, and be
in a condition suitable for immediate operation in commercial service;
(d) have in existence a valid certificate of airworthiness (or if required by
Lessor, a valid export certificate of airworthiness) with respect to the
Aircraft issued by the Air Authority;
(e) comply with the manufacturer's original specifications;
(f) have undergone, immediately prior to redelivery, a block 'C' Check so that
all Airframe inspections falling due within the next following 3,000
Flight Hours, 3,000 Cycles or the first 12 months of operation in
accordance with the Agreed Maintenance Program, have been accomplished;
(g) have had accomplished all outstanding (i.e. at or prior to the Expiry
Date) mandatory inspection and modification requirements, airworthiness
directives and similar requirements applicable to the Aircraft, any Engine
or Port having a compliance date during the Term or within 180 days after
the Expiry Date and which are required by the Air Authority, and/or the
FAA and/or mandated by any manufacturer of the Aircraft, any Engine or
Part;
(h) have installed all applicable vendor's and manufacturer's service bulletin
kits received free of charge by Lessee that are appropriate for the
Aircraft and to the extent not installed, those kits will be furnished
free of charge to Lessor;
(i) be in the Lessee's external livery, logos deleted; and
3-1
<PAGE>
(j) have all signs and decals clean, secure and legible.
(k) will meet the requirements of FAR Part 36, Appendix C, Stage 3 noise
compliance as then in effect without waiver or restriction provided Lessor
delivers Nordam Low Gross Weight Hush Kit for installation by Frontier;
and
(l) shall have no open, deferred, continued, carryover or placarded log book
items.
2. COMPONENTS
(a) Each life-limited component (other than the APU) shall have not less than
12 months, 3,000 Flight Hours and Cycles or 100% of their approved life
remaining (whichever is less) to the next scheduled removal, in accordance
with the Agreed Maintenance Program;
(b) Each calendar-limited component will have not less than 12 months life
remaining to the next scheduled removal in accordance with the Agreed
Maintenance Program;
(c) Each "on-condition" and "condition monitored" component will be
serviceable; and
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Delivery Date will be accompanied by all documentation
Lessor may require to evidence that title thereto is properly vested in
Owner and will:-
(a) have not less than 4,000 Engine Flight Hours or 4,000 Cycles (whichever is
the more restrictive factor) to next scheduled life limited part
replacement and have an expected on-wing remaining life of 4,000 Engine
Flight Hours or 4,000 Cycles (whichever is the more restrictive factor).
The expected life remaining will be determined by the inspection and
checks accomplished by Lessor in accordance with this Agreement;
(b) not be "on watch". (For purposes of the Agreement "on watch" shall mean
any maintenance condition that would require an Engine removal and/or
reinspection or airworthiness directive action that would require an
Engine removal within 3,500 Cycles of the Expiry Date); and
(c) be in a condition which can operate at maximum rated take off power at sea
level at a temperature of 34oC.
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions, temporary repairs,
and loose or pulled or missing rivets and shall be in accordance with the
manufacturers approved data for permanent repair;
(b) Windows will be free of delamination, blemishes, crazing and will be
properly sealed; and
3-2
<PAGE>
(c) Doors will be free moving, correctly rigged and be fitted with serviceable
seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Unpainted cowlings and fairings will be polished; and
(c) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks
and stains;
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR fire resistance regulations;
(c) Seats will be serviceable, in good condition and repainted as necessary;
and
(d) Emergency equipment having a calendar life will have a minimum of 1 year
or 100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Fairing panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Floor coverings will be clean and effectively sealed;
(c) Seat covers will be in good condition, clean and free of stains and will
conform to FAR fire resistance regulation; and
(d) Seats will be serviceable, in good condition and will be repainted as
necessary.
8. CARGO COMPARTMENTS
(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
The landing gear and wheel wells will be clean, free of leaks and repaired
as necessary. Wheels and brakes shall be in a half life condition or
better.
3-3
<PAGE>
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Program;
(b) The entire fuselage will be substantially free from corrosion and will be
adequately treated and an approved corrosion prevention program will be in
operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment program will be in operation.
3-4
<PAGE>
SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed Value
and with a deductible not exceeding the Deductible Amount set forth in
Letter Agreement No. 1, or such other amount agreed by Lessor from time to
time;
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All
Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition by
the State of Registration for the Agreed Value, however, when the Aircraft
is being operated solely in or over the United States of America and/or
Canada, coverage may be limited to such perils as are customarily insured
by comparable airlines, operating similar equipment in similar
circumstances;
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in
transit other than by air) property insurance on all Engines and Parts
when not installed on the Aircraft on an "agreed value" basis for their
full replacement value and including engine test and running risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL
AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a
Combined Single Limit (Bodily Injury/Property Damage) of an amount not
less than the Minimum Liability Coverage for the time being any one
occurrence (but in respect of products and personal injury liability this
limit may be an aggregate limit for any and all losses occurring during
the currency of the policy). War and Allied Risks are also to be covered
under the Policy in line with prudent market practice for comparable
airlines, operating similar equipment in similar circumstances;
(e) All required hull and spares insurance (as specified above), so far as it
relates to the Aircraft will: -
(i) name Lessor and its successors and assigns as additional assureds
for their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) provide that any loss will be settled jointly with Lessor and
Lessee and will be payable in Dollars to Lessor except where the
loss does not exceed the Damage Notification Threshold, and Lessor
has not notified the insurers to the contrary, in which case the
loss will be settled with and paid to Lessee;
4-1
<PAGE>
(iii) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(iv) confirm that the insurers are not entitled to replace the Aircraft
in the event of an insured Event of Loss;
(v) confirm that the insurers will not obtain a valid discharge of the
obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Lessor, GECASI, GECASL and their respective successors
and assigns and their respective shareholders, subsidiaries,
directors, officers, agents, employees and indemnitees as
additional insureds for their respective rights and interests,
warranted, each as to itself only, no operational interest;
(ii) include a Severability of Interest Clause which provides that the
insurance, except for the limit of liability, will operate to give
each assured the same protection as if there was a separate policy
issued to each assured;
(iii) contain a provision confirming that the policy is primary without
right of contribution and the liability of the insurers will not
be affected by any other insurance of which Lessor or Lessee have
the benefit so as to reduce the amount payable to the additional
insureds under such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons
operating similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies
which Lessor may reasonably require in relation to liability
insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Lessor;
(v) provide that, in relation to the interests of each of the
additional assureds the Insurances will not be invalidated by any
act or omission by Lessee, or any other person other than the
respective additional assured seeking protection and shall insure
the interests of each of the additional assureds regardless of any
breach or violation by Lessee, or any other person other than the
4-2
<PAGE>
respective additional assured seeking protection of any warranty,
declaration or condition, contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any rights
of recourse and/or subrogation against the additional assureds,
including GECASI and GECASL or to be subrogated to any rights of
Lessor against Lessee;
(vii) provide that the additional assureds will have no obligation or
responsibility for the payment of any premiums due (but reserve
the right to pay the same should any of them elect so to do) and
that the insurers will not exercise any right of set-off or
counter-claim in respect of any premium due against the respective
interests of the additional assureds other than outstanding
premiums relating to the Aircraft, any Engine or Part the subject
of the relevant claim;
(viii) provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any cancellation,
change, event of non-payment of premium or installment thereof has
been sent to Lessor, except in the case of war risks for which 7
days (or such lesser period as is or may be customarily available
in respect of war risks or allied perils) will be given, or in the
case of war between the 5 great powers or nuclear peril for which
termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such reinsurance
will (i) be on the same terms as the original insurances and will
include the provisions of this Schedule, (ii) provide that
notwithstanding any bankruptcy, insolvency, liquidation,
dissolution or similar proceedings of or affecting the reinsured
that the reinsurers' liability will be to make such payments as
would have fallen due under the relevant policy of reinsurance if
the reinsured had (immediately before such bankruptcy, insolvency,
liquidation, dissolution or similar proceedings) discharged its
obligations in full under the original insurance policies in
respect of which the then relevant policy of reinsurance has been
effected; and (iii) contain a "cut-through" clause in the
following form (or otherwise, satisfactory to Lessor): "The
Reinsurers and the Reinsured hereby mutually agree that in the
event of any claim arising under the reinsurances in respect of a
total loss or other claim where as provided by the Aircraft Lease
Agreement dated as of May 1, 1996 and made between Polaris Holding
Company and Frontier Airlines, Inc. such claim is to be paid to
the person named as sole loss payee under the primary insurances,
the Reinsurers will in lieu of payment to the Reinsured, its
successors in interest and assigns pay to the person named as sole
loss payee under the primary insurances effected by the Reinsured
that portion of any loss due for which the Reinsurers would
otherwise be liable to pay the Reinsured (subject to proof of
loss), it being understood and agreed that any such payment by the
Reinsurers will (to the extent of such payment) fully discharge
and release the Reinsurers from any and all further liability in
connection therewith"; subject to such provisions not contravening
any law of the State of Incorporation;
4-3
<PAGE>
(x) contain a provision entitling Lessor or any insured party to
initiate a claim under any policy in the event of the refusal or
failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of this Agreement to the
extent of the risks covered by the policies.
4-4
<PAGE>
SCHEDULE 5
FORM OF LEGAL OPINION
To: Polaris Holding Company
[Date]
Dear Sirs,
1. You have asked us to render an opinion in connection with the transaction
governed, inter alia, by the under mentioned documents. Words and
expressions used herein will bear the same meanings as defined in an
Aircraft Lease Agreement (the "Lease") dated as of May 1, 1996 between
Polaris Holding Company ("Lessor") and Frontier Airlines, Inc. ("Lessee")
in respect of one Boeing 737-2L9 aircraft with manufacturer's serial
number 22733 together with the two installed engines (the "Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the opinion
expressed below.
2. Having considered the documents listed in paragraph 1 above, and having
regard to the relevant laws of [the State of California] [the State of
Colorado] we are pleased to advise that in our opinion:-
(a) Lessee was duly incorporated in the State of [ ] on [ ] for an
indefinite period as a limited company and is a validly existing separate
legal entity, is subject to suit in its own name, and, to the best of our
knowledge, no steps have been, or are being, taken to appoint a receiver,
liquidator, trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has taken
all necessary corporate action to authorize the entry into, performance
and delivery of, the Lease and the transactions contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
5-1
<PAGE>
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any document which is
binding upon Lessee or any of its assets or result in the creation
of any Security Interest over any of its assets.
(d) no authorizations, consents, licenses, approvals and registrations (other
than those which have been obtained and of which copies are attached
hereto) are necessary or desirable to be obtained from any governmental or
other regulatory authorities in the United States of America (the "United
States") to enable Lessee:-
(1) to enter into and perform the transactions contemplated by the
Lease;
(2) to import the Aircraft into the United States for the duration of
the Term;
(3) to operate the Aircraft in the United States for the transport of
fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for [the filing and recordation of the Agreement with the FAA and]
the filing of the Financing Statements with [ ] (which filing has been
duly made on or before this date) it is not necessary or desirable, to
ensure the priority, validity and enforceability of all the obligations of
Lessee under the Lease that the Lease be filed, registered, recorded or
notarized in any public office or elsewhere or that any other instrument
relating thereto be signed, delivered, filed, registered or recorded, that
any tax or duty be paid or that any other action whatsoever be taken;
(f) No steps are necessary or desirable to record or perfect Lessor's interest
in the Aircraft in the United States;
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States;
without requiring any further consents, approvals or licenses from any
governmental or regulatory authority in [];
(h) the Lease has been properly signed and delivered on behalf of Lessee and
the obligations on the part of Lessee contained therein, are valid and
binding on and enforceable against Lessee respectively under the laws of
the United States;
5-2
<PAGE>
(i) the events described in Clause 13.1(g) of the Lease comprise an accurate
and complete statement of all events and situations provided for by the
laws of the United States which may lead to the cessation of activities,
winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
(k) Lessee is a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code;
(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of the
United States Code;
(m) Lessee's chief executive office (as defined in the Uniform Commercial Code
in effect in [ ]) is located at [ ];
(n) the obligations of Lessee under the Lease rank at least pari passu with
all other present and future unsecured and unsubordinated (including
contingent obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any payment
whatsoever which may be made by Lessee pursuant to the Lease; with respect
to any withholdings, the provisions of Clauses 5.6, 5.7 and 5.10 of the
Lease are fully effective; and the arrangements contemplated by the Lease
do not give rise to any charge whatsoever to Taxes in the United States;
(p) there is no applicable usury or interest limitation law in the United
States which may restrict the recovery of payments in accordance with the
Lease;
(q) there are no registration, stamp or other taxes or duties of any kind
payable in the United States in connection with the signature, performance
or enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in the United States nor
become liable to tax in the United States by reason of entering into the
Lease with Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in the United States
in order to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld as a
valid choice of law in any action in the Courts of the United States;
(u) the consent to the jurisdiction by Lessee contained in the Lease is valid
and binding on Lessee and not subject to revocation;
(v) any judgment for a definite sum given by the Courts of the State of
California against Lessee would be recognized and accepted by the Courts
of the United States without re-trial or examination of the merits of the
case;
5-3
<PAGE>
(w) (i) Lessee is subject to civil commercial law with respect to its
obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Lease by Lessee
constitute private and commercial acts; and
(x) there are no laws or other rules in the United States (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other person,
other than Lessor or any assignee of Lessor.
3. We do not purport to be experts on and do not purport to be generally
familiar with or qualified to express legal opinions based on any law
other than the laws of the United States and accordingly express no legal
opinion herein based upon any law other than the laws of the United
States.
Yours faithfully,
5-4
<PAGE>
SCHEDULE 6.
LEASE SUPPLEMENT NO. __
LEASE SUPPLEMENT NO. ___, dated _______________, 1996, between Polaris
Holding Company, a corporation organized under the laws of New York (Lessor"),
and Frontier Airlines, Inc. a corporation organized under the laws of the State
of Colorado (Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of May 1, 1996 (herein referred to as the "Agreement" and the
defined terms therein being hereinafter used with the same meaning). The
Agreement provides for the execution and delivery from time to time of a Lease
Supplement substantially in the form hereof for the purpose of leasing the
aircraft described below under the Agreement as and when delivered by Lessor to
Lessee in accordance with the terms thereof.
The Agreement and this Lease Supplement relate to the Aircraft, Engines and
Parts as more precisely described below. A counterpart of the Agreement is
attached hereto and this Lease Supplement and the Agreement shall form one
document.
In consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows: -
1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee
hereby accepts, acknowledges receipt of possession and leases from Lessor
under the Agreement, that certain Boeing Model 737-2L9 commercial jet
Aircraft, and the two (2) Pratt & Whitney JT8D-17 Engines (each of which
Engines has 750 or more rated takeoff horsepower or the equivalent of such
horsepower) described in Schedule 1 hereto, together with the Aircraft
Documents described in the Agreement (the "Delivered Aircraft").
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Term for the Delivered Aircraft shall commence on the Delivery Date and
shall end on the Expiry Date.
4. The amount of Rent for the Delivered Aircraft is set forth in Letter
Agreement No. 1 to the Agreement.
5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each
delivered Engine have been duly marked in accordance with the terms of
Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required by
the Agreement, (iii) the representations and warranties of Lessee referred
to in Clause 2 of the Agreement are hereby repeated with effect as of the
date first above written, (iv) having inspected the Delivered Aircraft,
Lessee acknowledges that the Delivered Aircraft satisfies all conditions
required for
6-1
<PAGE>
Lessee's acceptance of delivery as set forth in the Agreement, except as
noted in the Discrepancy List attached to the Certificate of Technical
Acceptance, and (v) the execution and delivery of this Lease Supplement
signifies absolute and irrevocable acceptance by Lessee of the Delivered
Aircraft for all purposes hereof and of the Agreement.
6. All of the terms and provisions of the Agreement are hereby incorporated by
reference in this Lease Supplement to the same extent as if fully set forth
herein.
7. This Lease Supplement may be executed in any number of counterparts, each
of such counterparts, shall for all purposes be deemed to be an original;
and all such counterparts shall together constitute but one and the same
Lease Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No. __ to be duly executed as of the day and year first above written.
LESSOR, LESSEE,
POLARIS HOLDING COMPANY FRONTIER AIRLINES, INC.
By:_______________________________ By:___________________________
Name:_____________________________ Name:_________________________
Title:____________________________ Title:________________________
6-2
<PAGE>
SCHEDULE 1
TO
LEASE SUPPLEMENT NO. _
One
Used Boeing 737-2L9
Airframe
Registration Mark
-----------------
N170PL (to be changed to N270FL)
Manufacturer's
Serial No. Total Time* Total Cycles*
---------- ---------- ------------
22733 __________ _________
Installed Pratt & Whitney
Engines
-------------------------
Model No. Serial No. Total Time* Total Cycles*
- ----------- ---------- ----------- -------------
[S] [C] [C] [C]
JT8D-17 688456 __________ ____________
JT8D-17 688130 __________ ____________
Each of the above-described Aircraft Engines is 750 or more rated takeoff
horsepower or its equivalent.
* The total time and total cycles referred to above are as of _______________
Time, __________, ____. Such times and cycles are within _____ hours and
_____ cycles of the actual hours and cycles at the time of this Lease
Supplement.
6-3
<PAGE>
SCHEDULE 7
FORM OF
LEASE TERMINATION CERTIFICATE
The undersigned hereby certify that the Aircraft Lease Agreement dated as of May
1, 1996 between the undersigned Lessor and undersigned Lessee, and as further
described in the Appendix attached hereto, has terminated and the aircraft and
aircraft engines covered thereby are no longer subject to the terms thereof.
This certificate may be executed in one or more counterparts each of which when
taken together shall constitute one and the same instrument.
DATED this __________ day of ____________________, __________
LESSOR LESSEE
POLARIS HOLDING COMPANY FRONTIER AIRLINES, INC.
By:________________________________ By:___________________________
Title:_______________________________ Title:_________________________
7-1
<PAGE>
APPENDIX
--------
FAA Recording Date FAA Conveyance No.
- ------------------ ------------------
7-2
<PAGE>
SCHEDULE 8
FORM OF AIRCRAFT USAGE REPORT
FOR PERIOD BEGINNING ON __________, 199____
AND ENDING ON ___________, 199____
The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies
as follows:
1. This report is submitted to Polaris Holding Company ("Lessor") under that
certain Aircraft Lease Agreement dated as of May 1, 1996, between Lessor
and Lessee (the "Lease"), and capitalized terms used and not otherwise
defined herein have the meanings ascribed to them in the Lease.
2. The Aircraft covered by this report is:
Aircraft: Boeing 737-2L9
Serial No: 22733
U.S. Reg. No.: N170PL (to be changed to N270FL)
3. During the period covered by this report, the Airframe which is the subject
of the Lease was operated for the following number of Flight Hours and
Cycles as such terms are defined in the Lease:
_________ Flight Hours __________ Cycles
4. During the period covered by this report, the Pratt & Whitney JT8D-17
Engines bearing respective serial numbers 688456 and 688130 which are the
subject of the Lease, where each operated for the following number of
Engine Flight Hours and Cycles, as defined in the Lease:
Engine Flight Hours Cycles
------------------- ------
SN 668456 ___________________ __________________
SN 688130 ___________________ __________________
This Aircraft Usage Report is dated __________________, 199_____,
FRONTIER AIRLINES, INC.
By:________________________________
Title:_______________________________
8-1
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AGREEMENT is made as of the 3rd day of June, 1996 between:-
(1) POLARIS HOLDING COMPANY, a company incorporated under the laws of Delaware
with an office at 201 Mission Street, Suite 2700, San Francisco,
California, 94105 ("Lessor"); and
(2) FRONTIER AIRLINES, INC., a company incorporated under the laws of the
State of Colorado whose registered office is at 12015 East 46th Avenue,
Denver, Colorado, 80239, United States of America ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease
from Lessor the Aircraft on the terms of this Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
After-Tax Basis in the case of any amount payable on an
"After-Tax Basis" to or for the benefit of
any Person (including any amount payable
pursuant to this definition) (a "Required
Payment"), the total amount that must be
paid is the amount such that, after
deduction of the net amount of all Taxes
required to be paid by such Person with
respect to the receipt or accrual by it of
such amount (and assuming that such Person
is subject to (i) United States Federal
income tax at the highest marginal statutory
rate imposed on corporations for the
relevant period, (ii) United States state
and local income taxes at the composite of
the highest marginal statutory rates imposed
on such Person for the relevant period, as
such composite rate shall be certified by a
financial officer of such Person, and (iii)
income taxes (if any) imposed by countries
outside the United States at the actual
rates imposed on such Person) the net
1
<PAGE>
amount received is the amount of the
Required Payment.
Agreed Maintenance Performer the Lessee, Continental Airlines Inc., USAir
Inc., or any other person agreed to from
time to time in writing by Lessor.
Agreed Maintenance Program the Maintenance Program agreed to from time
to time in writing by Lessor.
Agreed Value the amount specified for Agreed Value in
Letter Agreement No. 1.
Air Authority Federal Aviation Administration ("FAA").
Aircraft the aircraft described in Part 1 of
Schedule 1, (which term includes where the
context admits a separate reference to all
Engines, Parts and Aircraft Documents) or
any aircraft substituted in place thereof
pursuant to Clause 11.1 or 11.2.
Aircraft Documents the documents, data and records identified
in Part 2 of Schedule 1 and all additions,
renewals, revisions and replacements from
time to time made in accordance with this
Agreement.
Airframe the Aircraft, excluding the Engines and
Aircraft Documents.
Appraisal Procedure the following procedure for determining the
"fair market rental value" of the Aircraft:
(a) Lessor shall select an independent
aircraft appraiser who shall make a
determination of "fair market rental value"
of the Aircraft; and (b) the fees and
expenses of the appraiser shall be paid by
Lessee. "Fair market rental value" shall
mean the value determined by an appraisal
completed on an "as-is" and "where-is"
basis.
APU the auxiliary power unit installed on the
Aircraft on the Delivery Date and any
replacement auxiliary power unit installed
in accordance with this Agreement.
2
<PAGE>
Boeing The Boeing Company, a Delaware corporation
with its principal office in Seattle, State
of Washington, U.S.A.
Business Day a day (other than a Saturday or Sunday) on
which business of the nature required by
this Agreement is carried out in the State
of Incorporation or where used in relation
to payments on which banks are open for
business in San Francisco and New York.
Certificated Air Carrier any Person (except the United States
Government) that is a citizen of the United
States of America (as defined in Section
40102 of Title 49 of the United States Code)
and holding a Certificate of Public
Convenience and Necessity issued under
Section 41102 of Title 49 of the United
States Code by the Department of
Transportation or any predecessor or
successor agency thereto, or, in the event
such certificates shall no longer be issued,
any Person (except the United States
Government) that is a citizen of the United
States of America (as defined in Section
40102 of Title 49 of the United States Code)
and legally engaged in the business of
transporting for hire passengers or cargo by
air predominantly to, from or between points
within the United States of America, and, in
either event, operating commercial jet
aircraft capable of carrying ten or more
individuals or 6,000 pounds or more of
cargo, which also is certificated so as to
entitle Lessor, as a lessor, to the benefits
of Section 1110 of Title 11 of the United
States Code with respect to the Aircraft.
Cold Section Refurbishment with respect to any Engine the completion of
the following: completely unstacking either
high or low or both compressor sections, if
needed, and completing the following for the
appropriate section(s): visual inspection;
de-blading discs as necessary; visual
inspections of all discs; verification that
all snap diameters on discs are within
limits;
3
<PAGE>
inspection of all blades for proper chord
dimensions and cracking; repair or
replacement of blades below minimums;
inspection and repair of stators as
necessary; blade-up of discs using new lock
plates; assembly of rotors in the
compressor; balance of all rotors; and
installation of rotors in the engine.
Cycle one take-off and landing of the Aircraft.
Damage Notification
Threshold the amount specified therefor in Letter
Agreement No. 1.
Default any Event of Default and any event which
with the giving of notice, lapse of time,
determination of materiality or fulfillment
of other condition would constitute an Event
of Default.
Delivery Condition
Requirements the requirements specified on Part 1 of
Schedule 1.
Delivery Date the date on which the Aircraft is tendered
for delivery by Lessor in accordance with
this Agreement.
Delivery Location Oklahoma City, Oklahoma, United States.
Deposit all amounts payable pursuant to Clause 5.1.
Dollars and $ the lawful currency of the United States of
America.
Engine whether or not installed on the Aircraft:-
(a) each engine of the manufacture and model
specified in Part 1 of Schedule 1 (each
of which has 750 or more rated takeoff
horsepower or the equivalent of such
horsepower) which Lessor elects to
tender to Lessee with the Aircraft on
the Delivery Date, such engines being
described as to serial numbers on the
certificate of acceptance to be executed
4
<PAGE>
by Lessee upon delivery of the Aircraft;
or
(b) any engine which has replaced that
engine, title to which has or should
have, passed to Lessor in accordance
with this Agreement;
and in each case includes all modules and
Parts from time to time belonging to or
installed in that engine but excludes any
properly replaced engine title to which has,
or should have, passed to Lessee pursuant to
this Agreement.
Engine Event of Loss the occurrence with respect to an Engine
only, whether or not installed on the
Airframe, of any of those events described
in provisions (a) through (d) of the
definition of Event of Loss.
Engine Flight Hour means each hour or part thereof an Engine is
operated, elapsing from the moment that
wheels of an aircraft on which such Engine
is installed leave the ground until the
wheels of such aircraft next touch the
ground.
Engine Refurbishment a complete disassembly, inspection and
repair of any module of an Engine per the
engine manufacturer's maintenance manual.
ERISA the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default an event or condition specified in
Clause 13.1.
Event of Loss with respect to the Aircraft (including for
the purposes of this definition the
Airframe):-
(a) the actual or constructive total loss
of the Aircraft (including any damage
to the Aircraft which results in an
insurance settlement on the basis of a
total loss, or requisition for use or
hire which results in an insurance
5
<PAGE>
settlement on the basis of a total
loss); or
(b) it being destroyed, damaged beyond
repair or permanently rendered unfit
for normal use for any reason
whatsoever; or
(c) the requisition of title, or other
compulsory acquisition, capture,
seizure, deprivation, confiscation or
detention for any reason of the
Aircraft by the government of the State
of Registration or other competent
authority (whether de jure or de
facto), but excluding requisition for
use or hire not involving requisition
of title; or
(d) the hi-jacking, theft, condemnation,
confiscation, seizure or requisition
for use or hire of the Aircraft which
deprives any person permitted by this
Agreement to have possession and/or use
of the Aircraft of its possession
and/or use for more than 15 days (or,
if earlier, beyond the Expiry Date).
Excusable Delay with respect to delivery of the Aircraft,
delay or non-performance due to or arising
out of acts of God or public enemy, civil
war, insurrection or riot, fire, flood,
explosion, earthquake, accident, epidemic,
quarantine restriction, any act of
government, governmental priority,
allocation, regulation or order affecting
directly or indirectly, the Aircraft, any
manufacturer, Lessor or any materials or
facilities, strike or labor dispute causing
cessation, slowdown or interruption of work,
inability after due and timely diligence to
procure equipment, data or materials from
manufacturers, suppliers, any existing
owner, seller or lessee in a timely manner,
damage, destruction or loss, or any other
cause to the extent that such cause is
beyond the control of Lessor whether
6
<PAGE>
above mentioned or not and whether or not
similar to the foregoing.
Expiry Date the day preceding the day which is the 60th
monthly anniversary of the Delivery Date or
if earlier the date on which:-
(a) the date Lessor, acting in accordance
with the terms of this Agreement
terminates the leasing of the Aircraft
to Lessee under this Agreement; or
(b) Lessor receives the Agreed Value
together with any other amounts then
due and unpaid by Lessee following an
Event of Loss.
FAA the Federal Aviation Administration of the
United States of America and any successor
thereof.
FAR the Federal Aviation Regulations set forth
in Title 14 of the United States Code of
Federal Regulations, as amended and modified
from time to time.
Federal Aviation Act The Transportation Laws of the United States
as set forth at 49 United States Code et
--
seq. or any similar legislation of the
---
United States of America enacted in
substitution or replacement thereof.
Financing Statements Uniform Commercial Code Financing Statements
in respect of the Aircraft and Engines
leased hereunder prepared in a form
acceptable for filing with the applicable
Government Entities in the Habitual Base,
the state in which the chief executive
office (as that term is defined in Article 9
of the Uniform Commercial Code as in effect
in the Habitual Base) and such other
jurisdiction as Lessor shall reasonably
require.
Flight Hour each hour or part thereof (rounded up to two
decimal places) elapsing from the moment the
wheels of the Aircraft leave the ground
7
<PAGE>
on take off until the wheels of the Aircraft
next touch the ground.
GAAP generally accepted accounting principles in
the United States.
Governing Law the laws of the State of California.
Government Entity (a) any national government, political
subdivision thereof, or local
jurisdiction therein;
(b) any instrumentality, board, commission,
court, or agency of any thereof,
however constituted; and
(c) any association, organization, or
institution of which any of the above
is a member or to whose jurisdiction
any thereof is subject or in whose
activities any of the above is a
participant.
Gross Negligence means any intentional, conscious or
voluntary action or decision which is taken
with wanton, reckless, flagrant and culpable
disregard for the consequences of such
action or decision.
Habitual Base the State of Colorado or, subject to the
prior written consent of Lessor, any other
state, country or countries in which the
Aircraft is for the time being habitually
based.
Hot Section Refurbishment with respect to any Engine, the complete
visual inspection and repair as necessary of
the combustion section of an Engine in an
engine repair/overhaul station including
without limitation complete unstacking of
the high pressure or low pressure turbine or
both if needed; complete visual inspection;
de-blading of discs as required; visual
inspections of all discs; verification that
all snap diameters on discs are within
limits; inspection of all blades for proper
chord dimensions and cracking; repair or
8
<PAGE>
replacement of all blades below minimums;
inspection and repair of stators as
necessary; blade-up of discs using new
retaining rings; assembly of rotors in the
turbine; balance of all rotors; and
installation of rotors in the engine.
Indemnitee each of GE Capital Aviation Services, Inc.
("GECASI"), GE Capital Aviation Services
Limited ("GECASL") and Lessor, including,
any of their respective successors and
assigns, shareholders, subsidiaries,
affiliates, partners, contractors,
directors, officers, servants, agents and
employees and indemnitees; provided,
however, that no such Indemnitee shall be
entitled to an indemnification to the extent
such Indemnitee is manufacturer of the
Aircraft, any Engines, or Parts in its
capacity as such.
Insurances as defined in Clause 9.1 hereof.
Landing Gear the landing gear assembly of the Aircraft
excluding any rotable components.
Law shall mean and include (a) any statute,
decree, constitution, regulation, order
judgment or other directive of any
Governmental Entity; (b) any treaty, pact,
compact or other agreement to which any
Governmental Entity is a signatory or party;
(c) any judicial or administrative
interpretation or application of any Law
described in (a) or (b) above; and (d) any
amendment or revision of any Law described
in (a), (b) or (c) above.
Lease Supplement a Lease Supplement, substantially in the
form of Schedule 6 hereto, entered into
between Lessor and Lessee.
Lessor Lien (a) any Security Interest whatsoever from
time to time created by or through
Lessor in connection with the financing
of the Aircraft;
9
<PAGE>
(b) any other Security Interest in respect
of the Aircraft which results from acts
of or claims against Lessor not related
to the transactions contemplated by or
permitted under this Agreement; and
(c) Security Interests in respect of the
Aircraft for Lessor Taxes.
Lessor Taxes Taxes:-
(a) imposed as a direct result of
activities of Lessor in the
jurisdiction imposing the Tax unrelated
to Lessor's dealings with Lessee or to
the transactions contemplated by this
Agreement or the operation of the
Aircraft by Lessee; or
(b) imposed on the net income, profits or
gains of Lessor by any Government Entity
in the United State of America;
provided, however, that Lessor Taxes
-------- -------
shall not include any Tax imposed by any
government or taxing authority of any
jurisdiction if and to the extent that
such Tax results from (i) the use,
operation, presence or registration of
the Aircraft, the Airframe, any Engine
or any Part in the jurisdiction imposing
the Tax, or (ii) the situs of
organization, any place of business or
any activity of Lessee or any other
Person having use, possession or custody
of the Aircraft, the Airframe, any
Engine or any Part in the jurisdiction
imposing the Tax; or
(c) imposed with respect to any period
commencing or event occurring after the
Expiry Date and unrelated to Lessor's
dealings with Lessee or to the
transactions contemplated by this
Agreement;
10
<PAGE>
provided always, that Lessor Taxes shall not
include any income taxes or other amounts
payable and subject to indemnification in
favor of Lessor pursuant to the Tax
Indemnity Agreement.
Letter Agreement No. 1 that certain Letter Agreement No. 1 between
Lessor and Lessee dated as of the date
hereof.
Maintenance Program an Air Authority approved maintenance
program for the Aircraft encompassing
scheduled maintenance (including block
maintenance), condition monitored
maintenance, and/or on-condition maintenance
of Airframe, Engines and Parts, including
but not limited to, servicing, testing,
preventive maintenance, repairs, structural
inspections, system checks, overhauls,
approved modifications, service bulletins,
engineering orders, Airworthiness
directives, corrosion control, inspections
and treatments.
Maintenance Reserves all amounts payable under Clause 5.4(a).
Major Checks any C-Check, multiple C-Check, D-Check or
annual heavy maintenance visit or segment
thereof suggested for commercial aircraft of
the same model as the Aircraft by its
manufacturer (however denominated) as set
out in the Agreed Maintenance Program.
Manufacturer Boeing.
Minimum Liability Coverage the amount set forth therefore in Letter
Agreement No. 1.
Mortgage Convention shall mean the Convention for the
International Recognition of Rights in
Aircraft, signed (ad referendum) at Geneva,
Switzerland, on June 19, 1948, and amended
from time to time, but excluding the terms
of any adhesion thereto or ratification
thereof
11
<PAGE>
containing reservations to which the
United States of America does not accede.
Operative Documents shall mean this Agreement, all Lease
Supplements hereto, Letter Agreement No. 1,
the Tax Indemnity Agreement, that certain
Letter Agreement Concerning Warrants dated
as of [April 3, 1996] by Lessee to Lessor,
the Warrant Certificate dated [April 3,
1996] issued by Lessee to Lessor, any
schedules or documents prepared in
conformance to the Schedules hereto, any
side-letters related hereto and any
amendments, revisions, supplements or
modifications hereto or thereto.
Other Agreements any agreement (other than this Agreement)
made or to be made between Lessor (or an
associate or affiliate thereof including
without limitation General Electric Capital
Corporation) or GPA Group plc (or an
associate or affiliate thereof) and Lessee
(or an associate or affiliate thereof).
Part whether or not installed on the Aircraft:-
(a) any component, furnishing or equipment
(other than a complete Engine)
furnished with the Aircraft on the
Delivery Date; and
(b) any other component, furnishing or
equipment (other than a complete
Engine) title to which has, or should
have passed to Lessor pursuant to this
Agreement;
but excludes any such items title to
which has, or should have, passed to
Lessee pursuant to this Agreement.
Permitted Lien (a) any lien for Taxes not assessed or, if
assessed, not yet due and payable, or
being contested in good faith by
appropriate proceedings;
12
<PAGE>
(b) any lien of a repairer, mechanic,
carrier, hangarkeeper or other similar
lien arising in the ordinary course of
business or by operation of Law in
respect of obligations which are not
overdue or are being contested in good
faith by appropriate proceedings; and
(c) any Lessor Lien.
but only if (in the case of both (a) and
(b)) (i) adequate resources have been
provided by Lessee for the payment of the
Taxes or obligations; and (ii) such
proceedings, or the continued existence of
the lien, do not give rise to any likelihood
of the sale, forfeiture or other loss of the
Aircraft or any interest therein or of
criminal liability on Lessor.
Person any individual person, corporation,
partnership, firm, joint stock company,
joint venture, trust, estate, unincorporated
organization, association, Government
Entity, or organization or association of
which any of the above is a member or a
participant.
Previous Operator Aero Costa Rica, S.A. (ACORI).
Redelivery Location A location designated by Lessor in the
continental United States no further
distance from Denver, Colorado than is JFK
International Airport, New York City, New
York or such other location as Lessor and
Lessee shall agree.
Replacement Engine an engine of the same manufacturer and
model, and having equivalent value, utility,
modification status, time elapsed since Hot
Section Refurbishment and Cold Section
Refurbishment and remaining warranty status
as the Engine it is intended to replace
under Clause 11.1(c), or at Lessee's option,
an engine of the same manufacturer as such
Engine but of an improved model, and
13
<PAGE>
otherwise of an equivalent value and utility
and suitable for installation and use on the
Airframe without impairing the value or
utility of the Airframe and compatible with
the remaining installed Engine.
Rent all amounts payable pursuant to Clause 5.3.
Rental Period each period ascertained in accordance with
Clause 5.2.
Rent Date the first day of each Rental Period.
Return Occasion the date on which the Aircraft is
redelivered to Lessor in accordance with
Clause 12 hereof.
Scheduled Delivery Month June, 1996.
Security Interest any mortgage, charge, pledge, lien,
assignment, hypothecation, right of set-off
or any agreement or arrangement having the
effect of creating a Security Interest other
than a Permitted Lien.
State of Incorporation State of Colorado.
State of Registration United States of America.
Subsidiary (a) in relation to any reference to
accounts, any company whose accounts
are consolidated with the accounts of
Lessee in accordance with GAAP;
(b) for any other purpose an entity from
time to time:-
(i) of which another has direct or
indirect control or owns directly
or indirectly more than 50 per
cent of the voting share capital;
or
(ii) which is a direct or indirect
subsidiary of another under
14
<PAGE>
the laws of the jurisdiction of
its incorporation.
Tax Indemnity Agreement the Tax Indemnity Agreement of even date
herewith between Lessee and Lessor
pertaining to U.S. Federal Income Taxes and
Lessee operations outside the United States
of America.
Taxes any and all present and future taxes,
duties, withholdings, levies, assessments,
imposts, fees and other governmental charges
of all kinds together with any penalties,
fines, surcharges and interest thereon and
any additions thereto.
Term the period commencing on the Delivery Date
and ending on the Expiry Date, except that
the Term may be extended beyond the Expiry
Date if the Return Occasion is delayed in
the circumstances specified, and subject to
the limitation described, in Clause 12.3.
United States the United States of America
Warrant the warrant referred to in
Clause 3.1(a)(xii).
Wet Lease any arrangement whereby Lessee agrees to
furnish the Aircraft to a third party
pursuant to which the Aircraft (i) shall be
solely within the operational control of
Lessee and shall be operated solely by
regular employees of Lessee possessing all
current certificates and licenses that would
be required under the Federal Aviation Act
for the performance by such employees of
similar functions within the United States
of America, (ii) shall be maintained by
Lessee in accordance with the Agreed
Maintenance Program and (iii) shall be and
remain subject and subordinate to all other
terms and conditions of this Agreement;
provided, however, that Lessee shall remain
primarily liable for the performance of all
of the terms of this Agreement (including,
without limitation, its
15
<PAGE>
obligations set forth in Clause 9 of this
Agreement) to the same extent as if such
arrangement had not been entered into.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a reference
to:-
(i) each of "Lessor" or "Lessee" or any other person includes without
prejudice to the provisions of this Agreement any successor in
title to it and any permitted assignee;
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated or
supplemented;
(iv) a Clause or a Schedule is a reference to a clause of or a schedule
to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and warrants to
Lessor that:-
(a) Status: Lessee is a corporation duly incorporated and validly existing
under the laws of the State of Incorporation and has the corporate power
to own its assets and carry on its business as it is being conducted and
is the holder of all necessary air transportation licenses required in
connection therewith and with the use and operation of the Aircraft;
(b) Power and authority: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) Legal validity: this Agreement has been duly entered into and delivered by
Lessee, and this Agreement does, and the Operative Documents when executed
and delivered by Lessee will, constitute legal, valid and binding
obligations of Lessee, enforceable in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting the enforcement
of creditors' rights generally, and, to the extent that certain remedies
require or may require enforcement by a court of equity, by such
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) as a court having
jurisdiction may impose and by Laws which may affect some of such
16
<PAGE>
remedies but which do not make the available remedies inadequate for the
substantial realization of the benefits provided herein;
(d) Non-conflict: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding
upon Lessee or any of its assets nor result in the creation of any
Security Interest over any of its assets;
(e) Authorization: all authorizations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are (or
will on their being obtained or effected be) in full force and effect;
(f) No Immunity:
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of this Agreement by
Lessee constitute private and commercial acts;
(g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries
most recently delivered to Lessor, including balance sheets and statements
of income and retained earnings:-
(i) have been prepared in accordance with GAAP; and
(ii) fairly represent the consolidated financial condition of Lessee and
its Subsidiaries as at the date to which they were drawn up;
(h) Restricted Countries: Lessee does not hold a contract or other obligation
to operate the Aircraft to or for any of the countries designated under
U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without
limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb
controlled areas of the Republic of Bosnia and Herzegovina and the Unita
Rebels of Angola.
17
<PAGE>
(i) Chief Executive's Office: Lessee's Chief Executive Office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in the
State of Colorado) is located at 12015 East 46th Avenue, Denver, Colorado,
United States of America;
(j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits
of Section 1110 of Title 11 of the United States Code with respect to the
Aircraft; and
(j) Citizen of the United States: Lessee is a "citizen of the United States"
as defined in Section 40102 of Title 49 of the United States Code.
2.2 Lessee's Further Representations and Warranties: Lessee further represents
and warrants to Lessor that:-
(a) No Default:
(i) no Default has occurred and is continuing or might result from the
entry into or performance of the Operative Documents; and
(ii) no other event or condition has occurred and is continuing which
constitutes (or with the giving of notice, lapse of time,
determination of materiality or the fulfillment of any other
applicable condition or any combination of the foregoing, might
constitute) a material default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding
on Lessee or any assets of Lessee;
(b) Registration:
(i) except for the filing for recordation of this Agreement and a Lease
Supplement with the FAA, and the filing of any Financing Statements
required (and continuation statements at periodic intervals), no
further filing or recording of this Agreement or of any other
document (including any financing statement under Article 9 of the
Uniform Commercial Code) and no further action, is or will be
necessary under the Laws of the United States, the State of
Incorporation, and the State of Registration, the Habitual Base or
any other states in order to (A) fully establish, perfect and
protect Lessor's title to, and interest in, the Aircraft or any
Engine or Part as against Lessee or any third party, or (B) ensure
the validity, effectiveness and enforceability of this Agreement or
any other Operative Document to which the Lessee is a party; and
(ii) under the laws of the State of Incorporation, the State of
Registration and the Habitual Base the property rights of Lessor in
the Aircraft have been fully established, perfected and protected
and this Agreement will have priority in all respects over the
claims of all creditors of Lessee;
18
<PAGE>
(c) Litigation: no litigation, arbitration or administrative proceedings are
pending or to its knowledge threatened against Lessee which, if adversely
determined, would have a material adverse effect upon its financial
condition or business or its ability to perform its obligations under this
Agreement;
(d) Pari Passu: the obligations of Lessee under the Operative Documents rank
at least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of Lessee,
with the exception of such obligations as are mandatorily preferred by law
and not by virtue of any contract;
(e) Material Adverse Change: there has been no material adverse change in the
consolidated financial condition of Lessee and its Subsidiaries or the
financial condition of Lessee since the date to which the accounts most
recently provided to Lessor on or prior to the Delivery Date were drawn
up;
(f) Taxes: Lessee has delivered all necessary returns and payments due to the
tax authorities in the State of Incorporation, the State of Registration
and the Habitual Base and is not required by Law to deduct any Taxes from
any payments under this Agreement;
(g) Information: the financial and other information furnished by Lessee in
connection with this Agreement does not contain any untrue statement or
omit to state facts, the omission of which makes the statements therein,
in the light of the circumstances under which they were made, misleading,
nor omits to disclose any material matter to Lessor and all forecasts and
opinions contained therein were honestly made on reasonable grounds after
due and careful inquiry by Lessee; and
(h) ERISA: Lessee is not engaged in any transaction in connection with which
it could be subjected to either a civil penalty assessed pursuant to
Section 502 of ERISA or any tax imposed by Section 4975 of the Internal
Revenue Code; no material liability to the Pension Benefit Guaranty
Corporation has been or is expected by Lessee to be incurred with respect
to any employee pension benefit plan (as defined in Section 3 of ERISA)
maintained by Lessee or by any trade or business (whether or not
incorporated) which together with Lessee would be treated as a single
employer under Section 4001 of ERISA and Section 414 of the Internal
Revenue Code; there has been no reportable event (as defined in Section
4043(b) of ERISA) with respect to any such employee pension benefit plan;
no notice of intent to terminate any such employee pension benefit plan
has been filed or is expected to be filed, nor has any such employee
pension benefit been terminated; no circumstance exists or is anticipated
that constitutes or would constitute grounds under Section 4042 of ERISA
for the Pension Benefit Guaranty Corporation to institute proceedings to
terminate, or to appoint a trustee to manage the administration of, such
an employee pension benefit plan; and no accumulated funding deficiency
(as defined in Section 302 of ERISA or Section 412 of the Internal Revenue
Code), whether or not waived, exists with respect to any such employee
pension benefit plan; and
19
<PAGE>
2.3 Repetition: The representations and warranties in Clause 2.1 and Clause 2.2
will survive the execution of this Agreement. The representations and
warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be
repeated by Lessee on the Delivery Date with reference to the facts and
circumstances then existing. The representations and warranties contained
in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as
if made with reference to the facts and circumstances then existing.
2.4 Lessor's Representations and Warranties: Lessor represents and warrants to
Lessee that:-
(a) Status: Lessor is a company duly incorporated and validly existing under
the laws of the State of Delaware and has the corporate power to own its
assets and carry on its business as it is now being conducted;
(b) Power and authority: Lessor has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, the Operative Documents and the
transactions contemplated by the Operative Documents;
(c) Legal validity: the Operative Documents constitute Lessor's legal, valid
and binding obligation;
(d) Non-conflict: the entry into and performance by Lessor of, and the
transactions contemplated by, the Operative Documents do not and will
not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any of
its assets;
(e) Authorization: so far as concerns the obligations of Lessor, all
authorizations, consents, registrations and notifications required under
the laws of the State of Delaware in connection with the entry into,
performance, validity and enforceability of, and the transactions
contemplated by, the Operative Documents by Lessor have been (or will on
or before the Delivery Date have been) obtained or effected (as
appropriate) and are (or will on their being obtained or effected be) in
full force and effect; and
(f) No Immunity:
(i) Lessor is subject to civil commercial law with respect to its
obligations under the Operative Documents; and
(ii) neither Lessor nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Operative
Documents by Lessor constitute private and commercial acts.
20
<PAGE>
3. CONDITIONS PRECEDENT
3.1 Conditions Precedent: Lessor's obligation to deliver and lease the Aircraft
under this Agreement is subject to satisfaction of each of the following
conditions:-
(a) receipt by Lessor from Lessee not later than 5 Business Days prior to the
Delivery Date of the following satisfactory in form and substance to
Lessor:-
(i) Constitutional Documents: a copy of the constitutional documents of
Lessee including without limitation articles of incorporation,
bylaws and a current certificate of good standing issued by the
secretary of the state for the State of Incorporation;
(ii) Resolutions: a copy of a resolution of the board of directors of
Lessee approving the terms of, and the transactions contemplated by,
this Agreement, resolving that it enter into this Agreement, and
authorizing a specified person or persons to execute this Agreement
and the other Operative Documents and accept delivery of the
Aircraft on its behalf;
(iii) Opinion: evidence that opinions substantially in the form of
Schedule 5 will be issued on the Delivery Date by legal counsel
acceptable to Lessor;
(iv) FAA Opinion: a draft of an opinion of Crowe & Dunlevy P.C. or other
counsel acceptable to Lessor who are recognized specialists with
regard to FAA registration matters in form acceptable to Lessor as
to the due filing for recordation of this Agreement, to be delivered
in executed final form to Lessor and Lessee upon such filing and
recordation;
(v) Approvals: evidence of the issue of each approval, license and
consent which may be required in relation to, or in connection with,
the performance by Lessee of any of its obligations hereunder
(including, without limitation, any consent to the export of the
Aircraft from the Habitual Base and consent to the deregistration of
the Aircraft upon the termination of the leasing of the Aircraft
under this Agreement);
(vi) Licenses: copies of Lessee's Certificate of Convenience and
Necessity, Radio License, FAR Part 121 operator's certificates and
all other licenses, certificates and permits required by Lessee in
relation to, or in connection with, the operation of the Aircraft;
(vii) Process Agent: a letter from the process agent appointed by Lessee
in this Agreement accepting that appointment;
(viii)Certificate: a certificate of a duly authorized officer of
Lessee:-
(a) setting out a specimen of each signature referred to in
Clause 3.1(a)(ii);
21
<PAGE>
(b) certifying that each copy document specified in this Clause
is correct, complete and in full force and effect;
(c) certifying that Lessee's representations and warranties
contained in Clause 2.1 and 2.2 are true and correct on the
Delivery Date as if given on such date; and
(d) certifying that there has been no material change in Lessee's
Constitutional Documents since originally delivered by Lessee
to Lessor.
(ix) Air Traffic Control: a letter from Lessee addressed to Transport
Canada or other relevant air traffic control authority pursuant to
which Lessee authorizes the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of all
sums due by Lessee to the authority in respect of all aircraft
(including, without limitation, the Aircraft) operated by Lessee;
(x) Deregistration Power: an irrevocable power of attorney authorizing
Lessor or such other person as Lessor may from time to time specify
to do any thing or act or to give any consent or approval which may
be required to obtain deregistration of the Aircraft and to export
the Aircraft from the Habitual Base upon termination of the leasing
of the Aircraft under this Agreement, duly notarized and legalized;
(xi) Certificate of Lease Termination: a certificate of lease
termination executed by a duly authorized officer of Lessee,
substantially in the form of Schedule 7 hereto, acknowledging that
this Agreement is no longer in effect with respect to the Aircraft
and Engines, which certificate Lessor will hold in escrow to be
filed at the FAA upon the expiration of the Term or other
termination of the leasing of the Aircraft to the Lessee hereunder;
(xii) Warrant: evidence of the grant by Lessee to Lessor of a warrant
entitling Lessor to purchase 70,000 shares of Lessee's common stock
no par value at an exercise price for each such shares of $7.19,
such shares carrying demand registration rights by Lessor and such
other rights as Lessor may require. It is understood and
acknowledged that upon delivery of the Aircraft, such warrant shall
be deemed solely as additional consideration to induce Lessor to
deliver the Aircraft to Lessee and shall then and thereafter cease
to have any attribute or character of a security or other deposit.
Such warrant shall expire at 5:00 pm, Denver, Colorado, local time
on the Expiry Date; and
(xiii) General: such other documents as Lessor may reasonably request;
(b) the receipt by Lessor on or before the Delivery Date of:-
22
<PAGE>
(i) Opinions: a signed original of each of the opinions referred to in
Clause 3.1(a)(iii) and 3.1(a)(iv);
(ii) Payments: all sums due to Lessor under this Agreement on or before
the Delivery Date including, without limitation, the first payment
of Rent;
(iii) Insurances: certificates of insurance, an undertaking from Lessee's
insurance broker and other evidence satisfactory to Lessor that
Lessee is taking the required steps to ensure due compliance with
the provisions of this Agreement as to Insurances with effect on and
after the Delivery Date;
(iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be
dated the Delivery Date, fully completed and executed by Lessor and
Lessee, and filed for recording at the FAA;
(v) Certificate of Technical Acceptance: in the form of Schedule 2
hereto, to be dated and fully completed, and executed by Lessor and
Lessee certifying that Lessee has completed its inspection of the
Aircraft in accordance with Clause 4.5 hereof and that Aircraft
conforms to the provisions set forth therein and is in all respects
acceptable to Lessee, or if not so acceptable, then setting forth
discrepancies and corrective action to be taken;
(vi) Accounts: the latest available accounts of Lessee as described in
Clause 8.2(b)(i) and (ii);
(vii) Documents: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Delivery Date;
(viii)UCC-1 Financing Statements: in form acceptable to Lessor, and
suitable for filing in the States of Colorado and California and
signed by Lessee.
(ix) General: such other documents as Lessor may reasonably request;
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Program as Lessor may require and Lessor having
agreed the proposed Maintenance Program on or prior to the Delivery Date;
and
(d) evidence that on the Delivery Date that all filings, registrations,
recordings and other actions have been or will be taken which are
necessary or advisable to ensure the validity, effectiveness and
enforceability of this Agreement and to protect the property rights of
Lessor in the Aircraft or any Part.
3.2 Further conditions precedent: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are
correct and would be correct if repeated on delivery of the Aircraft under
this Agreement; and
23
<PAGE>
(b) no Default has occurred and is continuing or might result from the leasing
of the Aircraft to Lessee under this Agreement.
3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole
benefit of Lessor and may be waived or deferred in whole or in part and
with or without conditions by Lessor. If any of those conditions are not
satisfied on the Delivery Date and Lessor (in its absolute discretion)
nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure
that those conditions are fulfilled within 15 days after the Delivery Date
and Lessor may treat as an Event of Default the failure of Lessee to do
so.
4. COMMENCEMENT
4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the
Aircraft on lease in accordance with this Agreement for the duration of
the Term. Lessor will deliver and Lessee will accept the Aircraft on the
day in the Scheduled Delivery Month notified by Lessor to Lessee at least
5 Business Days in advance of such date or such other day as may be
agreed. In the event (a) Lessee is unwilling or unable to accept delivery
of the Aircraft on the date notified by Lessor as the Delivery Date, and
(b) the Aircraft meets Delivery Condition Requirements then Lessee's
obligation to pay Rent hereunder shall commence on such Delivery Date
notwithstanding that Lessee has not accepted possession of the Aircraft.
After delivery the Aircraft and every Part will be in every respect at the
sole risk of Lessee, who will bear all risk of loss, theft, damage or
destruction to the Aircraft from any cause whatsoever.
4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the
Delivery Location or such other location as may be agreed. Lessee will
effect acceptance of the Aircraft by execution and delivery to Lessor of
the duly completed and executed Certificate of Acceptance in the form of
Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the
form of Schedule 6 hereto and by authorizing the filing at the FAA of an
executed copy of such Lease Supplement with an executed copy of this
Agreement attached thereto.
4.3 Delayed Delivery: If owing to:-
(a) any seller, manufacturer or existing lessee of the Aircraft delaying in
the delivery of, or failing to deliver, the Aircraft to Lessor for any
reason (other than because of any default of Lessor in the performance of
its obligations under an agreement with that seller, manufacturer or
lessee unless the default arises from any act or omission of Lessee)
whether or not in circumstances entitling that seller, manufacturer or
lessee to terminate that agreement;
(b) any purchase agreement for the Aircraft terminating prior to delivery of
the Aircraft (other than because of any default of Lessor in the
performance of its obligations under that agreement unless the default
arises from any act or omission of Lessee);
(c) any Excusable Delay; or
24
<PAGE>
(d) notification of any defect or non-conformity pursuant to Clause 4.5;
Lessor delays in the delivery of, or fails to deliver, the Aircraft under
this Agreement:-
(i) Lessor will not be responsible for any losses, including loss of
profit, costs or expenses arising from or in connection with the
delay or failure suffered or incurred by Lessee;
(ii) subject to Clause 4.5, Lessee will not be entitled to terminate this
Agreement or to reject the Aircraft when tendered for delivery by
Lessor, on the grounds of any such delay;
(iii) in the case of termination of a purchase agreement, Lessor may at
any time after the termination terminate this Agreement; and
(iv) upon any such termination or termination pursuant to Clause 4.5
neither Lessor nor Lessee will have any further obligation to the
other under this Agreement other than as expressly set out in this
Agreement, except that Lessor will repay to Lessee the Deposit and
shall return the warrant certificate representing the Warrant.
4.4 Licenses: Lessee will at its expense obtain all licenses, permits and
approvals which may be necessary to export the Aircraft from the Delivery
Location. Lessor will furnish such data and information as may be
reasonably requested by Lessee in connection with obtaining any such
license, permit or approval.
4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase
or lease agreement, Lessor will give Lessee an opportunity:-
(a) to inspect the Aircraft at the Delivery Location; and
(b) to assign up to 2 representatives to participate as observers in a
demonstration flight to demonstrate the condition of the Aircraft.
If Lessee notifies Lessor promptly prior to the Delivery Date of any
defect or non-conformity with Schedule 1 observed during the inspection or
demonstration flight, Lessor will correct or procure the correction of the
defect or non-conformity as promptly as practicable (except to the extent
otherwise agreed or to the extent in the opinion of Lessor it is
impracticable or prohibitively expensive to do so). Subject to Clause
4.3, Lessor may postpone the Delivery Date in such a case to the date
which Lessor notifies Lessee that the defect or non-conformity has been
rectified. Lessee will be entitled to terminate this Agreement if Lessor
notifies it that Lessor does not intend to correct the defect or non-
conformity.
4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from
and against all Claims (as defined in Clause 10) arising from death or
injury to any observer or any
25
<PAGE>
employee of Lessee in connection with any demonstration flight or
inspection of the Aircraft by Lessee.
5. PAYMENTS
5.1 Deposit: Lessee shall pay to Lessor a Deposit in the amounts set forth in
the definition of that term in Letter Agreement No. 1 and in accordance
with the schedule set forth therein. So long as no Default or Event of
Default then exists, Lessor shall refund to Lessee all Deposits then held
by Lessor upon return and final acceptance of the Aircraft by Lessor on
the Expiry Date or promptly after receipt of the Agreed Value after an
Event of Loss.
5.2 Rental Periods: The Term will consist of consecutive whole or partial
Rental Periods set forth in Letter Agreement No. 1. The first Rental
Period will commence on the Delivery Date and each subsequent Rental
Period will commence on the date succeeding the last day of the previous
Rental Period. Each Rental Period will end on the date immediately
preceding the calendar day in the next month numerically corresponding to
the Delivery Date, except that:
(a) if there is no such numerically corresponding day in that month, it will
end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will end on
the Expiry Date.
5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in
advance in the amount specified as "Rent" in Letter Agreement No. 1.
Payment must be initiated adequately in advance of the Rent Date to ensure
that Lessor receives credit for the payment on the Rent Date. If a Rental
Period begins on a non-Business Day, the Rent payable in respect of that
Rental Period shall be paid on the Business Day immediately preceding the
date on which such Rental Period commences.
5.4 Maintenance Reserves:
(a) Amount: Lessee will further pay to Lessor Maintenance Reserves in
relation to each calendar month or portion thereof during the Term (and
for the last Rental Period of the Term, or portion thereof, payment shall
be on the Expiry Date) no later than the 10th day following the end of
that calendar month as follows:-
(i) in respect of the Airframe, the product of the Airframe Maintenance
Reserve Rate specified in Letter Agreement No. 1 and the number of
Flight Hours operated by the Aircraft during that calendar month
("Airframe Maintenance Reserves"); and
(ii) in respect of the life-limited Parts ("LLP") for each Engine, the
product of the Life-Limited Parts Reserve Rate specified in Letter
Agreement No. 1 and the
26
<PAGE>
number of Engine Flight Hours (or fraction thereof) operated by the
Engine during that calendar month ("Engine LLP Refurbishment
Reserves"); and
(iii) in respect of Engine Refurbishment for each Engine, the product of
the Engine Refurbishment Reserve Rate specified in Letter Agreement
No. 1 and the number of Engine Flight Hours (or fraction thereof)
operated by the Engine during that calendar month ("Engine
Refurbishment Reserves"); and
(iv) in respect of the Landing Gear, the product of the Landing Gear
Reserve Rate specified in Letter Agreement No. 1 and the number of
Flight Hours operated by the Landing Gear during that calendar month
("Landing Gear Maintenance Reserves").
(b) Adjustment: Lessor may adjust the amount of Maintenance Reserves after the
Delivery Date upon notice to Lessee not more frequently than annually
utilizing the Escalation Adjustment set forth in Letter Agreement No. 1.
The Engine Reserve Rate may be further adjusted not more frequently than
annually as provided in Section III of Letter Agreement No. 1.
5.5 Payments: All payments by Lessee to Lessor under this Agreement will be
made for value on the due date in Dollars and in same day funds settled
through the New York Clearing House System or such other funds as may for
the time being be customary for the settlement in New York City of
international payments in Dollars by telegraphic transfer to Bank of
America, San Francisco, California, ABA No. 121-000-358, Account No.
14993-03400 or to such other account as Lessor may advise Lessee in
writing.
5.6 Withholding: All payments by Lessee pursuant to the Operative Documents
shall be free of all withholdings of any nature whatsoever except to the
extent otherwise required by Law, and if any such withholding is so
required, Lessee shall pay on an After-Tax Basis an additional amount such
that after the deduction of all amounts required to be withheld, the net
amount actually received by Lessor on an After-Tax Basis will equal the
amount that Lessor would have received on an After-Tax Basis if such
withholding had not been required; provided, however, that if Lessee pays
any such additional amount to compensate for the withholding of any Lessor
Tax, Lessor shall repay to Lessee within 30 days after receipt of Lessee's
written request therefor (which request shall include a description in
reasonable detail of the Lessor Tax involved and the calculation of the
additional amount to be repaid) the amount of such additional amount to the
extent attributable to any Lessor Tax.
5.7 General Tax Indemnity:
General:
(i) Lessee will on demand pay and indemnify each Indemnitee against all
Taxes (other than Lessor Taxes) levied or imposed against or upon or
payable by such Indemnitee or Lessee and arising from, with respect
to or in connection
27
<PAGE>
with the transactions pursuant to the Operative Documents (except
for the Warrant and the side letter dated as of April 3, 1996
specifically relating thereto, but save in so far as any indemnity
by Lessee in respect of Taxes is specifically provided for therein,
including (but not limited to) all Taxes relating or attributable to
Lessee, any Operative Document or the Aircraft directly or
indirectly in connection with the importation, exportation,
registration, ownership, leasing, sub-leasing, purchase, delivery,
possession, use, operation, repair, maintenance, overhaul,
transportation, landing, storage, presence or redelivery of the
Aircraft or any part thereof or any rent, receipts, insurance
proceeds, income or other amounts arising therefrom.
(ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by
Lessee directly to the appropriate taxing authority (to the extent
permitted by applicable Law) at or before the time prescribed by
applicable Law. After any payment by Lessee of any Tax directly to
a taxing authority, Lessee shall furnish to Lessor, on request, a
certified copy of a receipt for Lessee's payment of such Tax or such
other evidence of payment of such Tax as is reasonably obtainable by
Lessee and reasonably acceptable to Lessor.
(iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause
5.7 shall be paid within ten days after receipt of a written demand
therefor from the relevant Indemnitee accompanied by a written
statement describing in reasonable detail the basis for such
indemnity and the computation of the amount so payable, provided
that if an amount of any indemnified Tax is being contested in
accordance with Clause 5.12 and Lessee shall have duly performed
(and shall continue to perform) all its obligations under Clause
5.12 with respect to such contest, then payment of the indemnity
with respect to such Tax under Clause 5.12 shall , at Lessee's
election, be deferred until the date the contest has been completed.
5.8. Sales and Use Taxes:
(a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if
requested by Lessor, Lessee shall pay to the relevant tax authority for
the account of Lessor), in addition to the amounts specified as "Rent" in
Letter Agreement No. 1:
(i) all sales, use, rental, value added, goods and services and similar
taxes ("Sales Taxes") required to be paid to the tax authority of
the jurisdiction in which the Delivery Location is situated or to
the jurisdiction in which the Aircraft is habitually based with
respect to the lease of the Aircraft to Lessee pursuant to the
Operative Documents unless Lessee delivers to Lessor on or prior to
the Delivery Date such exemption certificate or other document as
may be acceptable to Lessor to evidence Lessee's entitlement to
exemption from all Sales Taxes imposed by such jurisdiction with
respect to the lease of the Aircraft pursuant to the Operative
Documents; and
28
<PAGE>
(ii) all Sales Taxes required to be paid to the tax authority of any
jurisdiction in which the Aircraft may be used, operated or
otherwise located from time to time unless Lessee delivers to Lessor
such exemption certificates or other documents as may be required by
applicable Law to evidence Lessee's entitlement to exemption from
all Sales Taxes imposed by each such jurisdiction with respect to
the lease of the Aircraft pursuant to the Operative Documents.
(b) Lessee will cooperate with Lessor in connection with the preparation and
filing of any exemption application or similar document that is reasonably
necessary or desirable under applicable Law to avoid the imposition of any
Sales Taxes with respect to the transactions contemplated by the Operative
Documents.
(c) The specific obligations with respect to sales and use taxes set forth in
this Clause 5.8 are in addition to, and are not in substitution for, the
Lessee's obligation to indemnify for sales and use taxes pursuant to
Clause 5.7.
5.9 Information:
(a) If Lessee is required by any applicable Law, or by any third party, to
deliver any report or return in connection with any Taxes for which Lessee
would be obligated to indemnify Lessor under the Operative Documents,
Lessee will complete the same and, on request, supply a copy of the report
or return to Lessor.
(b) If any report, return or statement is required to be made by Lessor with
respect to any Tax for which there is an indemnity obligation of Lessee
under this Clause 5, Lessee will promptly notify Lessor of the requirement
and:
(i) if permitted by applicable Law, make and timely file such report,
return or statement (except for any report, return or statement that
Lessor has notified Lessee that Lessor intends to prepare and file),
prepare such return in such manner as will show the ownership of the
Aircraft in Lessor if required or appropriate, and provide Lessor
upon request a copy of each such report, return or statement filed by
Lessee, or
(ii) if Lessee is not permitted by applicable Law to file any such
report, return or statement, Lessee will prepare and deliver to
Lessor a proposed form of such report, return or statement within a
reasonable time prior to the time such report, return or statement
is to be filed.
Lessee will provide such information and documents as Lessor may
reasonably request to enable Lessor to comply with its tax filing, audit
and litigation obligations.
5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that,
with respect to any payment or indemnity pursuant to Clause 5.7 (Tax
Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to
or for the benefit of any Indemnitee, Lessee's indemnity obligations shall
include such amount as may be necessary to hold such Indemnitee harmless
on an After-Tax Basis from all Taxes required to be paid by
29
<PAGE>
such Indemnitee with respect to such payment or indemnity (including any
payments pursuant to this Clause 5.10), determined based on the assumption
that at the time each such payment or indemnity accrues to the relevant
Indemnitee, such payment or indemnity will be subject to (i) United States
Federal income tax at the highest marginal statutory tax rate applicable
to corporations, (ii) United States state and local income taxes at the
composite of the highest marginal statutory tax rates applicable to the
Indemnitee and (iii) income taxes (if any) imposed by countries outside
the United States at the actual rates imposed on the relevant Indemnitee.
5.11 Default Interest: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time to
Lessor interest (both before and after judgment) on that amount, from the
due date to the date of payment in full by Lessee to Lessor, at the
Interest Rate specified in Letter Agreement No. 1; provided, however, that
in no event shall such rate exceed the maximum permitted by Law. All such
interest will be compounded monthly and calculated on the basis of the
actual number of days elapsed in the month assuming a 30 day month and a
360 day year.
5.12 Contest:
(a) If an Indemnitee receives a written claim for any Tax for which Lessee
would be required to pay an indemnity pursuant to Clause 5.7 or Clause
5.8, such Indemnitee shall notify Lessee promptly of such claim, provided
that any failure to provide such notice will not relieve Lessee of any
indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If
requested by Lessee in writing promptly after receipt of such Indemnitee's
notice, such Indemnitee shall, upon receipt of indemnity satisfactory to
it and at the expense of Lessee (including, without limitation, all costs,
expenses, legal and accountants' fees and disbursements, and penalties,
interest and additions to tax incurred in contesting such claim) in good
faith contest or (if permitted by applicable Law) permit Lessee to contest
such claim by (i) resisting payment thereof if practicable and
appropriate, (ii) not paying the same except under protest if protest is
necessary and proper, or (iii) if payment is made, using reasonable
efforts to obtain a refund of such Taxes in appropriate administrative and
judicial proceedings. Such Indemnitee shall determine the method of any
contest conducted by such Indemnitee and (in good faith consultation with
Lessee) control the conduct thereof. Lessee shall determine the method of
any contest conducted by Lessee and (in good faith consultation with such
Indemnitee) control the conduct thereof. Lessee shall pay in full all
payments of Rent and other amounts payable pursuant to the Operative
Documents, without reduction for or on account of any Tax, while such
contest is continuing. Such Indemnitee shall not be required to contest,
or to continue to contest, a claim for Taxes under this Clause 5.12 if (x)
such contest would result in a risk of criminal penalties or of a sale,
forfeiture or loss of, or the imposition of a Lien (other than a Permitted
Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion
of independent tax counsel selected by such Indemnitee and reasonably
satisfactory to Lessee, that a reasonable basis exists for such contest,
or (z) a Default or an Event of Default shall be continuing (unless Lessee
shall have provided security reasonably satisfactory to such Indemnitee
securing Lessee's performance of its obligations under this Clause 5). If
such Indemnitee contests any claim for Taxes by
30
<PAGE>
making a payment and seeking a refund thereof, then Lessee shall advance
to such Indemnitee, on an interest-free basis, an amount equal to the
Taxes to be paid by such Indemnitee in connection with the contest and
shall indemnify such Indemnitee on an After-Tax Basis for any adverse tax
consequences to such Indemnitee of such interest-free advance. Upon the
final determination of any contest pursuant to this Clause 5.12 in respect
of any Taxes for which Lessee shall have made an advance to such
Indemnitee in accordance with the immediately preceding sentence, the
amount of Lessee's obligation shall be determined as if such advance had
not been made; any indemnity obligation of Lessee to such Indemnitee under
this Clause 5 and such Indemnitee's obligation to repay the advance will
be satisfied first by setoff against each other, and any difference owing
by either party shall be paid within ten days after such final
determination.
(b) If an Indemnitee obtains a refund of all or any part of any Taxes for
which a full indemnity was paid by Lessee, such Indemnitee shall pay
Lessee the amount of such refund, reduced by any Taxes imposed on such
Indemnitee on receipt or accrual of such refund and increased by any Taxes
saved by such Indemnitee by reason of the deductibility of such payment by
such Indemnitee. If, in addition to such refund, such Indemnitee receives
an amount of interest on such refund, such Indemnitee shall pay to Lessee
the portion of such interest which is fairly attributable to such refund,
reduced by any Taxes imposed on such Indemnitee on receipt or accrual of
such interest and increased by any Taxes saved by reason of the
deductibility of such payment by such Indemnitee. Such Indemnitee shall
not be required to make any payment to Lessee pursuant to this Clause 5.12
if, and for so long as, an Event of Default shall have occurred and be
continuing.
(c) Any Indemnitee in its sole discretion (by written notice to Lessee) may
waive its rights to indemnification pursuant to Clause 5.7 with respect to
any claim for any Tax and may refrain from contesting or continuing the
contest of such claim, in which event Lessee shall have no obligation to
indemnify such Indemnitee for the Taxes that are the subject of such
claim. If an Indemnitee agrees to a settlement of any contest conducted
pursuant to this Clause 5.11 without the prior written consent of Lessee,
which consent shall not be unreasonably withheld, then Lessor shall be
deemed to have waived its rights to the indemnification provided for in
Clause 5.7 with respect to the Tax liability accepted in such settlement.
5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this
Agreement are absolute and unconditional irrespective of any contingency
whatsoever including (but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defense or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against Lessee's
use, operation or possession of the Aircraft;
31
<PAGE>
(c) any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under the
laws of any relevant jurisdiction, or any Event of Loss in respect of or
any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceedings by or against Lessor
or Lessee;
(e) any invalidity or unenforceability or lack of due authorization of, or
other defect in, this Agreement;
(f) and Security Interests with respect to the Aircraft or Taxes; and/or
(g) any other cause which but for this provision would or might otherwise have
the effect of terminating or in any way affecting any obligation of Lessee
under this Agreement.
5.14 Security
(a) To the fullest extent permitted by Law and by way of continuing security
Lessee as sole beneficial owner charges the Deposit and the Maintenance
Reserves and all rights of Lessee to payment thereof and the debt
represented thereby (the "Charged Monies") to Lessor by way of first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements to which Lessor or any affiliate or
associate thereof (which for clarification does not include GPA Group PLC,
Airplane Holdings Limited or any affiliate or associate, successor thereto
or assignee thereof ) is a party (the "Secured Liabilities"). Except as
expressly permitted under this Agreement, Lessee will not be entitled to
payment of the Charged Monies. Lessee will not assign, transfer or
otherwise dispose of all or part of its rights in the Charged Monies and
it will enter into any additional documents and instruments necessary or
advisable to evidence, create or perfect Lessor's rights to the Charged
Monies;
(b) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing, in addition to all rights
and remedies accorded to Lessor elsewhere in this Agreement and under Law
as a secured party in respect of the Charged Monies, Lessor may
immediately or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the payment or
discharge of the Secured Liabilities in such order as Lessor sees
fit; and
(c) If Lessor has exercised the set-off described in sub-clause (b) above,
Lessee shall, following a demand in writing from Lessor, restore the
Charged Monies to the level at which they stood immediately prior to such
set-off.
32
<PAGE>
6. MANUFACTURER'S WARRANTIES
6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to
the benefit of each warranty, express or implied, with respect to the
Aircraft, any Engine or Part so far as concerns any manufacturer, vendor,
subcontractor or supplier. Except to the extent Lessor otherwise directs,
Lessor hereby authorizes Lessee to pursue any claim thereunder in relation
to defects affecting the Aircraft, any Engine or Part and Lessee agrees
diligently to pursue any such claim which arises at its own cost. Lessee
will notify Lessor promptly upon becoming aware of any such claim.
6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor but
if and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) above only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case,
Lessee will procure that all engines, components, furnishings or equipment
provided by the manufacturer, vendor, subcontractor or supplier in
replacement of a defective Engine or Part pursuant to the terms of any
warranty will be installed promptly by Lessee and that title thereto free
of Security Interests vests in Lessor. On installation each part will be
deemed to be a Part. In the case of a Replacement Engine, Lessee will
satisfy and perform each of the conditions and covenants set forth in
Clause 11.1(c), and upon satisfaction of such conditions, such Replacement
Engine will be deemed an "Engine" for all purposes of this Agreement.
6.4 Agreement: To the extent any warranties relating to the Aircraft are made
available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant
to Clause 6.2 and pending such payment will hold the claim and the
proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the Term to
ensure the benefit of any of those warranties which have not expired are
vested in Lessor.
33
<PAGE>
7. LESSOR'S COVENANTS
7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession
and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its
rights under or in connection with this Agreement will not constitute such
an interference. Lessor will procure at Lessee's request an undertaking
of quiet enjoyment for the benefit of Lessee with respect to any
prospective Lessor Lien.
7.2 Release of Maintenance Reserves: Provided no Default has occurred and is
continuing Lessor will release funds to Lessee from the Maintenance
Reserves respecting maintenance work performed upon submission by Lessee
to Lessor within 6 months of the commencement of that maintenance and
before the Expiry Date of an invoice and supporting documentation
reasonably satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterized by the
Manufacturer's maintenance planning document and best industry practice as
"D" Check and/or individual structural inspections having an interval of
not less than 20,000 Flight Hours or 6 years for the Aircraft (but not
including repairs arising as the result of operational or maintenance
mishandling or repairs involving the parts or components of a hushkit),
the lesser of (i) the amount of that invoice and (ii) the amount equal to
the aggregate amount of Airframe Maintenance Reserves paid under this
Agreement at the time of commencement of that maintenance less the
aggregate amount previously released by Lessor under this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of all shop visits requiring engine disassembly (other than (i)
repairs arising as a result of foreign object damage or operational or
maintenance mishandling and/or (ii) removal, installation, maintenance and
repair of Quick Engine Change ("QEC") kits or hushkits), the lesser of (i)
the amount of that invoice and (ii) the amount equal to the aggregate
amount of Engine Refurbishment Reserves paid in respect of that Engine
under this Agreement at the time of commencement of that maintenance less
the aggregate amount previously paid in respect of that Engine by Lessor
under this sub-clause;
(c) with respect to life limited parts within any Engine, the performance, in
accordance with this Agreement, of any such parts replacement or repair
(other than (i) repairs arising as a result of accidents or incidents
(whether or not eligible for recovery under Lessee's insurance), foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC kits or hushkits)
and/or (iii) any elective parts replacement), the lesser of (i) the amount
of that invoice and (ii) the amount equal to the aggregate of Engine LLP
Refurbishment Reserves paid in respect of that Engine under this Agreement
at the time of commencement of that maintenance less the aggregate amount
previously paid in respect of that Engine by Lessor under this sub-clause;
and
34
<PAGE>
(d) with respect to the Landing Gear, the performance in accordance with this
Agreement, of all work on the landing gear in the nature of overhaul and
requiring removal and disassembly (other than repairs arising as the
result of operational or maintenance mishandling), the lesser of (i) the
amount of that invoice and (ii) the amount equal to the aggregate amount
of Landing Gear Maintenance Reserves paid under this Agreement at the time
of commencement of that maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
7.3 Lessor Obligations Following Expiry Date: Within 5 Business Days of:-
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after the
Delivery Date;
or in each case such later time as Lessor is reasonably satisfied Lessee
has irrevocably paid to Lessor all amounts which may then be outstanding
or become payable under this Agreement, the other Operative Documents or
the Other Agreements to which Lessor or any affiliate or associate,
successor thereto or assignee thereof (which for clarification does not
include GPA Group PLC, Airplane Holdings Limited or any affiliate or
associate thereof) is a party, Lessor will pay to Lessee:-
(i) the balance of the Deposit; and
(ii) the amount of any Rent received in respect of any period falling
after the date of redelivery of the Aircraft or payment of the
Agreed Value, as the case may be; and shall return to Lessee the
warrant certificate, if not previously exercised, representing the
Warrant.
8. LESSEE'S COVENANTS
8.1 Duration: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this Agreement
and thereafter to the extent of any accrued rights of Lessor in relation
to those undertakings.
8.2 Information: Lessee will:-
(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of its
obligations under this Agreement;
(b) furnish to Lessor:-
35
<PAGE>
(i) upon request, the consolidated management accounts of Lessee
(comprising a balance sheet and profit and loss statement) prepared
for the most recent previous financial quarter;
(ii) as soon as available but not in any event later than 120 days after
the last day of each financial year of Lessee, its audited
consolidated balance sheet as of such day and its audited
consolidated profit and loss statement for the year ending on such
day;
(iii) at the same time as it is issued to the shareholders or creditors
of Lessee, a copy of each notice or circular issued to Lessee's
shareholders or creditors as a group; and
(iv) on request from time to time such other information regarding Lessee
and its business and affairs as Lessor may reasonably request;
(c) keep Lessor informed as to current serial numbers of the Engines and any
engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part, its
use, location and condition including, without limitation, the hours
available on the Aircraft and any Engine until the next scheduled check,
inspection, overhaul, refurbishment or shop visit, as the case may be;
(e) on request, within 10 days after the end of any Rental Period, furnish to
Lessor evidence satisfactory to Lessor of payment of all Taxes due during
that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air traffic
control authorities, have been paid and discharged in full;
(g) within 7 days after the end of each calendar month during the Term,
provide Lessor with a monthly report on the Aircraft and each Engine in
the form set out in Schedule 8 hereto;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-
(i) any loss, theft, damage or destruction to the Aircraft, any Engine
or any Part, or any modification to the Aircraft if the potential
cost may exceed the Damage Notification Threshold; and
(ii) any claim or other occurrence likely to give rise to a claim under
the Insurances (but in the case of hull claims only in excess of the
Damage Notification
36
<PAGE>
Threshold) and details of any negotiations with the insurance
brokers over any such claim.
8.3 Lawful and Safe Operation: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the Aircraft
(including without limitation Laws mandating insurance coverage) or, so
far as concerns the use and operation of the Aircraft or an owner or
operator thereof and take all reasonable steps to ensure that the Aircraft
is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of the
manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air Authority or for any purpose for
which the Aircraft is not designed or reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with the
operation and maintenance of the Aircraft have the qualifications and hold
the licenses required by the Air Authority and applicable Law;
(d) use the Aircraft solely in commercial or other operations for which Lessee
is duly authorized by the Air Authority and applicable Law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet animals
carried in a suitable container to prevent the escape of any liquid
and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under the
"Restriction of Goods" schedule issued by I.A.T.A. from time to time
and provided that all the requirements for packaging or otherwise
contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could reasonably
be expected to cause damage to the Aircraft and which would not be
adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilize the Aircraft for purposes of training, qualifying or re-
confirming the status of cockpit personnel except for the benefit of
Lessee's cockpit personnel, and then only if the use of the Aircraft for
such purpose is not disproportionate to the use for such purpose of other
aircraft of the same type operated by Lessee;
37
<PAGE>
(g) not cause or permit the Aircraft to proceed to, or remain at, any location
which is for the time being the subject of a prohibition order (or any
similar order or directive) by:-
(i) any Government Entity of the State of Registration or the Habitual
Base; or
(ii) any Government Entity of the country in which such location is
situated; or
(iii) any Government Entity having jurisdiction over Lessor or the
Aircraft;
(h) obtain and maintain in full force all certificates, licenses, permits and
authorizations required for the use and operation of the Aircraft for the
time being, and for the making of payments required by, and the compliance
by Lessee with its other obligations under, this Agreement;
(i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to
or for any country or entity that is the subject of sanctions under the
U.S. International Economic Emergency Powers Act or U.N. Security Council
directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas
of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola).
Lessee also covenants and agrees (i) not to operate or locate, or suffer
or permit to be operated or located, the Aircraft in any country
restricted under the U.S. Trading with the Enemy Act and the U.S. Export
Administration Act except as may be permitted by operating in accordance
with the conditions specified by the U.S. Export Administration
Regulations (15 CFR Parts 730-799), General License GATS (15 CFR Part
771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii)
not to operate the Aircraft between Cuba and the United States; and
(j) not use, operate, or locate the Aircraft, or cause suffer or permit the
Aircraft to be used, operated or located during the Term in any manner not
covered by the Insurances or in any area excluded from coverage by the
Insurances or in any manner which would prejudice the interests of the
Indemnitees in the Insurances, the Aircraft, any Engine or any Part.
8.4 Taxes and other Outgoings: Lessee will promptly pay:-
(a) all license and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with respect
to the Aircraft, including without limitation the purchase, ownership,
delivery, leasing, possession, use, operation, return, sale or other
disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts
in respect of any premises where the Aircraft or any Part thereof is
located from time to time;
except to the extent that in the reasonable opinion of Lessor such payment
is being contested in good faith by appropriate proceedings, in respect of
which adequate resources have been provided by Lessee and non-payment of
which does not give rise to any material likelihood of the Aircraft or any
interest therein being sold, forfeited or otherwise lost or of criminal
liability on the part of Lessor.
38
<PAGE>
8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE
AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH
POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO
THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL
WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR
PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS
EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE
FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A TERM NOT TO CONTINUE
BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY FOR WET LEASES OF SUCH
DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL REMAIN PRIMARILY LIABLE FOR
THE PERFORMANCE OF ALL OF THE TERMS OF THIS AGREEMENT (INCLUDING WITHOUT
LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8 AND 9) TO THE SAME EXTENT AS
IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO AND PROVIDED, FURTHER, THAT NO
SUCH WET LEASE INVOLVES OR RELATES TO A CONTRACT OR AN OPERATION
PROHIBITED UNDER CLAUSE 2.1(H) HEREOF.
8.6 Inspection:
(a) Lessor and any person designated by Lessor may at any time visit, inspect
and survey the Aircraft, any Engine or any Part and for such purpose may,
subject to any applicable Air Authority regulation, travel on the flight
deck as observer;
(b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable
out-of-pocket expenses incurred by Lessor in connection with any such
visit, inspection or survey; and
(c) Lessor will:-
(i) have no duty or liability to make, or arising out of making or
failing to make, any such visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not exercise
such right other than on reasonable notice and so as not to disrupt
unreasonably the commercial operations of Lessee, provided, however,
Lessee will take such action as may be reasonably required to
facilitate Lessor's inspection.
8.7 Title: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit to be
omitted to be done any act or thing which might reasonably be expected to
jeopardize the rights of Lessor as owner of the Aircraft;
39
<PAGE>
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by
Lessor;
(c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as
carrying goods or passengers on the Aircraft or as being in any way
connected or associated with any operation or carriage (whether for hire
or reward or gratuitously) which may be undertaken by Lessee or (ii)
pledge the credit of Lessor;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7
cm.) in a reasonably prominent position in the cockpit of the Aircraft and
on each Engine stating:-
"This Aircraft/Engine is owned by Polaris Holding Company and is leased to
Frontier Airlines, Inc. and may not be operated by any other person
without the prior written consent of Polaris Holding Company";
(e) not create or permit to exist any Security Interest upon the Aircraft, any
Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected to
expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and without
prejudice to the foregoing, if any such penalty, forfeiture, impounding,
detention or appropriation, damage or destruction occurs, give Lessor
notice and use best endeavors to procure the immediate release of the
Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and payable
or make adequate provision by way of security or otherwise for all debts,
damages, claims and liabilities which have given or might give rise to a
Security Interest over or affecting the Aircraft, any Engine or any Part;
and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part; and
(j) obtain a waiver of any mechanic's lien or right thereto from any vendor
providing maintenance services for Lessee prior to delivering the Aircraft
or any Engine or Part to such vendor.
8.8 General: Lessee will:-
(a) not make any substantial change in the nature of the business in which it
is engaged, will preserve its corporate existence (other than in
connection with a solvent reconstruction the terms of which have been
approved by Lessor, such approval not to be unreasonably withheld), and
will conduct its business in an orderly and efficient and will maintain
all
40
<PAGE>
rights, privileges, licenses and franchises material thereto or material
to performing its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor;
(c) not without giving Lessor 30 days prior notice (in accordance with this
Agreement), change its chief executive office (as such term is defined in
Article 9 of the Uniform Commercial Code as in effect in the State of
Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United
States of America;
(d) remain a Certified Air Carrier and maintain, without limitation, its
status so as to fall within the preview of Section 1110 of Title 11 of the
United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code.
8.9 Records: Lessee will:-
(a) procure that accurate, complete and current records of all flights made
by, and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) are kept; keep the records in such manner as the Air
Authority may from time to time require. All records must be maintained
in English. The records will form part of the Aircraft Documents; and
(b) maintain, with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required by applicable Laws and best
practice of major international air transport operators in respect of the
Aircraft.
8.10 Protection: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority
reflecting (so far as permitted by applicable Law) the interest of Lessor
and not do or suffer to be done anything which might adversely affect that
registration; and
(b) do all acts and things (including, without limitation, making any filing
or registration with the Air Authority or any other Government Entity or
as required to comply with the Mortgage Convention where applicable) and
execute and deliver all documents (including, without limitation, any
amendment of this Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft; or
(ii) following any modification of the Aircraft, any Engine or any Part
or the permanent replacement of any Engine or Part in accordance
with this
41
<PAGE>
Agreement, so as to ensure that the rights of Lessor under this
Agreement apply with the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the rights of
Lessor under this Agreement and the interest of Lessor in the
Aircraft.
8.11 Maintenance and Repair: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Agreed Maintenance Program or the schedule of the Agreed
Maintenance Program without the written consent of Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance Program
through the Agreed Maintenance Performer and perform (at the respective
intervals provided in the Agreed Maintenance Program) all Major Checks;
(d) maintain the Aircraft in accordance with the standard of maintenance
required by FAR Part 121, Subpart L and any other rules and regulations of
the FAA and in at least the same manner and with at least the same care,
including, without limitation, maintenance scheduling, modification status
and technical condition, as is the case with respect to similar aircraft
owned or otherwise operated by Lessee and as if Lessee were to retain and
continue operating the Aircraft in its fleet after the Expiry Date,
including, without limitation, all maintenance to the Airframe, any Engine
or any Part required to maintain all warranties, performance guarantees or
service life policies in full force and effect except to the extent of
conflict with the rules and regulations of the Air Authority;
(e) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or
prior to the Expiry Date) mandatory inspection and modification
requirements, airworthiness directives and similar requirements applicable
to the Aircraft, any Engine or Part having a compliance date during the
Term or within 180 days after the Expiry Date and which are required by
the Air Authority and/or mandated by any manufacturer of the Aircraft, any
Engine or Part (an "Airworthiness Directive);
(f) comply with all applicable Laws and the regulations of the Air Authority
and other aviation authorities with jurisdiction over Lessee or the
Aircraft, any Engine or Part regardless of upon whom such requirements are
imposed and which relate to the maintenance, condition, use or operation
of the Aircraft or require any modification or alteration to the Aircraft,
any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in the
appropriate category for the nature of the operations of the Aircraft) for
the Aircraft issued by the Air Authority except where the Aircraft is
undergoing maintenance, modification or repair required or permitted by
this Agreement and will from time to time provide to Lessor a copy on
request;
42
<PAGE>
(h) if required by the Air Authority, maintain a current certification as to
maintenance issued by or on behalf of the Air Authority in respect of the
Aircraft and will from time to time provide to Lessor a copy on request;
and
(i) procure promptly the replacement of any Engine or Part which has become
time, cycle or calendar expired, lost, stolen, seized, confiscated,
destroyed, damaged beyond repair, unserviceable or permanently rendered
unfit for use, with an engine or part complying with the conditions set
out in Clause 8.13(a) and in the case of any Engine which suffers an
Engine Event of Loss, shall procure that such engine complies with the
provisions of Clause 11.1(c).
8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part
installed on the Aircraft is at any time removed from the Aircraft other
than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the Agreed
Maintenance Program; or
(c) (i) during the course of maintaining, servicing, repairing, overhauling
or testing that Engine or the Aircraft, as the case may be; or
(ii) as part of a normal engine or part rotation program; or
(iii) for the purpose of making such modifications to the Engine or the
Aircraft, as the case may be, as are permitted under this Agreement;
and then in each case (A) with respect to a Part, only if it is
reinstalled or replaced by a part complying with Clause 8.13(a) as soon as
practicable and in any event no later than the Expiry Date, and (B) with
respect to an Engine, title to such Engine shall remain vested in Lessor.
8.13 Installation of Engines and Parts: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part is
installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model as, or
an improved or advanced version of the Engine it replaces, which is
in the same or better operating condition, has substantially similar
hours available until the next scheduled checks, inspections,
overhauls and shop visits and has the same or greater value and
utility as the replaced Engine;
(ii) in the case of a part, it is in as good operating condition, has
substantially similar hours available until the next scheduled
checks, inspections, overhauls and shop visits, is of the same or a
more advanced make and model and is of the same interchangeable
modification status as the replaced Part;
43
<PAGE>
(iii) in the case of a part, it has become and remains the property of
Owner free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head Lease and
this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
(b) if no Default has occurred which is continuing, be entitled to install any
engine or part on the Aircraft by way of replacement notwithstanding
Clause 8.13(a) if:-
(i) there is not available to Lessee at the time and in the place that
that engine or part is required to be installed on the Aircraft, a
replacement engine or, as the case may be, part complying with the
requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation of
the Aircraft and/or the business of Lessee to ground the Aircraft
until an engine or part, as the case may be, complying with Clause
8.13(a) becomes available for installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date, Lessee
removes any such engine or part and replaces it with the Engine or
Part replaced by it or by an engine or part, as the case may be,
complying with Clause 8.13(a).
8.14 Non-Installed Engines and Parts: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft (or
any other aircraft as permitted by this Agreement) is, except as expressly
permitted by this Agreement, properly and safely stored, and kept free
from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and, from
time to time, on request procure that any person to whom possession of an
Engine is given acknowledges in writing to Lessor, in form and substance
satisfactory to Lessor, that it will respect the interest of Lessor in
the Engine and will not seek to exercise any rights whatsoever in relation
to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install any
Engine or Part on an aircraft, or in the case of a Part on an engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional sale
agreement on a long-term basis and on terms whereby Lessee has full
operational control of that aircraft or engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated by
Lessee, on terms that ownership of that aircraft or engine, as the
case may be, pursuant to
44
<PAGE>
a lease or conditional sale agreement, or a Security Interest
therein, is vested in or held by any other Person;
provided that in the case of (ii) and (iii):-
(1) the terms of any such lease, conditional sale agreement or Security
Interest will not have the effect of prejudicing the interest of
Lessor in that Engine or Part; and
(2) the lessor under such lease, the seller under such conditional sale
agreement or the holder of such Security Interest, as the case may
be, has confirmed and acknowledged in writing to Lessor, in form and
substance satisfactory to Lessor, that it will respect the interest
of Lessor in respect of that Engine or Part and that it will not
seek to exercise any rights whatsoever in relation thereto.
8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any
pooling agreement or arrangement in respect of an Engine or Part without
the prior written consent of Lessor.
8.16 Equipment Changes:
(a) Lessee will not make any modification or addition to the Aircraft (each an
"Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not diminish
the value, utility, condition, or airworthiness of the Aircraft;
(b) So long as a Default has not occurred and is continuing, Lessee may remove
any Equipment Change if it can be removed from the Aircraft without
diminishing or impairing the value, utility, condition or airworthiness of
the Aircraft; and
(c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes
payable by Lessor as the case may be, as a result of an Equipment Change.
8.17 Title on an Equipment Change:
(a) Title to all Parts installed on the Aircraft whether by way of
replacement, as the result of an Equipment Change or otherwise (except
those installed pursuant to Clause 8.13(b)) will on installation, without
further act, vest in Lessor subject to this Agreement free and clear of
all Security Interests. Lessee will at its own expense take all such steps
and execute, and procure the execution of, all such instruments as Lessor
may require and which are necessary to ensure that title so passes to
Lessor according to all applicable Laws. At any time when requested by
Lessor, Lessee will provide evidence to Lessor's
45
<PAGE>
satisfaction (including the provision, if required, to Lessor of one or
more legal opinions) that title has so passed to Lessor;
(b) Lessor may require Lessee to remove any Equipment Change and to restore
the Aircraft to its condition prior to that Equipment Change; and
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Lessor until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable Laws, to
Lessor subject to this Agreement and free of all Security Interests. Upon
title to such replacement so passing to Lessor, title to the replaced
Engine or Part, will, provided no Default has occurred and is continuing,
pass to Lessee.
8.18 Third Party: Lessee will procure that no person (other than Lessor) will
act in any manner inconsistent with its obligations under this Agreement
and that all persons will comply with those obligations as if references
to "Lessee" included a separate reference to those persons.
9. INSURANCE
9.1 Insurances: Lessee will maintain in full force during the Term, and
thereafter as expressly required in this Agreement, insurances in respect
of the Aircraft in form and substance satisfactory to Lessor (the
"Insurances" which expression includes, where the context so admits, any
relevant re-insurance(s)) through such brokers and with such insurers and
having such deductibles and being subject to such exclusions as may be
approved by Lessor from time to time. The Insurances will be effected
either:-
(a) on a direct basis with insurers of recognized standing who normally
participate in aviation insurances in the leading international insurance
markets and led by reputable underwriter(s) approved by Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who does not
retain the risk but effects substantial reinsurance with reinsurers in the
leading international insurance markets and through brokers each of
recognized standing and acceptable to Lessor for a percentage acceptable
to Lessor of all risks insured (the "Reinsurances").
9.2 Requirements: Lessor's current requirements as to required Insurances are
as specified in this Clause and in Schedule 4. Lessor may from time to
time stipulate other requirements for the Insurances so that the scope and
level of cover is maintained in line with best industry practice and the
interests of Lessor protected.
9.3 Change: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers
will consult with Lessee and Lessee's brokers (as for the time being
approved by Lessor) regarding whether that approval should be revoked to
protect the interests of the parties insured. If, following the
consultation, Lessor considers that any change should be made, Lessee will
then arrange or procure the arrangement of alternative cover satisfactory
to Lessor.
46
<PAGE>
9.4 Insurance Covenants: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft, any
Engine or any Part which may from time to time be imposed by the laws of
the State of Registration or any state to, from or over which the Aircraft
may be flown, in so far as they affect or concern the operation of the
Aircraft, are complied with and in particular those requirements
compliance with which is necessary to ensure that (i) the Aircraft is not
in danger of detention or forfeiture, (ii) the Insurances remain valid and
in full force and effect, and (iii) the interests of the Indemnitees in
the Insurances and the Aircraft or any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be used
for any purpose or in any manner not covered by the Insurances or outside
any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances and
not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part of any
of the Insurances; or
(iii) brings any particular liability within the scope of an exclusion or
exception to the Insurances;
(d) not take out without the prior written approval of Lessor any insurance or
reinsurance in respect of the Aircraft other than those required under
this Agreement unless relating solely to hull total loss, business
interruption, profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any of the
Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed telecopy confirmation of completion of renewal prior to each
expiry date; and
(iii) certificates of insurance (and where appropriate certificates of
reinsurance), and broker's (and any reinsurance brokers') letter of
undertaking in a form acceptable to Lessor in English, detailing the
coverage and confirming the insurers' (and any reinsurers')
agreement to the specified insurance requirements of this Agreement
within 7 days after each renewal date;
(f) on request, provide to Lessor copies of documents or other
information evidencing the Insurances;
47
<PAGE>
(g) on request, provide to Lessor evidence that the Insurance premiums have
been paid;
(h) not make any modification or alteration to the Insurances material and
adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably require.
9.5 Failure to Insure: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be entitled
but not bound, (without prejudice to any other rights of Lessor under this
Agreement):-
(a) to pay the premiums due or to effect and maintain insurances satisfactory
to it or otherwise remedy Lessee's failure in such manner (including,
without limitation to effect and maintain an "owner's interest" policy) as
it considers appropriate. Any sums so expended by it will become
immediately due and payable by Lessee to Lessor on an After-Tax Basis
together with interest thereon at the rate specified in Clause 5.11, from
the date of expenditure by it up to the date of reimbursement by Lessee;
and
(b) at any time while such failure is continuing to require the Aircraft to
remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the
Expiry Date with respect to its liability under the Indemnity in Clause 10
for 2 years which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by
Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees
ceasing to have any interest in respect of the Aircraft.
9.7 Application of Insurance Proceeds:-
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss or
Engine Event of Loss occurring during the Term will be paid to Lessor and
Lessor will pay the balance of those amounts to Lessee after deduction of
all amounts which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the Aircraft,
any Engine or any Part occurring during the Term not constituting an Event
of Loss or Engine Event of Loss and in excess of the Damage Notification
Threshold will be applied in payment (or to reimburse Lessee) for repairs
or replacement property upon Lessor being satisfied that the repairs or
replacement have been effected in accordance with this Agreement.
Insurance proceeds in amounts below the Damage Notification Threshold may
be paid by the insurer directly to Lessee. Any balance remaining may be
retained by Lessor;
48
<PAGE>
(c) all insurance proceeds in respect of third party liability will, except to
the extent paid by the insurers to the relevant third party, be paid to
Lessor to be paid directly in satisfaction of the relevant liability or to
Lessee in reimbursement of any payment so made; and
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment
of any such insurance proceeds a Default has occurred and is continuing,
all such proceeds will be paid to or retained by Lessor to be applied
toward payment of any amounts which may be or become payable by Lessee in
such order as Lessor sees fit or as Lessor may elect.
To the extent insurance proceeds are paid to Lessee, Lessee agrees to
comply with the foregoing provisions and apply or pay over such proceeds
as so required.
10. INDEMNITY
10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE
INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS,
PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES,
PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE
OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):-
(A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY
AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY,
PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL,
MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE,
OPERATION OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN
THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE
ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART
OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF
WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE
TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE;
(B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH
RENDERS VOIDABLE ANY OF THE INSURANCES; AND
(C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF
ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY
PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT,
COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A
49
<PAGE>
BREACH OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON;
BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE
EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION
OF THIS AGREEMENT OR TO THE EXTENT IT ARISES SOLELY AS A RESULT OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR
A LESSOR LIEN.
10.2 Duration: The indemnities contained in this agreement will continue in
full force following the end of the Term notwithstanding any breach or
repudiation by Lessor or Lessee of this Agreement or any termination of
the lease of the Aircraft hereunder.
11. EVENTS OF LOSS
11.1
(a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft
to Lessee, Lessor will have the option, exercisable by giving Lessee
notice in writing, to substitute an alternative aircraft of the same
manufacture, model, value and utility as the Aircraft. If Lessor exercises
such option, Lessee shall be obliged to lease such substitute aircraft
pursuant to the terms and conditions of this Agreement and such substitute
aircraft shall constitute the Aircraft for all purposes of this Agreement.
Lessor shall provide Lessee with details of the substitute aircraft as
soon as may be practicable after the occurrence of the Event of Loss. If
Lessor advises Lessee that Lessor does not wish to exercise such option,
this Agreement will immediately terminate and except as expressly stated
in this Agreement neither party will have any further obligation or
liability under this Agreement other than pursuant to Clause 16.9 except
that Lessor will return the Deposit to Lessee; and
(b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft
to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the
earlier of (i) 5 Business Days after the Event of Loss and (ii) the date
of receipt of insurance proceeds in respect of that Event of Loss. Subject
to the rights of any insurers and reinsurers or other third party, upon
irrevocable payment in full to Lessor of that amount and all other amounts
which may be or become payable to Lessor under this Agreement, Lessor will
without recourse or warranty (except as to Lessor's Liens) and without
further act, be deemed to have transferred to Lessee all of Lessor's
rights to any Engines and Parts not installed when the Event of Loss
occurred, all on an as-is where-is basis, and will at Lessee's expense,
execute and deliver such bills of sale and other documents and instruments
as Lessee may reasonably request to evidence (on the public record or
otherwise) the transfer and the vesting of Lessor's rights in such Engines
and Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
50
<PAGE>
(c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss,
Lessee shall give Lessor prompt written notice thereof and shall, within
45 days after such occurrence, convey to Lessor, as replacement for the
Engine suffering such event, title to a Replacement Engine. Each
Replacement Engine shall be free of all Security Interests and shall be in
as good an operating condition as the Engine being replaced, assuming the
Engine being replaced was in the condition and repair required by the
terms hereof immediately prior to the Engine Event of Loss. Upon full
compliance by Lessee with the terms of this Clause 11.1(c), Lessor will
transfer to Lessee title to the Engine which suffered the Engine Event of
Loss. Prior to or at the time of any such conveyance, Lessee, at its own
expense, will promptly (i) furnish Lessor with a full warranty bill of
sale, in form and substance reasonably satisfactory to Lessor, with
respect to such Replacement Engine; (ii) cause a lease supplement (in form
and substance satisfactory to Lessor) subjecting such Replacement Engine
to this Agreement, to be duly executed by Lessee, and recorded pursuant to
applicable Law; (iii) furnish Lessor with such evidence of title to such
Replacement Engine as Lessor may reasonably request; (iv) furnish Lessor
with an opinion of Lessee's counsel to the effect that title to such
Replacement Engine has been duly conveyed to Lessor subject to this
Agreement, free and clear of all Security Interests, and that such
Replacement Engine is duly leased hereunder; (v) furnish a certificate
signed by a duly authorized financial officer or executive of Lessee
certifying that, upon consummation of such replacement, no Event of
Default will have occurred or be continuing; (vi) furnish Lessor with such
documents as Lessor may reasonably request in connection with the
consummation of the transactions contemplated by this Clause 11.1(c), in
each case in form and substance satisfactory to Lessor; and (vii) furnish
such Financing Statements incorporating the Replacement Engine as may be
requested by Lessor. For all purposes hereof, each such Replacement
Engine shall be deemed part of the property leased hereunder, shall be
deemed an "Engine" as defined herein and shall be deemed part of the same
Aircraft as was the Engine replaced thereof. No Engine Event of Loss
covered by this Clause 11.1(c) shall result in any reduction in Rent or
affect Lessee's obligation to pay Engine Maintenance Reserves or the
amount thereof to be paid by Lessee.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of one or
more Engines pursuant to this Clause 11.1.
11.2 Substitute Aircraft:
(a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of
Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the
option, exercisable by giving Lessee notice in writing, to substitute an
alternative aircraft (the "Substitute Aircraft") of the same manufacture
and model as the Aircraft and having a value, utility and condition equal
to or greater than the Aircraft as at the date of occurrence of the Event
of Loss which Substitute Aircraft will be leased by Lessor to Lessee for
the remainder of the Term pursuant to the terms and conditions of this
Agreement. If Lessor exercises such option, the Substitute Aircraft will
constitute the Aircraft for all purposes of this Agreement in respect of
facts and circumstances arising after the date of delivery thereof
51
<PAGE>
to Lessee. Lessor shall provide Lessee with details of the Substitute
Aircraft as soon as may be practicable after the occurrence of the Event
of Loss;
(b) Lessor will use all reasonable endeavors to deliver the Substitute
Aircraft to Lessee as soon as may be practicable following the date of
occurrence of the Event of Loss but not later than 3 months after such
date; and
(c) Lessee agrees to enter into such documentation as Lessor may require in
order to reflect the leasing of the Substitute Aircraft as aforesaid
including, without limitation, documentation in respect of the Insurances.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of the
Aircraft or Airframe pursuant to this Clause 11.2.
11.3 Requisition: During any requisition for use or hire of the Aircraft, any
Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not be
released from any of its other obligations under the Agreement (other than
operational obligations with which Lessee is unable to comply solely by
virtue of the requisition); and
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect of
the Term. Lessee will, as soon as practicable after the end of any such
requisition, cause the Aircraft to be put into the condition required by
this Agreement. Lessor will be entitled to all compensation payable by the
requisitioning authority in respect of any change in the structure, state
or condition of the Aircraft arising during the period of requisition, and
Lessor will apply such compensation in reimbursing Lessee for the cost of
complying with its obligations under this Agreement in respect of any such
change, but so that, if any Default has occurred and is continuing, Lessor
may apply the compensation or hire in or towards settlement of any amounts
owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to
Clause 13.2 or termination of the leasing of the Aircraft under this
Agreement Lessee will, unless an Event of Loss has occurred, at its
expense, redeliver the Aircraft and Aircraft Documents to Lessor at the
Redelivery Location or such other airport as is mutually acceptable to the
parties hereto, in accordance with the procedures and in compliance with
the conditions set forth in Schedule 3, free and clear of all Security
Interests and Permitted Liens (other than Lessor Liens) and in a condition
qualifying for immediate certification of airworthiness by the FAA or as
otherwise agreed by Lessor and Lessee.
12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee
will make the Aircraft available to Lessor for inspection ("Final
Inspection") in order to verify that the
52
<PAGE>
condition of the Aircraft complies with this Agreement. The Final
Inspection will be long enough to permit Lessor to:-
(a) inspect the Aircraft Documents and uninstalled Parts;
(b) inspect the Aircraft, provided that such inspection will not interfere
with the scheduled operation of the Aircraft;
(c) inspect the Engines, including without limitation (i) a borescope
inspection of (A) the low pressure and high pressure compressors and (B)
turbine and combustion areas, (ii) engine condition runs and (iii) review
of Engine trend monitoring data and technical log reports covering the
last ninety (90) days of operation; and
(d) perform a complete borescope inspection of the APU; and
(e) observe a 2 hour demonstration flight (with Lessor's representatives as
on-board observers).
12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the
condition of the Aircraft does not comply with this Agreement, Lessee will
at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the non-
compliance extends beyond the Expiry Date, the Term will be automatically
extended and this Agreement will remain in force until the non-compliance
has been rectified; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax
Basis, and provide to Lessor's satisfaction cash as security for that
indemnity, against the cost of putting the Aircraft into the condition
required by this Agreement.
12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's
request, all documents necessary to export the Aircraft from the Habitual
Base (including, without limitation, a valid and subsisting export license
for the Aircraft) and required in relation to the deregistration of the
Aircraft with the Air Authority.
12.5 Acknowledgment: Provided Lessee has complied with its obligations under
this Agreement, following redelivery of the Aircraft by Lessee to Lessor
at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgment confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 Maintenance Program:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide
Lessor or its agent reasonable access to the Agreed Maintenance Program
and the Aircraft Documents in order to facilitate the Aircraft's
integration into any subsequent operator's fleet; and
53
<PAGE>
(b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft
deliver to Lessor a certified true current and complete copy of the Agreed
Maintenance Program. Lessor agrees that it will not disclose the contents
of the Agreed Maintenance Program to any person or entity except to the
extent necessary to monitor Lessee's compliance with this Agreement and/or
to bridge the maintenance program for the Aircraft from the Agreed
Maintenance Program to another program after the Expiry Date.
12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Delivery Date and the Expiry Date
at the price then prevailing at the Redelivery Location.
12.8 Automatic Extension of Term: In the event of Lessee's failure to make the
Aircraft available to Lessor for timely inspection pursuant to Clauses
12.2 hereof, non-compliance of the condition of the Aircraft under Clause
12.3 hereof or any other failure of Lessee which prevents timely
Redelivery of the Aircraft to Lessor, the Term of this Agreement will be
automatically extended and this Agreement will remain in force until such
non-compliance has been rectified, with Lessee being obligated to pay Rent
at a rate specified in Clause 5.3 plus 50 percent on a per diem basis with
respect to the period of such extension.
13. DEFAULT
13.1 Events: Each of the following events will constitute an Event of Default
and a repudiation (but not a termination) of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or occurs
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
Government Entity). Lessee acknowledges that the occurrence of any Event
of Default would represent a material default in the performance of its
obligations under this Agreement:-
(a) Non-payment: Lessee fails to make any payment under this Agreement or any
of the Operative Documents on the due date; or
(b) Insurance: Lessee fails to comply with any provision of Clause 9 or any
insurance required to be maintained under this Agreement is canceled or
terminated or notice of cancellation is given in respect of any such
insurance; or
(c) Breach: Lessee fails to comply with any other provision of this Agreement
or any of the Operative Documents and, if such failure is in the
reasonable opinion of Lessor capable of remedy, the failure continues for
5 days after notice from Lessor to Lessee; or
(d) Representation: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any document or
certificate or statement is or proves to have been incorrect in any
material respect when made or deemed to be repeated; or
54
<PAGE>
(e) Cross Default:
(i) a final judgment for the payment of money not covered by insurance
in excess of Two Hundred Fifty Thousand Dollars ($250,000), or final
judgments for the payment of money not covered by insurance in
excess of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate, shall be rendered against Lessee and the same shall
remain undischarged for a period of ninety (90) days during which
execution thereof shall not be effectively stayed by agreement of
the parties involved, stayed by court order or adequately bonded; or
(ii) attachments or other Security Interests shall be issued or entered
against substantially all of the property of Lessee and shall remain
undischarged or unbonded for ninety (90) days except for Security
Interests created in connection with monies borrowed or obligations
agreed to by Lessee in the ordinary course of its business; or
(iii) Lessee shall default in the payment of any sum which by itself is
in excess of $100,000 or any sums which in aggregate exceed $250,000
notwithstanding that any particular individual sum thereof does not
exceed $100,000 of any one or more obligations for the payment of
borrowed money, for the deferred purchase price of property or for
the payment of rent or hire under any lease of aircraft when the
same becomes due if such nonpayment results in or would permit an
acceleration of such indebtedness, or Lessee shall default in the
performance of any other term, agreement, or condition contained in
any agreement or instrument under or by which any such obligation is
created, evidenced or secured, if the effect of such default is to
cause or permit such obligation to become due prior to its stated
maturity; or
(iv) any event of default or termination event, howsoever described,
occurs under the Other Agreements; or
(f) Approvals: any consent, authorization, license, certificate or approval of
or registration with or declaration to any Government Entity in connection
with this Agreement (including, without limitation): -
(i) any authorization required by Lessee to obtain and transfer freely
Dollars (or any other relevant currency) out of any relevant
country; or
(ii) required by Lessee to authorize, or in connection with, the
execution, delivery, validity, enforceability or admissibility in
evidence of this Agreement or the performance by Lessee of its
obligations under this Agreement; or
(iii) the registration of the Aircraft; or
(iv) any airline license or air transport license including, without
limitation, authority to operate the Aircraft under FAR Part 121 and
a Certificate of
55
<PAGE>
Public Convenience and Necessity issued under Section 41102 of Title
49 of the United States Code;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, canceled, withdrawn, terminated or not renewed, or
otherwise ceases to be in full force; or
(g) Bankruptcy, etc:
(i) Lessee or any Subsidiary consents to the appointment of a custodian,
receiver, trustee or liquidator of itself or all or any material
part of Lessee's property or Lessee's consolidated property, or
Lessee or any Subsidiary admits in writing its inability to, or is
unable to, or does not, pay its debts generally as they come due, or
makes a general assignment for the benefit of creditors, or Lessee
or any Subsidiary files a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization in a proceeding under any
bankruptcy or insolvency Laws (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed
against Lessee or any Subsidiary in any such proceeding, or Lessee
or any Subsidiary by voluntary petition, answer or consent seeks
relief under the provisions of any other bankruptcy, insolvency or
other similar Law providing for the reorganization or winding-up of
corporations, or provides for an agreement, composition, extension
or adjustment with its creditors, or any corporate action
(including, without limitation, any board of directors or
shareholder action) is taken by Lessee or any Subsidiary in
furtherance of any of the foregoing, whether or not the same is
fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any of its Subsidiaries, a
custodian, receiver, trustee or liquidator of Lessee or any
Subsidiary, or of all or any material part of Lessee's property or
Lessee's consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30 days
after the date of entry thereof or at any time an order for relief
is granted; or
(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy Laws or other
insolvency Laws (as now or hereafter in effect) is filed and is not
withdrawn or dismissed within 30 days thereafter or at any time an
order for relief is granted in such proceeding, or if, under the
provisions of any Law providing for reorganization or winding-up of
corporations which may apply to Lessee or any Subsidiary, any court
of competent jurisdiction assumes jurisdiction over, or custody or
control of, Lessee or any Subsidiary or of all or any material part
of Lessee's property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect, unrelinquished,
unstayed or unterminated for a period of 30 days or at any time an
order for relief is granted in such proceeding; or
56
<PAGE>
(h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations
under this Agreement or this Agreement becomes wholly or partly invalid or
unenforceable; or
(i) Suspension of Business: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a substantial
part of its business; or
(j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers
or threatens to dispose, convey or transfer of all or a material part of
its assets, liquidates or dissolves or consolidates or merges with any
other Person whether by one or a series of transactions, related or not,
other than for the purpose of a reorganization of the terms of which have
received the previous consent in writing of Lessor; or
(k) Rights and Remedies: the existence, validity, enforceability or priority
of the rights of Lessor as owner and the rights of Lessor as lessor in
respect of the Aircraft are challenged by Lessee or any other person
claiming by or through Lessee; or
(l) Delivery: Lessee fails to timely comply with its obligations under Clause
4 to accept delivery of the Aircraft; or
(m) Ownership, Security Interests and Related Matters: Lessee fails to timely
comply with its obligations under Clause 8.7; or
(n) Transfer: Lessee makes or permits any assignment or transfer of this
Agreement, or any interest herein, or of the right to possession of the
Aircraft, the Airframe, or any Engine; or
(o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry
Date in accordance with Clause 12.
(p) Adverse Change: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on the
financial condition or operations of Lessee and its Subsidiaries or on the
ability of Lessee to comply with its obligations under this Agreement; or
13.2 Rights: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at any
time thereafter (without notice to Lessee except as required under
applicable Law):-
(a) by notice to Lessee and with immediate effect on dispatch of such notice
terminate the letting of the Aircraft (but without prejudice to the
continuing obligations of Lessee under this Agreement), whereupon all
rights of Lessee under this Agreement shall cease; and/or
(b) proceed by appropriate court action or actions to enforce performance of
this Agreement, including, without limitation, the payment of all Rent and
all other amounts payable to Lessor or any Indemnitee pursuant to the
terms hereof; and/or
57
<PAGE>
(c) proceed by appropriate court action or actions to recover damages for the
breach of this Agreement which shall include, without limitation: -
(i) all Rent and other amounts which are or become due and payable
hereunder prior to the date Lessor recovers possession of the
Aircraft;
(ii) at Lessor's election, either one of the amounts determined pursuant
to Clause 13.2(e) or Clause 13.2(f) below or any lost profits
suffered by Lessor as a consequence of Lessor's inability to place
the Aircraft with another lessee on financial terms that are as
favorable to Lessor as the terms of this Agreement;
(iii) all costs associated with Lessor's exercise of its remedies
hereunder, including, but not limited to, repossession costs, legal
fees, Aircraft storage costs, Aircraft re-lease or sale costs and
Lessor's internal costs and expenses (including the cost of
personnel time calculated based upon the compensation paid to the
individuals involved on an annual basis and a general Lessor
overhead allocation);
(iv) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding any
financial instrument relating in whole or in part to Lessor's
financing of the Aircraft;
(v) any loss, cost, expense or liability sustained by Lessor due to
Lessee's failure to redeliver the Aircraft in the condition required
by this Agreement; and
(vi) any other losses (including lost profits), damage, expense, cost or
liability which Lessor suffers or incurs as a result of the Event of
Default and/or termination of this Agreement, including an amount
sufficient to fully compensate Lessor for any loss of or damage to
Lessors residual interest in the Aircraft caused by Lessee's
default; and/or
(d) either: -
(i) enter upon the premises where all or any part of the Aircraft is
located and take immediate possession of and, at Lessor's sole
option, remove the same (and/or any engine which is not an Engine
but which is installed on the Airframe, subject to the rights of the
owner, lessor or secured party thereof) or cause it to be
redelivered to Lessor at a location in the United States identified
by Lessor (or such other location as Lessor may require) (the
"Return Location"), 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, or otherwise, caused by such entry or taking, except
damages caused by gross negligence or willful misconduct; and Lessor
is hereby irrevocably, by way of security for Lessee's obligations
under this Agreement, appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other pilots to
fly the Aircraft to that airport
58
<PAGE>
and will have all the powers and authorizations necessary for taking
that action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to Lessor
at a point within the continental United States designated by
Lessor; and/or
(e) sell at private or public sale, as Lessor may determine, or hold, use,
operate or lease to others the Aircraft as Lessor in its sole discretion
may determine, all free and clear of any rights of Lessee; and/or
(f) whether or not Lessor shall have exercised, or shall thereafter at any
time exercise, any of its rights under paragraph (a), paragraph (b),
paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2,
Lessor, by 30 days written notice to Lessee specifying a payment date, may
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the
payment date specified in such notice, as liquidated damages for loss of
bargain and not as a penalty (in lieu of the Rent due for the period
commencing after the date specified for payment in such notice), any
unpaid Rent for the Aircraft and other amounts owing under this Agreement
(prorated in the case of Rent on a daily basis) to and including the
payment date specified in such notice, plus the amount, if any, by which
the aggregate Rent for the remainder of the Term (determined without
reference to any right of Lessor to terminate the leasing of the Aircraft,
whether or not such right is exercised), discounted periodically (equal to
installment frequency) to present worth at the interest rate of 4 percent
(4%) per annum, exceeds the fair market rental value (determined pursuant
to the Appraisal Procedure) of the Aircraft for the remainder of the Term,
after discounting such fair market rental value periodically (equal to
installment frequency) to present worth as of the payment date specified
in such notice at the interest rate of 4 percent (4%) per annum; and/or
(g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have
relet the Aircraft under a lease which extends at least to the date upon
which the Term for the Aircraft would have expired but for Lessee's
default, Lessor, in lieu of exercising its rights under Clause 13.2(f)
above with respect to the Aircraft, may, if it shall so elect, demand that
Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for
loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft
due after the time of reletting) any unpaid Rent for the Aircraft due up
to the date of reletting and any other amounts owing under this Agreement,
plus the amount, if any, by which the aggregate Rent for the Aircraft,
which would otherwise have become due over the remainder of the Term
(determined without reference to any right of Lessor to terminate the
leasing of the Aircraft, whether or not such right is exercised),
discounted periodically (equal to installment frequency) to present worth
as of the date of reletting at the interest rate of 4 percent (4%) per
annum, exceeds the aggregate basic rental payments to become due under the
reletting from the date of such reletting to the date upon which the Term
for the Aircraft would have expired but for Lessee's default, discounted
periodically (equal to installment frequency) to present worth as of the
date of the reletting at the interest rate of 4 percent (4%) per annum;
and/or
59
<PAGE>
(h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f),
and (g) of this Clause 13.2, by 30 days written notice to Lessee
specifying a payment date, Lessor may demand that Lessee pay to Lessor,
and Lessee shall pay to Lessor on the payment date specified in such
notice as liquidated damages for loss of bargain and not as a penalty (in
lieu of the Rent due for the period commencing after the date specified
for payment in such notice), any unpaid Rent for the Aircraft and other
amounts payable under this Agreement (prorated in the case of Rent on a
daily basis) to and including the payment date specified in such notice,
plus an amount equaling the aggregate Rent for the remainder of the Term,
discounted periodically (equal to installment frequency) to present worth
at the interest rate of 4 per cent (4%) per annum;
(i) draw upon the Deposits or the Maintenance Reserves furnished under this
Agreement or the Other Agreements to which Lessor or any affiliate or
associate thereof (which for clarification does not include GPA Group PLC,
Airplane Holdings Limited or any affiliate or associate, successor thereto
or assignee thereof ) is a party and apply such amounts to amounts owing
to Lessor hereunder.
Lessee, for itself and for its successors and assigns, hereby agrees that,
to the extent now or hereafter permitted by applicable Law,
notwithstanding any provision of the Federal Bankruptcy Code as amended
from time to time, the title of Lessor to the Aircraft and any right of
Lessor to take possession of the Aircraft in compliance with the
provisions of this Agreement, in each case, upon the occurrence and
continuance of an Event of Default, shall not be affected by the
provisions of the Federal Bankruptcy Code, as amended from time to time.
In addition to the foregoing, Lessee shall be liable for any and all
unpaid Rent and other amounts payable under this Agreement during or after
the exercise of any of the aforementioned remedies, together with interest
on such unpaid amounts at the Interest Rate set forth in Letter Agreement
No. 1, and until satisfaction of all of Lessee's obligations to Lessor
hereunder and (on an After-Tax Basis) for all reasonable legal fees and
other reasonable costs and expenses incurred by Lessor by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies
with respect thereto, including all costs and expenses incurred in
connection with the return of the Aircraft in accordance with the terms of
Clause 12 hereof or in placing the Aircraft in the condition and with
airworthiness certification as required by such Clause.
In effecting any repossession, Lessor and its representatives and agents,
to the extent permitted by Law, shall: (i) have the right to enter upon
any premises where it reasonably believes the Aircraft, the Airframe, an
Engine or Part to be located; (ii) not be liable, in conversion or
otherwise, for the taking of any personal property of Lessee which is in
or attached to the Aircraft, the Airframe, an Engine or Part which is
repossessed; provided, however, that Lessor shall return to Lessee all
personal property of Lessee or its passengers which was on the Aircraft at
the time Lessor re-takes possession of the Aircraft; (iii) not be liable
or responsible, in any manner, for any inadvertent damage or injury to any
of Lessee's property in repossessing and holding the Aircraft, the
Airframe, an Engine or Part, except for that caused by or in connection
60
<PAGE>
with Lessor's gross negligence or willful acts; (iv) have the right to
maintain possession of and dispose of the Aircraft, the Airframe, an
Engine or Part on any premises owned by Lessee or under Lessee's control;
and (v) have the right to obtain a key to any premises at which the
Aircraft, the Airframe, an Engine or Part may be located from the landlord
or owner thereof.
If reasonably required by Lessor, Lessee, at its sole expense, shall
assemble and make the Aircraft, the Airframe, an Engine or Part available
at a place designated by Lessor in accordance with Clause 12 hereof.
Lessee hereby agrees that, in the event of the return to or repossession
by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in
any warranty (express or implied) previously assigned to Lessee or
otherwise held by Lessee shall without further act, notice or writing be
assigned or reassigned to Lessor, if assignable. Lessee shall be liable
to Lessor on an After-Tax Basis for all reasonable expenses,
disbursements, costs and fees incurred in (i) repossessing, storing,
preserving, shipping, maintaining, repairing and refurbishing the
Aircraft, the Airframe, an Engine or Part to the condition required by
Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine
or Part for sale or lease, advertising the sale or lease of the Aircraft,
the Airframe, an Engine or Part and selling or releasing the Aircraft,
the Airframe, an Engine or Part. Lessor is hereby authorized and
instructed, at its option, to make reasonable expenditures which Lessor
considers advisable to repair and restore the Aircraft, the Airframe, an
Engine or Part to the condition required by Clause 12 hereof, all at
Lessee's sole expense.
At any public sale of the Aircraft, the Airframe, an Engine or Part
pursuant to this Clause, Lessor may bid for and purchase such property and
Lessee agrees that the amounts paid therefor shall be used in the
computation contemplated herein.
With the exception that the remedy in Clause 13.2(g) can be elected only
if the remedy in Clause 13.2(f) is not elected and the remedy in Clause
13.2(h) can be elected only in lieu of all other remedies save the
remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this
Clause 13 is intended to be exclusive, but, to the extent permissible
hereunder or under applicable Law, 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; provided, however, that nothing in this Clause 13 shall be
construed to permit Lessor to obtain a duplicate recovery of any element
of damages to which Lessor is entitled. No express or implied waiver by
Lessor of any Default or Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Default.
13.3 Deregistration: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or other
interest of Lessee as if this Agreement had never been made and Lessee
will at the request of Lessor take all steps necessary to effect (if
applicable) deregistration of the Aircraft and its export from the country
where the Aircraft is for the time being situated and any other steps
necessary to enable the Aircraft to be redelivered to Lessor in accordance
with this Agreement
61
<PAGE>
including without limitation execution and filing of a certificate or
other instrument of lease termination with the Air Authority and; Lessee
hereby irrevocably and by way of security for its obligations under this
Agreement appoints (which appointment is coupled with an interest) Lessor
as its attorney to execute and deliver any documentation and to do any act
or thing required in connection with the foregoing.
14. ASSIGNMENT
14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR
INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO
EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its
rights under this Agreement and in the Aircraft. In the case of an
assignment other than by way of security, Lessor will be released from and
will have no further obligation under this Agreement following the
assignment of all its rights under this Agreement and the assumption by
the assignee or transferee of all of Lessor's obligations under this
Agreement. Notwithstanding any such assignment, Lessor will remain
entitled to the benefit of each indemnity and the liability insurances
effected under this Agreement. Lessee will comply with all reasonable
requests of Lessor, its successors and assigns in respect of any such
assignment. Lessor will promptly notify Lessee of any assignment.
14.3 Transfer: If Lessor desires to effect any assignment or transfer of its
rights and obligations under this Agreement, Lessee agrees to cooperate
and take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement and to acknowledge the release of
Lessor from its obligations hereunder as of the time of such assignment or
transfer.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give effect
to any of its obligations as contemplated by this Agreement or to continue
this Agreement, Lessor may by notice in writing to Lessee terminate the
leasing of the Aircraft under this Agreement and Lessee will forthwith
redeliver the Aircraft to Lessor in accordance with Clause 12. Without
prejudice to the foregoing Lessor will consult in good faith with Lessee
as to any steps which may be taken to restructure the transaction to avoid
that unlawfulness but will be under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any Law; and
62
<PAGE>
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not constitute
a waiver of that right.
16.2 Delegation: Lessor may delegate to any person or persons all or any of the
trusts, powers or discretions vested in it by these presents and any such
delegation may be made upon such terms and conditions and subject to such
regulations (including power to sub-delegate) as Lessor in its absolute
discretion thinks fit.
16.3 Certificates: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or as to
any other amount payable under this Agreement will, in the absence of
manifest error, be conclusive and binding on Lessee.
16.4 Appropriation: If any sum paid or recovered in respect of the liabilities
of Lessee under this Agreement is less than the amount then due, Lessor
may apply that sum to amounts due under this Agreement in such proportions
and order and generally in such manner as Lessor may determine at its sole
discretion.
16.5 Currency:
Lessee acknowledges that the specification of Dollars in this Agreement is
of the essence and that Dollars shall be the currency of account in any
and all events. Lessee waives any right it may have in any jurisdiction
to pay any amount under this Agreement in a currency other than Dollars.
16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under
this Agreement or under any other agreement between Lessor or any
affiliate or associate of Lessor (which for clarification does not include
GPA Group plc, Airplanes Holdings Limited or any affiliate or associate,
successor thereto or assignee thereof) and Lessee against any obligation
(whether or not matured) owed by Lessor to Lessee, regardless of the place
of payment or currency. If the obligations are in different currencies,
Lessor may convert either obligation at the market rate of exchange
available in New York or at its option London for the purpose of the set-
off. If an obligation is unascertained or unliquidated, Lessor may in
good faith estimate that obligation and set off in respect of the
estimate, subject to the relevant party accounting to the other when the
obligation is ascertained or liquidated. Lessor will not be obliged to
pay any amounts to Lessee under this Agreement so long as any sums which
are then due from Lessee under this Agreement or under any other agreement
between Lessor or any affiliate or associate of Lessor (which for
clarification does not include GPA Group plc, Airplanes Holdings Limited
or any affiliate or associate, successor thereto or assignee thereof) and
Lessee remain unpaid and any such amounts which would otherwise be due
will fall due only if and when Lessee has paid all such sums except to the
extent Lessor otherwise agrees or sets off such amounts against such
payment pursuant to the foregoing.
63
<PAGE>
16.7 Severability: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
(a) the legality, validity or enforceability in that jurisdiction of any other
provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of that
or any other provision of this Agreement.
16.8 Remedy: If Lessee fails to comply with any provision of this Agreement,
Lessor may, without being in any way obliged to do so or responsible for
so doing and without prejudice to the ability of Lessor to treat the non-
compliance as a Default or an Event of Default, effect compliance on
behalf of Lessee, whereupon Lessee shall become liable to pay immediately
any sums expended by Lessor together with all costs and expenses
(including legal costs) in connection therewith.
16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to
this Agreement, Lessee will pay to Lessor on an After-Tax Basis on
demand:-
(a) all costs associated with perfecting Lessor's rights in the Aircraft
and/or this Agreement in the State of Registration, the Habitual
Base of the Aircraft (and other states as appropriate given the
operation of the Aircraft), including (but not limited to) the
provision of legal opinions, tax advice, stamp duties, translations
and registrations, whether required by Lessor or Lessee.
(b) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor related to any amendment to
or extension of or other documentation in connection with, or the
granting of any waiver or consent under this Agreement requested by
Lessee or the monitoring of compliance by Lessee with this
Agreement; and
(c) all expenses (including legal, survey and other costs) payable or
incurred by Lessor in contemplation of, or otherwise in connection
with, the enforcement of or preservation of any of Lessor's or
Owner's rights under this Agreement, or in respect of the
repossession of the Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 Time of Essence: The time stipulated in this Agreement for all payments
payable by Lessee to Lessor and the prompt, punctual and performance of
Lessee's other obligations under this Agreement are of the essence of
this Agreement.
16.11 Notices: All notices under, or in connection with, this Agreement will,
unless otherwise stated, be given in writing by letter, facsimile or
SITA. Any such notice is deemed effectively to be given as follows:-
64
<PAGE>
(i) if by letter, on the earlier of the date when delivered or the 7th
day after dispatch;
(ii) if by facsimile or SITA, when transmitted and full transmission has
been separately notified by telephone by the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee, Lessor and Owner are as follows:-
Lessee: Address: Frontier Airlines, Inc.
12015 East 46th Avenue
Denver, Colorado 80239
United States of America
Attn: General Counsel
SITA: DENGAF9
Facsimile: (303) 371-7007
Telephone: (303) 371-7400
Lessor: Address Polaris Holding Company
c/o GE Capital Aviation Services, Inc.
201 Mission Street
Suite 2700
San Francisco, CA 94105
Attn: Senior Vice
President-Marketing
Facsimile: (415) 284-7477
Telephone: (415) 284-7400
With a copy to: Address: GE Capital Aviation Services, Inc.
201 High Ridge Road
Stamford, CT 06927-4900
Attn: Senior Vice President-Portfolio and
Risk Management, North America
Facsimile: (203) 961-5965
Telephone: (203) 357-4585
16.12 Governing Law and Jurisdiction:
(a) THIS AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS IN ALL RESPECTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT
REFERENCE TO CONFLICT OF LAWS PRINCIPLES);
(b) For the benefit of Lessor, Lessee agrees that the courts of the United
States District Court for the Northern District of California and any
California state court sitting in the City of San Francisco, California
are to have nonexclusive jurisdiction to settle any disputes arising out
of or relating to this Agreement and the other Operative Documents
65
<PAGE>
and submits itself and its property to the nonexclusive jurisdiction of
the foregoing courts with respect to such disputes;
(c) Without prejudice to any other mode of service, Lessee: -
(i) appoints The Prentice-Hall Corporation System, Inc., 1455 Response
Road, Suite 250, Sacramento, California, 95815 as its agent for
service of process relating to any proceedings before the California
courts in connection with this Agreement and the other Operative
Documents and agrees to maintain the process agent in California
notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such proceedings
by prepaid mailing of a copy of the process to Lessee's agent at the
address identified in paragraph (i) or by prepaid mailing by air
mail, certified or registered mail of a copy of the process to
Lessee at the address set forth in Clause 16.11;
(d) LESSEE: -
(i) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE COURTS REFERRED TO IN CLAUSE
16.12(b) ABOVE ON GROUNDS OF INCONVENIENT FORUM OR OTHERWISE AS
REGARDS PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER
OPERATIVE DOCUMENTS;
(ii) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND/OR THE OTHER OPERATIVE DOCUMENTS BROUGHT IN THE COURTS REFERRED
TO IN CLAUSE 16.12(b);
(iii) AGREES THAT A JUDGMENT OR ORDER OF ANY COURT REFERRED TO IN CLAUSE
16.12(b) IN CONNECTION WITH THIS AGREEMENT AND/OR ANY OF THE OTHER
OPERATIVE DOCUMENTS IS CONCLUSIVE AND BINDING ON IT AND MAY BE
ENFORCED AGAINST IT IN THE COURTS OF ANY OTHER JURISDICTION;
(e) NOTHING IN THIS CLAUSE 16.12 LIMITS THE RIGHT OF LESSOR TO BRING
PROCEEDINGS AGAINST LESSEE IN CONNECTION WITH THIS AGREEMENT AND/OR ANY OF
THE OTHER OPERATIVE DOCUMENTS: -
(i) IN ANY OTHER COURT OF COMPETENT JURISDICTION; OR
66
<PAGE>
(ii) CONCURRENTLY IN MORE THAN ONE JURISDICTION;
(f) LESSEE IRREVOCABLY AND UNCONDITIONALLY: -
(i) AGREES THAT IF LESSOR BRINGS LEGAL PROCEEDINGS AGAINST IT OR ITS
ASSETS IN RELATION TO THIS AGREEMENT AND/OR ANY OF THE OTHER
OPERATIVE DOCUMENTS NO IMMUNITY FROM SUCH LEGAL PROCEEDINGS (WHICH
WILL BE DEEMED TO INCLUDE WITHOUT LIMITATION, SUIT, ATTACHMENT PRIOR
TO JUDGMENT, OTHER ATTACHMENT, THE OBTAINING OF JUDGMENT, EXECUTION
OR OTHER ENFORCEMENT) WILL BE CLAIMED BY OR ON BEHALF OF ITSELF OR
WITH RESPECT TO ITS ASSETS;
(ii) WAIVES ANY SUCH RIGHT OF IMMUNITY WHICH IT OR ITS ASSETS NOW HAS OR
MAY IN THE FUTURE ACQUIRE;
(iii) CONSENTS GENERALLY IN RESPECT OF ANY SUCH PROCEEDINGS TO THE GIVING
OF ANY RELIEF OR THE ISSUE OF ANY PROCESS IN CONNECTION WITH SUCH
PROCEEDINGS INCLUDING, WITHOUT LIMITATION, THE MAKING, ENFORCEMENT
OR EXECUTION AGAINST ANY PROPERTY WHATSOEVER (IRRESPECTIVE OF ITS
USE OR INTENDED USE) OF ANY ORDER OR JUDGMENT WHICH MAY BE MADE OR
GIVEN IN SUCH PROCEEDINGS.
16.13 Sole and Entire Agreement: This Agreement and the other Operative
Documents are the sole and entire agreement between Lessor and Lessee in
relation to the leasing of the Aircraft, and supersede all previous
agreements in relation to that leasing.
16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under
this Agreement (other than Lessor) are given to Lessor on behalf of that
Indemnitee.
16.15 Counterparts: This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. To the extent, if any, that this
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 Agreement may be created through the transfer or
possession of any counterpart other than the counterpart that has been
marked "Counterpart No. 1" on the cover page thereof.
16.16 Language: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between the
English version of this Agreement and any version in any other language,
the English version will prevail.
67
<PAGE>
16.17 No Brokers: Lessee hereby represents and warrants that it has not paid,
agreed to pay or caused to be paid directly or indirectly in any form, any
commission, percentage, contingent fee, brokerage or other similar
payments of any kind, in connection with the establishment or operation of
this Agreement, to any employee of Lessor or to any person or entity in
the State of Registration or elsewhere, except to Excluded Persons, as
herein defined. Lessor hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessee or to any person or
entity in the State of Registration or elsewhere, except to Excluded
Persons, as herein defined. For the purposes hereof, the term "Excluded
Persons" shall mean (x) in the case of Lessor, any of its officers,
directors, employees, attorneys or other professional advisors, whether
located in the State of Registration or elsewhere, and (y) in the case of
Lessee, any of its officers, directors, employees, attorneys or other
professional advisors, whether located in the State of Registration or
elsewhere. Each party agrees to indemnify and hold the other harmless
from and against any and all claims, suits, damages, costs and expenses
(including, but not limited to reasonable attorneys' fees) asserted by any
agent, broker or other third party for any commission or compensation of
any nature whatsoever based upon this Agreement or the Operative Documents
or the Aircraft, if such claim damage, cost or expense arises out of any
action or alleged action by the indemnifying party, its employees or
agents.
17. DISCLAIMERS AND WAIVERS
17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS,
WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY
STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO,
AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER
BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR
FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR
OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH
RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: -
(a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS,
OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE
LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY,
CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP,
THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS
TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED
(INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR
DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY
PART; OR
68
<PAGE>
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT
OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: -
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER
CIRCUMSTANCE IN CONNECTION THEREWITH;
(ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS
RELATING THERETO;
(iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED
PROFITS OR CONSEQUENTIAL DAMAGES;
(iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT
OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR
(v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS
RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER
ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR
PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR
THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE
2.4.
17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE
ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY
OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES (AS SUCH TERM IS DEFINED
IN SECTION 10520(B) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE) AS A RESULT
OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS,
REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE
OTHER OPERATIVE DOCUMENTS.
17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF
THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
69
<PAGE>
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this Agreement
unless it had available to it the benefits of a lessor under Section 1110
of Title 11 of the United States Code. Lessee covenants and agrees with
Lessor that to better ensure the availability of such benefits, Lessee
shall support any motion, petition or application filed by Lessor with any
bankruptcy court having jurisdiction over Lessee, whereby Lessor seeks
recovery of possession of the Aircraft under said Section 1110 and shall
not in any way oppose such action by Lessor unless Lessee shall have
complied with the requirements of said Section 1110 to be fulfilled in
order to entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is
repealed and another statute is enacted in lieu thereof, Lessor and Lessee
agree to amend this Agreement and take such other action not inconsistent
with this Agreement as Lessor reasonably deems necessary so as to afford
to Lessor the rights and benefits as such amended or substituted statute
confers upon owners and lessors of aircraft similarly situated to Lessor.
19. USURY LAWS: The parties intend to contract in strict compliance with the
usury Laws of the States of California and Colorado and, to the extent
applicable, the United States of America. Notwithstanding anything to the
contrary in the Operative Documents, Lessee will not be obligated to pay
any interest in excess of the maximum non-usurious interest rate, as in
effect from time to time, which may by applicable Law be charged,
contracted for, reserved, received or collected by Lessor in connection
with the Operative Documents. During any period of time in which the
then-applicable highest lawful rate is lower than the rate specified in
Clauses 5.11 or 13.2, interest will accrue and be payable at such highest
lawful rate; however, if at later times such highest lawful rate is
greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will
pay interest at the highest lawful rate until the aggregate amount of
interest paid by Lessee equals the amount of interest that would have been
payable in accordance with the interest rate specified in Clauses 5.11 or
13.2.
20. MODIFICATION OR REVISION:
Neither this Agreement nor any term of this Agreement may be modified,
rescinded, changed waived, discharged or terminated except by a writing
signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provision of this Clause 20 by their initials below: -
LESSOR: __________ LESSEE: ____________
70
<PAGE>
21. IN WITNESS whereof the parties hereto have executed this Agreement as of
the date shown at the beginning of this Agreement.
WITNESS SIGNED on behalf of
POLARIS HOLDING COMPANY
By: ___________________________
Name: ___________________________
Title: ___________________________
WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
S
<PAGE>
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
- -------------
MANUFACTURER: Boeing
MODEL: 737-2L9
SERIAL NUMBER: 22734
ENGINES
- -------
ENGINE TYPE: Pratt & Whitney JT8D-17
SERIAL NOS: SN 688416; SN 702681;
On the Delivery Date the Aircraft shall be in the following condition:-
1. GENERAL CONDITION:
(a) The Airframe will be ex a block "C" Check in accordance with Boeing
Maintenance Planning Document ("MPD");
(b) Each Engine shall have not less than 4,000 Engine Flight Hours or 4,000
Cycles (whichever is the more restrictive factor) to next scheduled life
limited part replacement;
(c) All logos shall be deleted from the Aircraft;
(d) Components shall have not less than 12 months, 3,000 Flight Hours and
Cycles, or 100% of their approved life remaining, whichever is less in
accordance with the Previous Operator's Maintenance Program;
(e) The Aircraft shall have had accomplished all outstanding (i.e. at or prior
to the Delivery Date) mandatory inspection and modification requirements,
airworthiness directives and similar requirements applicable to the
Aircraft, any Engine or Part having a compliance date prior to the
Delivery Date or within 180 days after the Delivery Date and which are
required by the Air Authority, and/or the FAA and/or mandated by any
manufacturer of the Aircraft, any Engine or Part;
(f) There shall be no open, deferred, continued, carryover or placarded log
book items;
(g) Each on condition or condition monitored component will be serviceable;
1-1
<PAGE>
(h) No engine will be "on watch" (see Schedule 3, paragraph 3(b) for
definition of "on watch");
(i) The Aircraft shall be equipped for domestic passenger operation under FAR
Part 121;
(j) Emergency equipment have a calendar life will have a minimum of 1 year or
100% of its approved life, whichever is less, remaining; and
[(k) The Aircraft including the Engines shall be equipped with a Nordam Low
Gross Weight 737 Hush Kit which shall have been acquired and installed by
Lessee.]
2. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions, temporary repairs,
and loose or pulled or missing rivets and shall be in accordance with the
manufacturers approved data for permanent repair;
(b) Windows will be free of delamination, blemishes, crazing and will be
properly sealed; and
(c) Doors will be free moving, correctly rigged and be fitted with serviceable
seals.
3. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Unpainted cowlings and fairings will be polished; and
(c) Wings will be free of fuel leaks.
4. COCKPIT
(a) Fairing panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Floor coverings will be clean and effectively sealed;
(c) Seat covers will be in good condition, clean and free of stains and will
conform to FAR fire resistance regulation; and
(d) Seats will be serviceable, in good condition and will be repainted as
necessary.
5. CARGO COMPARTMENTS
(a) Panels will be in good condition; and
(b) Nets will be in good condition.
1-2
<PAGE>
6. LANDING GEAR
The landing gear and wheel wells will be clean, free of leaks and repaired
as necessary. Wheels and brakes shall be in a half life condition or
better.
7. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Program;
(b) The entire fuselage will be substantially free from corrosion and will be
adequately treated and an approved corrosion prevention program will be in
operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment program will be in operation.
1-3
<PAGE>
PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
o FAA Certificate of Airworthiness (on board aircraft)
o Current Aircraft Registration Certificate (on board aircraft)
B. AIRCRAFT STATUS SUMMARIES
o Aircraft record of flight time and cycles (listing of accumulated
hours and cycles as of specific dates)
o Airworthiness Directive Applicability and Compliance Report
o Supplemental Structural Inspection (SSID) Status (if applicable)
o Corrosion Prevention and Control Program Task Status
o List of Major Repairs and Alterations
o List and Status of Life Limited Components
o Check/Inspection Status
o List and Current Status of Time-Controlled Components
o Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
C. AIRCRAFT MAINTENANCE RECORDS
Airframe inspection, maintenance, modification, and repair documents with
maintenance and/or inspection signatures (as required) and description of
work done.
o Last "A", "B", "C" and "D" Checks (or equivalents)
(In the event that a check is performed in phases, all phases
necessary to constitute a complete block check are required. In the
event that check content varies by multiples of the check, all
multiples necessary to constitute a complete cycle are required.)
o Airworthiness Directive, Service Bulletin and modification compliance
documents including engineering orders, drawings, shop cards, etc., as
necessary to establish method of compliance, quality control
acceptance, and approval authority
1-4
<PAGE>
o Supplemental Structural Inspection (SSID) compliance documents and
findings (if applicable)
o Corrosion Prevention and Control Program compliance documents and
findings
o Documentation of major repairs and alterations including engineering
orders, drawings, Supplemental Type Certificates, Master Change
Notice, etc., as necessary to define work done, certification basis,
and approval authority.
o Aircraft weighing records
D. AIRCRAFT HISTORY RECORDS
o Service Difficulty Reports
o Accident or Incident Reports
E. ENGINE RECORDS (for each engine)
o Engine Master Record (record of installation and removal and
accumulated flight time and cycles)
o Airworthiness Directive Applicability and Compliance Report
o Manufacturer Service Bulletin Compliance Report
o List of Operator Modifications Incorporated, if any
o List of Major Repairs and Alterations, if any
o List of Current Status of Life Limited Components
o Check/Inspection Status
o List and Status of Time Controlled Components
o Serialization On-Condition/Condition Monitored Components Inventory of
Installed Units
o Repair, overhaul and inspection documents including FAA Forms 337
o Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
o Test Cell Records for last test
1-5
<PAGE>
F. APU RECORDS
o APU Master Record (record of installation and removal and accumulated
time and cycles)
o Airworthiness Directive Applicability and Compliance Report
o Manufacturer Service Bulletin Compliance Report
o List of Operator Modifications Incorporated, if any
o List and Current Status of Life Limited Components
o List and Status of Time Controlled Components
o Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
o Repair, overhaul and inspection documents including FAA Forms 337
G. COMPONENT RECORDS
o Time Controlled Component Historical Records with installation and
serviceability tags
o Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
o Installation records and serviceability tags for Serialized On-
condition/Condition Monitored Components (minimum of last twelve
months)
H. MANUALS
Airplane Delivered Used:
o Airplane Flight Manual
o Weight and Balance Control and Loading Manual
o Maintenance Manual (microfilm)
o Wiring Diagram Manual (paper)
o Illustrated Parts Catalog (microfilm)
1-6
<PAGE>
o Operator Weight and Balance Manual
o Minimum Equipment List
I. MISCELLANEOUS TECHNICAL DOCUMENTS
o Maintenance Program Specifications
o Interior configuration drawings including FAA approval of such
drawings
o Boeing Aircraft Readiness Log
o Loose Equipment Inventory
o FAA Burn Certificates of Aircraft Interiors
o FAA Burn and Flotation Certificates for passenger seat cushions
1-7
<PAGE>
SCHEDULE 2
CERTIFICATE OF TECHNICAL ACCEPTANCE
This Certificate of Technical Acceptance is delivered, on the date set out below
by Frontier Airlines, Inc. ("Lessee"), to POLARIS HOLDING COMPANY ("Lessor"),
pursuant to the Aircraft Lease Agreement dated as of the June 3, 1996 between
Lessor and Lessee (the "Agreement"). The capitalized terms used in this
Certificate shall have the meaning given to such terms in the Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this [
] day of [ ], 199[ ], at [ ], accepted the following, in accordance with
the provisions of the Agreement:
(a) Boeing Model 737-2L9 airframe, Manufacturer's Serial No. 22734;
(b) Pratt & Whitney JT8D-17 Engines: -
Engine Manufacturer's Serial Nos.
1) 688416
2) 702681
(Each of which shall have more than 750 rated takeoff horsepower or the
equivalent of such horsepower);
(c) Fuel Status: Kilos [ ];
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee and
attached hereto; and
(e) Aircraft Documents: as per list signed by Lessor and Lessee and attached
hereto.
2-1
<PAGE>
2. HOURS AND CYCLES DATA (as of Delivery Date)
(a) Airframe:
---------
Number of Hours since last phase "D" Check (Heaviest Check): ______ hours
-----------------------------------------------------------
"C" Check (or Equivalent):
-------------------------
Interval: ___________________________
Time Since: _______________________
(b) Landing Gear Overhaul:
---------------------
Number of Cycles Since Last Overhaul:
Left Gear __________________________ cycles
Right Gear _________________________ cycles
Nose Gear _________________________ cycles
Center Gear ________________________ cycles
Interval: Left Gear _________________________
Right Gear _________________________
Nose Gear _________________________
Center Gear ________________________
(c) Engines:
-------
Number of Hours Since Last Heavy Shop Visit:
S/N 688416 : ________ hours
S/N 702681 : ________ hours
Number of Hours Since Last Hot Section Refurbishment:
S/N 688416 : _________ hours
S/N 702681 : _________ hours
Number of Hours Since Last Cold Section Refurbishment:
S/N 688416 : _________ hours
2-2
<PAGE>
S/N 702681 : _________ hours
Hot Section Inspection:
Interval: ___________________________
Time Since (S/N 688416): _________________________
Time Since (S/N 702681): _________________________
Time Remaining to First Restriction:
Engine S/N: 688416
Hours:__________ Restriction:__________
Cycles:_________ Restriction:__________
Engine S/N: 702681
Hours:__________ Restriction:__________
Cycles:__________ Restriction:__________
Average Cycles in Life Limited Parts (see attached Schedule):_________
(d) Auxiliary Power Unit
--------------------
Number of APU Hours Since Last Heavy Shop Visit:
__________ hours Date accomplished__________
Hot Section Inspection:
Interval: ________________________
Time Since: ________________________
(e) Time Controlled Components: [See attached DUJX Report]
--------------------------
(f) Fuel on Board on Inspection Date: ________________________
--------------------------------
(g) Interior Equipment:
------------------
Number of Passenger Seats and Configuration:_______________
____________________
Number of Galleys and Location:_________ _______
2-3
<PAGE>
Number of Lavatories and Location: _________ __________
LOPA - Attached __________ __________
List of Loose Equipment on Board:
----------------------------- ----------------------
----------------------------- ----------------------
----------------------------- ----------------------
----------------------------- ----------------------
----------------------------- ----------------------
----------------------------- ----------------------
(h) Avionics:
--------
Description Model Part No.
----------- ----- --------
----------------------------- ---------------- ----------------
----------------------------- ---------------- ----------------
----------------------------- ---------------- ----------------
----------------------------- ---------------- ----------------
----------------------------- ---------------- ----------------
----------------------------- ---------------- ----------------
2-4
<PAGE>
3. ACCEPTANCE:
The undersigned hereby confirms that the Aircraft, Engines, Parts and
Aircraft Documents are acceptable to it, satisfy all of the Delivery
Condition Requirements and are in the condition for delivery to and
acceptance by Lessee as required under the Agreement. Lessee's execution
and delivery of this certificate signifies Lessee's absolute and
irrevocable acceptance of delivery of the Aircraft to it for all purposes
hereof and of the Agreement.
IN WITNESS WHEREOF, Lessee has, by its duly authorized representative,
executed this Certificate on the date in paragraph 1 above.
LESSEE: FRONTIER AIRLINES, INC.
By: _________________________
Title: _________________________
2-5
<PAGE>
SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear generally,
will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be in the same configuration as on the Delivery Date or as reasonably
requested by Lessor;
(b) be clean by airline standards;
(c) have installed the full complement of engines and other equipment, parts
and accessories as is normally installed in the Aircraft and the loose
equipment as was installed in the Aircraft at the time of Delivery, and be
in a condition suitable for immediate operation in commercial service;
(d) have in existence a valid certificate of airworthiness (or if required by
Lessor, a valid export certificate of airworthiness) with respect to the
Aircraft issued by the Air Authority;
(e) comply with the manufacturer's original specifications;
(f) have undergone, immediately prior to redelivery, a block 'C' Check so that
all Airframe inspections falling due within the next following 3,000
Flight Hours, 3,000 Cycles or the first 12 months of operation in
accordance with the Agreed Maintenance Program, have been accomplished;
(g) have had accomplished all outstanding (i.e. at or prior to the Expiry
Date) mandatory inspection and modification requirements, airworthiness
directives and similar requirements applicable to the Aircraft, any Engine
or Port having a compliance date during the Term or within 180 days after
the Expiry Date and which are required by the Air Authority, and/or the
FAA and/or mandated by any manufacturer of the Aircraft, any Engine or
Part;
(h) have installed all applicable vendor's and manufacturer's service bulletin
kits received free of charge by Lessee that are appropriate for the
Aircraft and to the extent not installed, those kits will be furnished
free of charge to Lessor;
(i) be in the Lessee's external livery, logos deleted; and
3-1
<PAGE>
(j) have all signs and decals clean, secure and legible.
(k) will meet the requirements of FAR Part 36, Appendix C, Stage 3 noise
compliance as then in effect without waiver or restriction; and
(l) shall have no open, deferred, continued, carryover or placarded log book
items.
2. COMPONENTS
(a) Each life-limited component (other than the APU) shall have not less than
12 months, 3,000 Flight Hours and Cycles or 100% of their approved life
remaining (whichever is less) to the next scheduled removal, in accordance
with the Agreed Maintenance Program;
(b) Each calendar-limited component will have not less than 12 months life
remaining to the next scheduled removal in accordance with the Agreed
Maintenance Program;
(c) Each "on-condition" and "condition monitored" component will be
serviceable; and
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Delivery Date will be accompanied by all documentation
Lessor may require to evidence that title thereto is properly vested in
Owner and will:-
(a) have not less than 4,000 Engine Flight Hours or 4,000 Cycles (whichever is
the more restrictive factor) to next scheduled life limited part
replacement and have an expected on-wing remaining life of 4,000 Engine
Flight Hours or 4,000 Cycles (whichever is the more restrictive factor).
The expected life remaining will be determined by the inspection and
checks accomplished by Lessor in accordance with this Agreement;
(b) not be "on watch". (For purposes of the Agreement "on watch" shall mean
any maintenance condition that would require an Engine removal and/or
reinspection or airworthiness directive action that would require an
Engine removal within 3,500 Cycles of the Expiry Date); and
(c) be in a condition which can operate at maximum rated take off power at sea
level at a temperature of 34oC.
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions, temporary repairs,
and loose or pulled or missing rivets and shall be in accordance with the
manufacturers approved data for permanent repair;
(b) Windows will be free of delamination, blemishes, crazing and will be
properly sealed; and
(c) Doors will be free moving, correctly rigged and be fitted with serviceable
seals.
3-2
<PAGE>
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Unpainted cowlings and fairings will be polished; and
(c) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks
and stains;
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR fire resistance regulations;
(c) Seats will be serviceable, in good condition and repainted as necessary;
and
(d) Emergency equipment having a calendar life will have a minimum of 1 year
or 100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Fairing panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Floor coverings will be clean and effectively sealed;
(c) Seat covers will be in good condition, clean and free of stains and will
conform to FAR fire resistance regulation; and
(d) Seats will be serviceable, in good condition and will be repainted as
necessary.
8. CARGO COMPARTMENTS
(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
The landing gear and wheel wells will be clean, free of leaks and repaired
as necessary. Wheels and brakes shall be in a half life condition or
better.
3-3
<PAGE>
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Program;
(b) The entire fuselage will be substantially free from corrosion and will be
adequately treated and an approved corrosion prevention program will be in
operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment program will be in operation.
3-4
<PAGE>
SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed Value
and with a deductible not exceeding the Deductible Amount set forth in
Letter Agreement No. 1, or such other amount agreed by Lessor from time to
time;
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All
Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition by
the State of Registration for the Agreed Value, however, when the Aircraft
is being operated solely in or over the United States of America and/or
Canada, coverage may be limited to such perils as are customarily insured
by comparable airlines, operating similar equipment in similar
circumstances;
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in
transit other than by air) property insurance on all Engines and Parts
when not installed on the Aircraft on an "agreed value" basis for their
full replacement value and including engine test and running risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL
AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a
Combined Single Limit (Bodily Injury/Property Damage) of an amount not
less than the Minimum Liability Coverage for the time being any one
occurrence (but in respect of products and personal injury liability this
limit may be an aggregate limit for any and all losses occurring during
the currency of the policy). War and Allied Risks are also to be covered
under the Policy in line with prudent market practice for comparable
airlines, operating similar equipment in similar circumstances;
(e) All required hull and spares insurance (as specified above), so far as it
relates to the Aircraft will: -
(i) name Lessor and its successors and assigns as additional assureds
for their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) provide that any loss will be settled jointly with Lessor and Lessee
and will be payable in Dollars to Lessor except where the loss does
not exceed the Damage Notification Threshold, and Lessor has not
notified the insurers to the contrary, in which case the loss will
be settled with and paid to Lessee;
4-1
<PAGE>
(iii) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(iv) confirm that the insurers are not entitled to replace the Aircraft
in the event of an insured Event of Loss;
(v) confirm that the insurers will not obtain a valid discharge of the
obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Lessor, GECASI, GECASL and their respective successors and
assigns and their respective shareholders, subsidiaries, directors,
officers, agents, employees and indemnitees as additional insureds
for their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) include a Severability of Interest Clause which provides that the
insurance, except for the limit of liability, will operate to give
each assured the same protection as if there was a separate policy
issued to each assured;
(iii) contain a provision confirming that the policy is primary without
right of contribution and the liability of the insurers will not be
affected by any other insurance of which Lessor or Lessee have the
benefit so as to reduce the amount payable to the additional
insureds under such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons operating
similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies which
Lessor may reasonably require in relation to liability insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Lessor;
(v) provide that, in relation to the interests of each of the additional
assureds the Insurances will not be invalidated by any act or
omission by Lessee, or any other person other than the respective
additional assured seeking protection and shall insure the interests
of each of the additional assureds regardless of any breach or
violation by Lessee, or any other person other than the
4-2
<PAGE>
respective additional assured seeking protection of any warranty,
declaration or condition, contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any rights of
recourse and/or subrogation against the additional assureds,
including GECASI and GECASL or to be subrogated to any rights of
Lessor against Lessee;
(vii) provide that the additional assureds will have no obligation or
responsibility for the payment of any premiums due (but reserve the
right to pay the same should any of them elect so to do) and that
the insurers will not exercise any right of set-off or counter-claim
in respect of any premium due against the respective interests of
the additional assureds other than outstanding premiums relating to
the Aircraft, any Engine or Part the subject of the relevant claim;
(viii)provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any cancellation,
change, event of non-payment of premium or installment thereof has
been sent to Lessor, except in the case of war risks for which 7
days (or such lesser period as is or may be customarily available in
respect of war risks or allied perils) will be given, or in the case
of war between the 5 great powers or nuclear peril for which
termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such reinsurance
will (i) be on the same terms as the original insurances and will
include the provisions of this Schedule, (ii) provide that
notwithstanding any bankruptcy, insolvency, liquidation, dissolution
or similar proceedings of or affecting the reinsured that the
reinsurers' liability will be to make such payments as would have
fallen due under the relevant policy of reinsurance if the reinsured
had (immediately before such bankruptcy, insolvency, liquidation,
dissolution or similar proceedings) discharged its obligations in
full under the original insurance policies in respect of which the
then relevant policy of reinsurance has been effected; and (iii)
contain a "cut-through" clause in the following form (or otherwise,
satisfactory to Lessor): "The Reinsurers and the Reinsured hereby
mutually agree that in the event of any claim arising under the
reinsurances in respect of a total loss or other claim where as
provided by the Aircraft Lease Agreement dated as of June 3, 1996
and made between Polaris Holding Company and Frontier Airlines, Inc.
such claim is to be paid to the person named as sole loss payee
under the primary insurances, the Reinsurers will in lieu of payment
to the Reinsured, its successors in interest and assigns pay to the
person named as sole loss payee under the primary insurances
effected by the Reinsured that portion of any loss due for which the
Reinsurers would otherwise be liable to pay the Reinsured (subject
to proof of loss), it being understood and agreed that any such
payment by the Reinsurers will (to the extent of such payment) fully
discharge and release the Reinsurers from any and all further
liability in connection therewith"; subject to such provisions not
contravening any law of the State of Incorporation;
4-3
<PAGE>
(x) contain a provision entitling Lessor or any insured party to
initiate a claim under any policy in the event of the refusal or
failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of this Agreement to the
extent of the risks covered by the policies.
4-4
<PAGE>
SCHEDULE 5
FORM OF LEGAL OPINION
To: Polaris Holding Company
[Date]
Dear Sirs,
1. You have asked us to render an opinion in connection with the transaction
governed, inter alia, by the under mentioned documents. Words and
expressions used herein will bear the same meanings as defined in an
Aircraft Lease Agreement (the "Lease") dated as of June 3, 1996 between
Polaris Holding Company ("Lessor") and Frontier Airlines, Inc. ("Lessee")
in respect of one Boeing 737-2L9 aircraft with manufacturer's serial
number 22734 together with the two installed engines (the "Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the opinion
expressed below.
2. Having considered the documents listed in paragraph 1 above, and having
regard to the relevant laws of [the State of California] [the State of
Colorado] we are pleased to advise that in our opinion:-
(a) Lessee was duly incorporated in the State of [ ] on [ ] for an
indefinite period as a limited company and is a validly existing separate
legal entity, is subject to suit in its own name, and, to the best of our
knowledge, no steps have been, or are being, taken to appoint a receiver,
liquidator, trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has taken
all necessary corporate action to authorize the entry into, performance
and delivery of, the Lease and the transactions contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
5-1
<PAGE>
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any document which is
binding upon Lessee or any of its assets or result in the creation
of any Security Interest over any of its assets.
(d) no authorizations, consents, licenses, approvals and registrations (other
than those which have been obtained and of which copies are attached
hereto) are necessary or desirable to be obtained from any governmental or
other regulatory authorities in the United States of America (the "United
States") to enable Lessee:-
(1) to enter into and perform the transactions contemplated by the
Lease;
(2) to import the Aircraft into the United States for the duration of
the Term;
(3) to operate the Aircraft in the United States for the transport of
fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for [the filing and recordation of the Agreement with the FAA and]
the filing of the Financing Statements with [ ] (which filing has been
duly made on or before this date) it is not necessary or desirable, to
ensure the priority, validity and enforceability of all the obligations of
Lessee under the Lease that the Lease be filed, registered, recorded or
notarized in any public office or elsewhere or that any other instrument
relating thereto be signed, delivered, filed, registered or recorded, that
any tax or duty be paid or that any other action whatsoever be taken;
(f) No steps are necessary or desirable to record or perfect Lessor's interest
in the Aircraft in the United States;
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States;
without requiring any further consents, approvals or licenses from any
governmental or regulatory authority in [];
(h) the Lease has been properly signed and delivered on behalf of Lessee and
the obligations on the part of Lessee contained therein, are valid and
binding on and enforceable against Lessee respectively under the laws of
the United States;
5-2
<PAGE>
(i) the events described in Clause 13.1(g) of the Lease comprise an accurate
and complete statement of all events and situations provided for by the
laws of the United States which may lead to the cessation of activities,
winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
(k) Lessee is a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code;
(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of the
United States Code;
(m) Lessee's chief executive office (as defined in the Uniform Commercial Code
in effect in [ ]) is located at [ ];
(n) the obligations of Lessee under the Lease rank at least pari passu with
all other present and future unsecured and unsubordinated (including
contingent obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any payment
whatsoever which may be made by Lessee pursuant to the Lease; with respect
to any withholdings, the provisions of Clauses 5.6, 5.7 and 5.10 of the
Lease are fully effective; and the arrangements contemplated by the Lease
do not give rise to any charge whatsoever to Taxes in the United States;
(p) there is no applicable usury or interest limitation law in the United
States which may restrict the recovery of payments in accordance with the
Lease;
(q) there are no registration, stamp or other taxes or duties of any kind
payable in the United States in connection with the signature, performance
or enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in the United States nor
become liable to tax in the United States by reason of entering into the
Lease with Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in the United States
in order to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld as a
valid choice of law in any action in the Courts of the United States;
(u) the consent to the jurisdiction by Lessee contained in the Lease is valid
and binding on Lessee and not subject to revocation;
(v) any judgment for a definite sum given by the Courts of the State of
California against Lessee would be recognized and accepted by the Courts
of the United States without re-trial or examination of the merits of the
case;
5-3
<PAGE>
(w) (i) Lessee is subject to civil commercial law with respect to its
obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Lease by Lessee
constitute private and commercial acts; and
(x) there are no laws or other rules in the United States (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other person,
other than Lessor or any assignee of Lessor.
3. We do not purport to be experts on and do not purport to be generally
familiar with or qualified to express legal opinions based on any law
other than the laws of the United States and accordingly express no legal
opinion herein based upon any law other than the laws of the United
States.
Yours faithfully,
5-4
<PAGE>
SCHEDULE 6
LEASE SUPPLEMENT NO. __
LEASE SUPPLEMENT NO. ___, dated _______________, 1996, between Polaris
Holding Company, a corporation organized under the laws of New York (Lessor"),
and Frontier Airlines, Inc. a corporation organized under the laws of the State
of Colorado (Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of June 3, 1996 (herein referred to as the "Agreement" and
the defined terms therein being hereinafter used with the same meaning). The
Agreement provides for the execution and delivery from time to time of a Lease
Supplement substantially in the form hereof for the purpose of leasing the
aircraft described below under the Agreement as and when delivered by Lessor to
Lessee in accordance with the terms thereof.
The Agreement and this Lease Supplement relate to the Aircraft, Engines and
Parts as more precisely described below. A counterpart of the Agreement is
attached hereto and this Lease Supplement and the Agreement shall form one
document.
In consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows: -
1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee
hereby accepts, acknowledges receipt of possession and leases from Lessor
under the Agreement, that certain Boeing Model 737-2L9 commercial jet
Aircraft, and the two (2) Pratt & Whitney JT8D-17 Engines (each of which
Engines has 750 or more rated takeoff horsepower or the equivalent of such
horsepower) described in Schedule 1 hereto, together with the Aircraft
Documents described in the Agreement (the "Delivered Aircraft").
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Term for the Delivered Aircraft shall commence on the Delivery Date and
shall end on the Expiry Date.
4. The amount of Rent for the Delivered Aircraft is set forth in Letter
Agreement No. 1 to the Agreement.
5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each
delivered Engine have been duly marked in accordance with the terms of
Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required by
the Agreement, (iii) the representations and warranties of Lessee referred
to in Clause 2 of the Agreement are hereby repeated with effect as of the
date first above written, (iv) having inspected the Delivered Aircraft,
Lessee acknowledges that the Delivered Aircraft satisfies all conditions
required for
6-1
<PAGE>
Lessee's acceptance of delivery as set forth in the Agreement, except as
noted in the Discrepancy List attached to the Certificate of Technical
Acceptance, and (v) the execution and delivery of this Lease Supplement
signifies absolute and irrevocable acceptance by Lessee of the Delivered
Aircraft for all purposes hereof and of the Agreement.
6. All of the terms and provisions of the Agreement are hereby incorporated by
reference in this Lease Supplement to the same extent as if fully set forth
herein.
7. This Lease Supplement may be executed in any number of counterparts, each
of such counterparts, shall for all purposes be deemed to be an original;
and all such counterparts shall together constitute but one and the same
Lease Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No.__ to be duly executed as of the day and year first above written.
LESSOR, LESSEE,
POLARIS HOLDING COMPANY FRONTIER AIRLINES, INC.
By:_____________________________ By:_________________________
Name:__________________________ Name:______________________
Title:_________________________ Title:________________________
6-2
<PAGE>
SCHEDULE 1
TO
LEASE SUPPLEMENT NO._
One
Used Boeing 737-2L9
Airframe
Registration Mark
-----------------
N171PL (to be changed to N271FL)
Manufacturer's
Serial No. Total Time* Total Cycles*
---------- ---------- ------------
22734 _________ _________
Installed Pratt & Whitney
Engines
-------------------------
Model No. Serial No. Total Time* Total Cycles*
- ----------- ---------- ----------- -------------
JT8D-17 688416 __________ ____________
JT8D-17 702681 __________ ____________
Each of the above-described Aircraft Engines is 750 or more rated takeoff
horsepower or its equivalent.
* The total time and total cycles referred to above are as of _______________
Time, __________, ____. Such times and cycles are within _____ hours and
_____ cycles of the actual hours and cycles at the time of this Lease
Supplement.
6-3
<PAGE>
SCHEDULE 7
FORM OF
LEASE TERMINATION CERTIFICATE
The undersigned hereby certify that the Aircraft Lease Agreement dated as of
June 3, 1996 between the undersigned Lessor and undersigned Lessee, and as
further described in the Appendix attached hereto, has terminated and the
aircraft and aircraft engines covered thereby are no longer subject to the terms
thereof. This certificate may be executed in one or more counterparts each of
which when taken together shall constitute one and the same instrument.
DATED this __________ day of ____________________, __________
LESSOR LESSEE
POLARIS HOLDING COMPANY FRONTIER AIRLINES, INC.
By:________________________________ By:___________________________
Title:_______________________________ Title:_________________________
7-1
<PAGE>
APPENDIX
--------
FAA Recording Date FAA Conveyance No.
- ------------------ ------------------
7-2
<PAGE>
SCHEDULE 8
FORM OF AIRCRAFT USAGE REPORT
FOR PERIOD BEGINNING ON __________, 199____
AND ENDING ON ___________, 199____
The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies
as follows:
1. This report is submitted to Polaris Holding Company ("Lessor") under that
certain Aircraft Lease Agreement dated as of June 3, 1996, between Lessor
and Lessee (the "Lease"), and capitalized terms used and not otherwise
defined herein have the meanings ascribed to them in the Lease.
2. The Aircraft covered by this report is:
Aircraft: Boeing 737-2L9
Serial No: 22734
U.S. Reg. No.: N171PL (to be changed to N271FL)
3. During the period covered by this report, the Airframe which is the subject
of the Lease was operated for the following number of Flight Hours and
Cycles as such terms are defined in the Lease:
_________ Flight Hours __________ Cycles
4. During the period covered by this report, the Pratt & Whitney JT8D-17
Engines bearing respective serial numbers 688416 and 702681which are the
subject of the Lease, where each operated for the following number of
Engine Flight Hours and Cycles, as defined in the Lease:
Engine Flight Hours Cycles
------------------- ------
SN 688416 _______________ _____
SN 702681 _______________ _____
This Aircraft Usage Report is dated __________________, 199_____,
FRONTIER AIRLINES, INC.
By:________________________________
Title:_______________________________
8-1
<PAGE>
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
AIRCRAFT LEASE AGREEMENT
Dated as of June 12, 1996
BETWEEN
FRONTIER AIRLINES
as LESSEE
and
INTERNATIONAL LEASE FINANCE CORPORATION
as LESSOR
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Aircraft Make and Model: New Boeing 737-3Q8
Aircraft Manufacturer's Serial Number: 27633
Aircraft Registration Mark: Per Exhibit E
Make and Model of Engines: CFM-56-3-C1
Serial Numbers of Engines: Per Exhibit E
NEW AIRCRAFT NO. 1
==================
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS
EXHIBIT AND IS BEING FILED SEPARATELY WITH THE SEC.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 SUMMARY OF TRANSACTION....................................... 2
1.1 Description of Aircraft...................................... 2
1.2 Scheduled Delivery Date and Location......................... 2
1.3 Initial Lease Term........................................... 2
1.4 Lease Extension Option....................................... 2
1.5 Security Deposit............................................. 2
1.6 Transaction Fee.............................................. 2
1.7 Rent During Initial Lease Term............................... 3
1.8 Rent During Lease Extension Term............................. 3
1.9 Reserves..................................................... 3
1.10 Additional Rent for Excess Cycles............................ 4
1.11 Country of Aircraft Registration............................. 4
1.12 Maintenance Program.......................................... 4
1.13 Agreed Value of Aircraft..................................... 4
1.14 LESSOR's Bank Account........................................ 5
ARTICLE 2 DEFINITIONS.................................................. 6
2.1 General Definitions.......................................... 6
2.2 Specific Definitions......................................... 10
ARTICLE 3 PLACE AND DATE OF DELIVERY................................... 12
3.1 Place of Delivery............................................ 12
3.2 Scheduled Delivery Date...................................... 12
3.3 Delivery subject to Manufacturer Delivery.................... 12
3.4 No LESSOR Liability.......................................... 12
3.5 Total Loss of Aircraft prior to Delivery..................... 12
3.6 Cancellation for Anticipatory Delay.......................... 12
3.7 Cancellation for Delay....................................... 13
ARTICLE 4 LEASE TERM AND EXTENSION OPTION.............................. 14
4.1 Initial Lease Term........................................... 14
4.2 Lease Extension Option....................................... 14
4.3 "Lease Term" and "Expiration Date"........................... 14
4.4 "Termination Date"........................................... 14
4.5 Survival of Certain LESSEE Obligations....................... 15
ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES
AND OTHER PAYMENTS........................................... 16
5.1 Security Deposit............................................. 16
5.2 Transaction Fee.............................................. 17
5.3 Rent......................................................... 17
5.4 Reserves..................................................... 19
5.5 Additional Rent for Excess Cycles............................ 20
i
<PAGE>
5.6 LESSOR's Bank Account........................................ 21
5.7 Default Interest............................................. 21
5.8 No Deductions or Withholdings................................ 22
5.9 Value Added Taxes............................................ 22
5.10 Wire Transfer Disbursement Report............................ 22
5.11 Net Lease.................................................... 22
5.12 LESSOR Performance of LESSEE Obligation...................... 23
5.13 Consideration for Rent and other Amounts..................... 24
ARTICLE 6 LESSEE INVOLVEMENT WITH AIRCRAFT MANUFACTURER................ 25
6.1 LESSEE Selection of Aircraft................................. 25
6.2 Agency Agreement between LESSEE and LESSOR................... 25
6.3 Procurement of BFE........................................... 25
6.4 Assignment of Training....................................... 25
6.5 LESSEE Inspection of Aircraft................................ 25
6.6 Aircraft at Delivery......................................... 26
6.7 Delivery of the Aircraft to LESSEE........................... 26
6.8 LESSEE Acceptance of Aircraft................................ 26
ARTICLE 7 PRE-DELIVERY, DELIVERY AND DOCUMENTARY AND OTHER
REQUIREMENTS POST-DELIVERY.................................. 27
7.1 Pre-Delivery Requirements.................................... 27
7.2 Delivery Requirements........................................ 28
7.3 Post-Delivery Requirements................................... 29
ARTICLE 8 DISCLAIMERS.................................................. 31
8.1 "As Is, Where Is"............................................ 31
8.2 Waiver of Warranty of Description............................ 31
8.3 LESSEE Acknowledgement....................................... 32
8.4 LESSEE Waiver................................................ 32
8.5 Conclusive Proof............................................. 32
8.6 No LESSOR Liability for Losses............................... 32
8.7 No Liability to Repair or Replace............................ 32
8.8 No Waiver.................................................... 33
ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES....................... 34
9.1 Warranties................................................... 34
9.2 Reassignment................................................. 34
9.3 Warranty Claims.............................................. 34
ARTICLE 10 OPERATION OF AIRCRAFT........................................ 35
10.1 Costs of Operation........................................... 35
10.2 Compliance with Laws......................................... 35
10.3 Training..................................................... 35
10.4 No Violation of Insurance Policies........................... 35
ii
<PAGE>
10.5 Flight Charges............................................... 36
ARTICLE 11 SUBLEASES.................................................... 37
11.1 No Sublease without LESSOR Consent........................... 37
11.2 Subleasing Proposal Fee...................................... 37
11.3 Any Approved Sublease........................................ 37
11.4 Assignment of Sublease....................................... 38
11.5 Continued Responsibility of LESSEE........................... 38
ARTICLE 12 MAINTENANCE OF AIRCRAFT...................................... 39
12.1 General Obligation........................................... 39
12.2 Specific Obligations......................................... 39
12.3 Replacement of Parts......................................... 41
12.4 Removal of Engines........................................... 42
12.5 Installation of Engines on other aircraft.................... 43
12.6 Engine Thrust Rating......................................... 44
12.7 Modifications................................................ 44
12.8 Pooling of Engines and Parts................................. 45
12.9 Performance of Work by Third Parties......................... 46
12.10 Reporting Requirements....................................... 46
12.11 Information Regarding Maintenance Program.................... 46
12.12 LESSOR Rights to Inspect Aircraft............................ 46
ARTICLE 13 USE OF RESERVES.............................................. 48
13.1 Airframe Reserves............................................ 48
13.2 Engine Reserves.............................................. 48
13.3 Landing Gear Reserves........................................ 49
13.4 Reimbursement................................................ 49
13.5 Reimbursement Adjustment..................................... 49
13.6 Costs in Excess of Reserves.................................. 49
13.7 Reimbursement after Termination Date......................... 50
ARTICLE 14 TITLE AND REGISTRATION....................................... 51
14.1 Title to the Aircraft During Lease Term...................... 51
14.2 Registration of Aircraft..................................... 51
14.3 Filing of this Lease......................................... 51
14.4 Evidence of Registration and Filings......................... 51
ARTICLE 15 IDENTIFICATION PLATES........................................ 52
ARTICLE 16 TAXES........................................................ 53
16.1 General Obligation of LESSEE................................. 53
16.2 Exceptions to Indemnity...................................... 53
16.3 After-Tax Basis.............................................. 54
16.4 Timing of Payment............................................ 54
16.5 Contests..................................................... 54
iii
<PAGE>
16.6 Refunds...................................................... 54
16.7 Cooperation in Filing Tax Returns............................ 54
16.8 Survival of Obligations...................................... 55
ARTICLE 17 INDEMNITIES.................................................. 56
17.1 General Indemnity............................................ 56
17.2 Exceptions to General Indemnities............................ 57
17.3 After-Tax Basis.............................................. 58
17.4 Timing of Payment............................................ 58
17.5 Subrogation.................................................. 58
17.6 Notice....................................................... 58
17.7 Refunds...................................................... 58
17.8 Defense of Claims............................................ 58
17.9 Survival of Obligation....................................... 59
ARTICLE 18 INSURANCE.................................................... 60
18.1 Categories of Insurance...................................... 60
18.2 Insurance for Indemnities.................................... 60
18.3 Renewal...................................................... 60
18.4 Assignment of Rights by LESSOR............................... 60
18.5 Deductibles.................................................. 60
18.6 Other Insurance.............................................. 61
18.7 Information.................................................. 61
18.8 Currency..................................................... 61
18.9 Grounding of Aircraft........................................ 61
18.10 Failure to Insure............................................ 61
18.11 Reinsurance.................................................. 61
18.12 Limit on Hull in favor of LESSEE............................. 62
ARTICLE 19 LOSS, DAMAGE AND REQUISITION................................. 63
19.1 Definitions.................................................. 63
19.2 Notice of Total Loss......................................... 64
19.3 Total Loss of Aircraft or Airframe........................... 64
19.4 Surviving Engine(s).......................................... 66
19.5 Total Loss of Engine and not Airframe........................ 66
19.6 Other Loss or Damage......................................... 67
19.7 Copy of Insurance Policy..................................... 68
19.8 Government Requisition....................................... 68
19.9 LESSOR Retention of Reserves................................. 69
ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.......... 70
20.1 Representations and Warranties............................... 70
20.2 Covenants.................................................... 72
iv
<PAGE>
ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR.......... 74
21.1 Representations and Warranties............................... 74
21.2 Covenants.................................................... 75
ARTICLE 22 FINANCIAL AND RELATED INFORMATION............................ 76
ARTICLE 23 RETURN OF AIRCRAFT........................................... 77
23.1 Date of Return............................................... 77
23.2 Technical Reporting.......................................... 77
23.3 Return Location.............................................. 77
23.4 Full Aircraft Documentation Review........................... 77
23.5 Aircraft Inspection.......................................... 78
23.6 Certificate of Airworthiness Matters......................... 78
23.7 General Condition of Aircraft at Return...................... 80
23.8 Checks Prior to Return....................................... 83
23.9 Part Lives................................................... 86
23.10 Export and Deregistration of Aircraft........................ 87
23.11 LESSEE's Continuing Obligations.............................. 87
23.12 Airport and Navigation Charges............................... 89
23.13 Return Acceptance Certificate................................ 89
23.14 Indemnities and Insurance.................................... 89
23.15 Storage...................................................... 89
ARTICLE 24 ASSIGNMENT................................................... 90
24.1 No Assignment by LESSEE...................................... 90
24.2 Sale or Assignment by LESSOR................................. 90
24.3 LESSOR's Lender.............................................. 90
24.4 LESSEE Cooperation........................................... 91
24.5 Protections.................................................. 91
ARTICLE 25 DEFAULT OF LESSEE............................................ 92
25.1 LESSEE Notice to LESSOR...................................... 92
25.2 Events of Default............................................ 92
25.3 LESSOR's General Rights...................................... 94
25.4 Deregistration and Export of Aircraft........................ 95
25.5 LESSEE Liability for Damages................................. 95
25.6 Waiver of Default............................................ 96
25.7 Present Value of Payments.................................... 96
25.8 Use of "Termination Date".................................... 97
ARTICLE 26 NOTICES...................................................... 98
26.1 Manner of Sending Notices.................................... 98
26.2 Notice Information........................................... 98
ARTICLE 27 GOVERNING LAW AND JURISDICTION............................... 99
v
<PAGE>
27.1 California Law............................................... 99
27.2 Non-Exclusive Jurisdiction in California..................... 99
27.3 Service of Process........................................... 99
27.4 Prevailing Party in Dispute.................................. 99
27.5 Waiver....................................................... 99
ARTICLE 28 MISCELLANEOUS................................................ 100
28.1 Press Releases............................................... 100
28.2 Power of Attorney............................................ 100
28.3 LESSOR Performance for LESSEE................................ 100
28.4 LESSOR's Payment Obligations................................. 100
28.5 Application of Payments...................................... 100
28.6 Usury Laws................................................... 100
28.7 Delegation by LESSOR......................................... 101
28.8 Confidentiality.............................................. 101
28.9 Rights of Parties............................................ 101
28.10 Further Assurances........................................... 101
28.11 Use of Word "including"...................................... 102
28.12 Headings..................................................... 102
28.13 Invalidity of any Provision.................................. 102
28.14 Negotiation.................................................. 102
28.15 Time is of the Essence....................................... 102
28.16 Amendments in Writing........................................ 102
28.17 Counterparts................................................. 102
28.18 Delivery of Documents by Fax................................. 102
28.19 Entire Agreement............................................. 103
EXHIBIT A AIRCRAFT DESCRIPTION.......................................... 105
EXHIBIT B AGENCY AGREEMENT.............................................. 106
EXHIBIT C CERTIFICATE OF INSURANCE...................................... 110
EXHIBIT D BROKERS' LETTER OF UNDERTAKING................................ 117
EXHIBIT E ESTOPPEL AND ACCEPTANCE CERTIFICATE........................... 119
EXHIBIT F OPINION OF COUNSEL............................................ 121
EXHIBIT G FORM OF POWER OF ATTORNEY..................................... 125
EXHIBIT H ASSIGNMENT OF RIGHTS (AIRFRAME)............................... 127
EXHIBIT I ASSIGNMENT OF RIGHTS (ENGINES)................................ 130
EXHIBIT J RETURN ACCEPTANCE RECEIPT..................................... 132
EXHIBIT K MONTHLY REPORT................................................ 139
EXHIBIT L TECHNICAL EVALUATION REPORT................................... 142
vi
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT is made and entered into as of this 12th day
of June, 1996.
BETWEEN:
-------
FRONTIER AIRLINES, a Colorado corporation whose address and principal place
of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado, 80239
("LESSEE") and
INTERNATIONAL LEASE FINANCE CORPORATION, a California corporation whose
address and principal place of business is at 1999 Avenue of the Stars, 39th
Floor, Los Angeles, California 90067, United States of America ("LESSOR").
The subject matter of this Lease is one (1) new Boeing 737-3Q8 aircraft. In
consideration of and subject to the mutual covenants, terms and conditions
contained in this Lease, LESSOR hereby agrees to lease to LESSEE and LESSEE
hereby agrees to lease from LESSOR the Aircraft for the Lease Term and the
parties further agree as follows:
1
<PAGE>
ARTICLE 1 SUMMARY OF TRANSACTION
--------- ----------------------
The following is a summary of the lease transaction between LESSEE and
LESSOR. It is set forth for the convenience of the parties only and will not be
deemed in any way to amend, detract from or simplify the other provisions of
this Lease.
1.1 Description of Aircraft
-----------------------
One new Boeing 737-3Q8
1.2 Scheduled Delivery Date and Location
------------------------------------
In the month of April 1997 at Seattle, Washington
1.3 Initial Lease Term
------------------
Eight years
1.4 Lease Extension Option
----------------------
LESSEE will have three (3) lease extension options of one (1)
year each, subject to nine (9) months' prior written notice
1.5 Security Deposit
----------------
US$ * , payable as follows:
* *
____________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
1.6 Transaction Fee
---------------
US$ * , payable upon execution of this Lease
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
1.7 Rent During Initial Lease Term
------------------------------
Payable monthly in advance and equal to the sum of (a) US$
* month and (b) an amount equal to the cost of (i) any
agreed-to SCN's or CR's paid for by LESSOR over and above
LESSOR's
2
<PAGE>
baseline specification for the aircraft and (ii) any
BFE (whether buyer-furnished equipment or seller-purchased
equipment) paid for by LESSOR in excess of US$ *
amortized over the Initial Lease Term, together with interest
thereon at a rate equal to the Prime Rate in effect at Delivery
plus * percent ( * %).
----
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
1.8 Rent During Lease Extension Term
--------------------------------
Payable monthly in advance and equal to the following amounts:
Year 9 * % of the Rent during the
Initial Lease Term
Year 10 * % of the Rent during the
Initial Lease Term
Year 11 * % of the Rent during the
Initial Lease Term
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
1.9 Reserves
--------
A total of US$ * , as follows:
Airframe Reserve: US$ * per airframe flight
hour
Engine Reserve: US$ * per engine flight
hour for each engine
Landing Gear
Reserve: US$ * per airframe flight
hour
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
1.10 Additional Rent for Excess Cycles
---------------------------------
US$ * for each cycle the aircraft operated during a calendar
year in excess of the maximum number of cycles which would
result from an average hour/cycle ratio of * to *
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
1.11 Country of Aircraft Registration
--------------------------------
United States of America
3
<PAGE>
1.12 Maintenance Program
-------------------
LESSEE's Maintenance Program
1.13 Agreed Value of Aircraft
------------------------
US$ *
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
1.14 LESSOR's Bank Account
---------------------
International Lease Finance Corporation
Account No.
*
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
4
<PAGE>
ARTICLE 2 DEFINITIONS
--------- -----------
Except where the context otherwise requires, the following words have the
following meanings for all purposes of this Lease. The definitions are equally
applicable to the singular and plural forms of the words. Any agreement defined
below includes each amendment, modification, supplement and waiver thereto in
effect from time to time.
2.1 General Definitions.
-------------------
"Aircraft" means the Airframe, the two (2) Engines, the Parts and the
--------
Aircraft Documentation, collectively. As the context requires, "Aircraft" may
also mean the Airframe, any Engine, any Part, the Aircraft Documentation or any
part thereof individually. For example, in the context of return to LESSOR the
term "Aircraft" means the Airframe, Engines, Parts and Aircraft Documentation
collectively, yet in the context of LESSEE not creating any Security Interests
other than Permitted Liens on the Aircraft, the term "Aircraft" means any of the
Airframe, any Engine, any Part or the Aircraft Documentation individually.
"Aircraft Documentation" means all (i) log books, Aircraft records,
----------------------
manuals and other documents provided to LESSEE in connection with the Aircraft,
(ii) documents listed in Exhibit J and (iii) any other documents required to be
maintained during the Lease Term by the Aviation Authority, LESSEE's Maintenance
Program and this Lease.
"Airframe" means the airframe described in Exhibit A together with all
--------
Parts relating thereto (except Engines or engines).
"Aviation Authority" means the FAA or any Government Entity which
------------------
under the Laws of the United States from time to time has control over civil
aviation or the registration, airworthiness or operation of aircraft in the
United States. If the Aircraft is registered in a country other than the United
States, "Aviation Authority" means the agency which regulates civil aviation in
such other country.
"Aviation Documents" means any or all of the following which at any
------------------
time may be obtainable from the Aviation Authority in the State of Registration:
(i) if required, a temporary certificate of airworthiness from the Aviation
5
<PAGE>
Authority allowing the Aircraft to be flown after Delivery to the State of
Registration, (ii) an application for registration of the Aircraft with the
appropriate authority in the State of Registration, (iii) the certificate of
registration for the Aircraft issued by the State of Registration, (iv) a full
certificate of airworthiness for the Aircraft specifying transport category
(passenger), (v) an air transport license, (vi) an air operator's certificate,
(vii) such recordation of LESSOR's title to the Aircraft and interest in this
Lease as may be available in the State of Registration and (viii) all such other
authorizations, approvals, consents and certificates in the State of
Registration as may be required to enable LESSEE lawfully to operate the
Aircraft.
"BFE" means any equipment which is to be provided by the purchaser of
---
the Aircraft (whether actually provided by LESSOR as buyer-furnished equipment
or Manufacturer as seller-purchased equipment).
"Business Day" means a day other than a Saturday or Sunday on which
------------
the banks in the city where LESSOR's Bank is located are open for the
transaction of business of the type required by this Lease.
"Creditor" means any lessor, owner, bank, lender, mortgagee or other
--------
Person which is the owner of or has any interest in an aircraft engine or
aircraft operated by LESSEE.
"Creditor Agreement" means the applicable agreement between a Creditor
------------------
and LESSEE or between Creditors pursuant to which such Creditor owns, leases or
has an interest in either an aircraft operated by LESSEE on which an Engine may
be installed or in an aircraft engine which may be installed on the Airframe.
"Default" means any event which, upon the giving of notice, the lapse
-------
of time and/or a relevant determination, would constitute an Event of Default.
"Delivery" means the delivery of the Aircraft by Manufacturer to
--------
LESSOR and the simultaneous delivery of the Aircraft from LESSOR to LESSEE
pursuant to Articles 3 and 6.
"Delivery Date" means the date on which Delivery takes place.
-------------
6
<PAGE>
"Dollars" and "$" means the lawful currency of the U.S.
------- -
"Engine" means (i) each of the engines listed on the Estoppel and
------
Acceptance Certificate; (ii) any replacement engine acquired by LESSOR and
leased to LESSEE pursuant to Article 19.5 following a Total Loss of an Engine;
and (iii) all Parts installed in or on any of such engines at Delivery (or
substituted, renewed or replacement Parts in accordance with this Lease) so long
as title thereto is or remains vested in LESSOR in accordance with the terms of
Article 123.
"Event of Default" means any of the events referred to in Article
----------------
252.
"FAA" means the Federal Aviation Administration of the Department of
---
Transportation or any successor thereto under the Laws of the U.S.
"FARs" means the U.S. Federal Aviation Regulations embodied in Title
----
14 of the U.S. Code of Federal Regulations, as amended from time to time, or any
successor regulations thereto.
"Geneva Convention" means the Convention on the International
-----------------
Recognition of Rights in Aircraft signed in Geneva, Switzerland on June 19,
1948.
"Government Entity" means any (i) national, state or local government,
-----------------
(ii) board, commission, department, division, instrumentality, court, agency or
political subdivision thereof and (iii) association, organization or institution
of which any of the entities listed in (i) or (ii) is a member or to whose
jurisdiction any such entity is subject.
"Law" means any (i) statute, decree, constitution, regulation, order
---
or any directive of any Government Entity, (ii) treaty, pact, compact or other
agreement to which any Government Entity is a signatory or party and (iii)
judicial or administrative interpretation or application of any of the
foregoing.
"Lease" means this Aircraft Lease Agreement, together with all
-----
Exhibits hereto.
"LESSOR's Lien" means any Security Interest created by LESSOR.
-------------
7
<PAGE>
"Maintenance Program" means LESSEE's maintenance program as approved
-------------------
by the Aviation Authority or such other maintenance program as LESSOR may, in
its discretion, accept in writing.
"Manufacturer" means The Boeing Company.
------------
"MPD" means the Maintenance Planning Document published by the
---
Manufacturer and applicable to the Aircraft.
"Overhaul" means the full refurbishment of the Aircraft, an Engine,
--------
APU, landing gear, module or Part, as the case may be, in which such equipment
has been disassembled; cleaned, thoroughly inspected; repaired, reworked or had
a replacement of parts; reassembled; and tested to the tolerances and standards
specified by the applicable manufacturer's overhaul procedures manual or
equivalent.
"Part" means any part, component, appliance, system module, engine
----
module, the auxiliary power unit (APU), accessory, material, instrument,
communications equipment, furnishing, LESSEE-furnished or LESSOR-purchased
equipment or other item of equipment (other than complete Engines or engines)
for the time being installed in or attached to the Airframe or any Engine or
which, having been removed from the Airframe or any Engine, remains the property
of LESSOR.
"Permitted Lien" means (i) LESSOR's Liens; (ii) Security Interests
--------------
arising in the ordinary course of LESSEE's business for Taxes either not yet
assessed or, if assessed, not yet due or being contested in good faith in
accordance with Article 16.5 or (iii) materialmen's, mechanic's, workmen's,
repairmen's, employees' liens or similar Security Interests arising by operation
of Law after the Delivery Date in the ordinary course of LESSEE's business for
amounts which are either not yet due or are being contested in good faith by
appropriate proceedings (and for which adequate reserves have been made or, when
required in order to pursue such proceedings, an adequate bond has been
provided) so long as such proceedings do not involve any danger of sale,
forfeiture or loss of the Aircraft.
"Person" means any individual, firm, partnership, joint venture,
------
trust, corporation, Government Entity, committee, department, authority or any
body, incorporated or unincorporated, whether having distinct legal personality
or not.
8
<PAGE>
"Prime Rate" means the rate of interest from time to time announced by
----------
Chase Manhattan Bank as its prime commercial lending rate.
"Security Interest" means any encumbrance or security interest,
-----------------
however and wherever created or arising including (without prejudice to the
generality of the foregoing) any right of ownership, security, mortgage, pledge,
charge, encumbrance, lease, lien, statutory or other right in rem,
hypothecation, title retention, attachment, levy, claim or right of possession
or detention.
"State of Registration" means the United States or such other country
---------------------
or state of registration of the Aircraft as LESSOR may, in its absolute
discretion, approve in writing.
"U.S." means the United States of America.
----
2.2 Specific Definitions. The following terms are defined in the
--------------------
Articles referenced below:
Terms Article
----------------------- -------
Agreed Value 19.1
Airframe Reserves 5.4.1
Default Interest 5.7
Delivery Location 3.1
Engine Reserves 5.4.1
Expenses 17.1
Expiration Date 4.3
Extension Lease Term 4.2.1
Indemnitees 17.1
Initial Lease Term 4.1
Lease Term 4.3
LESSOR's Assignee 24.2.1
LESSOR's Bank 5.6
LESSOR's Lender 24.3
Modification 12.7.1
Net Total Loss Proceeds 19.1
Operative Documents 20.1.3
Rent 5.3.1
Reserves 5.4.1
Scheduled Delivery Date 3.2
Security Deposit 5.1.1
Taxes 16.1
Termination Date 4.4
9
<PAGE>
Total Loss 19.1
Total Loss Date 19.1
Total Loss Proceeds 19.1
Transaction Fee 5.2
10
<PAGE>
ARTICLE 3 PLACE AND DATE OF DELIVERY
--------- --------------------------
3.1 Place of Delivery. LESSOR will deliver the Aircraft to LESSEE at
-----------------
Manufacturer's facility at Seattle, Washington or such other place as may be
agreed in writing between the parties (the "Delivery Location").
-----------------
3.2 Scheduled Delivery Date. As of the date of this Lease, Delivery of
-----------------------
the Aircraft from Manufacturer to LESSOR is scheduled to occur in the month of
April 1997. LESSOR will notify LESSEE from time to time and in a timely manner
of the exact date on which LESSOR expects Delivery to take place (the
"Scheduled Delivery Date").
------------------------
3.3 Delivery subject to Manufacturer Delivery. LESSOR and LESSEE
-----------------------------------------
expressly acknowledge that Delivery of the Aircraft to LESSEE is subject to and
conditioned upon delivery of the Aircraft by Manufacturer to LESSOR.
3.4 No LESSOR Liability. LESSOR will not be liable for any loss or
-------------------
expense, or any loss of profit, arising from any delay or failure in Delivery to
LESSEE unless such delay or failure arises as a direct consequence of the
willful misconduct of LESSOR, and in no event will LESSOR be liable for any
delay or failure which is caused by any breach or delay on the part of
Manufacturer or BFE supplier.
3.5 Total Loss of Aircraft prior to Delivery. If a Total Loss of the
----------------------------------------
Aircraft occurs prior to Delivery, neither party will have any further liability
to the other except that LESSOR will return to LESSEE the Security Deposit in
accordance with Article 5.1.3 and any prepaid Rent.
3.6 Cancellation for Anticipatory Delay. Promptly after LESSOR becomes
-----------------------------------
aware that in Manufacturer's opinion a delay will cause Delivery to be delayed
beyond April 30, 1998, LESSOR will notify LESSEE. By written notice given within
ten (10) Business Days after LESSEE's receipt of such LESSOR notice, either
party may by written notice to the other terminate this Lease and this Lease
will terminate on the date of receipt of such notice. In the event of such
termination, neither party will have any further liability to the other except
that LESSOR will return to LESSEE the Security Deposit in accordance with
Article 5.1.3 and any prepaid Rent. If neither party gives of termination within
such ten (10) Business Days, both parties lose all right to
11
<PAGE>
terminate under Articles 3.6 and 3.7 unless otherwise agreed in writing by the
parties.
3.7 Cancellation for Delay. If a delay, not caused by LESSEE's or
----------------------
LESSOR's breach of this Lease, causes Delivery to be delayed beyond April 30,
1998, either party will have the right to terminate this Lease by giving the
other party written notice within ten (10) Business Days after such date and
this Lease will terminate on the date of receipt of such notice. In the event of
such termination, neither party will have any further liability to the other
except that LESSOR will return to LESSEE the Security Deposit in accordance with
Article 5.1.3 and any prepaid Rent. If neither party gives notice of termination
within such ten (10) Business Days, both parties lose all rights to terminate
under this Article 3.7, unless otherwise agreed in writing by the parties.
12
<PAGE>
ARTICLE 4 LEASE TERM AND EXTENSION OPTION
--------- -------------------------------
4.1 Initial Lease Term. The term of leasing of the Aircraft will
------------------
commence on the Delivery Date and continue for an initial lease term of eight
(8) years (the "Initial Lease Term").
------------------
4.2 Lease Extension Option.
----------------------
4.2.1 So long as no Default has occurred and is continuing hereunder both
on the date of exercise of the option and from such date to the
commencement date of the lease term with respect to such option,
LESSEE will have three (3) lease extension options of one (1) year
each (the "Extension Lease Term").
--------------------
4.2.2 In order to exercise an option, LESSEE must give written notice to
LESSOR not less than nine (9) months prior to the then-existing
Expiration Date of this Lease. Any notice given by LESSEE in
accordance herewith will be irrevocable. LESSEE may not exercise its
option to extend the lease of the Aircraft unless it has also
exercised its option to extend the lease for all prior lease years.
4.3 "Lease Term" and "Expiration Date". "Lease Term" means the term of
---------------------------------- ----------
leasing commencing on the Delivery Date and terminating on the "Expiration
----------
Date". "Expiration Date" means the date on which LESSEE is required to
- ---- ---------------
redeliver the Aircraft to LESSOR in the condition required by this Lease on the
last day of the Initial Lease Term or Extension Lease Term, if and as
applicable.
4.4 "Termination Date". This Lease may in fact terminate on any of the
------------------
following dates:
(a) the Expiration Date, provided LESSEE returns the Aircraft to
LESSOR on the Expiration Date in the condition required by Article
23; or
(b) a date earlier than the Expiration Date, if:
(1) there is a Total Loss of the Aircraft prior to Delivery
pursuant to Article 3.5
13
<PAGE>
(2) cancellation of this Lease occurs pursuant to Article 3.7
or 3.6
(3) there is a Total Loss of the Aircraft and payment is made to
LESSOR in accordance with Article 19.3
(4) this Lease is or becomes wholly or partly invalid or
unenforceable due to reasons beyond LESSEE's and LESSOR's
control and (i) LESSEE fails to continue to perform under this
Lease, (ii) after good faith negotiation, LESSOR and LESSEE have
not arrived at a mutually acceptable alternative basis for
continuation of this Lease within fifteen (15) days after LESSOR
has sent a notice requiring negotiation and (iii) LESSEE returns
the Aircraft to LESSOR in the condition required by Article 23.
(5) an Event of Default occurs and LESSOR repossesses the
Aircraft or otherwise terminates this Lease pursuant to Article
25.3.
The "Termination Date" is the date on which this Lease terminates because one of
the foregoing has occurred and LESSEE has performed all of its obligations
hereunder.
4.5 Survival of Certain LESSEE Obligations. The obligations of LESSEE
--------------------------------------
set forth in Articles 10.5, 16, 17 and 24, and any other obligations of
LESSEE which were due to have been performed but have not been fully performed
prior to the termination of this Lease pursuant to Article 4.4, will survive the
Termination Date. The obligations of LESSEE in the event of a termination
pursuant to Article 25.3 are set forth in Article 25.
14
<PAGE>
ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER
--------- -----------------------------------------------------------
PAYMENTS
--------
5.1 Security Deposit.
----------------
5.1.1 LESSEE will pay LESSOR a security deposit of * U.S. Dollars (US$
**) for its lease of the Aircraft (the "Security Deposit"). The
----------------
Security Deposit is payable as follows (in US$):
*
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
5.1.2 The Security Deposit may be commingled with LESSOR's general funds
and any interest earned on such Security Deposit will be for LESSOR's
account. If the Security Deposit is reduced below the required amount
by application to meet LESSEE's unperformed obligations under this
Lease, LESSEE will replenish the Security Deposit within ten (10)
days after LESSOR's demand therefor. The Security Deposit will serve
as security for the performance by LESSEE of its obligations under
this Lease and any other agreements between LESSEE and LESSOR
relating to aircraft, engines, aircraft equipment or the extension of
credit and may be applied by LESSOR upon the occurrence of a Default
or Event of Default hereunder or of a default by LESSEE under any
such other agreements.
5.1.3 Upon termination of this Lease in accordance with Article 4.4 other
than if an Event of Default has occurred and is continuing, LESSOR
will return to LESSEE the amount of the Security Deposit then held by
LESSOR (so long as no default by LESSEE exists under any other
agreement between LESSEE and LESSOR relating to aircraft, engines or
aircraft equipment or the extension of credit by LESSOR to LESSEE),
without interest, less an amount determined by LESSOR to be a
reasonable estimate of the costs, if any, which LESSOR will incur to
remedy any unperformed
15
<PAGE>
obligations of LESSEE under this Lease, including the correction of
any discrepancies from the required condition of the Aircraft on
return of the Aircraft.
5.2 Transaction Fee. Upon execution of this Lease, LESSEE will pay
---------------
LESSOR a nonrefundable transaction fee of * United States Dollars (US$
* ) (the "Transaction Fee").
---------------
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
5.3 Rent.
-----
5.3.1 LESSEE will pay LESSOR the following amounts monthly in advance as
rent for the Aircraft ("Rent"):
----
Period of Lease Term Amount of monthly Rent
-------------------- ----------------------
Initial Lease Term * U.S. Dollars
(US$ * )*
Extension Lease Term
Year 9 * U.S. Dollars
(US$ * )
Year 10 * U.S. Dollars
(US$ * )
Year 11 * U.S. Dollars
(US$ * )
*In addition to the monthly rent during the Initial Lease Term set
forth above, LESSEE will pay to LESSOR an amount equal to the cost of (i)
any agreed-to SCN's or CR's paid for by LESSOR over and above LESSOR's
baseline specification for the Aircraft and (ii) any BFE (whether buyer-
furnished equipment or seller-purchased equipment) paid for by LESSOR in
excess of US$ * amortized over the Initial
16
<PAGE>
Lease Term, together with interest thereon at a rate equal to
the Prime Rate in effect at Delivery plus * percent (* %).
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
5.3.2 The first payment of Rent during the Lease Term will be paid no later
than three (3) Business Days prior to Delivery. Each subsequent
payment of Rent will be due monthly thereafter no later than the same
day of the month as the Delivery Date of the Aircraft except that, if
such day is not a Business Day, the Rent will be due on the
immediately preceding Business Day. If Delivery occurred on the 29th,
30th or 31st of the month and in any given month during the Lease
Term there is no such date, Rent will be payable on the last Business
Day of such month.
5.4 Reserves.
--------
5.4.1 LESSEE will pay to LESSOR supplemental Rent, based on LESSEE's use of
the Aircraft during the Lease Term, in the form of the following
reserves in the following amounts per flight hour (individually,
"Airframe Reserves" and "Engine Reserves", and collectively
------------------ ---------------
"Reserves"):
---------
A total of US$ * , as follows:
Airframe Reserve: US$ * per airframe
flight hour
Engine Reserve: US$ * per Engine per
flight hour (payable when
the Engine is utilized on
the Aircraft or another
aircraft)
Landing Gear Reserve: US$ * per airframe
flight hour
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
5.4.2 The amount of the Engine Reserves set forth in Article 5.4.1 may be
increased by LESSOR in the event of an increase in the thrust rating
of an Engine in accordance with Article 12.6.
5.4.3 Such Reserves will be paid on or before the 10th day of the calendar
month next following the month in
17
<PAGE>
which the Delivery Date occurs and on or before the 10th day of each
succeeding calendar month for flying performed during the calendar
month prior to payment. All Reserves for flying performed during the
month in which the Termination Date occurs will be paid on the
Termination Date, unless otherwise agreed by the parties.
5.4.4 No interest will accrue or be paid at any time to LESSEE on such
Reserves and, subject to LESSOR's obligations under Article 13,
LESSOR may commingle the Reserves with LESSOR's general funds.
5.5 Additional Rent for Excess Cycles. If in any calendar year (or
---------------------------------
portion thereof) of the Lease Term the Aircraft operated more cycles than the
maximum number of cycles which would result from an average hour/cycle ratio of
2 to 1, LESSEE will pay LESSOR as additional Rent US$ 75 for each cycle the
Aircraft actually operated during such calendar year (or portion thereof) in
excess of the number of cycles which result from an average hour/cycle ratio of
2 to 1. A calculation will be made as of December 31 of each year and such
additional Rent will be due and payable by LESSEE on the date on which the next
Reserve payment is due (in accordance with Article 5.4.3) following such
hour/cycle calculation period.
Example: If the Aircraft operated 2,000 hours in a calendar year, it would
have 1,000 cycles resulting from an average hour/cycle ratio of to . If in
fact the Aircraft operated * cycles in such calendar year, the Aircraft
operated * excess cycles in such calendar year and LESSEE will pay LESSOR
US$ * ( * excess cycles * = US$ ).
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
5.6 LESSOR's Bank Account. The Security Deposit, Transaction Fee, Rent,
---------------------
Reserves and any other payment due under this Lease will be paid by wire
transfer of immediately available U.S. Dollar funds to LESSOR'S bank account at:
International Lease Finance Corporation
*
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
18
<PAGE>
or to such other bank account as LESSOR may from time to time designate by
written notice ("LESSOR's Bank"). When it is stated in this Lease that an
-------------
installment of the Security Deposit, the monthly Rent, Reserves or any other
payment is due or must be paid or made by LESSEE by a specific date, then such
payment actually must be received by LESSOR's Bank on or before such specific
--------
date, even if, in order for such payment to be received by LESSOR's Bank by such
specific date, LESSEE must initiate the wire transfer prior to such specific
date.
5.7 Default Interest. If LESSOR's Bank does not receive the Rent or any
----------------
other amount on or before the specific date when due, LESSOR will suffer loss
and damage the exact nature and amount of which are difficult or impossible to
ascertain. LESSEE will pay LESSOR as supplemental Rent (by way of agreed
compensation and not as a penalty) interest on any due and unpaid amounts
payable by LESSEE under this Lease. Interest will be calculated at a per annum
rate (based on a 360 day year) which is equal to * percent ( * %) plus the
----
Prime Rate in effect on the date on which the amount was originally due to be
received at LESSOR's Bank. Such interest will be applied to the amount due and
unpaid from the date the amount was due to be received at LESSOR's Bank until
the actual date the amount was received at LESSOR's Bank or, in the case of
LESSOR's performance of LESSEE's obligations hereunder, from the date of payment
by LESSOR to the date of LESSEE's repayment to LESSOR ("Default Interest").
----------------
Default Interest will accrue on a day-to-day basis and be compounded monthly.
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
5.8 No Deductions or Withholdings. All payments by LESSEE under
-----------------------------
this Lease, including the Security Deposit, Transaction Fee, Rent, Default
Interest, fees, indemnities or any other item, will be made in full without any
deduction or withholding whether in respect of set-off, counterclaim, duties, or
Taxes (as defined in Article 16) imposed in the State of Registration or any
jurisdiction from which such payments are made unless LESSEE is prohibited by
Law from doing so, in which event LESSEE will gross up the payment amount such
that the net payment received by LESSOR after any deduction or withholding
equals the amounts called for under this Lease.
5.9 Value Added Taxes. The Rent and other amounts payable by LESSEE
-----------------
under this Lease are exclusive of any value added tax, turnover tax or similar
tax or duty. If a value added tax or any similar tax or duty is payable in any
jurisdiction in respect of any Rent or other amounts as aforesaid, LESSEE will
19
<PAGE>
pay all such tax or duty and indemnify LESSOR against any claims for the same
and any related claims, losses or liabilities.
5.10 Wire Transfer Disbursement Report. At the time of each Rent or other
---------------------------------
payment, LESSEE will complete and fax to LESSOR a wire transfer disbursement
report stating the amount of the payment being made by LESSEE and the allocation
of such payment to the Security Deposit, Rent, Reserves, Default Interest and
other charges. Notwithstanding the allocation set forth in LESSEE's report, in
the event LESSEE is in default under this Lease, LESSOR will have complete
discretion to allocate LESSEE's payments as LESSOR determines.
5.11 Net Lease.
---------
5.11.1 This Lease is a net lease and LESSEE's obligation to pay Rent and
make other payments in accordance with this Lease will be absolute
and unconditional under any and all circumstances and regardless of
other events, including the following:
(a) Any right of set-off, counterclaim, recoupment, defense or other
right (including any right of reimbursement) which LESSEE may have
against LESSOR, Manufacturer, the Engine manufacturer or any other
person for any reason, including any claim LESSEE may have for the
foregoing.
(b) Unavailability or interruption in use of the Aircraft for any
reason, including a requisition thereof or any prohibition or
interference with or other restriction against LESSEE's use,
operation or possession of the Aircraft (whether by Law or otherwise)
any defect in title, airworthiness, merchantability, fitness for any
purpose, condition, design, specification or operation of any kind or
nature of the Aircraft the ineligibility of the Aircraft for any
particular use or trade or for registration or documentation under
the Laws of any jurisdiction or Total Loss of the Aircraft.
(c) Insolvency, bankruptcy, reorganization, arrangement, readjustment
of debt, dissolution, liquidation, receivership, administration or
similar proceedings by or against LESSOR, LESSEE,
20
<PAGE>
Manufacturer, the Engine manufacturer or any other Person.
(d) Invalidity or unenforceability or lack of due authorization of
or other defect in this Lease.
(e) Failure or delay on the part of any party to perform its
obligations under this Lease.
(f) Any other circumstance which but for this provision would or
might have the effect of terminating or in any other way affecting
any obligation of LESSEE hereunder.
5.11.2 Nothing in Article 5.11 will be construed to limit LESSEE's rights
and remedies in the event of LESSOR's breach of its warranty of quiet
enjoyment set forth in Article 21.2.1 or to limit LESSEE's rights and
remedies to pursue in a court of law any claim it may have against
LESSOR or any other Person.
5.12 LESSOR Performance of LESSEE Obligation. If LESSEE fails to make
---------------------------------------
any payment under this Lease to a third party in connection with the Aircraft or
fails to perform any other obligation required under this Lease, LESSOR may,
(but is not required to) at its election and without waiver of its rights
perform such obligation and/or pay such amount. Within five (5) Business Days
after written notice to LESSEE of the amount paid by LESSOR on behalf of LESSEE,
LESSEE will repay such amount to LESSOR together with Default Interest. Such
payment to LESSOR will constitute additional Rent payable by LESSEE to LESSOR
hereunder. Any payment, performance or compliance by LESSOR of a LESSEE
obligation hereunder will not affect the occurrence or continuance of a Default
or Event of Default, as the case may be.
5.13 Consideration for Rent and other Amounts. The amount of the Rent and
----------------------------------------
other payments contained herein are in consideration of LESSEE's waiver of
warranties and indemnities set forth in Articles 8 and 17, respectively, and the
other provisions of this Lease.
21
<PAGE>
ARTICLE 6 LESSEE INVOLVEMENT WITH AIRCRAFT MANUFACTURER
--------- ---------------------------------------------
6.1 LESSEE Selection of Aircraft. LESSEE ACKNOWLEDGES THAT THE
----------------------------
DESCRIPTION OF THE AIRCRAFT SET FORTH IN THIS LEASE IS BASED UPON INFORMATION
SUPPLIED BY MANUFACTURER. LESSEE COVENANTS TO LESSOR THAT LESSEE HAS USED ITS
OWN JUDGMENT IN SELECTING THE AIRCRAFT AND HAS DONE SO BASED ON ITS SIZE, DESIGN
AND TYPE. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT A MANUFACTURER OF THE AIRCRAFT
OR DEALER IN THE AIRCRAFT.
6.2 Agency Agreement between LESSEE and LESSOR. Certain obligations
------------------------------------------
remain to be performed by LESSOR in connection with the manufacture, fabrication
and completion of the Aircraft by Manufacturer which will be performed by LESSEE
(as provided in the Agency Agreement). LESSEE will act as LESSOR's agent with
respect to some of these matters pursuant to the terms of an Agency Agreement to
be entered into between LESSEE and LESSOR in the form set forth in Exhibit B.
LESSEE will not be responsible to LESSOR as a result of serving as LESSOR's
agent unless such liability results from LESSEE's negligence.
6.3 Procurement of BFE. LESSEE's and LESSOR's technical representatives
------------------
will meet and agree upon which of LESSEE or LESSOR will provide specific items
of BFE. Such BFE will then be provided to Manufacturer by LESSEE or LESSOR, as
applicable, within the timeframes required by Manufacturer.
6.4 Assignment of Training. LESSOR hereby assigns to LESSEE all rights
----------------------
to training to which LESSOR is entitled as a result of LESSOR's purchase of the
Aircraft and lease of the Aircraft to LESSEE. If LESSEE fails to take Delivery
of the Aircraft when tendered in accordance with Article 6.7, LESSEE will
immediately pay to LESSOR an amount equal to the Dollar value of such training
based on what the training would have cost LESSEE had LESSEE purchased such
training directly from Manufacturer.
6.5 LESSEE Inspection of Aircraft. During the course of final assembly
-----------------------------
of the Aircraft, and at Delivery, LESSEE will have its own representative
present to supervise and inspect the Aircraft and to ensure its conformity with
LESSEE's needs and the terms of this Lease. LESSEE will have ground inspection
and acceptance flight rights with respect to the Aircraft. LESSEE acknowledges
that, as between it and LESSOR, in accepting the Aircraft it is relying on its
own inspection and knowledge of the
22
<PAGE>
Aircraft in determining whether it meets the requirements of this Lease.
6.6 Aircraft at Delivery. At Delivery, the Aircraft will be as set forth
--------------------
in Exhibit A, as such description may be modified by any change requests agreed
to among LESSEE, LESSOR and Manufacturer (which will be reflected in
amendment(s) to this Lease). In the event of any discrepancies, LESSEE and
LESSOR will cooperate in good faith with one another and with Manufacturer and
Engine manufacturer, as applicable, in order to arrive at a mutually acceptable
resolution of any such discrepancies. The Aircraft will be accepted by LESSOR
from Manufacturer simultaneously with LESSEE's acceptance of the Aircraft from
LESSOR pursuant to this Lease. Thus, when LESSEE confirms to LESSOR that the
Aircraft meets such condition and specification, LESSOR will accept the Aircraft
from Manufacturer.
6.7 Delivery of the Aircraft to LESSEE. Subject to LESSEE having
----------------------------------
performed all of the conditions precedent to Delivery set forth herein,
immediately following delivery of the Aircraft from Manufacturer to LESSOR,
LESSOR will deliver the Aircraft to LESSEE at the Delivery Location. Provided
that the Aircraft is in the condition required by Article 6.6, upon the tender
of the Aircraft by LESSOR to LESSEE, LESSEE will accept the Aircraft and the
date of tender by LESSOR to LESSEE will be deemed to be the Delivery Date for
all purposes under this Lease, including but not limited to the commencement of
LESSEE's obligation to pay Rent hereunder.
6.8 LESSEE Acceptance of Aircraft. So long as the Aircraft is in the
-----------------------------
condition specified in Article 6.6, LESSEE will accept the Aircraft when
tendered for delivery by LESSOR. If LESSEE fails to (i) comply with its
obligations set forth in Article 6.2, (ii) comply with the conditions contained
in Articles 7.1 and 7.2 so as to allow Delivery to take place immediately
following delivery of the Aircraft by Manufacturer to LESSOR or (iii) take
delivery of the Aircraft when properly tendered for delivery by LESSOR in the
condition required hereunder, LESSEE will indemnify LESSOR for all costs and
expenses incurred by LESSOR as a result thereof including (but without
limitation) any payments other than the purchase price which LESSOR becomes
obliged to make to Manufacturer.
23
<PAGE>
ARTICLE 7 PRE-DELIVERY, DELIVERY AND POST-DELIVERY DOCUMENTARY AND
--------- --------------------------------------------------------
OTHER REQUIREMENTS
------------------
7.1 Pre-Delivery Requirements. LESSEE will do each of the following
-------------------------
prior to the Scheduled Delivery Date of the Aircraft within the timeframes set
forth below:
(a) Within one (1) month after execution of this Lease, LESSEE will
deliver to LESSOR each of the following:
(1) Copies of resolutions of the Board of Directors of LESSEE or
other written evidence of appropriate corporate action, duly
certifying and authorizing the lease of the Aircraft hereunder
and the execution, delivery and performance of this Lease,
together with an incumbency certificate as to the person or
persons authorized to execute and deliver documents on behalf of
LESSEE hereunder.
(2) An opinion of counsel in the form and substance of Exhibit F
hereto.
(b) At least fourteen (14) days prior to the Scheduled Delivery Date,
LESSEE will have delivered to LESSOR a Certificate of Insurance and
Brokers' Letter of Undertaking in the form and substance of Exhibits
C and D, respectively, from LESSEE's insurance brokers evidencing
insurance of the Aircraft in accordance with this Lease from the
Delivery Date.
(c) At least three (3) days prior to the Scheduled Delivery Date,
LESSEE will do each of the following:
(1) Pay to LESSOR the first monthly installment of Rent in
accordance with Article 5.3.2.
(2) Provide LESSOR with documents reasonably requested by LESSOR
evidencing the issuance of each approval, license and consent
which may be required in connection with the remittance to
LESSOR of any amount payable under this Lease or the performance
by LESSEE of any of its
24
<PAGE>
obligations hereunder (including without limitation any exchange
control approval).
(3) Provide LESSOR with a copy of such Aviation Documents as may
be available prior to the Scheduled Delivery Date.
(4) Provide LESSOR with a power of attorney empowering LESSEE's
representative, who may be an officer or employee of LESSEE, to
accept the Aircraft on behalf of LESSEE.
(5) Provide LESSOR with a power of attorney in the form of
Exhibit G.
(6) Provide LESSOR with such other documents as LESSOR may
reasonably request.
7.2 Delivery Requirements. On the Delivery Date of the Aircraft, each of
---------------------
the following will occur:
(a) LESSEE will execute and deliver to LESSOR an Estoppel and
Acceptance Certificate in the form of Exhibit E covering the Aircraft
and effective as of the Delivery Date. Execution of such Estoppel and
Acceptance Certificate will be conclusive proof that LESSEE has, as
between LESSEE and LESSOR, unconditionally accepted the Aircraft for
lease under this Lease.
(b) If not previously done, LESSEE and LESSOR will sign an amendment
or supplement to Exhibit A evidencing all agreed-to changes to the
specification of the Aircraft.
(c) LESSEE will deliver a certificate signed by an officer of LESSEE
stating all of the following:
(1) The representations and warranties contained in Article 20
are true and accurate on and as of the Delivery Date as though
made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier
date).
25
<PAGE>
(2) No Default has occurred and is continuing or will result
from LESSEE's lease of the Aircraft hereunder.
(3) Such officer has examined the Creditor Agreements between
LESSEE and the other Creditors and none of such Creditor
Agreements contains terms which provide or contemplate that such
Creditors will obtain any right, title or interest in an Engine
which is installed on another aircraft (or, if this is not the
case, such officer will identify in the certificate the parties,
the aircraft and the Creditor Agreements for which this
statement is untrue).
(d) LESSEE's counsel will deliver an opinion confirming the matters
set forth in the opinion of counsel described in Article 7.1 and
advising that all filing and other requirements described in the
earlier opinion of counsel have been met.
(e) If any Creditor Agreement provides or contemplates that such
Creditor will obtain any right, title or interest in an Engine which
is installed on such Creditor's aircraft, LESSEE will deliver to
LESSOR an engines cooperation agreement in form and substance
acceptable to LESSOR which is executed by LESSEE and LESSEE's
Creditors (as defined therein).
(f) LESSOR will deliver to LESSEE an assignment of Manufacturer and
Engine manufacturer rights in the form and substance of Exhibits H
and I, respectively, and concurrently therewith LESSOR, to the
extent it has not previously done so, will be deemed to have
assigned all product assurance, product support and training
applicable to the owner or operator of the Aircraft to LESSEE during
the Lease Term.
(g) LESSEE will deliver to LESSOR a copy of such Aviation Documents
as have not been previously delivered which are available.
7.3 Post-Delivery Requirements.
--------------------------
26
<PAGE>
(a) Within seven (7) days after Delivery, LESSEE will do each of the
following:
If not previously provided,
(i) LESSEE will procure registration of the Aircraft in the
register of aircraft of the State of Registration showing LESSOR
as the owner and will provide evidence of the same to LESSOR.
(ii) Provide LESSOR with copies of all Aviation Documents not
previously delivered.
(iii) If the Aircraft could not be registered at Delivery,
provide LESSOR with a follow-up opinion of counsel advising that
the Aircraft has been registered in the State of Registration
and that all necessary filings have been made.
(b) Within one (1) month after Delivery, LESSEE will provide LESSOR
with a technical report for the Aircraft in the form and substance
of Exhibit L, as revised.
27
<PAGE>
ARTICLE 8 DISCLAIMERS
--------- -----------
LESSOR HAS COMMITTED TO LESSEE THAT ON THE DELIVERY DATE THE AIRCRAFT WILL
BE IN THE CONDITION REQUIRED BY ARTICLE 6. SUCH COMMITMENT OR COVENANT ON THE
PART OF LESSOR EXPIRES AND THE DISCLAIMERS SET FORTH IN THIS ARTICLE 8 APPLY
UPON LESSEE'S ACCEPTANCE OF THE AIRCRAFT AND EXECUTION OF THE ESTOPPEL AND
ACCEPTANCE CERTIFICATE. AFTER SUCH TIME, THEN AS BETWEEN LESSOR AND LESSEE:
8.1 "As Is, Where Is". LESSEE UNCONDITIONALLY ACKNOWLEDGES AND AGREES
-----------------
THAT, EXCEPT FOR THE EXPRESS REPRESENTATION OF LESSOR SET FORTH IN ARTICLE
21.1.5 (AS TO TITLE) NEITHER LESSOR NOR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES OR REPRESENTATIVES HAVE MADE OR WILL BE DEEMED TO HAVE MADE ANY TERM,
CONDITION, REPRESENTATION, WARRANTY OR COVENANT EXPRESS OR IMPLIED (WHETHER
STATUTORY OR OTHERWISE) AS TO (I) THE CAPACITY, AGE, AIRWORTHINESS, VALUE,
QUALITY, DURABILITY, CONFORMITY TO THE PROVISIONS OF THIS LEASE, DESCRIPTION,
CONDITION (WHETHER OF THE AIRCRAFT, ANY ENGINE, ANY PART THEREOF OR THE AIRCRAFT
DOCUMENTATION), DESIGN, WORKMANSHIP, MATERIALS, MANUFACTURE, CONSTRUCTION,
OPERATION, DESCRIPTION, STATE, MERCHANTABILITY, PERFORMANCE, FITNESS FOR ANY
PARTICULAR USE OR PURPOSE (INCLUDING THE ABILITY TO OPERATE OR REGISTER THE
AIRCRAFT OR USE THE AIRCRAFT DOCUMENTATION IN ANY OR ALL JURISDICTIONS) OR
SUITABILITY OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT OR
CONCEALED, EXTERIOR OR INTERIOR, (II) THE ABSENCE OF ANY INFRINGEMENT OF ANY
PATENT, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS, (III) ANY
IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE
OF TRADE OR (IV) ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, ALL OF WHICH ARE HEREBY EXPRESSLY
EXCLUDED AND EXTINGUISHED.
8.2 Waiver of Warranty of Description. IN CONSIDERATION OF (I) LESSEE'S
---------------------------------
RIGHTS HEREUNDER TO INSPECT THE AIRCRAFT AND (II) LESSOR'S ASSIGNMENT TO LESSEE
OF ANY EXISTING AND ASSIGNABLE WARRANTIES OF MANUFACTURER AND ENGINE
MANUFACTURER, LESSEE HEREBY AGREES THAT ITS ACCEPTANCE OF THE AIRCRAFT AT
DELIVERY AND ITS EXECUTION AND DELIVERY OF THE ESTOPPEL AND ACCEPTANCE
CERTIFICATE CONSTITUTE LESSEE'S WAIVER OF THE WARRANTY OF DESCRIPTION, ANY
CLAIMS LESSEE MAY HAVE AGAINST LESSOR BASED UPON THE FAILURE OF THE AIRCRAFT TO
CONFORM WITH SUCH DESCRIPTION AND ANY AND ALL
28
<PAGE>
RIGHTS IT MAY HAVE TO THE REMEDIES SET FORTH IN SECTIONS 10508 THROUGH 10522 OF
THE CALIFORNIA COMMERCIAL CODE. EVEN IF AT ANY TIME THE FAILURE OF THE AIRCRAFT
TO CONFORM TO SUCH DESCRIPTION SUBSTANTIALLY IMPAIRS THE VALUE AND UTILITY OF
THE AIRCRAFT AND EITHER (I) LESSEE ACCEPTED THE AIRCRAFT BASED ON A REASONABLE
ASSUMPTION THAT THE NONCONFORMITY WOULD BE CURED AND IT WAS NOT SEASONABLY CURED
OR (II) LESSEE ACCEPTED THE AIRCRAFT WITHOUT DISCOVERING THE NONCONFORMITY BUT
LESSEE'S ACCEPTANCE OF THE AIRCRAFT WAS REASONABLY INDUCED EITHER BY LESSOR'S
ASSURANCES OR BY THE DIFFICULTY OF DISCOVERING ANY DEFECT PRIOR TO ACCEPTANCE,
LESSEE AGREES NOT TO LOOK TO LESSOR FOR DAMAGES OR RELIEF ARISING OUT OF THE
FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION.
8.3 LESSEE Acknowledgement. LESSEE agrees that it is leasing the
----------------------
Aircraft "AS IS, WHERE IS".
8.4 LESSEE Waiver. LESSEE hereby waives as between itself and LESSOR and
-------------
agrees not to seek to establish or enforce any rights and remedies, express or
implied (whether statutory or otherwise) against LESSOR or the Aircraft relating
to any of the matters mentioned in Articles 8.1 or 8.2 and the leasing thereof
by LESSOR to LESSEE.
8.5 Conclusive Proof. DELIVERY BY LESSEE TO LESSOR OF THE ESTOPPEL AND
----------------
ACCEPTANCE CERTIFICATE WILL BE CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE
THAT LESSEE'S TECHNICAL EXPERTS HAVE EXAMINED AND INVESTIGATED THE AIRCRAFT AND
ENGINES AND (I) EACH IS AIRWORTHY AND IN GOOD WORKING ORDER AND REPAIR AND (II)
THE AIRCRAFT AND ENGINES AND THE AIRCRAFT DOCUMENTATION ARE WITHOUT DEFECT
(WHETHER OR NOT DISCOVERABLE AT DELIVERY) AND IN EVERY WAY SATISFACTORY TO
LESSEE.
8.6 No LESSOR Liability for Losses. LESSEE agrees that LESSOR will not
------------------------------
be liable to LESSEE, any sublessee or any Person, whether in contract or tort
and however arising, for any cost, loss or damage (consequential or otherwise)
arising out of the condition of the Aircraft, whether or not due in whole or in
part to an act or omission or the active or passive negligence of LESSOR.
8.7 No Liability to Repair or Replace. LESSOR will not be liable for any
---------------------------------
expense in repairing or replacing any item of the Aircraft or be liable to
supply another aircraft or any item in lieu of the Aircraft or any part thereof
if the same is lost,
29
<PAGE>
confiscated, damaged, destroyed or otherwise rendered unfit for use.
8.8 No Waiver. Nothing in this Article 8 or elsewhere in this Lease
---------
will be deemed to be a waiver by LESSEE of any rights it may have against
Manufacturer, the Engine manufacturer or any other Person.
30
<PAGE>
ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES
--------- --------------------------------------
9.1 Warranties. As set forth in Article 7.2, at Delivery LESSOR will
----------
assign to LESSEE for the duration of the Lease Term the benefit of all
warranties and indemnities given to LESSOR by Manufacturer, the Engine
manufacturer and other vendors with respect to the Aircraft.
9.2 Reassignment. On the Termination Date, the benefit of any warranty
------------
assigned by LESSOR to LESSEE pursuant to Article 7.2 will be reassigned
automatically to LESSOR or its designee. LESSEE's rights under such warranties
(including LESSEE's claims and rights to payment thereunder) will revert to
LESSOR during any period in which an Event of Default is continuing. LESSEE at
its own cost and expense will do all such things and execute such documents as
may be required for this purpose.
9.3 Warranty Claims. LESSEE will diligently and promptly pursue any
---------------
valid claims it may have against Manufacturer and others under such warranties
with respect to the Aircraft and will provide notice of the same to LESSOR.
31
<PAGE>
ARTICLE 10 OPERATION OF AIRCRAFT
---------- ---------------------
10.1 Costs of Operation. LESSEE will pay all costs incurred in the
------------------
operation of the Aircraft during the Lease Term, for profit or otherwise,
including the costs of flight crews, cabin personnel, fuel, oil, lubricants,
maintenance, insurance, storage, landing and navigation fees, airport charges,
passenger service and any and all other expenses of any kind or nature, directly
or indirectly, in connection with or related to the use, movement and operation
of the Aircraft. The obligations, covenants and liabilities of LESSEE under
this paragraph arising prior to return of the Aircraft to LESSOR will continue
in full force and effect, notwithstanding the termination of this Lease or
expiration of the Lease Term.
10.2 Compliance with Laws. LESSEE agrees throughout the Lease Term to
--------------------
maintain operational control of the Aircraft and use the Aircraft in accordance
with applicable Laws of the State of Registration and of any country, state,
territory or municipality into or over which LESSEE may operate and in
accordance with the applicable regulations of IATA. LESSEE will not employ,
suffer or cause the Aircraft to be used in any business which is forbidden by
Law or in any manner which may render it liable to condemnation, destruction,
seizure, or confiscation by any authority. LESSEE will not permit the Aircraft
to fly to any airport or country if so doing would cause LESSOR to be in
violation of any U.S. Law.
10.3 Training. LESSEE will not use the Aircraft for testing or for
--------
training of flight crewmembers other than LESSEE crewmembers and will not use
the Aircraft for training any more than it utilizes for training the other
aircraft in its fleet.
10.4 No Violation of Insurance Policies. LESSEE will not use or permit
----------------------------------
the Aircraft to be used in any manner or for any purpose which is not covered by
the insurance policies LESSEE is required to carry and maintain as set forth in
this Lease. LESSEE will not carry any goods of any description excepted or
exempted from such policies or do any other act or permit to be done anything
which could reasonably be expected to invalidate or limit any such insurance
policy.
32
<PAGE>
10.5 Flight Charges.
--------------
10.5.1 LESSEE will pay promptly when due all enroute navigation charges,
navigation service charges and all other charges payable by LESSEE
for the use of or for services provided at any airport, whether in
respect of the Aircraft or any other aircraft of LESSEE, and will
indemnify and hold LESSOR harmless in respect of the same. This
indemnity will continue in full force and effect notwithstanding the
termination or expiration of the Lease Term for any reason or the
return of the Aircraft.
10.5.2 If requested by LESSOR, LESSEE will provide LESSOR with a list of the
airports to which LESSEE regularly operates the Aircraft or its other
aircraft. LESSEE hereby authorizes the Aviation Authority or another
aviation authority or airport or creditor claiming rights on the
Aircraft to confirm the status of LESSEE's payments to such creditor
for the Aircraft and its other aircraft, as and when requested by
LESSOR.
33
<PAGE>
ARTICLE 11 SUBLEASES
---------- ---------
11.1 No Sublease without LESSOR Consent. LESSEE WILL NOT SUBLEASE OR PART
----------------------------------
WITH POSSESSION OF THE AIRCRAFT (EXCEPT FOR MAINTENANCE AND REPAIR) AT ANY TIME
WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (NOT TO BE UNREASONABLY WITHHELD)
EXCEPT FOR A SUBLEASE TO AN OPERATOR PRE-APPROVED IN ARTICLE 11.1.1 BELOW, AND
IN ACCORDANCE WITH SUCH REQUIREMENTS AS MAY FROM TIME TO TIME BE AGREED IN
WRITING BETWEEN LESSOR AND LESSEE. The wet leasing of the Aircraft during the
Lease Term (in which LESSEE and its crews retain operational control of the
Aircraft) will not be considered a sublease of the Aircraft.
11.1.1 LESSEE may sublease the Aircraft without LESSOR's prior consent to an
operator based in the U.S. which is then currently a lessee of
LESSOR, provided said operator is not then in default under the
aircraft lease agreement between such operator and LESSOR. Any such
sublease will be subject to the provisions of this Article 11,
except that such sublease would not be subject to the subleasing
proposal fee referred to in Article 11.2 below.
11.2 Subleasing Proposal Fee. Any subleasing proposals submitted to
-----------------------
LESSOR (other than a proposed sublease (x) to a sublessee which is pre-approved
pursuant to Article 11.1.1 or (y) to the first three proposed sublessees outside
the U.S. which are then current lessees of LESSOR, provided said operators are
not then in default under the aircraft lease agreement between such operator and
LESSOR) will be subject to a processing fee of * U.S. Dollars (US$ * ),
payable on demand (whether the sublease is approved or not). In addition,
LESSEE will indemnify LESSOR on demand for all reasonable out-of-pocket expenses
(including legal fees) incurred in connection with its assessment of the
proposal or its implementation.
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
11.3 Any Approved Sublease. Any sublease approved by LESSOR will be for a
---------------------
term no greater than the remaining Lease Term and contain provisions consistent
with this Lease protecting LESSOR's title to the Aircraft, providing appropriate
LESSOR indemnities, regarding the maintenance and repair standards for the
Aircraft, concerning the insurances which will be carried by the sublessee and
the circumstances which constitute a Total Loss of the Aircraft. Any such
sublease will be subject and subordinate to this Lease. In its sole discretion,
LESSOR may
34
<PAGE>
require an opinion of counsel in connection with such sublease, including
LESSOR's rights to repossess the Aircraft in the event of an Event of Default
hereunder or under the sublease. LESSEE will not amend the terms of any approved
sublease without the prior written consent of LESSOR, which will not be
unreasonably withheld.
11.4 Assignment of Sublease. Any approved sublease will be assigned to
----------------------
LESSOR as security. LESSEE will deliver the original counterpart of the
sublease to LESSOR and make any filings necessary to protect LESSOR's security
interest.
11.5 Continued Responsibility of LESSEE. LESSEE will continue to be
----------------------------------
responsible for performance of its obligations under this Lease during any
period of sublease.
35
<PAGE>
ARTICLE 12 MAINTENANCE OF AIRCRAFT
---------- -----------------------
12.1 General Obligation. During the Lease Term and until the Aircraft is
------------------
returned to LESSOR in the condition required by this Lease, LESSEE alone has the
obligation, at its expense, to maintain and repair the Aircraft, Engines and all
of the Parts (i) in accordance with the Maintenance Program, (ii) in accordance
with the rules and regulations of the Aviation Authority, (iii) in accordance
with Manufacturer's type design, (iv) in accordance with any other regulations
or requirements necessary in order to maintain a valid Certificate of
Airworthiness for the Aircraft and meet the requirements at all times during the
Lease Term and upon return of the Aircraft to LESSOR for issuance of a standard
Certificate of Airworthiness for transport category aircraft issued by the FAA
in accordance FAR Part 21 (except during those periods when the Aircraft is
undergoing maintenance or repairs as required by this Lease and to the extent in
conflict with the requirements of the Aviation Authority) and (v) in the same
manner and with the same care as used by LESSEE with respect to similar aircraft
and engines operated by LESSEE and without in any way discriminating against the
Aircraft.
12.2 Specific Obligations. Without limiting Article 12.1, LESSEE agrees
--------------------
that such maintenance and repairs will include but will not be limited to each
of the following specific items:
(a) Performance in accordance with the Maintenance Program of all
routine and non-routine maintenance work.
(b) Incorporation in the Aircraft of all applicable airworthiness
directives or equivalent (referred to in this Lease generally as
"airworthiness directives") of the FAA and the Aviation Authority,
all alert service bulletins of Manufacturer, Engine manufacturer and
other vendors or manufacturers of Parts incorporated on the Aircraft
and any service bulletins which must be performed in order to
maintain the warranties on the Aircraft, Engines and Parts.
(c) Incorporation in the Aircraft of all other service bulletins of
Manufacturer, the Engine manufacturer and other vendors which LESSEE
schedules
36
<PAGE>
to adopt within the Lease Term for the rest of its 737-300 aircraft
fleet. It is the intent of the parties that the Aircraft will not
be discriminated from the rest of LESSEE's fleet in service bulletin
compliance (including method of compliance) or other maintenance
matters. LESSEE will not discriminate against the Engines with
respect to Overhaul build standards and life limited part
replacements.
(d) Incorporation in the Maintenance Program for the Aircraft of a
corrosion prevention and control program as recommended by
Manufacturer, the Aviation Authority and the FAA and the correction
of any discrepancies in accordance with the recommendations of
Manufacturer and the Structural Repair Manual. In addition, all
inspected areas will be properly treated with corrosion inhibitor as
recommended by Manufacturer.
(e) Incorporation into the Maintenance Program of an anti-
fungus/biological growth and contamination prevention, control and
treatment program of all fuel tanks in accordance with
Manufacturer's approved procedures.
(f) Providing LESSOR with written summaries of all sampling programs
involving or affecting the Aircraft.
(g) Maintaining in English and keeping in an up-to-date status the
records and historical documents set forth in Attachment 1 of
Exhibit J.
(h) Maintaining historical records, in English, for condition-
monitored, hard time and life limited Parts (including tags from the
manufacturer of such Part or a repair facility which evidence that
such Part is new or overhauled and establish authenticity, total
time in service and time since overhaul for such Part), the hours
and cycles the Aircraft and Engines operate and all maintenance and
repairs performed on the Aircraft.
(i) Properly documenting all repairs, Modifications and alterations
and the addition, removal or replacement of equipment, systems or
components in
37
<PAGE>
accordance with the rules and regulations of the Aviation Authority
and reflecting such items in the Aircraft Documentation. In addition,
all repairs to the Aircraft will be accomplished in accordance with
Manufacturer's Structural Repair Manual (or FAA-approved data
supported by FAA Form 8110-3 or equivalent). All Modifications and
alterations will also be accomplished in accordance with FAA-approved
data supported by FAA Form 8110-3 or equivalent.
(j) Ensuring that Overhauls are accomplished utilizing maintenance
and quality control procedures approved by the Aviation Authority and
that the repair agency provides a complete record of all work
performed during the course of such Overhaul and certifies that such
Overhaul was accomplished, that the equipment is airworthy and
released for return to service and that the Overhaul was in
conformity with the original type design.
12.3 Replacement of Parts.
--------------------
12.3.1 LESSEE, at its own cost and expense, will promptly replace all Parts
which may from time to time become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or rendered unfit or
beyond economical repair (BER) for use for any reason. In the
ordinary course of maintenance, service, repair, Overhaul or testing,
LESSEE may remove any Part provided that LESSEE replaces such part as
promptly as practicable. All replacement Parts will (i) be free and
clear of all Security Interests (except Permitted Liens) of any kind
or description, (ii) be in airworthy condition and of at least
equivalent model, service bulletin and modification status and 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 and (iii) have a current "serviceable
tag" of the manufacturer or maintenance facility providing such items
to LESSEE, indicating that such Parts are new, serviceable or
Overhauled. With respect to replacement modules in an Engine, the
replacement module will not have been previously operated at a higher
thrust rating than the replaced module. So
38
<PAGE>
long as a substitution meets the requirements of the Maintenance
Program and Aviation Authority, LESSEE may substitute for any Part a
part that does not meet the requirements of the foregoing sentence
if a complying Part cannot be procured or installed within the
available groundtime of the Aircraft and as soon as practicable the
noncomplying part is removed and replaced by a complying Part.
12.3.2 All Parts removed from the Airframe or any Engine will remain the
property of LESSOR and subject to this Lease no matter where located,
until such time as such Parts have been replaced by Parts (which have
been incorporated or installed in or attached to the Airframe or such
Engine) which meet the requirements for replacement Parts specified
above and title to such replacement Parts has passed to LESSOR under
the Laws of the State of Registration and lex situs. To the extent
--- -----
permitted by the Laws of the State of Registration and the lex situs
--- -----
it is the intent of LESSOR and LESSEE that without further act and
immediately upon any replacement Part becoming incorporated,
installed or attached to the Airframe or an Engine as above provided,
(i) title to the removed Part will thereupon vest in LESSEE, free and
clear of all rights of LESSOR, (ii) title to the replacement Part
will thereupon vest in LESSOR free and clear of all rights of LESSEE
and (iii) such replacement Part will become subject to this Lease and
be deemed to be a Part hereunder to the same extent as the Parts
originally incorporated or installed in or attached to the Airframe
or such Engine.
12.4 Removal of Engines.
------------------
12.4.1 If an Engine is removed for testing, service, repair, maintenance,
Overhaul work, alterations or modifications, title to such Engine
will at all times remain vested in LESSOR.
12.4.2 LESSEE will be entitled to remove any of the Engines from the
Aircraft and install another engine or engines on the Aircraft,
provided that LESSEE complies with each the following obligations:
39
<PAGE>
(a) The insurance requirements set forth in Article 18 and Exhibit C
are in place.
(b) LESSEE ensures that the identification plates referred to in
Article 15 are not removed from any Engine upon such Engine being
detached from the Aircraft.
(c) Title to the Engine remains with LESSOR free from all Security
Interests (except Permitted Liens) regardless of the location of the
Engine or its attachment to or detachment from the Aircraft.
12.5 Installation of Engines on other aircraft. Any Engine removed from
-----------------------------------------
the Aircraft may be installed on another aircraft in LESSEE's fleet which
utilizes engines of the same type as the Engine only if one of the situations
described in this Article 12.5 exists:
12.5.1 LESSEE or LESSOR has title to such other aircraft free and clear of
all Security Interests (except Permitted Liens).
12.5.2 LESSEE, LESSOR and all of the Creditors of LESSEE of such aircraft
enter into a engines cooperation agreement in form and substance
acceptable to LESSOR in which each party agrees to recognize one
another's rights in the engines. LESSEE will reimburse LESSOR and its
Lender for their reasonable attorneys' fees and costs in negotiating
and finalizing engine cooperation agreement arrangements with LESSEE
and its Creditors.
12.5.3 Such other aircraft is subject to a Creditor Agreement (but no other
Security Interests except Permitted Liens) which by its terms
expressly or effectively states that such Creditor and its successors
and assigns will not acquire any right, title or interest in any
Engine by reason of such Engine being installed on such aircraft. To
evidence the foregoing, at or before Delivery, LESSEE will provide
LESSOR with an opinion of counsel and officer's certificate as to
this matter (and such an opinion of counsel and officer's certificate
will be provided during the Lease Term with respect to other Creditor
Agreements regarding aircraft entering
40
<PAGE>
LESSEE's operating fleet subsequent to Delivery). LESSEE hereby
agrees that if LESSOR's title to an Engine is in fact impaired under
any such Creditor Agreement, such impairment will be a Total Loss of
such Engine and the provisions of Article 19.5 will apply. To the
extent another Creditor Agreement contains such provisions, then
LESSOR hereby agrees for the benefit of the Creditor of such Creditor
Agreement that neither LESSOR nor its successors or assigns will
acquire or claim any right, title or interest in any engine in which
LESSEE or another Creditor has an interest as a result of such engine
being installed on the Airframe.
12.6 Engine Thrust Rating. If an Engine is utilized by LESSEE on the
--------------------
Aircraft or on any other airframe (or if the Engine is utilized by any sublessee
or user under a pooling arrangement in accordance with this Lease) at a thrust
rating greater than the thrust rating set forth in Exhibit A, LESSEE will
promptly notify LESSOR and the Engine Reserve amounts set forth in Article 5.4.1
will be increased in an amount proportional to the accelerated rate of
deterioration of the Engine resulting from the increased thrust rating.
12.7 Modifications.
-------------
12.7.1 No modification, alteration, addition or removal to the Aircraft
("Modification") expected to cost over * U.S. Dollars (US$ * )
--------------
or deviation from the Aircraft's original type design or
configuration will be made without the prior written consent of
LESSOR, which consent will not be unreasonably withheld.
"Modifications" do not include airworthiness directives of the
--------------
Aviation Authority or FAA or Manufacturer's recommended service
bulletins, for which LESSOR consent is not required.
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
12.7.2 LESSOR may review LESSEE's proposed designs, plans, engineering
drawings and diagrams, and flight and maintenance manual revisions
for any proposed Modification. If requested by LESSOR, LESSEE will
furnish LESSOR (at LESSEE's expense) with such documents in final
form and any other documents required by Law, as a result of such
Modification. All Modifications incorporated on the Aircraft will
41
<PAGE>
be properly documented in the Aircraft Documentation and be fully
approved by the Aviation Authority.
12.7.3 Notwithstanding any other provision of this Lease, no Modification
will be made which has the effect of decreasing the utility or value
of the Aircraft or invalidating any warranty applicable to the
Aircraft.
12.7.4 No Modification will be made by LESSEE if an Event of Default exists
and is continuing hereunder.
12.7.5 Unless otherwise agreed by LESSOR in writing, all permanent or
structural Modifications will forthwith become a part of the
Aircraft and LESSEE relinquishes to LESSOR all rights and title
thereto. However, all temporary and non-structural Modifications
will remain the property of LESSEE and, at LESSOR's request and
LESSEE's cost, will be removed from the Aircraft prior to return of
the Aircraft, with LESSEE restoring the Aircraft to the condition it
was in prior to the Modification in a manner cosmetically acceptable
to LESSOR. Notwithstanding the foregoing, no such removal will be
permitted without LESSOR's permission after the occurrence of an
Event of Default hereunder and immediately upon the occurrence of an
Event of Default hereunder, without the requirement of any further
act or notice, all right, title and interest in such Modifications
will immediately vest in LESSOR.
12.7.6 LESSOR will bear no liability for the cost of Modifications of the
Aircraft whether in the event of grounding or suspensions of
certification, or for any other cause.
12.8 Pooling of Engines and Parts. With LESSOR's prior written consent,
----------------------------
not to be unreasonably withheld, LESSEE may subject the Engines and Parts to
normal interchange or pooling agreements with responsible international
scheduled commercial air carriers customary in the airline industry and entered
into by LESSEE in the ordinary course of its business with respect to its entire
737-300 fleet so long as (i) in the case of pooling of
an Engine, such Engine is returned to LESSEE within two (2) months, (ii) no
transfer of title to the Engine occurs, (iii) all other terms of this Lease
continue to be observed with respect to the Engines or Parts, including but not
limited to Articles 8,
42
<PAGE>
10, 12, 14, 15, 16, 17, 18 and 19 and (iv) LESSEE continues to be fully
responsible to LESSOR for the performance of all of its obligations hereunder.
12.9 Performance of Work by Third Parties. Whenever maintenance and
------------------------------------
repair work on the Aircraft or Engines will be regularly performed
by a Person other than LESSEE, such Person will be an FAA-authorized
repair station.
12.10 Reporting Requirements.
----------------------
(a) Commencing with a report furnished ten (10) days after the end
of the calendar month in which Delivery occurs, LESSEE will furnish
to LESSOR a Monthly Report in English in the form attached hereto as
Exhibit K. Each Monthly Report will be furnished within ten (10)
days after the end of each calendar month, except that the Monthly
Report pertaining to the last month (or any portion thereof) of the
Lease Term will be furnished to LESSOR on the Termination Date.
(b) Within thirty (30) days after completion of each "C" check on
the Aircraft, LESSEE will provide LESSOR with a technical report for
the Aircraft in the form and substance of Exhibit L, as revised.
12.11 Information Regarding Maintenance Program. LESSEE will provide
-----------------------------------------
LESSOR with a copy of or information regarding the Maintenance Program for the
Aircraft, as requested by LESSOR.
12.12 LESSOR Rights to Inspect Aircraft. On reasonable notice, LESSOR
---------------------------------
and/or its authorized agents or representatives will have the right to inspect
the Aircraft and Aircraft Documentation. LESSOR agrees that such requests will
be coordinated with LESSEE so as to cause the minimum practical disturbance to
LESSEE's operation or its personnel. LESSEE agrees to cooperate with LESSOR in
making the Aircraft and Aircraft Documentation available to such authorized
technical teams. LESSOR will have no duty to make any such inspection and will
not incur any liability or obligation by reason of (and LESSEE's indemnity
obligations pursuant to Article 17 will apply notwithstanding) not making any
such inspection or by reason of any reports it receives or any reviews it may
make of the Aircraft records.
43
<PAGE>
ARTICLE 13 USE OF RESERVES
---------- ---------------
13.1 Airframe Reserves. LESSOR will reimburse LESSEE from the Airframe
-----------------
Reserves for the actual cost of the structural inspection portion of completed
scheduled D checks (or an equivalent structural inspection requirement) as
described in the MPD and the rectification of any structural deficiencies
resulting from such inspection, with work performed for all other causes
excluded, including those causes set forth in Article 13.5. Subject to Article
16.1 and excluding handling, packaging and shipping charges, reimbursement will
be made up to the amount in the Airframe Reserve.
13.2 Engine Reserves.
---------------
13.2.1 Subject to the limitations set forth in Article 13.2.2, LESSOR will
reimburse LESSEE from the Engine Reserves for the actual cost
associated with performance restoration or the replacement of life
limited parts or permanent repair of on-condition parts in the basic
Engine during completed Engine shop visits (i.e. heavy maintenance
visits) requiring off-wing teardown and/or disassembly, with work
performed for all other causes excluded, including those causes set
forth in Article 13.5. Subject to the Articles 13.2.2 and Article
16.1 and excluding handling, packaging and shipping charges,
reimbursement for an Engine will be made up to the amount in the
Engine Reserve applicable to such Engine.
13.2.2 Eighteen percent (18%) of the per hour Engine Reserve payable by
LESSEE for an Engine will be designated and will be reimbursable
solely for the replacement of life limited parts in such Engine.
Reimbursement will further be limited as to each module of such
Engine in accordance with the following percentages of the remaining
total amount (after setting aside the portion of the Engine Reserve
for an Engine applicable to the replacement of life limited parts in
such Engine) in the Engine Reserve for such Engine:
14% - Module 1, Fan & Accessory Gearbox
26% - Module 2, High Pressure Compressor
44
<PAGE>
48% - Module 3, High Pressure Turbine
12% - Module 4, Low Pressure Turbine
13.3 Landing Gear Reserves. LESSOR will reimburse LESSEE from the Landing
---------------------
Gear Reserves for the actual cost of a completed Overhaul of the Landing Gear
with work performed for all other causes excluded, including those causes set
forth in Article 13.5.
13.4 Reimbursement. LESSEE will be entitled to reimbursement from the
-------------
Reserves after the work is completed and the Airframe or Engine has left the
repair agency, by submitting invoices and proper documentation within six (6)
months after completion of the work. For the Airframe, proper documentation
includes a list of all routine and non-routine work cards with corresponding
references to the MPD and an itemized labor and materials report. For the
Engine, proper documentation includes a description of the reason for removal, a
shop teardown report, a shop findings report, a full description of the
workscope and complete disk records for the Engine both prior to and after the
shop visit. Both the invoice supplied by the Engine repair facility and that
submitted by LESSEE to LESSOR with respect to an Engine will state whether or
not credits were provided due to life remaining on any removed Engine Parts and
the amount of any such credits will be itemized.
13.5 Reimbursement Adjustment. By way of example, among the exclusions from
------------------------
reimbursement are those items resulting from repairs covered by LESSEE's or a
third party's insurance, (deductibles being for the account of LESSEE) or
required as a result of an airworthiness directive, manufacturer's service
bulletin, faulty maintenance or installation, improper operations, misuse,
neglect, accident, incident, ingestion, or other accidental cause. Reimbursement
from the Reserves will not be available for the APU, thrust reversers or any of
their associated components. All invoices subject to reimbursement from LESSOR
will be reduced (by adjustment between LESSEE and LESSOR retroactively if
necessary) by the actual amounts received by LESSEE on account of such work from
responsible third parties or other sources, such as insurance proceeds,
manufacturer's warranties, guarantees, concessions and credits (including, with
respect to Engines, credits due to life remaining on any removed Engine Parts).
13.6 Costs in Excess of Reserves. LESSEE will be responsible for payment of
---------------------------
all costs in excess of the amounts
45
<PAGE>
reimbursed hereunder. If on any occasion the balance in the Airframe or an
Engine Reserve is insufficient to satisfy a claim for reimbursement in respect
of the Airframe or such Engine, the shortfall may not be carried forward or made
the subject of any further claim for reimbursement.
13.7 Reimbursement after Termination Date. LESSEE may not submit any
------------------------------------
invoice for reimbursement from the Reserves after the Termination Date unless on
or prior to such date LESSEE has notified LESSOR in writing that such
outstanding invoice will be submitted after the Termination Date and the
anticipated amount of such invoice. So long as LESSEE has provided such notice
to LESSOR, LESSEE may then submit such outstanding invoice at any time within
six (6) months after the Termination Date. Subject to the foregoing, any balance
remaining in the Airframe and Engine Reserves on the Termination Date, including
termination on account of a Total Loss of the Aircraft, will be retained by
LESSOR.
46
<PAGE>
ARTICLE 14 TITLE AND REGISTRATION
---------- ----------------------
14.1 Title to the Aircraft During Lease Term. Title to the Aircraft will
---------------------------------------
be and remain vested in LESSOR. LESSOR and LESSEE intend this Lease to be a
"true lease". LESSEE will have no right, title or interest in the Aircraft
except as provided in this Lease.
14.2 Registration of Aircraft. LESSEE at its sole cost and expense will
------------------------
(i) register and maintain registration of the Aircraft in the name of LESSOR at
the register of aircraft in the State of Registration, (ii) file UCC-1 financing
statements regarding the Aircraft and LESSOR's interest therein in the State of
Colorado and (iii) from time to time take all other steps then required by Law
(including the Geneva Convention if applicable) or by practice, custom or
understanding or as LESSOR may reasonably request to protect and perfect
LESSOR's interest in the Aircraft and this Lease in the State of Registration or
in any other jurisdictions in or over which LESSEE may operate the Aircraft.
14.3 Filing of this Lease. To the extent permitted by Law and in
--------------------
accordance with the requirements of the Law from time to time, LESSEE at its
sole cost and expense will cause this Lease to be kept, filed, recorded and
refiled or rerecorded in the State of Registration and in any other offices
necessary to protect LESSOR's rights hereunder.
14.4 Evidence of Registration and Filings. As LESSOR may reasonably
------------------------------------
request from time to time, LESSEE will furnish to LESSOR an opinion of counsel
or other evidence reasonably satisfactory to LESSOR of the registrations and
filings required hereunder.
47
<PAGE>
ARTICLE 15 IDENTIFICATION PLATES
---------- ---------------------
LESSEE will affix and at all times maintain on the Airframe and each Engine
the identification plates containing the following legends or any other legend
requested by LESSOR in writing:
Airframe Identification Plates
------------------------------
Location: One to be affixed to the Aircraft structure above the forward
entry door adjacent to and not less prominent than that of the
Manufacturer's data plate and another in a prominent place on
the flight deck.
Size: No smaller than 4" X 6"
Legend: "THIS AIRCRAFT IS OWNED BY INTERNATIONAL LEASE FINANCE
CORPORATION.
MANUFACTURER'S SERIAL NO: 27633
OWNER'S ADDRESS:
INTERNATIONAL LEASE FINANCE CORPORATION
1999 Avenue of the Stars, 39th Floor
Los Angeles, California 90067
United States of America
Telex: 69-1400 INTERLEAS BVHL
Fax: (310) 788-1990"
Engine Identification Plates
----------------------------
Location: The legend on the plate must be no less prominent than the
Engine data plate and must be visible.
Size: No smaller than 2" X 6"
Legend
(Engines): "THIS ENGINE IS OWNED BY INTERNATIONAL LEASE FINANCE
CORPORATION, LOS ANGELES, CALIFORNIA, USA."
48
<PAGE>
ARTICLE 16 TAXES
---------- -----
16.1 General Obligation of LESSEE. Except as set forth in Article 16.2,
----------------------------
LESSEE agrees to pay promptly when due, and to indemnify and hold harmless
LESSOR on a full indemnity basis from, all license and registration fees and all
taxes, fees, levies, imposts, duties, charges, deductions or withholdings of any
nature (including without limitation any value added, franchise, transfer,
sales, gross receipts, use, business, excise, personal property, stamp or other
tax) together with any assessments, penalties, fines, additions to tax or
interest thereon, however or wherever imposed (whether imposed upon LESSEE,
LESSOR, on all or part of the Aircraft, the Engines or otherwise), by any
Government Entity or taxing authority in the U.S. or any foreign country or by
any international taxing authority (including the City or County of Los
Angeles), upon or with respect to, based upon or measured by any of the
following (collectively, "Taxes"):
-----
(a) the Aircraft, the Engines or any Parts.
(b) the use, operation or maintenance of the Aircraft or carriage of
passengers or freight during the Lease Term.
(c) this Lease, the payments due hereunder and the terms and
conditions hereof.
(d) the ownership, financing, delivery, import or export, return,
sale, payment of Total Loss Proceeds or other disposition of the
Aircraft.
16.2 Exceptions to Indemnity. The indemnity provided for in Article 16.1
-----------------------
does not extend to any of the following Taxes:
(a) Imposed by the U.S. or the State of California on the net
income, gross receipts, capital or net worth of LESSOR.
(b) Attributable to the period prior to Delivery or after return of
the Aircraft to LESSOR in accordance with this Lease.
(c) Attributable to LESSOR's gross negligence, willful misconduct or
breach of this Lease.
49
<PAGE>
16.3 After-Tax Basis. The amount which LESSEE is required to pay
---------------
with respect to any Taxes indemnified against under Article 16.1 is an amount
sufficient to restore LESSOR on an after-tax basis to the same position LESSOR
would have been in had such Taxes not been incurred.
16.4 Timing of Payment. Any amount payable to LESSOR pursuant to this
-----------------
Article 16 will be paid within ten (10) days after receipt of a written demand
therefor from LESSOR accompanied by a written statement describing in reasonable
detail the basis for such indemnity and the computation of the amount so payable
provided, however, that such amount need not be paid by LESSEE prior to the
earlier of (i) the date any Tax is payable to the appropriate Government Entity
or taxing authority or (ii) in the case of amounts which are being contested by
LESSEE in good faith or by LESSOR pursuant to Article 16.5, the date such
contest is finally resolved.
16.5 Contests. If claim is made against LESSOR for Taxes with respect to
--------
which LESSEE is liable for a payment or indemnity under this Lease, LESSOR will
promptly give LESSEE notice in writing of such claim provided, however, that
LESSOR's failure to give notice will not relieve LESSEE of its obligations
hereunder unless such failure materially impairs or precludes LESSEE's ability
to contest the claim. So long as (i) a contest of such Taxes does not involve
any danger of the sale, forfeiture or loss of the Aircraft or any interest
therein, (ii) if LESSOR so requests, LESSEE has provided LESSOR with an opinion
of independent tax counsel that a reasonable basis exists for contesting such
claim and (iii) adequate reserves have been made for such Taxes or, if required,
an adequate bond has been posted, then LESSOR at LESSEE's written request will
in good faith, with due diligence and at LESSEE's expense, contest (or permit
LESSEE to contest in the name of LESSEE or LESSOR) the validity, applicability
or amount of such Taxes.
16.6 Refunds. Upon receipt by LESSOR of a refund of all or any part of
-------
any Taxes (including any deductions or withholdings referred to in Article 5.8)
which LESSEE has paid, LESSOR will pay to LESSEE the net amount of such Taxes
refunded.
16.7 Cooperation in Filing Tax Returns. LESSEE and LESSOR will cooperate
---------------------------------
with one another in providing information which may be reasonably required to
fulfill each party's tax filing requirements and any audit information request
arising from such filing.
50
<PAGE>
16.8 Survival of Obligations. The representations, warranties,
-----------------------
indemnities and agreements of LESSEE provided for in this Article 16 will
survive the Termination Date.
51
<PAGE>
ARTICLE 17 INDEMNITIES
---------- -----------
17.1 General Indemnity. Except as set forth in Article 17.2, LESSEE
-----------------
agrees to indemnify and hold harmless LESSOR and its officers, directors,
employees, agents and shareholder (individually an "Indemnitee" and collectively
----------
"Indemnitees") from any and all liabilities, obligations, losses, damages,
-----------
penalties, claims, actions, suits, costs, disbursements and expenses (including
legal fees, costs and related expenses) of every kind and nature, whether or not
any of the transactions contemplated by this Lease are consummated (collectively
"Expenses"), which are imposed on, incurred by or asserted against any
--------
Indemnitee and which are in any way relating to, based on or arising out of any
of the following:
(a) This Lease or any transactions contemplated hereby.
(b) The operation, possession, use, non-use, control, leasing,
subleasing, maintenance, storage, Overhaul, testing, inspections or
acceptance flights at return of the Aircraft, any Engine or any Part
during the Lease Term by LESSEE, any sublessee or any other Person,
whether or not the same is in compliance with the terms of this
Lease, including without limitation claims for death, personal
injury, property damage, other loss or harm to any Person and claims
relating to any Laws, including without limitation environmental
control, noise and pollution laws, rules or regulations.
(c) The manufacture, design, sale, purchase, acceptance, rejection,
delivery, return, import, export, condition, repair, modification,
servicing, rebuilding, enforcement of warranties whether in LESSOR's
or LESSEE's name, airworthiness, registration, reregistration,
performance, sublease, merchantability, fitness for use,
substitution or replacement of the Aircraft, Engine or any Part
under this Lease or other transfer of use or possession of the
Aircraft, Engine or any Part, including under a pooling or
interchange arrangement, including without limitation, latent and
other defects, whether or not discoverable, and patent, trademark or
copyright infringement.
52
<PAGE>
(d) Any non-compliance by LESSEE with any term of this Lease or the
falsity or inaccuracy of any representation or warranty of LESSEE
set forth herein.
(e) The prevention or attempt to prevent the arrest, confiscation,
seizure, taking in execution, impounding, forfeiture or detention of
the Aircraft, or in securing the release of the Aircraft.
(f) As a consequence of any Default in payment by LESSEE of any sum
to be paid by LESSEE when due under this Lease or any other Default
by LESSEE in the due and punctual performance of its obligations
under this Lease.
The foregoing indemnity by LESSEE is intended to include and cover any Expense
to which an Indemnitee may be subject (in contract, tort, strict liability or
under any other theory) regardless of the negligence, active or passive or any
other type, of such Indemnitee, so long as such Expense does not fall within any
of the exceptions listed in Article 17.2.
17.2 Exceptions to General Indemnities. The indemnity provided for in
---------------------------------
Article 17.1 will not extend to Expenses of any Indemnitee to the extent
resulting from or arising out of any of the following:
(a) Expenses which LESSEE and LESSOR mutually agree or, absent
mutual agreement, are judicially determined to have resulted from
the willful misconduct of such Indemnitee.
(b) Expenses which have been judicially determined to be
attributable to acts or events which occur after the Termination
Date and return of the Aircraft to LESSOR in the condition required
hereunder, but in any such case only to the extent not attributable
to acts or omissions of LESSEE.
(c) Expenses representing Taxes, it being acknowledged that the
terms of Article 16 apply exclusively to LESSEE's indemnity
obligations with respect to Taxes.
53
<PAGE>
(d) Expenses due to the breach by LESSOR of its covenant of quiet
enjoyment pursuant to Article 21.2.1 (except to the extent covered
by LESSEE's insurances).
17.3 After-Tax Basis. The amount which LESSEE will be required to pay
---------------
with respect to any Expense indemnified against under Article 17.1 will be an
amount sufficient to restore the Indemnitee, on an after-tax basis, to the same
position such Indemnitee would have been in had such Expense not been incurred.
17.4 Timing of Payment. It is the intent of the parties that each
-----------------
Indemnitee will have the right to indemnification for Expenses hereunder as soon
as a claim is made and as soon as an Expense is incurred, whether or not
meritorious and whether or not liability is established (but subject to Article
17.8). LESSEE will pay an Indemnitee for Expenses pursuant to this Article 17
within ten (10) days after receipt of a written demand therefor from such
Indemnitee accompanied by a written statement describing in reasonable detail
the basis for such indemnity.
17.5 Subrogation. Upon the payment in full of any indemnity pursuant to
-----------
this Article 17 by LESSEE, LESSEE will be subrogated to any right of the
Indemnitee in respect of the matter against which such indemnity has been made.
17.6 Notice. Each Indemnitee and LESSEE will give prompt written notice
------
one to the other of any liability of which such party has knowledge for which
LESSEE is, or may be, liable under Article 17.1 provided, however, that failure
to give such notice will not terminate any of the rights of Indemnitees under
this Article 17 except to the extent that LESSEE has been materially prejudiced
by the failure to provide such notice.
17.7 Refunds. If any Indemnitee obtains a recovery of all or any part of
-------
any amount which LESSEE has paid to such Indemnitee, such Indemnitee will pay
to LESSEE the net amount recovered by such Indemnitee.
17.8 Defense of Claims. Unless a Default has occurred and is continuing,
-----------------
LESSEE and its insurers will have the right (in each such case at LESSEE's sole
expense) to investigate or, provided that LESSEE or its insurers have not
reserved the right to dispute liability with respect to any insurance policies
pursuant to which coverage is sought, defend or compromise any claim covered by
insurance for which indemnification is sought
54
<PAGE>
pursuant to Article 17.1 and each Indemnitee will cooperate with LESSEE or its
insurers with respect thereto. If LESSEE or its insurers are retaining attorneys
to handle such claim, such counsel must be reasonably satisfactory to the
Indemnitees. If not, the Indemnitees will have the right to retain counsel of
their choice at LESSEE's expense.
17.9 Survival of Obligation. Notwithstanding anything in this Lease to
----------------------
the contrary, the provisions of this Article 17 will survive the Termination
Date and continue in full force and effect notwithstanding any breach by LESSOR
or LESSEE of the terms of this Lease, the termination of the lease of the
Aircraft to LESSEE under this Lease or the repudiation by LESSOR or LESSEE of
this Lease.
55
<PAGE>
ARTICLE 18 INSURANCE
---------- ---------
18.1 Categories of Insurance. Throughout the Lease Term and until the
-----------------------
Termination Date LESSEE will, at its own expense, effect and maintain in full
force and effect the types of insurance and amounts of insurance (including
deductibles) described in Exhibit C through such brokers and with such insurers
as may be approved by LESSOR, such approval not to be unreasonably withheld, in
London or New York or such other insurance markets as mutually agreed upon by
the parties.
18.2 Insurance for Indemnities. The insurance referred to in Article 18.1
-------------------------
will in each case include and insure (to the extent of the risks covered by the
policies) the indemnity provisions of Article 17 and LESSEE will maintain such
insurance of the indemnities for a minimum of two (2) years following the
Termination Date.
18.3 Renewal. Not less than five (5) Business Days before the expiration
-------
or termination date of any insurance required hereunder, LESSEE will provide
LESSOR with telex or fax confirmation from LESSEE's insurance brokers that
renewed certificates of insurance evidencing the renewal or replacement of such
insurance and complying with Exhibit C will be issued on the termination date of
the prior certificate. Within seven (7) days after such renewal, LESSEE will
furnish its brokers' certificates of insurance to LESSOR.
18.4 Assignment of Rights by LESSOR. If LESSOR assigns all or any of its
------------------------------
rights under this Lease as permitted by this Lease or otherwise disposes of any
interest in the Aircraft to any other Person, LESSEE will, upon request, procure
that such Person hereunder be added as loss payee and/or additional assured in
the policies effected hereunder and enjoy the same rights and insurance enjoyed
by LESSOR under such policies. LESSOR will nevertheless continue to be covered
by such policies.
18.5 Deductibles. If there is a material adverse change in the financial
-----------
condition of LESSEE which LESSOR reasonably believes will not enable LESSEE to
pay the deductible upon the occurrence of a partial loss of the Aircraft or an
Engine, then LESSOR may require LESSEE at LESSEE's expense to lower its
deductibles on the insurance maintained hereunder to a level which is available
on commercially reasonable terms in the insurance market.
56
<PAGE>
18.6 Other Insurance. LESSOR may from time to time by notice to
---------------
LESSEE require LESSEE at LESSEE's expense to effect such other insurance or such
variations to the terms of the existing insurance as may then be customary in
the airline industry for aircraft of the same type as the Aircraft and for
airlines of a similar size and operational profile and at the time commonly
available in the insurance market.
18.7 Information. LESSEE will provide LESSOR with any information
-----------
reasonably requested by LESSOR from time to time concerning the insurance
maintained with respect to the Aircraft or in connection with any claim being
made or proposed to be made thereunder.
18.8 Currency. All proceeds of insurance pursuant to this Lease will be
--------
payable in Dollars except as may be otherwise agreed by LESSOR.
18.9 Grounding of Aircraft. If at any time any of the insurance required
---------------------
pursuant to this Lease will cease to be in full force and effect, LESSEE will
forthwith ground the Aircraft and keep the Aircraft grounded until such time as
such insurance is in full force and effect again.
18.10 Failure to Insure. If at any time LESSEE fails to maintain
-----------------
insurance in compliance with this Article 18, LESSOR will be entitled but not
bound to do any of the following (without prejudice to any other rights which it
may have under this Lease by reason of such failure):
(a) To pay any premiums due or to effect or maintain insurance
satisfactory to LESSOR or otherwise remedy such failure in such
manner as LESSOR considers appropriate (and LESSEE will upon demand
reimburse LESSOR in full for any amount so expended in that
connection).
(b) At any time while such failure is continuing, to require the
Aircraft to remain at any airport or (as the case may be), proceed
to and remain at any airport designated by LESSOR, until such
failure is remedied to LESSOR's satisfaction.
18.11 Reinsurance. In the event that LESSEE elects to reinsure during the
-----------
Lease Term, any reinsurance will be maintained with reinsurers and brokers
approved by LESSOR. Such
57
<PAGE>
reinsurance will contain each of the following terms and will in all other
respects (including amount) be satisfactory to LESSOR:
(a) The same terms as the original insurance.
(b) A cut-through and assignment clause satisfactory to LESSOR.
(c) Payment will be made notwithstanding (i) any bankruptcy,
insolvency, liquidation or dissolution of any of the original
insurers and/or (ii) that the original insurers have made no payment
under the original insurance policies.
18.12 Limit on Hull in favor of LESSEE. LESSEE may carry hull all
--------------------------------
risks on the Aircraft in excess of the Agreed Value (which is payable to LESSOR)
only to the extent such excess insurance which would be payable to LESSEE in the
event of a Total Loss does not exceed ten percent (10%) of the Agreed Value and
only to the extent that such additional insurance will not prejudice the
insurances required herein or the recovery by LESSOR thereunder. LESSEE agrees
that it will not create or permit to exist any liens or encumbrances over the
insurances, or its interest therein, except as constituted by this Lease.
58
<PAGE>
ARTICLE 19 LOSS, DAMAGE AND REQUISITION
---------- ----------------------------
Throughout the Lease Term and until the Termination Date, LESSEE will bear
all risk of loss, theft, damage and destruction to the Aircraft.
19.1 Definitions. In this Article 19:
-----------
"Agreed Value" means * U.S. Dollars (US$ * ).
------------
_________________________
PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
"Net Total Loss Proceeds" means the Total Loss Proceeds actually
-----------------------
received by LESSOR following a Total Loss, less any legal and other out-of-
pocket expenses, taxes or duties incurred by LESSOR in connection with the
collection of such proceeds.
"Total Loss" means any of the following in relation to the Aircraft,
----------
Airframe or any Engine and "Total Loss Date" means the date set forth in
---------------
parenthesis after each Total Loss:
(a) Destruction, damage beyond repair or being rendered permanently
unfit for normal use for any reason (the date such event occurs or,
if not known, the date on which the Aircraft, Airframe or Engine was
last heard of).
(b) Actual, constructive, compromised, arranged or agreed total loss
(the earlier of the date on which the loss is agreed or compromised
by the insurers or thirty (30) days after the date of notice to
LESSEE's brokers or insurers claiming such total loss).
(c) Requisition of title, confiscation, forfeiture or any compulsory
acquisition or other similar event (the date on which the same takes
effect).
(d) Sequestration, detention, seizure or any similar event for more
than thirty (30) consecutive days (the earlier of the date on which
insurers make payment on the basis of a total loss or the date of
expiration of such period).
(e) Requisition for use for more than one hundred and eighty (180)
consecutive days (the earlier of the
59
<PAGE>
date on which the insurers make payment on the basis of a total loss
or the date of expiration of such period).
(f) In the case of an Engine, the event described in Article 12.5.3
(the date on which the same takes effect).
(g) Any sale of the Aircraft in connection with a LESSEE bankruptcy,
whether by an administrator, trustee or court (the date on which the
intent to sell the Aircraft becomes known).
(h) Any other occurrence not permitted under this Lease which
deprives LESSEE of use or possession for a period of sixty (60)
consecutive days or longer (the 60th day of such period).
"Total Loss Proceeds" means the proceeds of any insurance or any
-------------------
compensation or similar payment arising in respect of a Total Loss.
19.2 Notice of Total Loss. LESSEE will notify LESSOR in writing within
--------------------
two (2) Business Days after a Total Loss Date of the Aircraft, Airframe or any
Engine.
19.3 Total Loss of Aircraft or Airframe. If the Total Loss of the
----------------------------------
Aircraft or Airframe occurs during the Lease Term, the following will occur:
(a) After the Total Loss Date and until receipt by LESSOR of the
Agreed Value as set forth in Exhibit C and all other amounts then
due under this Lease, LESSEE will continue to pay Rent and the
parties will perform all of their other obligations under this
Lease.
(b) On the date which is the earlier of the following dates:
(1) the date on which the Total Loss Proceeds of the Aircraft
or the Airframe are paid by LESSEE's insurance underwriters or
brokers and
(2) the date which falls thirty (30) days after the Total Loss
Date,
60
<PAGE>
LESSEE will pay to LESSOR an amount equal to the sum of:
(3) the Agreed Value and
(4) all other amounts then accrued under this Lease,
less an amount equal to the Net Total Loss Proceeds received by
LESSOR by such date.
(c) LESSOR will apply the Net Total Loss Proceeds and any amounts
received from LESSEE pursuant to this Article 19.3(b) as follows:
(1) first, in discharge of any unpaid Rent and any other amounts
accrued and unpaid up to the date of LESSOR's receipt of the
Agreed Value
(2) second, in discharge of the Agreed Value together with
interest thereon calculated at the Default Rate for any period
from the due date set forth in Article 19.3(b) up to the date of
discharge and
(3) third, payment of the balance, if any, to LESSEE.
(d) Upon receipt by LESSOR of all monies payable by LESSEE in
Article 19.3, provided no Default has occurred and is continuing,
this Lease will terminate except for LESSEE's obligations under
Articles 10.5, 16 and 17 which survive the Termination Date.
FOR AVOIDANCE OF DOUBT, THE AGREED VALUE OF THE AIRCRAFT WILL BE PAYABLE TO
LESSOR PURSUANT TO THIS ARTICLE 19.3 WHEN A TOTAL LOSS OF THE AIRFRAME OCCURS
EVEN IF THERE HAS NOT BEEN A TOTAL LOSS OF AN ENGINE OR ENGINES.
19.4 Surviving Engine(s). If a Total Loss of the Airframe occurs
-------------------
and there has not been a Total Loss of an Engine or Engines, then, provided no
Default has occurred and is continuing, at the request of LESSEE (subject to
agreement of relevant insurers) and on receipt of all monies due under Article
19.3 and payment by LESSEE of all airport, navigation and other charges on the
Aircraft, LESSOR will transfer all its
61
<PAGE>
right, title and interest in the surviving Engine(s) to LESSEE, but without any
responsibility, condition or warranty on the part of LESSOR other than as to
freedom from any LESSOR's Lien.
19.5 Total Loss of Engine and not Airframe.
-------------------------------------
19.5.1 Upon a Total Loss of any Engine not installed on the Airframe or a
Total Loss of an Engine installed on the Airframe not involving a
Total Loss of the Airframe, LESSEE will give LESSOR prompt written
notice thereof. LESSEE will replace such Engine as soon as
reasonably possible by duly conveying to LESSOR title to another
engine (i) free and clear of all Security Interests (except
Permitted Liens) of any kind or description, (ii) in airworthy
condition and of the same or improved model, service bulletin and
modification status and having a value and utility at least equal to
the Engine which sustained the Total Loss, (iii) not older (by
reference to serial number of manufacture date) than the older of
the two Engines delivered by LESSOR to LESSEE with the Aircraft on
the Delivery Date, (iv) in the same or better operating condition as
the Engine which sustained a Total Loss, including time in service,
hours and cycles since new and hours and cycles available to the
next inspection, Overhaul or scheduled or anticipated removal and
(v) has not and does not have any modules that have been operated at
a higher thrust rating than the Engine which sustained the Total
Loss. Such replacement engine will be an Engine as defined herein
and the Engine which sustained such Total Loss will cease to be an
Engine.
19.5.2 LESSEE agrees at its own expense to take such action as LESSOR may
reasonably request in order that any such replacement Engine becomes
the property of LESSOR and is leased hereunder on the same terms as
the destroyed Engine. LESSEE's obligation to pay ent will continue in
full force and effect, but an amount equal to the Net Total Loss
Proceeds received by LESSOR with respect to such destroyed Engine
will, subject to LESSOR's right to deduct therefrom any amounts then
due and payable by LESSEE under this Lease, be paid to LESSEE.
62
<PAGE>
19.5.3 Notwithstanding Articles 19.5.1 and 19.5.2, if at the time of a Total
Loss of an Engine not installed on the Aircraft or a Total Loss of
an Engine installed on the Airframe not involving a Total Loss of
the Airframe, LESSOR and LESSEE are parties to a spare engine lease
pursuant to which LESSOR is leasing a spare engine to LESSEE of the
same model and type as the Engine which has suffered such Total
Loss, LESSOR will receive from LESSEE the replacement cost of the
Engine instead of accepting a replacement engine. One (1) of such
LESSOR spare engines will then be substituted under this Lease for
the Engine which suffered such Total Loss and the applicable spare
engine lease will terminate.
19.6 Other Loss or Damage.
--------------------
19.6.1 If the Aircraft or any part thereof suffers loss or damage not
constituting a Total Loss of the Aircraft or the Airframe or any
Engine, all the obligations of LESSEE under this Lease (including
payment of Rent) will continue in full force.
19.6.2 In the event of any loss or damage to the Aircraft or Airframe which
does not constitute a Total Loss of the Aircraft or the Airframe, or
any loss or damage to an Engine which does not constitute a Total
Loss of such Engine, LESSEE will at its sole cost and expense fully
repair the Aircraft or Engine in order that the Aircraft or Engine
is placed in an airworthy condition and substantially the same
condition as it was prior to such loss or damage. All repairs will
be performed in a manner which preserves and maintains all
warranties and service life policies to the same extent as they
existed prior to such loss or damage. LESSEE will notify LESSOR
forthwith of any loss, theft or damage to the Aircraft for which the
cost of repairs is estimated to exceed * U.S. Dollars (US$ * ),
together with LESSEE's proposal for carrying out the repair. In the
event that LESSOR does not agree with LESSEE's proposals for repair,
LESSOR will so notify LESSEE within two (2) Business Days after its
receipt of such proposal. LESSEE and LESSOR will then consult with
Manufacturer and LESSEE and LESSOR agree to accept as conclusive, and
be bound by, Manufacturer's
63
<PAGE>
directions or recommendations as to the manner in
which to carry out such repairs. If Manufacturer declines to give
directions or recommendations, LESSEE will carry out the repairs in
accordance with the directions of LESSOR.
[PURSUANT TO 17 CFR 240.24B-2, CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
19.6.3 To the extent insurance proceeds received by LESSEE directly from
its insurers do not cover the cost of such repair work on the
Aircraft or Engine and LESSOR has received additional insurance
proceeds from LESSEE's insurers with respect to such repair work,
LESSOR will (subject to LESSOR's right to deduct therefrom any
amounts then due and payable by LESSEE under this Lease and
submission by LESSEE of reasonable documentation in support of such
excess repair costs) pay to LESSEE insurance proceeds received by
LESSOR as and when such repair work is performed on the Aircraft.
19.7 Copy of Insurance Policy. Promptly after the occurrence of a partial
------------------------
loss or Total Loss of the Aircraft or an Engine, LESSEE will provide LESSOR with
a copy of LESSEE's insurance policy.
19.8 Government Requisition. If the Aircraft, Airframe or any Engine is
----------------------
requisitioned for use by any Government Entity and such requisition does not
constitute a Total Loss, LESSEE will promptly notify LESSOR of such requisition.
All of LESSEE's obligations hereunder will continue as if such requisition had
not occurred. So long as no Default has occurred and is continuing, all payments
received by LESSOR or LESSEE from such Government Entity will be paid over to or
retained by LESSEE. If a Default has occurred and is continuing, all payments
received by LESSEE or LESSOR from such Government Entity may be used by LESSOR
to satisfy any obligations owing by LESSEE.
19.9 LESSOR Retention of Reserves. For avoidance of doubt, the parties
----------------------------
agree that notwithstanding the Total Loss of the Airframe and/or Engines LESSOR
will retain all Airframe and Engine Reserves paid by LESSEE and not payable to
LESSEE pursuant to Article 13.4.
64
<PAGE>
ARTICLE 20 REPRESENTATIONS, WARRANTIES AND
-------------------------------
COVENANTS OF LESSEE
-------------------
20.1 Representations and Warranties. LESSEE represents and warrants the
------------------------------
following to LESSOR as of the date of execution of this Lease and as of the
Delivery Date:
20.1.1 Corporate Status. LESSEE is a corporation duly incorporated, validly
----------------
existing and in good standing under the Laws of the State of
Colorado. It has the corporate power and authority to carry on its
business as presently conducted and to perform its obligations
hereunder.
20.1.2 Governmental Approvals. No authorization, approval, consent, license
----------------------
or order of, or registration with, or the giving of notice to the
Aviation Authority or any other Government Entity is required for
the valid authorization, execution, delivery and performance by
LESSEE of this Lease, except as will have been duly effected as of
the Delivery Date.
20.1.3 Binding. LESSEE's Board of Directors has authorized LESSEE to enter
-------
into this Lease, any Side Letters hereto and any other documentation
in connection with the leasing of the Aircraft from LESSOR
(collectively, the "Operative Documents") and perform its
-------------------
obligations under the Operative Documents. This Lease and the other
Operative Documents have been duly executed and delivered by LESSEE
and represent the valid, enforceable and binding obligations of
LESSEE except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other Laws of general application
affecting the enforcement of creditors' rights. When executed by
LESSEE at Delivery, the same will apply to the Estoppel and
Acceptance Certificate.
20.1.4 No Breach. The execution and delivery of the Operative Documents,
---------
the consummation by LESSEE of the transactions contemplated herein
and compliance by LESSEE with the terms and provisions hereof do not
and will not contravene any Law applicable to LESSEE, or result in
any breach of or constitute any default under or result in the
creation of any Security
65
<PAGE>
Interest upon any property of LESSEE, pursuant to any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, bank loan or credit agreement, corporate charter, by-law
or other agreement or instrument to which LESSEE is a party or by
which LESSEE or its properties or assets may be bound or affected.
When executed by LESSEE at Delivery, the same will apply to the
Estoppel and Acceptance Certificate.
20.1.5 Filings. Except for any filing or recording that may be required
-------
under the U.S. Federal Aviation Administration and except for the
filing of UCC-1 financing statements with the Secretary of State of
the State of Colorado, no filing or recording of any instrument or
document (including the filing of any financial statement) is
necessary under the Laws of the State of Registration and the state
of Colorado in order for this Lease to constitute a valid and
perfected lease of record relating to the Aircraft.
20.1.6 Licenses. LESSEE holds all licenses, certificates and permits from
--------
applicable Government Entities in the United States for the conduct
of its business as a certificated air carrier and performance of its
obligations under this Lease.
20.1.7 No Suits. There are no suits, arbitrations or other proceedings
--------
pending or threatened against LESSEE before any court or
administrative agency against or affecting LESSEE which, if
adversely determined, would have a material adverse effect on the
business, assets or condition (financial or otherwise) of LESSEE or
its ability to perform under this Lease, except as described in the
filings provided to LESSOR pursuant to Article 22.
20.1.8 General Obligations. The obligations of LESSEE under this Lease are
-------------------
direct, general and unconditional obligations of LESSEE and rank or
will rank at least pari passu with all other present and future
---- -----
unsecured and unsubordinated obligations (including contingent
obligations) of LESSEE, with the exception of such obligations as
are mandatorily preferred by law and not by reason of any
encumbrance.
66
<PAGE>
20.1.9 No Sovereign Immunity. LESSEE, under the laws of the United States
---------------------
or of any other jurisdiction affecting LESSEE, is subject to private
commercial law and suit. Neither LESSEE nor its properties or
assets is entitled to sovereign immunity under any such laws.
LESSEE's performance of its obligations hereunder constitute
commercial acts done for commercial purposes.
20.1.10 Tax Returns. All necessary returns have been delivered by LESSEE to
-----------
all relevant taxation authorities in the jurisdiction of its
incorporation and LESSEE is not in default in the payment of any
taxes due and payable.
20.1.11 No Material Adverse Effect. LESSEE is not in default under any
--------------------------
agreement to which it is a party or by which it may be bound which
would have a material adverse effect on its business, assets or
condition.
20.1.12 No Default under this Lease. At the time of execution of this Lease,
---------------------------
no Default has occurred and is continuing and the financial
statements provided to LESSOR pursuant to Article 22 fairly present
the financial condition of LESSEE.
20.2 Covenants. LESSEE covenants to LESSOR that it will comply with the
---------
following throughout the entire Lease Term:
20.2.1 Licensing. LESSEE will hold all licenses, certificates and permits
---------
from applicable Government Entities in the United States for the
conduct of its business as a certificated air carrier and
performance of its obligations under this Lease. LESSEE will advise
LESSOR promptly in the event any such licenses, certificates or
permits are cancelled, terminated, revoked or not renewed.
20.2.2 Sovereign Immunity. LESSEE, under the laws of the United States or
------------------
of any other jurisdiction affecting LESSEE, will continue to be
subject to private commercial law and suit. Neither LESSEE nor its
properties or assets will be entitled to sovereign immunity under
any such laws. LESSEE's performance of its obligations hereunder
will constitute commercial acts done for commercial purposes.
LESSEE
67
<PAGE>
will advise LESSOR promptly of any change in the foregoing.
20.2.3 Information about Suits. LESSEE will promptly give to LESSOR a
-----------------------
notice in writing of any suit, arbitration or proceeding before any
court, administrative agency or Government Entity which, if
adversely determined, would materially adversely affect LESSEE's
financial condition, affairs, operations or its ability to perform
under this Lease.
20.2.4 Restrictions on Mergers. LESSEE will not sell or convey
-----------------------
substantially all of its property and assets or merge or consolidate
with or into any other corporation unless LESSEE has obtained
LESSOR's prior written consent which will not be unreasonably
withheld or delayed.
20.2.5 Restriction on Relinquishment of Possession. LESSEE will not,
-------------------------------------------
without the prior consent of LESSOR, deliver, transfer or relinquish
possession of the Aircraft except in accordance with Articles 11
and 12.
20.2.6 No Security Interests. LESSEE will not create or agree or permit to
---------------------
arise any Security Interest (other than Permitted Liens) on or with
respect to the Aircraft, title thereto or any interest therein.
LESSEE will forthwith, at its own expense, take all action as may be
necessary to discharge or remove any such Security Interest if it
exists at any time. LESSEE will within twenty-four (24) hours after
becoming aware of the existence of any such Security Interest give
written notice thereof to LESSOR.
20.2.7 Representations to Other Parties. LESSEE will not represent or hold
--------------------------------
out LESSOR as carrying goods or passengers on the Aircraft or as
being in any way connected or associated with any operation of the
Aircraft.
68
<PAGE>
ARTICLE 21 REPRESENTATIONS, WARRANTIES AND
--------------------------------
COVENANTS OF LESSOR
--------------------
21.1 Representations and Warranties. LESSOR represents and warrants the
------------------------------
following to LESSEE as of the date of execution of the Lease and as of the
Delivery Date and ALL OTHER WARRANTIES, EXPRESS OR IMPLIED HAVE BEEN WAIVED IN
ACCORDANCE WITH ARTICLE 8:
21.1.1 Corporate Status. LESSOR is a corporation duly incorporated, validly
----------------
existing and in good standing under the Laws of the State of
California. It has the corporate power and authority to carry on
its business as presently conducted and to perform its obligations
hereunder.
21.1.2 Governmental Approvals. No authorization, approval, consent, license
----------------------
or order of, or registration with, or the giving of notice to the
Aviation Authority or any Government Entity is required for the
valid authorization, execution, delivery and performance by LESSOR
of this Lease.
21.1.3 Binding. This Lease and the other Operative Documents have been duly
-------
authorized, executed and delivered by LESSOR and represent the
valid, enforceable and binding obligations of LESSOR except as
enforceability may be limited by bankruptcy, insolvency,
reorganization or other Laws of general application affecting the
enforcement of creditors' rights.
21.1.4 No Breach. The execution and delivery of the Operative Documents,
---------
the consummation by LESSOR of the transactions contemplated herein
and compliance by LESSOR with the terms and provisions hereof do not
and will not contravene any Law applicable to LESSOR, or result in
any breach of or constitute any default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, bank loan or credit agreement, corporate charter, by-law
or other agreement or instrument to which LESSOR is a party or by
which LESSOR or its properties or assets may be bound or affected.
69
<PAGE>
21.1.5 Title to Aircraft. On the Delivery Date LESSOR will have good and
-----------------
valid title to the Aircraft.
21.2 Covenants. LESSOR covenants to LESSEE that it will comply with the
---------
following throughout the entire Lease Term:
21.2.1 Quiet Enjoyment. So long as no Default has occurred and is
---------------
continuing hereunder, LESSOR covenants that neither LESSOR nor any
person lawfully claiming through LESSOR will interfere with LESSEE's
quiet, peaceful use and enjoyment of the Aircraft.
70
<PAGE>
ARTICLE 22 FINANCIAL AND RELATED INFORMATION
---------- ---------------------------------
LESSEE agrees to furnish each of the following to LESSOR:
(a) Within forty-five (45) days after the end of each fiscal quarter
of LESSEE, three (3) copies of the unaudited consolidated financial
statements (including a balance sheet and profit and loss statement)
prepared for such quarter in accordance with generally accepted
accounting principles in the United States.
(b) Within ninety (90) days after the end of each fiscal year of
LESSEE, three (3) copies of the audited consolidated financial
statements (including a balance sheet and profit and loss statement)
prepared as of the close of such fiscal year in accordance with
generally accepted accounting principles in the United States.
LESSEE's chief financial officer will also provide a certificate
stating that no Default exists under this Lease.
(c) Promptly after distribution, three (3) copies of all reports and
financial statements which LESSEE sends or makes available to its
stockholders or creditors.
(d) Within thirty (30) days after completion of each "C" check on
the Aircraft, a report substantially in the form of the Technical
Evaluation Report set forth in Exhibit L, as revised.
(e) From time to time, such other reasonable information as LESSOR
or LESSOR's Lender may reasonably request concerning the location,
condition, use and operation of the Aircraft or the financial
condition of LESSEE.
71
<PAGE>
ARTICLE 23 RETURN OF AIRCRAFT
---------- ------------------
23.1 Date of Return. LESSEE is obligated to return the Aircraft, Engines,
--------------
Parts and Aircraft Documentation to LESSOR on the Expiration Date, unless a
Total Loss of the Aircraft occurred prior to the Expiration Date and this Lease
was terminated early in accordance with Article 19.3. If LESSEE is in Default
hereunder by failing to return the Aircraft on the Expiration Date or if an
Event of Default occurs prior to the Expiration Date and LESSOR repossesses the
Aircraft, the return requirements set forth in this Article 23 nonetheless must
be met on the date the Aircraft is actually returned to LESSOR or repossessed by
LESSOR.
23.2 Technical Reporting. Six (6) months prior to the Expiration Date
-------------------
(and in an updated form at return of the Aircraft), LESSEE will provide LESSOR
with a technical report substantially in the form and substance of Exhibit , as
revised, and, in addition upon LESSOR's request, will make copies available of
(i) drawings of the interior configuration of the Aircraft both as it presently
exists and as it will exist at return, (ii) airworthiness directive status list,
(iii) service bulletin incorporation list, (iv) rotable controlled, hard time
and life limited component listings, (v) listing of LESSEE-initiated
modifications and alterations, (vi) interior material burn certificates, (vii)
Aircraft maintenance program, (viii) complete workscope for the checks,
inspections and other work to be performed prior to return, (ix) current Engine
disk sheets and (x) any other data which is reasonably requested by LESSOR.
23.3 Return Location. LESSEE at its expense will return the Aircraft,
---------------
Engines, Parts and Aircraft Documentation to LESSOR at Los Angeles, California
or to such other airport as may be mutually agreed to by LESSEE and LESSOR.
23.4 Full Aircraft Documentation Review. For the period commencing at
----------------------------------
least ten (10) Business Days prior to the proposed redelivery date and
continuing until the date on which the Aircraft is returned to LESSOR in the
condition required by this Lease, LESSEE will provide for the review of LESSOR
and/or its representative all of the Aircraft Documentation in one central room
at the location where the work required in this Article 23 is being
accomplished.
72
<PAGE>
23.5 Aircraft Inspection.
-------------------
23.5.1 During the maintenance checks performed immediately prior to the
proposed redelivery and at the actual return of the Aircraft, LESSOR
and/or its representatives will have an opportunity to conduct a full
systems functional and operational inspection of the Aircraft (and other
types of reasonable inspections based upon the Aircraft type, age, use
and other known factors with respect to the Aircraft) and a full
inspection of the Aircraft Documentation (including records and
manuals), all to LESSOR's satisfaction. Any deficiencies from the
Aircraft return condition requirements set forth in this Article 23 will
be corrected by LESSEE at its cost prior to the acceptance flight
described in Article 23.5.2.
23.5.2 Immediately prior to the proposed redelivery of the Aircraft, LESSEE
will carry out for LESSOR and/or LESSOR's representatives an Aircraft
acceptance flight in accordance with Manufacturer's standard flight
operation check flight procedures or, if agreed to in writing by LESSOR,
in accordance with an airline acceptance flight procedure, either of
which will be for the duration necessary to perform such check flight
procedures but in any event not less than two (2) hours. Flight costs
and fuel will be furnished by and at the expense of LESSEE. Any
deficiencies from the Aircraft return condition requirements set forth
in this Article 23 will be corrected by LESSEE at its cost prior to
return of the Aircraft.
23.5.3 To the extent that the ground inspection and acceptance flight extend
beyond the Expiration Date, the Lease Term will be deemed to have been
automatically extended and the obligations of LESSEE hereunder
(including Article 23.11(c)) will continue on a day-to-day basis until
the Aircraft is accepted by LESSOR executing the Return Acceptance
Receipt.
23.6 Certificate of Airworthiness Matters.
------------------------------------
23.6.1 The Aircraft will possess a current Certificate of Airworthiness
issued by the Aviation Authority
73
<PAGE>
(although this Certificate of Airworthiness may later be substituted by
the Export Certificate of Airworthiness or equivalent if requested by
LESSOR pursuant to Article 23.10). In addition, even if LESSEE must
perform engineering, maintenance and repair work on the Aircraft beyond
the requirements of Article 12, the Aircraft at return must be in the
condition required in order to meet the requirements for issuance of a
U.S. Standard Certificate of Airworthiness for transport category
aircraft issued by the FAA in accordance with FAR Part 21 and, in
addition, to meet the operating requirements of FAR Part 121.
23.6.2 If the Aircraft is registered outside the U.S. at the time of return and
a certificate of airworthiness is issued by an airworthiness authority
other than the FAA, then at LESSOR's request, LESSEE at its cost will
demonstrate that the Aircraft meets the requirements for issuance of the
U.S. Standard Certificate of Airworthiness for transport category
aircraft specified in Article 23.6.1 by delivering to LESSOR a letter or
document acceptable to LESSOR signed by an FAA Designated Airworthiness
Representative (DAR) stating that the DAR has inspected the Aircraft and
Aircraft Documentation (including records and manuals) and has found
that the Aircraft meets the requirements for issuance of a U.S. Standard
Certificate of Airworthiness for transport category aircraft in
accordance with FAR Part 21.
23.6.3 If the Aircraft is to be registered in a country other than in the U.S.
after return from LESSEE, LESSOR may in its sole discretion waive the
requirements of Article 2362 and instead require that LESSEE at its
expense (to the extent such expense is no greater than that which LESSEE
would have incurred pursuant to Articles 23.6.1 and 23.6.2, with any
additional expenses being for LESSOR's account) put the Aircraft in a
condition to meet the requirements for issuance of a Certificate of
Airworthiness of the Aviation Authority of the next country of register,
provided that if solely as a result of such work the Aircraft is
returned after the scheduled redelivery date, LESSEE will not be
74
<PAGE>
liable for payment of Rent in respect of the period following date the
Aircraft would have been returned following completion of the
requirements of this Article 23, but for the provisions of this Article
23.6.3.
23.7 General Condition of Aircraft at Return.
---------------------------------------
23.7.1 The Aircraft, Engines and Parts will have been maintained and repaired
in accordance with the Maintenance Program, the rules and regulations of
the Aviation Authority and this Lease.
23.7.2 Aircraft Documentation (including records and manuals) will have been
maintained in an up-to-date status, in accordance with the rules and
regulations of the Aviation Authority and the FAA and this Lease and
will be in a form necessary in order to meet the requirements of Article
23.6.2. The records and historical documents set forth in Attachment 1
of Exhibit J will be in English.
23.7.3 The Aircraft will be in the same working order and condition as at
Delivery (subject to the other provisions of this Article 23,
reasonable wear and tear from normal flight operations excepted), with
all pilot discrepancies and deferred maintenance items cleared on a
terminating action basis.
23.7.4 The Aircraft will be airworthy (conform to type design and be in a
condition for safe operation), with all Aircraft equipment, components
and systems operating in accordance with their intended use and within
limits approved by Manufacturer, Aviation Authority and FAA.
23.7.5 The Aircraft interior (including cabin and windows) and exterior will be
clean and cosmetically acceptable to LESSOR, with all compartments free
of foreign objects, dirt, grease, fluids, stains, grime, cracks, tears
and rips and ready to be placed into immediate commercial airline
operations.
23.7.6 No special or unique Manufacturer, Engine manufacturer or Aviation
Authority inspection or check requirements which are specific to the
Aircraft
75
<PAGE>
or Engines (as opposed to all aircraft or engines of their types) will
exist with respect to the Airframe, Engines and Aircraft equipment,
components and systems.
23.7.7 All repairs, modifications and alterations to the Aircraft will have
been accomplished in accordance with Manufacturer's Structural Repair
Manual (or FAA-approved data supported by FAA Form 8110-3).
23.7.8 The Aircraft will be returned with the Engines installed and with the
same equipment as at Delivery, subject only to those replacements,
additions and Modifications permitted under this Lease.
23.7.9 All airworthiness directives and other instructions of the Aviation
Authority and FAA applicable to the Aircraft which are issued prior to
the date of return of the Aircraft and require compliance (either by
means of repetitive inspections, modifications or terminating action)
prior to return of the Aircraft to LESSOR will have been complied with
on the Aircraft on a terminating action basis. Any airworthiness
directives of the Aviation Authority or FAA which are issued during the
Lease Term and must be completed within one hundred eighty (180) days
after the Termination Date must also be performed on a terminating
action basis by LESSEE at LESSEE's cost. Airworthiness directives and
instructions which do not have a terminating action will be accomplished
at the highest level of inspection or modification possible. If, after
using best efforts, LESSEE is unable to acquire the material, parts or
components necessary to accomplish such airworthiness directive, LESSEE
will pay to LESSOR upon return of the Aircraft the estimated cost of
terminating such airworthiness directive. If the estimated cost cannot
be mutually agreed upon by LESSEE and LESSOR, LESSEE and LESSOR will
each obtain an estimate from a reputable FAA approved maintenance
facility and the estimated cost will be the average of the two
estimates.
23.7.10 The Aircraft will be in compliance with Manufacturer's Corrosion
Prevention and Control
76
<PAGE>
Program (CPCP) specified for the model type by Manufacturer.
23.7.11 If any waivers, alternate means of compliance, dispensations, extensions
or carry-overs with respect to airworthiness directives or operating or
maintenance requirements are granted by the Aviation Authority or
permitted by the Maintenance Program, LESSEE at its sole cost and
expense will nonetheless perform such airworthiness directives and other
operating or maintenance requirements on a terminating action basis as
if such waivers, alternate means of compliance, dispensations or
extensions did not exist.
23.7.12 The Aircraft will be free from any Security Interest except LESSOR's
Liens and no circumstance will have so arisen whereby the Aircraft is or
could become subject to any Security Interest or right of detention or
sale in favor of the Aviation Authority, any airport authority, or any
other authority.
23.7.13 All no-charge vendor and Manufacturer's service bulletin kits received
by LESSEE for the Aircraft but not installed thereon will be on board
the Aircraft as cargo. At LESSOR's request, any other service bulletin
kit which LESSEE paid for will also be delivered to LESSOR on board the
Aircraft, but LESSOR will reimburse LESSEE for its actual out-of-pocket
costs for such kit, unless LESSEE purchased such kit as part of its
implementation of a service bulletin on its fleet of aircraft of the
same type of the Aircraft but had not yet installed such kit on the
Aircraft, in which case such kit will be furnished free of charge to
LESSOR.
23.7.14 The Aircraft will be free of any system-related leaks and any damage
resulting therefrom. All repairs will have been performed on a permanent
basis in accordance with the applicable manufacturer's instructions.
23.7.15 The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and
water) will be serviced to full and the waste tank serviced in
accordance with Manufacturer's
77
<PAGE>
instructions. Each fuel tank will be at least as full as at
Delivery.
23.7.16 All fuel tanks will have recently undergone an anti-fungus/biological
growth contamination laboratory evaluation, with appropriate correction
taken in the event of excessive levels of contamination are identified.
23.7.17 At LESSOR's request, LESSEE will provide LESSOR with a written summary
of all sampling programs involving or affecting the Aircraft.
23.8 Checks Prior to Return. Immediately prior to return of the Aircraft
----------------------
to LESSOR, LESSEE at its expense will do each of the following:
(a) Have performed, by an FAA-approved repair station, the next
scheduled full block zonal, systems and structural "C" check (or its
equivalent), the corresponding lower checks ("A" and "B" or equivalent)
and any other maintenance and inspections tasks, all in accordance with
the MPD, sufficient to clear the Aircraft for operation until the next
scheduled full block zonal, systems and structural "C" check (or its
equivalent) under the MPD (which in any event will not be less than one
year). LESSEE will also weigh the Aircraft. Any discrepancies revealed
during such inspection will be corrected in accordance with
Manufacturer's maintenance and repair manuals or FAA-approved data.
LESSEE agrees to perform during such check any other work reasonably
required by LESSOR (and not otherwise required under this Lease) and
LESSOR will reimburse LESSEE for such work at LESSEE's preferred
customer rates.
(b) Perform an internal and external corrosion inspection in accordance
with the recommendations of Manufacturer and as required by the
Maintenance Program and correct any discrepancies in accordance with the
recommendations of Manufacturer and the Structural Repair Manual. In
addition, all inspected areas will be properly treated with corrosion
inhibitor as recommended by Manufacturer.
78
<PAGE>
(c) If LESSEE performed any structural inspections/tasks on a
sampling basis but did not perform such inspections/tasks on the
Aircraft, such work also will be accomplished on the Aircraft.
(d) Remove LESSEE's exterior markings, including all exterior paint,
by stripping (or, at LESSOR's option, pneumatically scuff/sanding)
the paint from the Airframe and clean, reseal, refinish, prepare
(including application of alodine or another corrosion inhibitor)
and prime the surfaces to be painted, all in accordance with
Manufacturer's and paint manufacturer's recommendations. LESSEE
will then repaint the Airframe in the colors and logo specified by
LESSOR, provided, however, that if such colors and logo are
substantially more complex than those of LESSEE, at LESSOR's
discretion, LESSOR will either (i) pay to LESSEE an amount equal to
the incremental cost of repainting the Aircraft in such complex
colors and logo over and above the cost of repainting the Aircraft
in LESSEE's colors and logo at such time or (ii) permit LESSEE to
return the Aircraft repainted white and to pay LESSOR an amount
equal to the incremental cost of painting the colors and logo
required by LESSOR's next operator, up to an amount equal to the
amount that would have been required to paint the Aircraft in
LESSEE's livery. Such painting will be accomplished in such a
manner as to result in a uniformly smooth and cosmetically
acceptable aerodynamic surface. All external placards, signs and
markings will be properly attached, free from damage, clean and
legible.
(e) Clean the exterior and interior of the Aircraft.
(f) If reasonably required by LESSOR, repaint the interior of the
Aircraft, including flight deck, and replace placards.
(g) In accordance with Manufacturer's Structural Repair Manual,
permanently repair damage to the Aircraft that exceeds
Manufacturer's limits and replace any non-flush structural patch
repairs installed on the Airframe with flush-type repairs, except
where a Manufacture's service bulletin or the Structural Repair
Manual specifies non-flush repairs.
79
<PAGE>
(h) Perform full and complete hot and cold section videotape
borescope on each Engine and its modules in accordance with the
Engine manufacturer's maintenance manual, with LESSOR or its
representatives entitled to be present. LESSEE will provide evidence
to LESSOR's satisfaction that such inspection does not reveal any
condition which would cause the Engine or any module to be
unserviceable, beyond serviceable limits or serviceable with
limitations under the Engine manufacturer's maintenance manual.
LESSEE will correct any discrepancies in accordance with the
guidelines set out by the Engine manufacturer which may be
discovered during such inspection.
(i) If the Engine historical and technical records and/or condition
trend monitoring data of any Engine (including the APU) indicate an
acceleration in the rate of deterioration in the performance of an
Engine, LESSEE will correct, to LESSOR's satisfaction, such
conditions which are determined to be causing such accelerated rate
of deterioration.
(j) In accordance with the applicable maintenance manual, accomplish
a maximum power assurance run and condition, acceleration and bleed
valve scheduling checks on the Engines. LESSEE will record and
evaluate the Engine performance, with LESSOR and/or its
representative entitled to be present. The performance and all
operating parameters of each Engine will be within the limits
specified in the Manufacturer's maintenance manual.
(k) In the event the Engine historical and technical records,
borescope inspection, trend monitoring and other checks specified in
(j) above result in a dispute regarding the conformity of an Engine
with the requirements of this Article 23, LESSEE and LESSOR will
consult with Engine manufacturer and follow Engine manufacturer's
recommendations (including the accomplishment of an Engine test cell
operational check) with regard to determining if such Engine
complies with the requirements of this Article 23 and the manner in
which any discrepancies from the requirements of this Article 23
will be rectified.
80
<PAGE>
23.9 Part Lives. At return, the condition of the Aircraft will be
----------
as follows:
(a) The Aircraft will have at least fifty percent (50%) of the full
allotment of hours, cycles and calendar time (whichever is the more
limiting factor) between "D" checks remaining as approved by the
MPD.
(b) Each Part of an Engine which has a hard time or life limit will
have at least fifty percent (50%) of its full allotment of
hours/cycles (whichever is the more limiting) remaining to operate
until its next-scheduled Overhaul or removal. In addition, each
Engine will also have at least five thousand (5,000) hours and five
thousand (5,000) cycles remaining until its next-anticipated full
performance restoration shop visit (based upon the Engine
manufacturer's estimated mean time between removals (MTBR) for
engines of the same type as the Engines). Each Engine will also
have a remaining EGT margin sufficient to permit the operation of
such Engine for the hours and cycles set forth in the preceding
sentence, based upon the historical experience of LESSEE.
(c) The installed APU will have zero (0) hours consumed since the
last Overhaul (excluding hours consumed on the acceptance flight).
(d) The installed main and nose landing gear components and their
associated actuators, side braces and parts will have at least fifty
percent (50%) of the full allotment of hours/cycles/calendar time
(whichever is the more limiting factor) remaining until the next
Overhaul or scheduled removal.
(e) Each component or Part of the Aircraft which has a hard time
(hour/cycle) limit to Overhaul pursuant to the MPD will have the
greater of (i) fifty percent (50%) of the full allotment of hours
and cycles, or (ii) the lesser of (1) five thousand (5,000) hours
and cycles (whichever is applicable) or (2) one hundred percent
(100%) of its total approved life remaining to operate until its
next scheduled Overhaul pursuant to the MPD.
81
<PAGE>
(f) Each life-limited component or Part of the Aircraft will have
the greater of (i) fifty percent (50%) of the full allotment of
hours and cycles, or (ii) the lesser of (1) five thousand (5,000)
hours and cycles or (2) one hundred percent (100%) of its total
approved life remaining to operate pursuant to the MPD.
(g) Each component or Part which has a calendar limit will have
remaining to operate at least (i) one (1) year from the date of
return of the Aircraft to LESSOR or (ii) one hundred percent (100%)
of its total approved life, whichever is less, pursuant to the MPD.
(h) No Engine, installed component or Part will have a total time
since new greater than one hundred ten percent (110%) of that of the
Airframe and, with respect to all installed components as a group,
the components will have an average total time since new no greater
than that of the Airframe.
(i) The Aircraft landing gear tires and brakes will be new or have
zero (0) hours/cycles out of Overhaul (except for the acceptance
flight).
23.10 Export and Deregistration of Aircraft. At LESSOR's request,
-------------------------------------
LESSEE at its cost will (i) provide an Export Certificate of Airworthiness or
its equivalent from the State of Registration so that the Aircraft can be
exported to the country designated by LESSOR, (ii) assist with deregistration of
the Aircraft from the register of aircraft in the State of Registration, (iii)
assist with arranging for prompt confirmation of such deregistration to be sent
by the registry in the State of Registration to the next country of registration
and (iv) perform any other acts reasonably required by LESSOR in connection with
the foregoing. If any Aircraft work which LESSEE is not otherwise required to
perform hereunder, including engineering, is required in order to obtain such
Export Certificate of Airworthiness, LESSEE will perform such work and LESSOR
will reimburse LESSEE for such work at LESSEE's preferred customer rates.
23.11 LESSEE's Continuing Obligations. In the event that LESSEE
-------------------------------
does not return the Aircraft to LESSOR on the Expiration
82
<PAGE>
Date and in the condition required by this Article 23 for any reason (whether
or not the reason is within LESSEE's control):
(a) the obligations of LESSEE under this Lease will continue in full
force and effect on a day-to-day basis until such return. This will
not be considered a waiver of LESSEE's Event of Default or any right
of LESSOR hereunder.
(b) Until such return, the Agreed Value will be an amount equal to
the Agreed Value on the day the Aircraft should have been returned
to LESSOR pursuant to this Lease.
(c) LESSEE will fully indemnify LESSOR on demand for all losses
(including consequential damages), liabilities, actions,
proceedings, costs and expenses thereby suffered or incurred by
LESSOR and, in addition, until such time as the Aircraft is
redelivered to LESSOR and put into the condition required by this
Article 23, instead of paying the Rent specified in Article 5.3,
LESSEE will pay twice the amount of Rent for each day from the
scheduled Expiration Date until the Termination Date (the monthly
Rent payable under Article 5.3.1 will be prorated based on the
actual number of days in the applicable month). Payment will be made
upon presentation of LESSOR's invoice.
(d) LESSOR may elect, in its sole and absolute discretion, to accept
the return of the Aircraft prior to the Aircraft being put in the
condition required by this Article 23 and thereafter have any such
non-conformance corrected at such time as LESSOR may deem
appropriate (but within ninety (90) days following the return of the
Aircraft) and at commercial rates then-charged by the Person
selected by LESSOR to perform such correction. Any direct expenses
incurred by LESSOR for such correction will become additional Rent
payable by LESSEE within fifteen (15) days following the submission
of a written statement by LESSOR to LESSEE, identifying the items
corrected and setting forth the expense of such corrections.
LESSEE's obligation to pay such supplemental Rent will survive the
Termination Date.
83
<PAGE>
23.12 Airport and Navigation Charges. LESSEE will ensure that at
------------------------------
return of the Aircraft any and all airport, navigation and other charges which
give rise or may if unpaid give rise to any lien, right of detention, right of
sale or other Security Interest in relation to the Aircraft, Engine or any Part,
whether incurred in respect of the Aircraft or any other aircraft operated by
LESSEE, have been paid and discharged in full (whether or not due) and will at
LESSOR's request produce evidence thereof satisfactory to LESSOR.
23.13 Return Acceptance Certificate. Upon return of the Aircraft in
-----------------------------
accordance with the terms of this Lease, LESSEE will prepare and execute two (2)
Return Acceptance Certificates in the form and substance of Exhibit J and LESSOR
will countersign and return one such Return Acceptance Certificate to LESSEE.
In addition, LESSEE and LESSOR will execute a Lease Termination for filing with
the FAA evidencing termination of this Lease.
23.14 Indemnities and Insurance. The indemnities and insurance
-------------------------
requirements set forth in Articles 17 and 18, respectively, will apply to
Indemnitees and LESSOR's representatives during return of the Aircraft,
including the ground inspection and acceptance flight. With respect to the
acceptance flight, LESSOR's representatives will receive the same protections as
LESSOR on LESSEE's Aviation and Airline General Third Party Liability Insurance.
23.15 Storage. At LESSOR's request, LESSEE will continue to lease
-------
the Aircraft under this Lease for a period not to exceed thirty (30) days.
During this period, LESSEE will have no obligations under this Lease except to
park and store the Aircraft in accordance with Manufacturer's recommended short
term storage program at LESSEE's principal maintenance facilities in Colorado,
provided that LESSOR will reimburse LESSEE for any out-of-pocket costs
associated therewith, and, at LESSOR's cost, to maintain all insurance on the
Aircraft. LESSEE will not utilize the Aircraft for any reason during this
period.
84
<PAGE>
ARTICLE 24 ASSIGNMENT
---------- ----------
24.1 No Assignment by LESSEE. NO ASSIGNMENT, NOVATION, TRANSFER, MORTGAGE
-----------------------
OR OTHER CHARGE MAY BE MADE BY LESSEE OF ANY OF ITS RIGHTS WITH RESPECT TO THE
AIRCRAFT, ENGINE OR PART OR THIS LEASE.
24.2 Sale or Assignment by LESSOR.
----------------------------
24.2.1 Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any
time and without LESSEE's consent sell, assign or transfer its
rights and interest hereunder or with respect to the Aircraft to a
third party ("LESSOR's Assignee"). For a period of three (3) years
-----------------
after such sale or assignment and at LESSEE's cost, LESSEE will
continue to name LESSOR as an additional insured under the Aviation
and Airline General Third Party Liability Insurance specified in
Exhibit C.
24.2.2 The term "LESSOR" as used in this Lease means the lessor of the
Aircraft at the time in question. In the event of the sale of the
Aircraft and transfer of LESSOR's rights and obligations under this
Lease, LESSOR's Assignee will become "LESSOR" of the Aircraft under
this Lease and the transferring party (the prior "LESSOR") will be
relieved of all liability to LESSEE under this Lease for obligations
arising on and after the date the Aircraft is sold. LESSEE will
acknowledge and accept LESSOR's Assignee as the new "LESSOR" under
this Lease and will look solely to LESSOR's Assignee for the
performance of all LESSOR obligations and covenants under this Lease
arising on and after the Aircraft sale date.
24.3 LESSOR's Lender. Subject to LESSEE's rights pursuant to this Lease,
---------------
LESSOR may at any time and without LESSEE's consent grant security interests
over the Aircraft and assign the benefit of this Lease to a lender ("LESSOR's
--------
Lender") as security for LESSOR's obligations to LESSOR's Lender. Accordingly,
- ------
if LESSOR's Lender requires, as a condition to providing financing, any
nonsubstantive modification of this Lease, LESSEE agrees to enter into an
agreement so modifying this Lease.
85
<PAGE>
24.4 LESSEE Cooperation. On request by LESSOR, LESSOR's Assignee or
------------------
LESSOR's Lender, LESSEE will execute all such documents (such as a lease
assignment agreement) as LESSOR, LESSOR's Assignee or LESSOR's Lender may
reasonably require to confirm LESSEE's obligations under this Lease and obtain
LESSEE's acknowledgement that LESSOR is not in breach of the Lease. LESSEE will
provide all other reasonable assistance and cooperation to LESSOR, LESSOR's
Assignee and LESSOR's Lender in connection with any such sale or assignment or
the perfection and maintenance of any such security interest, including, at
LESSOR's cost, making all necessary filings and registrations in the State of
Registration and providing all opinions of counsel with respect to matters
reasonably requested by LESSOR, LESSOR's Lender or LESSOR's Assignee. LESSOR
will reimburse LESSEE for its reasonable out-of-pocket costs in reviewing
documents required by LESSOR or LESSOR's Lender.
24.5 Protections.
-----------
24.5.1 At LESSEE's request, LESSOR will seek to obtain for the benefit of
LESSEE an acknowledgment from any LESSOR's Assignee or LESSOR's
Lender that, so long as no Default has occurred and is continuing
hereunder, such Person will not interfere with LESSEE's quiet,
peaceful use and enjoyment of the Aircraft.
24.5.2 Wherever the term "LESSOR" is used in this Lease in relation to any
of the provisions relating to disclaimer, title and registration,
indemnity and insurance contained in Articles 8, 14, 17 and 18,
respectively, or with respect to Article 20.2.7, the term "LESSOR"
will be deemed to include LESSOR's Assignee and
LESSOR's Lender, if applicable.
86
<PAGE>
ARTICLE 25 DEFAULT OF LESSEE
---------- -----------------
25.1 LESSEE Notice to LESSOR. LESSEE will promptly notify LESSOR if
-----------------------
LESSEE becomes aware of the occurrence of any Default.
25.2 Events of Default. The occurrence of any of the following will
-----------------
constitute an Event of Default and material breach of this Lease by LESSEE:
(a) LESSEE fails to take delivery of the Aircraft when obligated to
do so under the terms of this Lease.
(b) LESSEE fails to make a Rent or other payment due hereunder in the
manner and by the date provided herein and fails to make such payment
within three (3) Business Days after such payment is due.
(c) LESSEE fails to obtain or maintain the insurance required by
Article 18.
(d) LESSEE fails to return the Aircraft to LESSOR on the Expiration
Date in accordance with Article 23.
(e) LESSEE fails to observe or perform any of its other obligations
hereunder and fails to cure the same within fifteen (15) days after
written notice thereof to LESSEE. If such failure cannot by its
nature be cured within fifteen (15) days, LESSEE will have the
reasonable number of days necessary to cure such failure (not to
exceed a period of sixty (60) days) so long as it uses diligent and
best efforts to do so.
(f) Any representation or warranty of LESSEE herein proves to be
untrue in any material respect.
(g) The registration of the Aircraft is cancelled other than as a
result of an act or omission of LESSOR.
(h) LESSEE abandons the Aircraft or Engines.
(i) LESSEE or an approved sublessee no longer has unencumbered
control (other than Permitted Liens) or
87
<PAGE>
possession of the Aircraft or Engines, except as otherwise permitted
by this Lease.
(j) LESSEE threatens to or temporarily or permanently discontinues
business or sells or otherwise disposes of all or substantially all
of its assets.
(k) A material adverse change occurs in the financial condition of
LESSEE from the financial condition in effect on March 31, 1996
which LESSOR reasonably believes will result in LESSEE's inability
to comply with the terms of this Lease and of which LESSOR will have
notified LESSEE.
(l) LESSEE no longer possesses the licenses, certificates and
permits required for the conduct of its business as a certificated
air carrier in the United States.
(m) LESSEE (i) suspends payment on its debts or other obligations,
(ii) is unable to or admits its inability to pay its debts or other
obligations as they fall due, (iii) is adjudicated or becomes
bankrupt or insolvent or (iv) proposes or enters into any
composition or other arrangement for the benefit of its creditors
generally.
(n) Any proceedings, resolutions, filings or other steps are
instituted or threatened with respect to LESSEE relating to the
bankruptcy, liquidation, reorganization or protection from creditors
of LESSEE or a substantial part of LESSEE's property. If instituted
by LESSEE, the same will be an immediate Event of Default. If
instituted by another Person, the same will be an Event of Default
if not dismissed, remedied or relinquished within sixty (60) days.
(o) Any order, judgment or decree is entered by any court of
competent jurisdiction appointing a receiver, trustee or liquidator
of LESSEE or a substantial part of its property, or if a substantial
part of LESSEE's property is to be sequestered. If instituted by or
done with the consent of LESSEE, the same will be an immediate Event
of Default. If instituted by another Person, the same will be an
88
<PAGE>
Event of Default if not dismissed, remedied or relinquished within
sixty (60) days.
(p) Any indebtedness for borrowed moneys or a guarantee or similar
obligation owed by LESSEE with an unpaid balance of at least One
Million U.S. Dollars (US$ 1,000,000) becomes due or is capable of
being declared due before its stated maturity or LESSEE is in
default under any other purchase agreement, lease, conditional sale
agreement or other agreement pursuant to which LESSEE has possession
of any aircraft.
(q) LESSEE is in default under any other lease or agreement between
LESSEE and LESSOR and the same is not cured within its specified
cure period.
(r) Any approved sublessee acts so as to prevent present or future
performance by LESSEE of its obligations under this Lease.
25.3 LESSOR's General Rights. Upon the occurrence of any Event of
-----------------------
Default, all rights of LESSEE hereunder will immediately cease and terminate
(but LESSEE's obligations hereunder will continue, including the obligations to
protect and insure the Aircraft as required under this Lease). LESSOR may do
all or any of the following at its option (in addition to such other rights and
remedies which LESSOR may have by statute or otherwise but subject to any
requirements of applicable Law):
(a) Terminate this Lease by giving written notice to LESSEE.
(b) Require that LESSEE immediately move the Aircraft to an airport
or other location designated by LESSOR.
(c) For LESSEE's account, do anything that may reasonably be
required to cure any default and recover from LESSEE all reasonable
costs, including legal fees and expenses incurred in doing so and
Default Interest.
(d) Proceed as appropriate to enforce performance of this Lease and
to recover any damages for the breach hereof, including the amounts
specified in Article 25.5.
89
<PAGE>
(e) Terminate this Lease by taking possession of the Aircraft or by
serving notice requiring LESSEE to return the Aircraft to LESSOR at
the location specified by LESSOR. If LESSOR takes possession of the
Aircraft, it may enter upon LESSEE's premises where the Aircraft is
located without liability. Upon repossession of the Aircraft,
LESSOR will then be entitled to sell, lease or otherwise deal with
the Aircraft as if this Lease had never been made. LESSOR will be
entitled to the full benefit of its bargain with LESSEE.
(f) Apply all or any portion of the Security Deposit and any other
security deposits held by LESSOR pursuant to any other agreements
between LESSOR and LESSEE to any amounts due.
25.4 Deregistration and Export of Aircraft. If an Event of Default has
-------------------------------------
occurred and is continuing, LESSOR may take all steps necessary to deregister
the Aircraft in and export the Aircraft from the State of Registration.
25.5 LESSEE Liability for Damages. If an Event of Default
----------------------------
occurs, in addition to all other remedies available at law or in equity, LESSOR
has the right to recover from LESSEE and LESSEE will pay LESSOR within two (2)
Business Days after LESSOR's written demand, all of the following:
(a) All amounts which are then due and unpaid hereunder and which
become due prior to the earlier of LESSOR's recovery of possession
of the Aircraft or LESSEE making an effective tender thereof.
(b) Any losses suffered by LESSOR because of LESSOR's inability to
place the Aircraft on lease with another lessee or to otherwise
utilize the Aircraft on financial terms as favorable to LESSOR as
the terms hereof or, if LESSOR elects to dispose of the Aircraft,
the funds arising from a sale or other disposition of the Aircraft
are not as profitable to LESSOR as leasing the Aircraft in
accordance with the terms hereof would have been (and LESSOR will be
entitled to accelerate any and all Rent which would have been due
from the date of LESSOR's recovery or repossession of the Aircraft
through the Expiration Date).
90
<PAGE>
(c) All costs associated with LESSOR's exercise of its remedies
hereunder, including but not limited to repossession costs, legal
fees, Aircraft storage costs, Aircraft re-lease or sale costs and
LESSOR's internal costs and expenses (including the cost of
personnel time calculated based upon the compensation paid to the
individuals involved on an annual basis and a general LESSOR
overhead allocation).
(d) Any amount of principal, interest, fees or other sums paid or
payable on account of funds borrowed in order to carry any unpaid
amount.
(e) Any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding any
financial instrument relating in whole or in part to LESSOR's
financing of the Aircraft.
(f) Any loss, cost, expense or liability sustained by LESSOR due to
LESSEE's failure to redeliver the Aircraft in the condition required
by this Lease.
(g) Any other loss, damage, expense, cost or liability which LESSOR
suffers or incurs as a result of the Event of Default and/or
termination of this Lease, including an amount sufficient to fully
compensate LESSOR for any loss of or damage to LESSOR's residual
interest in the Aircraft caused by LESSEE's default.
25.6 Waiver of Default. By written notice to LESSEE, LESSOR may at its
-----------------
election waive any Default or Event of Default and its consequences and rescind
and annul any prior notice of termination of this Lease. The respective rights
of the parties will then be as they would have been had no Default or Event of
Default occurred and no such notice been given.
25.7 Present Value of Payments. In calculating LESSOR's damages
-------------------------
hereunder, upon an Event of Default all Rent and other amounts which would have
been due hereunder during the Lease Term if an Event of Default had not occurred
will be calculated on a present value basis using a discounting rate of four
percent (4%) per annum discounted to the earlier of the date on which LESSOR
obtains possession of the Aircraft or LESSEE makes an effective tender thereof.
91
<PAGE>
25.8 Use of "Termination Date". For avoidance of doubt, it is agreed that
-------------------------
if this Lease terminates and the Aircraft is repossessed by LESSOR due to an
Event of Default, then, notwithstanding the use of the term "Termination Date"
in this Lease, the period of the Lease Term and the "Expiration Date" will be
utilized in calculating the damages to which LESSOR is entitled pursuant to
Article 255. For example, it is agreed and understood that LESSOR is entitled
to receive from LESSEE the Rent and the benefit of LESSEE's insurance and
maintenance of the Aircraft until expiration of the Lease Term.
92
<PAGE>
ARTICLE 26 NOTICES
---------- -------
26.1 Manner of Sending Notices. Any notice, request or information
-------------------------
required or permissible under this Lease will be in writing and in English.
Notices will be delivered in person or sent by fax, letter (mailed airmail,
certified and return receipt requested), or by expedited delivery addressed to
the parties as set forth in Article 262. In the case of a fax, notice will be
deemed received on the date set forth on the confirmation of receipt produced by
the sender's fax machine immediately after the fax is sent. In the case of a
mailed letter, notice will be deemed received on the tenth (10th) day after
mailing. In the case of a notice sent by expedited delivery, notice will be
deemed received on the date of delivery set forth in the records of the Person
which accomplished the delivery. If any notice is sent by more than one of the
above listed methods, notice will be deemed received on the earliest possible
date in accordance with the above provisions.
26.2 Notice Information. Notices will be sent:
------------------
If to LESSOR: INTERNATIONAL LEASE FINANCE CORPORATION
1999 Avenue of the Stars
39th Floor
Los Angeles, California 90067
United States of America
Attention: Legal Department
Fax: 310-788-1990
Telephone: 310-788-1999
If to LESSEE: FRONTIER AIRLINES
12015 East 46th Avenue
Suite 200
Denver, Colorado 80239
Attention: Legal Department
Fax: 303-371-7007
Telephone: 303-371-7400
or to such other places and numbers as either party directs in writing to the
other party.
93
<PAGE>
ARTICLE 27 GOVERNING LAW AND JURISDICTION
---------- ------------------------------
27.1 California Law. This Lease is being delivered in the State of
--------------
California and will in all respects be governed by and construed in accordance
with the Laws of the State of California (notwithstanding the conflict Laws of
the State of California).
27.2 Non-Exclusive Jurisdiction in California. As permitted by Section
----------------------------------------
410.40 of the California Code of Civil Procedure, the parties hereby irrevocably
submit to the non-exclusive jurisdiction of the Federal District Court for the
Central District of California and the State of California Superior or Municipal
Court in Los Angeles, California. Nothing herein will prevent either party from
bringing suit in any other appropriate jurisdiction.
27.3 Service of Process. The parties hereby consent to the service of
------------------
process (i) out of any of the courts referred to above, (ii) in accordance with
Section 415.40 of the California Code of Civil Procedure by mailing copies of
the summons and complaint to the person to be served by air mail, certified or
registered mail to the address set forth in Article 262, postage prepaid,
return receipt requested or (iii) in accordance with the Hague Convention, if
applicable.
27.4 Prevailing Party in Dispute. If any legal action or other proceeding
---------------------------
is brought in connection with or arises out of any provisions in this Lease, the
prevailing party will be entitled to recover reasonable attorneys' fees and
other costs incurred in such action or proceedings. The prevailing party will
also, to the extent permissible by Law, be entitled to receive pre- and post-
judgment Default Interest.
27.5 Waiver. LESSEE and LESSOR hereby waive the right to a trial by jury.
------
LESSEE and LESSOR hereby irrevocably waive any objection which it may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or related to this Lease brought in any of the courts referred to
in Article 27.2, and hereby further irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
94
<PAGE>
ARTICLE 28 MISCELLANEOUS
---------- -------------
28.1 Press Releases. The parties will give copies to one another, in
--------------
advance if possible, of all news, articles and other releases provided to the
public media regarding this Lease or the Aircraft.
28.2 Power of Attorney. LESSEE hereby irrevocably appoints LESSOR as its
-----------------
attorney for the purpose of putting into effect the intent of this Lease
following an Event of Default, including without limitation, the return,
repossession, deregistration and exportation of the Aircraft. To evidence this
appointment, LESSEE has executed the Power of Attorney in the form of Exhibit G,
LESSEE will take all steps required under the Laws of the State of Registration
to provide such power of attorney to LESSOR.
28.3 LESSOR Performance for LESSEE. The exercise by LESSOR of its remedy
-----------------------------
of performing a LESSEE obligation hereunder is not a waiver of and
will not relieve LESSEE from the performance of such obligation at any
subsequent time or from the performance of any of its other obligations
hereunder.
28.4 LESSOR's Payment Obligations. Any obligation of LESSOR under this
----------------------------
Lease to pay or release any amount to LESSEE is conditioned upon (i) all amounts
then due and payable by LESSEE to LESSOR under this Lease or under any other
agreement between LESSOR and LESSEE having been paid in full and (ii) no Default
having occurred and continuing hereunder at the time such payment or release of
payment is payable to LESSEE.
28.5 Application of Payments. Any amounts paid or recovered in respect of
-----------------------
LESSEE liabilities hereunder may be applied to Rent, Default Interest, fees or
any other amount due hereunder in such proportions, order and manner as LESSOR
determines.
28.6 Usury Laws. The parties intend to contract in strict compliance with
----------
the usury Laws of the State of California and, to the extent applicable, the
United States. Notwithstanding anything to the contrary in the Operative
Documents, LESSEE will not be obligated to pay Default Interest or other
interest in excess of the maximum non-usurious interest rate, as in effect from
time to time, which may by applicable Law be charged, contracted for, reserved,
received or collected by LESSOR in
95
<PAGE>
connection with the Operative Documents. During any period of time in which the
then-applicable highest lawful rate is lower than the Default Interest rate,
Default Interest will accrue and be payable at such highest lawful rate however,
if at later times such highest lawful rate is greater than the Default Interest
rate, then LESSEE will pay Default Interest at the highest lawful rate until the
Default Interest which is paid by LESSEE equals the amount of interest that
would have been payable in accordance with the interest rate set forth in
Article 5.7.
28.7 Delegation by LESSOR. LESSOR may delegate to any Person(s) all or
--------------------
any of the rights, powers or discretion vested in it by this Lease and any such
delegation may be made upon such terms and conditions as LESSOR in its absolute
discretion thinks fit.
28.8 Confidentiality. The Operative Documents and all non-public
---------------
information obtained by either party about the other are confidential and are
between LESSOR and LESSEE only and will not be disclosed by a party to third
parties (other than to such party's auditors or legal advisors or as required in
connection with any filings of this Lease in accordance with Article 14 or to
comply with governmental regulations) without the prior written consent of the
other party. If disclosure is required as a result of applicable Law, LESSEE and
LESSOR will cooperate with one another to obtain confidential treatment as to
the commercial terms and other material provisions of this Lease.
28.9 Rights of Parties. The rights of the parties hereunder are
-----------------
cumulative, not exclusive, may be exercised as often as each party considers
appropriate and are in addition to its rights under general Law. The rights of
one party against the other party are not capable of being waived or amended
except by an express waiver or amendment in writing. Any failure to exercise or
any delay in exercising any of such rights will not operate as a waiver or
amendment of that or any other such right any defective or partial exercise of
any such rights will not preclude any other or further exercise of that or any
other such right and no act or course of conduct or negotiation on a party's
part or on its behalf will in any way preclude such party from exercising any
such right or constitute a suspension or any amendment of any such right.
28.10 Further Assurances. Each party agrees from time to time to do
------------------
and perform such other and further acts and execute and deliver any and all such
other instruments as may be required
96
<PAGE>
by Law, reasonably requested by the auditors of the other party or requested by
the other party to establish, maintain or protect the rights and remedies of the
requesting party or to carry out and effect the intent and purpose of this
Lease.
28.11 Use of Word "including". The term "including" is used herein
-----------------------
without limitation and by way of example only.
28.12 Headings. All article and paragraph headings and captions are
--------
purely for convenience and will not affect the interpretation of this Lease. Any
reference to a specific article, paragraph or section will be interpreted as a
reference to such article, paragraph or section of this Lease.
28.13 Invalidity of any Provision. If any of the provisions of this
---------------------------
Lease become invalid, illegal or unenforceable in any respect under any Law, the
validity, legality and enforceability of the remaining provisions will not in
any way be affected or impaired.
28.14 Negotiation. The terms of this Lease are agreed by LESSOR from
-----------
its principal place of business in Los Angeles, California.
28.15 Time is of the Essence. Time is of the essence in the
----------------------
performance of all obligations of the parties under this Lease and,
consequently, all time limitations set forth in the provisions of this Lease
will be strictly observed.
28.16 Amendments in Writing. The provisions of this Lease may only
---------------------
be amended or modified by a writing executed by LESSOR and LESSEE.
28.17 Counterparts. This Lease may be executed in any number of
------------
identical counterparts, each of which will be deemed to be an original, and all
of which together will be deemed to be one and the same instrument when each
party has signed and delivered one such counterpart to the other party.
28.18 Delivery of Documents by Fax. Delivery of an executed
----------------------------
counterpart of this Lease or of any other documents in connection with this
Lease by fax will be deemed as effective as delivery of an originally executed
counterpart. Any party delivering an executed counterpart of this Lease or other
document by fax will also deliver an originally executed counterpart, but the
failure of any party to deliver an
97
<PAGE>
originally executed counterpart of this Lease or such other document will not
affect the validity or effectiveness of this Lease or such other document.
28.19 Entire Agreement. The Operative Documents constitute the
----------------
entire agreement between the parties in relation to the leasing of the Aircraft
by LESSOR to LESSEE and supersede all previous proposals, agreements and other
written and oral communications in relation hereto. The parties acknowledge that
there have been no representations, warranties, promises, guarantees or
agreements, express or implied, except as set forth herein.
98
<PAGE>
IN WITNESS WHEREOF, LESSEE and LESSOR have caused this Lease to be executed
by their respective officers as of this 12th day of June, 1996.
INTERNATIONAL LEASE FINANCE FRONTIER AIRLINES
CORPORATION
By: By:
------------------------- ------------------------
Its: Its:
------------------------- ------------------------
<PAGE>
EXHIBIT A AIRCRAFT DESCRIPTION
--------- --------------------
Aircraft Manufacturer and Model: Boeing 737-3Q8
Seating Configuration: 138Y
Engine Manufacturer and Model: CFM-56-3-C1
Engine Serial Numbers: To be identified in the Acceptance
Certificate
Engine Thrust Rating: 20,000 pounds
Maximum Gross Takeoff Weight: 135,000 pounds
Specification: D6-76300-69-2, as revised
Livery: LESSEE's
100
<PAGE>
EXHIBIT B AGENCY AGREEMENT
--------- ----------------
(Limited Authority)
Relating to Boeing 737-300 Aircraft
THIS AGENCY AGREEMENT ("Agreement") is made and entered into as of [DATE].
BETWEEN:
--------
FRONTIER AIRLINES, a Colorado corporation whose address and principal
place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado,
80239 ("Agent") and
INTERNATIONAL LEASE FINANCE CORPORATION, a California corporation, whose
address and principal place of business is at 1999 Avenue of the Stars, 39th
Floor, Los Angeles, California 90067 ("Buyer").
RECITAL
-------
The Boeing Company ("Manufacturer") and Buyer have entered into an Aircraft
Purchase Agreement No. 1772, dated as of December 15, 1992 (such purchase
agreement as may be amended in accordance with the provisions thereof is
hereinafter referred to the "Purchase Agreement") under which Manufacturer has
agreed to manufacture and sell and Buyer has agreed to purchase certain Boeing
737-3Q8 aircraft. Buyer has agreed to lease one (1) of such aircraft bearing
manufacturer's serial number 27633 (the "Aircraft") to the Agent pursuant to an
agreement between Buyer and Agent dated as of June __, 1996 (the "Lease").
The Agent is engaged in business as a commercial air carrier and intends to
lease the Aircraft from Buyer, and Buyer is desirous of utilizing the expertise
of the Agent as Buyer's agent in all matters to which the Purchase Agreement
relates with respect to the Aircraft except certain items as indicated below,
and the Agent, as Buyer's agent, is willing to make such expertise available to
Buyer.
Accordingly, the parties agree as follows:
1. Buyer hereby appoints the Agent as Buyer's sole and exclusive agent
with authority to perform, on behalf of Buyer, as
101
<PAGE>
the Agent may in its discretion determine to be necessary or desirable:
(a) monitor Manufacturer's production, testing and delivery of the
Aircraft in accordance with the Purchase Agreement and
(b) do all such other things permitted by the Purchase Agreement
related to the technical and engineering aspects of Manufacturer's production of
the Aircraft, except Buyer limits Agent's authority to perform on behalf of
Buyer on any defect that occurs during manufacture that is considered
significant in nature by Buyer as measured by the criteria set forth below.
Buyer retains the sole authority to perform on any defect meeting such criteria.
(1) Deviations from the drawing configuration that could affect
future modifications, maintenance, repair or overhaul of the
Aircraft;
(2) Defects that are obvious appearance items;
(3) Rework that requires stress concurrence to satisfy
Manufacturer's Material Review Board (MRB) requirements;
(4) A high quantity of defects normally considered minor on a
singular basis;
(5) Major rework requiring extensive repair or modification,
e.g. replacement of skin panels, extensive use of oversize
----
fasteners, repair of damaged areas and significant structural
modifications;
(6) Rework that affects the aerodynamic drag coefficient of the
Aircraft; or
(7) Rework that involves areas known to be sensitive to Buyer.
2. Notwithstanding anything in the provisions of paragraph 1, nothing
in this Agreement will confer authority upon or otherwise permit the Agent:
102
<PAGE>
(a) to exercise any power of termination under the Purchase
Agreement or
(b) to make any payments due from Buyer to Manufacturer or to
receive on behalf of Buyer any payments due from Manufacturer under the Purchase
Agreement, or to alter any of the terms and conditions of the Purchase Agreement
or the Detail Specifications of the Aircraft.
3. Buyer will not revoke the appointment of and authority granted
under this Agreement to the Agent unless a termination of the Purchase Agreement
or Lease has occurred with respect to the Aircraft or the Agent has failed to
perform a material obligation under this Agreement. Notice of any such
revocation will be provided in accordance with the provisions of Article 14 of
the Purchase Agreement and given to both Manufacturer and the Agent.
4. Manufacturer acknowledges the appointment of the Agent for the
purpose set forth hereunder and Manufacturer and Buyer agree that due
performance by Manufacturer or Agent of an obligation under the Purchase
Agreement will constitute due satisfaction of such obligation by such party and
Buyer agrees to be bound by the acts of the Agent.
5. Buyer and Agent agree to identify the technical organization
and/or person(s) with the limited authority to act for Agent during production
of the Aircraft. Buyer will, if possible, provide such identification to
Manufacturer in writing, along with office space requirements for Agent, if
required, prior to or at the time of Manufacturer's acknowledgment of this
Agreement.
6. Nothing in this Agreement will subject Manufacturer to any
liability under the Purchase Agreement which it would not otherwise be subject
to, or modify Manufacturer's rights thereunder, or require Manufacturer to
divest itself of title to or possession of Aircraft or any other property which
is subject to the Purchase Agreement until payment therefor and delivery thereof
in accordance with the Purchase Agreement.
7. None of the parties hereto will be entitled to assign to any
third party any of their rights under this Agreement.
103
<PAGE>
8. The Agent will not delegate to any third party the performance
of the obligations imposed on it by this Agreement or appoint a sub-agent.
9. References to Manufacturer in this Agreement will include any
wholly-owned subsidiary of Manufacturer to which Manufacturer assigns any of its
rights and obligations under the Purchase Agreement pursuant to the terms and
conditions thereof.
10. This Agreement will be governed by the laws of the State of
California; however, the Purchase Agreement shall remain governed by the laws of
the State of Washington.
This Agreement has been executed by the parties hereto as of the day and
year first above written.
INTERNATIONAL LEASE FINANCE FRONTIER AIRLINES
CORPORATION (BUYER) (AGENT)
By: By:
----------------------- ---------------------------
Its: Its:
----------------------- ---------------------------
The Boeing Company acknowledges the appointment of FRONTIER AIRLINES as agent of
International Lease Finance Corporation in connection with the above referenced
Aircraft as set forth in this Agreement.
The Boeing Company (Manufacturer)
By:
-----------------------------
Its:
-----------------------------
104
<PAGE>
EXHIBIT C CERTIFICATE OF INSURANCE
--------- ------------------------
[Refer to Aircraft Lease Agreement dated as of June 12, 1996 between LESSEE and
LESSOR (the "Lease"). If applicable, insurance certificates from both the
insurers and reinsurers will be provided. If there is a LESSOR's Lender,
include references to it where appropriate after references to LESSOR.]
To: INTERNATIONAL LEASE FINANCE CORPORATION ("LESSOR")
1999 Avenue of the Stars
39th Floor
Los Angeles, California 90067
United States
FRONTIER AIRLINES
Boeing 737-3Q8
Manufacturer's Serial No.: 27633
Registration Marks: _____ (the "Aircraft")
The following security has subscribed to the insurance and/or
reinsurance policies:
[LIST COMPANIES & PERCENTAGES]
THIS IS TO CERTIFY THAT, as Insurance Brokers, we have effected Fleet
Insurance in respect of aircraft owned or operated by LESSEE (including the
Aircraft) as specified below.
AIRCRAFT HULL ALL RISKS
-----------------------
COVERING:
- ---------
All risks of physical loss or damage to the Aircraft from any cause
(subject only to the exclusions as specified below) (including War
Exclusion Clause with Physical Damage write backs paragraphs 3, 5 and 7
per AVN51), for an Agreed Value of Aircraft in the amount of:
US$ 36,000,000.
DEDUCTIBLES:
- ------------
US$ 750,000 each and every loss. Not applicable to Total
Loss/Constructive Total Loss or Arranged Total Loss.
105
<PAGE>
GEOGRAPHICAL COVERAGE:
- ----------------------
Worldwide
AVIATION AND AIRLINE GENERAL THIRD PARTY LIABILITY
--------------------------------------------------
COVERING:
- ---------
Aircraft Third Party, Passenger, Baggage, Cargo and Mail Liability and
Airline General Third Party Liability (including Premises, Hangarkeepers
and Products Liability) for combined single limit of not less than
US$ 500,000,000 (or such higher amount as LESSEE may carry on any other
aircraft in its fleet) any one accident/occurrence (but in the aggregate
in relation to Products Liability), extended to cover LESSEE's liability
under the Lease to the extent of the risks covered by the policy including
war and allied perils under Extended Coverage Endorsement as per AVN 52
subject only to exclusions as specified below.
AIRCRAFT SPARES ALL RISKS INSURANCE
-----------------------------------
COVERING:
- ---------
All risks of physical loss or damage to Aircraft Parts or spares or
Engines at all times when removed from the Aircraft from whatever cause,
subject only to the exclusions specified below, including the risks set
down in AVN 48B other than paragraphs (a) and (b) thereof (but including
paragraph (a) in respect of transit risks) for limits of:
US$ [AMOUNT] any one location
US$ [AMOUNT] any one sending
and covering replacement cost.
DEDUCTIBLE:
- -----------
_______________ each and every loss
GEOGRAPHICAL COVERAGE:
- ----------------------
Worldwide
106
<PAGE>
INSURANCE REQUIRED BY MANUFACTURER
----------------------------------
LESSEE will carry the insurance required by Manufacturer in connection
with LESSOR's assignment of Manufacturer's warranties and product support
to LESSEE.
CONTRACTUAL INDEMNITY
---------------------
LESSEE has insurance coverage for the indemnities agreed to by LESSEE
pursuant to Article 17 of the Lease.
PERIOD OF COVERAGE (ALL POLICIES)
---------------------------------
From Delivery Date of Aircraft to [EXPIRATION DATE]
It is further certified that Lessor has an interest in respect of the
Aircraft under the Lease. Accordingly, with respect to losses occurring
during the period from the Effective Date until the expiry of the
Insurance or until the expiry or agreed termination of the Lease or until
the obligations under the Lease are terminated by any action of the
Insured or Lessor and in consideration of the Additional Premium it is
confirmed that the Insurance afforded by the Policy is in full force and
effect and it is further agreed that the following provisions are
specifically endorsed to the Policy.
1. UNDER THE HULL (ALL RISKS AND HULL WAR AND ALLIED RISKS) AND AIRCRAFT
---------------------------------------------------------------------
SPARES INSURANCES
- -----------------
(a) [ILFC ONLY-NO OTHER CONTRACT PARTIES] In respect of any claim
on the Aircraft that becomes payable on the basis of a Total Loss, settlement
will be made to, or to the order of Lessor as sole loss payee, up to the Agreed
Value. With respect to repairable damage to an Aircraft or Engine, LESSOR will
receive all insurance proceeds in excess of US$ 500,000,000 provided that upon
receipt by the insurance broker of written notice of a material default on the
part of LESSEE, all insurance proceeds which otherwise would be payable to
LESSEE will be made directly to LESSOR. In respect of any other claim,
settlement (net of any relevant policy deductible) will be made with such
party(ies) as may be necessary to repair the Aircraft unless otherwise agreed
after consultation between the Insurers and the insured and,
107
<PAGE>
where necessary under the terms of the Lease the Lessor. Such payments will only
be made provided they are in compliance with all applicable laws and
regulations.
(b) Insurers agree 50/50 settlement in terms of AVS 103.
(c) Insurers have no right to replace the Aircraft on a Total Loss
(arranged, constructive or otherwise).
(d) Insurers recognize that LESSEE and LESSOR have agreed that a
Total Loss of the Airframe will constitute a Total Loss of the Aircraft.
(e) In the event of Total Loss of the Aircraft, Insurers agree to pay
LESSOR all amounts up to the Agreed Value based solely upon LESSOR's (not
LESSEE's) execution of the appropriate form of release/discharge document
Lessor may sign any required release in lieu of the Insured in the event of a
Total Loss, Constructive Total Loss or Arranged Total Loss.
(f) "Cut-through clause": Insurers confirm that in the event of any
claim arising under the hull insurances, the Reinsurers will in lieu of payment
of the Insurers, its successors in interest and assigns, pay to the person named
as sole loss payee under the original insurances that portion of any loss due
for which the Reinsurers would otherwise be liable to pay the Insurers (subject
to proof of loss), it being understood and agreed that any such payment by any
Reinsurers will fully discharge and release such Reinsurer from any and all
further liability in connection therewith and provide for payment to be made
notwithstanding (a) any bankruptcy, insolvency, liquidation or dissolution of
the Insurers and (b) that the Insurers have made no payment under the original
insurance policies.
(g) Insurers confirm that under the insurance policies, if the Insured
installs an engine owned by a third party on the Aircraft, either (i) the hull
insurance will automatically increase to such higher amount as is necessary in
order to satisfy both Lessor's requirement to receive the Agreed Value in the
event of a Total Loss, Constructive Total Loss or Arranged Total Loss and the
amount required by the third party engine owner, or (ii) separate additional
insurance on such engine will attach in order to satisfy separately the
requirements of the Insured to such third party engine owner.
108
<PAGE>
2. UNDER THE LEGAL LIABILITY INSURANCE
-----------------------------------
(a) Subject to the provisions of this Endorsement, the Insurance will
operate in all respects as if a separate Policy had been issued covering each
party insured hereunder, but this provision will not operate to include any
claim arising howsoever in respect of loss or damage to the Aircraft insured
under the Hull or Spares Insurance of the Insured. Notwithstanding the
foregoing the total liability of Insurers in respect of any and all Insureds
will not exceed the limits of liability stated in the Policy.
(b) The Insurance provided hereunder will be primary and without right
of contribution from any other insurance which may be available to the Lessor.
(c) This Endorsement does not provide coverage for the Lessor with
respect to claims arising out of its legal liability as manufacturer, repairer,
or servicing agent of the Aircraft.
3. UNDER ALL INSURANCES
--------------------
(a) Lessor, its successors and assigns, and (with respect to Aviation
and Airline General Third Party Liability only) its directors, officers and
employees for their respective rights and interests, are included as Additional
Insured.
(b) The cover afforded to Lessor by the Policy in accordance with this
Endorsement will not be invalidated by any act or omission (including
misrepresentation and non-disclosure) of any other person or party which results
in a breach of any term, condition or warranty of the Policy PROVIDED THAT
Lessor has not caused, contributed to or knowingly condoned the said act or
omission.
(c) Lessor will have no responsibility for premium and insurers will
waive any right of set-off or counterclaim against Lessor except in respect of
outstanding premium in respect of the Aircraft, provided that Insurer may only
set-off for premiums against the proceeds of the hull insurance for outstanding
premiums in connection with hull all risks and hull war and allied perils
insurance.
(d) Upon payment of any loss or claim to or on behalf of Lessor,
Insurers will to the extent and in respect of such
109
<PAGE>
payment be thereupon subrogated to all legal and equitable rights of Lessor
indemnified hereby (but not against Lessor). Insurers will not exercise such
rights without the consent of those indemnified, such consent not to be
unreasonably withheld. At the expense of Insurers Lessor will do all things
reasonably necessary to assist the Insurers to exercise said rights.
(e) Except in respect of any provision for Cancellation or Automatic
Termination specified in the Policy or any endorsement thereof, cover provided
by this Endorsement may only be canceled or materially altered in a manner
adverse to Lessor by the giving of not less than thirty (30) days notice in
writing to the appointed broker. Notice will be deemed to commence from the
date such notice is given by the Insurers. Such notice will NOT, however, be
given at normal expiry date of the Policy or any endorsement.
4. EXCEPT AS SPECIFICALLY VARIED OR PROVIDED BY THE TERMS OF THE
-------------------------------------------------------------
ENDORSEMENT:
- ------------
(a) LESSOR IS COVERED BY THE POLICY SUBJECT TO ALL TERMS, CONDITIONS,
LIMITATIONS, WARRANTIES, EXCLUSIONS AND CANCELLATION PROVISIONS THEREOF.
(b) THE POLICY Will NOT BE VARIED BY ANY PROVISIONS CONTAINED IN THE
LEASE WHICH PURPORT TO SERVE AS AN ENDORSEMENT OR AMENDMENT TO THE POLICY.
SUBJECT (save as specifically stated in this Certificate) to policy terms,
conditions, limitations and exclusions.
Yours faithfully,
[BROKERS]
110
<PAGE>
EXHIBIT D BROKERS' LETTER OF UNDERTAKING
--------- ------------------------------
To: INTERNATIONAL LEASE FINANCE CORPORATION
1999 Avenue of the Stars
39th Floor
Los Angeles, California 90067
United States
Date: Our Ref:
Dear Sirs:
FRONTIER AIRLINES
Boeing 737-3Q8
Manufacturer's Serial No.: 27633
Registration Mark: ________
We confirm that insurance has been effected for the account of [LESSEE]
(the "Operator") covering all aircraft owned or operated by them, including the
above-mentioned aircraft (the "Aircraft"). [Also confirm, if applicable, the
amount of any hull all risks or hull war and allied perils on the Aircraft which
LESSEE is carrying in excess of the Agreed Value (which excess insurance would
be payable to LESSEE). Such excess insurance may not exceed ten percent (10%)
of the Agreed Value.]
Pursuant to instructions received from the Operator and in consideration of
your approving the arrangement of the Operator's "Fleet Policy" (under which the
above-mentioned Aircraft is insured) through the intermediary of ourselves as
Brokers in connection with the insurance (the "Insurance") mentioned in our
Certificate of Insurance (Reference No. [ ] dated [ ] and attached
hereto), we undertake as follows:
1. In relation to the Hull and War Risks Insurance to hold to your order
the insurance Slips or Contracts and any Policies which may be issued or any
policies substituted (with your consent) therefor (but only insofar as the same
relate to the Aircraft only) and the benefit of the Hull and War Risks Insurance
thereunder, but subject to our requirements to operate the Fleet Policy insofar
as it relates to any other aircraft insured thereunder.
2. To advise you of any of the following:
111
<PAGE>
(a) If any insurer cancels or gives notice of cancellation of any of
the Insurance at least thirty (30) days (or such lesser period as may be
available in the case of War and Allied Perils) before such cancellation is to
take effect in respect of the Aircraft.
(b) Of any act or omission or of any event (including non-payment of
premium) of which we have knowledge or are notified and which might invalidate
or render unenforceable in whole or in part any of the Insurance, insofar as the
same relate to the Aircraft.
(c) If we do not receive instructions to renew all or any of the
Insurance at least thirty (30) days prior to their expiration.
(d) If any of the Insurance are not renewed on the same terms (save as
to premium and period of cover and as you might otherwise have notified us to be
acceptable to you) seven (7) days prior to expiry thereof.
The above undertakings are given subject to our continuing appointment for
the time being as Insurance Brokers to the Operator.
We also undertake to advise you if we cease to be Insurance Brokers to the
Operator.
Yours faithfully,.
112
<PAGE>
EXHIBIT E ESTOPPEL AND ACCEPTANCE CERTIFICATE
--------- -----------------------------------
FRONTIER AIRLINES ("LESSEE"), a corporation organized under the laws of the
Colorado does hereby represent, acknowledge, warrant and agree as follows:
1. LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have
entered into an Aircraft Lease Agreement dated as of June 12, 1996 (hereinafter
referred to as the "Lease"). Words used herein with capital letters and not
otherwise defined will have the meanings set forth in the Lease.
2. LESSEE has this __ day of ______, 19__ (Time: ____) at
_________________________ received from LESSOR possession of:
(a) One (1) Boeing 737-3Q8 Aircraft bearing Manufacturer's serial
number 27633 and U.S. registration mark ______ and two (2) CFM-56-3-C1 Engines
bearing manufacturer's serial numbers ______ and ______ (each of which has 750
or more rated take-off horse power) in an airworthy condition and
(b) All Aircraft Documentation, including the usual and customary
manuals, logbooks, flight records and historical information regarding the
Aircraft, Engines and Parts.
3. All of the foregoing has been delivered and accepted on the date set
forth above to LESSEE's full satisfaction and pursuant to the terms and
provisions of the Lease.
4. The Agreed Value of the Aircraft is Thirty Six Million U.S. Dollars
(US$36,000,000).
5. The amount of fuel on board at Delivery is ____ (circle one)
pounds/kilos (____ gallons).
6. Pursuant to the terms of the Lease, the first Rent payment was due
and payable three (3) Business Days prior to the date set forth above and all
subsequent monthly payments are due and payable as provided in Article 532 of
the Lease.
7. The Aircraft, Engines, Parts and Aircraft Documentation as described
in the Lease have been fully examined by LESSEE and have been received in a
condition fully
113
<PAGE>
satisfactory to LESSEE and in full conformity with the Lease in every respect.
8. The Lease is in full force and effect, LESSOR has fully, duly and
timely performed all of its obligations of every kind or nature thereunder and
LESSEE has no claims, offsets, deductions, set-off or defenses of any kind or
nature in connection with the Lease.
9. LESSOR's Lender may rely upon all of the foregoing in granting
substantial financial accommodations to LESSOR and LESSEE understands and agrees
that any funds being advanced by LESSOR's Lender will be made in reliance upon
the foregoing.
10. Prior to the Delivery Date, LESSEE has obtained all required permits,
authorizations, licenses and fees of the State of Registration or any Government
Entity thereof necessary in order for LESSEE to operate the Aircraft as
permitted by the terms of the Lease.
Dated on the date set forth above
FRONTIER AIRLINES
By:
-------------------------------
Its:
------------------------------
114
<PAGE>
EXHIBIT F OPINION OF COUNSEL
--------- ------------------
TO BE GIVEN BY LESSEE'S IN-HOUSE GENERAL COUNSEL OR OTHER LAWYERS ACCEPTABLE TO
LESSOR
To: International Lease Finance Corporation
1999 Avenue of the Stars
39th Floor
Los Angeles, California 90067
United States
Gentlemen:
This opinion is furnished to you pursuant to Article _______ of the Aircraft
Lease Agreement dated as of June 12, 1996 (the "Lease") between FRONTIER
AIRLINES ("LESSEE") and INTERNATIONAL LEASE FINANCE CORPORATION ("Lessor").
Defined terms in this opinion are used herein as defined in the Lease.
I have acted as counsel for the LESSEE in connection with the preparation,
execution and delivery of the Lease.
In that connection I have examined:
(a) The Lease and Estoppel and Acceptance Certificate
(b) The charter of the LESSEE and all amendments thereto (the
"Charter") and
(c) Such other documents, agreements and instruments, and such
treaties, laws, rules, regulations, decrees and the like, as I have deemed
necessary as a basis for the opinions hereinafter expressed.
[ (d) All of the agreements and any amendments thereto between LESSEE
and all other lessors and lenders of LESSEE covering other aircraft operated by
LESSEE on which the Engines can be installed.]
Based upon the foregoing and having regard for legal considerations which I deem
relevant, I am of the opinion that:
1. LESSEE is a corporation duly incorporated, validly existing and in
good standing under the Laws of Colorado. It has
115
<PAGE>
the corporate power and authority to carry on its business as presently
conducted and to perform its obligations hereunder.
2. No authorization, approval, consent, license or order of, or
registration with, or the giving of notice to the Aviation Authority or any
other regulatory body or authority is required for the valid authorization,
execution, delivery and performance by the LESSEE of the Lease.
3. The Lease and the Estoppel and Acceptance Certificate have each been
duly authorized, executed and delivered by LESSEE. Each such instrument is a
valid, enforceable and binding obligation of LESSEE except as enforceability may
be limited by bankruptcy, insolvency, reorganization or other Laws of general
application affecting the enforcement of creditors' rights.
4. The execution and delivery of the Lease and the Estoppel and
Acceptance Certificate, the consummation by the LESSEE of the transactions
contemplated therein and compliance by the LESSEE with the terms and provisions
thereof do not and will not contravene any Law applicable to LESSEE, or result
in any breach of or constitute any default under or result in the creation of
any lien, charge or encumbrance upon any property of LESSEE, under any
indenture, mortgage, chattel mortgage, deed of trust, conditional sales
contract, bank loan or credit agreement, corporate charter, by-law or other
agreement or instrument to which LESSEE is a party or by which LESSEE or its
properties or assets may be bound or affected.
5. Except for any filing or recording that may be required under the
U.S. Federal Aviation Administration and except for filing a UCC-1 Financing
Statement with the State of Colorado, no other filing or recording of any
instrument or document or any other acts are necessary or advisable under the
laws of the U.S. or Colorado to protect LESSOR's title to and ownership of the
Aircraft or in order for the Lease to constitute a valid and perfected lease of
record relating to the Aircraft, it being understood that such counsel expresses
no opinion as to the nature of the LESSOR's title to the Aircraft on the
Delivery Date. [In opinion given at Delivery, also confirm that the filings and
other steps described have been accomplished.]
6. LESSEE holds all licenses, certificates and permits from applicable
governmental authorities in the United States necessary for the conduct of its
business as a certificated air carrier and performance of its obligations under
the Lease.
116
<PAGE>
7. To my knowledge, there are no suits or proceedings pending or
threatened against LESSEE before any Government Entity against or affecting
LESSEE which, if adversely determined, would have a material adverse effect on
the financial condition or business of LESSEE or its ability to perform under
the Lease, except as described in the filings provided to LESSOR pursuant to
Article 22.
8. The obligations of LESSEE under the Lease are direct, general and
unconditional obligations of LESSEE and rank or will rank at least pari passu
with all other present and future unsecured and unsubordinated obligations
(including contingent obligations) of LESSEE, with the exception of such
obligations as are mandatorily preferred by law and not by reason of any
encumbrance.
9. LESSEE, under the laws of Colorado or of any other jurisdiction
affecting LESSEE, is subject to private commercial law and suit. Neither LESSEE
nor its properties or assets have the right of immunity from suit or execution
on the grounds of sovereignty in such jurisdictions and the performance by
LESSEE of its obligations under the Lease constitute commercial acts done for
commercial purposes.
10. There is no applicable usury or interest limitation Law in Colorado
which may restrict the recovery of payments in accordance with the Lease.
11. LESSOR will not violate any Law or become liable to any tax in
Colorado by reason of entering into or performing its obligations under the
Lease and it is not necessary to establish a place of business in Colorado in
order to enforce any provisions of the Lease.
12. The choice of California Law to govern the Lease will be upheld in
any action in the courts of Colorado. Any judgment given by United States or
California courts would be recognized and accepted by the courts in Colorado.
[ 13. None of the agreements and any amendments thereto between LESSEE and
all other lessors and lenders to LESSEE covering other aircraft operated by
LESSEE on which the Engines can be installed contain terms which provide or
contemplate that
117
<PAGE>
such other lessors or lenders will obtain any right, title or interest in an
Engine which is installed on such other aircraft.]
Very truly yours,
118
<PAGE>
EXHIBIT G FORM OF POWER OF ATTORNEY
--------- -------------------------
FRONTIER AIRLINES ("Frontier") hereby irrevocably appoints INTERNATIONAL LEASE
FINANCE CORPORATION ("ILFC") of 1999 Avenue of the Stars, 39th Floor, Los
Angeles, California 90067, U.S.A. as Frontier's true and lawful attorney so that
ILFC may take any of the following actions in the name of and for Frontier with
respect to the Boeing 737-3Q8 aircraft bearing manufacturer's serial number
27633 (the "Aircraft") leased by ILFC to Frontier pursuant to an Aircraft Lease
Agreement dated as of June 12, 1996 (the "Lease"):
1. Pursuant to the Lease, Frontier has procured and is maintaining
insurances for the Aircraft. ILFC has been named sole loss payee on the all risk
hull and war risk insurances for the Aircraft. In the event of a total loss or
constructive total loss of the Aircraft, ILFC is entitled to receive insurance
proceeds in an amount equal to: Thirty Six Million U.S. Dollars (US$36,000,000
). ILFC may take all action and sign all documents otherwise required to be
performed by Frontier, including execution on behalf of Frontier of an
appropriate form of discharge/release document, in order for ILFC to collect
such insurance proceeds.
2. In the exercise of the rights mentioned in paragraph 1, ILFC may make
any declarations or statements and sign any public or private documents which
may be considered necessary or appropriate.
3. ILFC may delegate the powers conferred hereby, in whole or in part,
to any individual(s), including but not limited to employees of ILFC or legal
counsel in the United States.
ILFC is empowered to determine in its sole discretion when to exercise the
powers conferred upon ILFC pursuant to this Power of Attorney. Any person,
agency or company relying upon this Power of Attorney need not and will not make
any determination or require any court judgment as to whether an Event of
Default has occurred under the Lease or whether the Lease has been terminated.
Frontier hereby waives any claims against (i) any person acting on the
instructions given by ILFC or its designee pursuant to this Power of Attorney
and (ii) any person designated by ILFC or an officer of ILFC to give
instructions pursuant to this Power of Attorney. Frontier also agrees to
indemnify and hold harmless any person, agency or company which may act in
119
<PAGE>
reliance upon this Power of Attorney and pursuant to instructions given by ILFC
or its designee.
This Power of Attorney is irrevocable until the Aircraft has been returned
to the possession of ILFC, deregistered and exported from the United States.
FRONTIER AIRLINES has made and delivered this Power of Attorney on June 12,
1996 in Seattle, Washington.
FRONTIER AIRLINES
By:
-----------------------------------
Its:
----------------------------------
120
<PAGE>
EXHIBIT H ASSIGNMENT OF RIGHTS (AIRFRAME)
--------- -------------------------------
Vice President - Aircraft Contracts
The Boeing Company
P.O. Box 3707
Seattle, Washington 98124
Subject: Assignment of Rights - International Lease Finance Corporation, as
Lessor and Frontier Airlines, as Lessee of one Boeing 737-3Q8
Aircraft, MSN 27633
Gentlemen:
In connection with International Lease Finance Corporation's lease to Frontier
Airlines ("Lessee") of a Boeing aircraft (more fully described below), reference
is made to the following documents:
1. Purchase Agreement No. 1772 dated as of December 15, 1992 entered into
between The Boeing Company ("Boeing") and International Lease Finance
Corporation ("ILFC") (the "Purchase Agreement") under which ILFC purchased
a certain Boeing Model 737-3Q8 aircraft, bearing Manufacturer's Serial No.
27633 (the "Aircraft").
2. Aircraft Lease Agreement, dated as of June 12, 1996 (the "Lease"), entered
into between ILFC and Frontier Airlines ("Lessee"), pursuant to which ILFC
leased the Aircraft to Lessee.
Pursuant to the Lease, ILFC has leased the Aircraft to Lessee. Included in such
Lease are the transfer to Lessee for and during the term of the Lease and
commencing on ________ __, 1997 of rights related to the Aircraft under the
Purchase Agreement. In order to accomplish such transfer of rights, as
authorized by the provisions of Article 10 of the Purchase Agreement,
(1) Lessee, its successors and assigns, hereby agrees to be bound by and
comply with all applicable terms, conditions, and limitations of the
Purchase Agreement including, without limitation, paragraph 10 Exclusion
---------
of Liabilities, of Part A of Exhibit B (Product Assurance Document) and
--------------
paragraphs 1 and 2, Buyer's Indemnification of Boeing and Buyer's
--------------------------------- -------
Insurance, respectively, of Part E of Exhibit C (Customer Support
---------
Document) (matters relating to
121
<PAGE>
indemnification and insurance), to the Purchase Agreement. Lessee
recognizes that Boeing's obligation to provide support and services to
Lessee pursuant to Exhibit C of the Purchase Agreement is conditioned on
the receipt by Boeing of evidence of compliance by Lessee with the
insurance requirements set forth in paragraph 2 of Part E of Exhibit C in
a form satisfactory to Boeing prior to the commencement of such support
and services; and
(2) ILFC agrees to remain responsible for any payments due Boeing with respect
to the Aircraft under Exhibit D (Airframe and Engine Price Adjustment) of
the Purchase Agreement and (b) with respect to any Spare Part or Leased
Part for the Aircraft ordered by ILFC under the ILFC GTA.
(3) Further, ILFC hereby assigns to Lessee the sole authority to exercise all
rights and powers of ILFC with respect to the Aircraft under the Purchase
Agreement. Such authorization shall continue until Boeing shall have
received from ILFC written notice to the contrary addressed to Boeing's
Vice President, Contracts, P.O. Box 3707, Seattle, Washington 98124-2207.
Until Boeing shall have received such notice Boeing shall be entitled to
deal exclusively and solely with Lessee with respect to the Aircraft,
under the Purchase Agreement and, with respect to the rights, powers,
duties or obligations under the Purchase Agreement, and all actions taken
by Lessee or agreements entered into by Lessee during the period prior to
Boeing's receipt of such notice, shall be final and binding upon ILFC.
(4) Lessee hereby accepts the authorization set forth in paragraph (3) herein
and agrees to be bound by and to comply with all the terms, conditions and
limitations of the Purchase Agreement.
We request that Boeing, upon receipt of this letter, acknowledge receipt
thereof and the transfer of rights, under the Purchase Agreement as set forth
above, by signing the acknowledgment set forth below and forwarding one copy of
this letter, so acknowledged, to each of the undersigned.
122
<PAGE>
Very truly yours,
FRONTIER AIRLINES INTERNATIONAL LEASE FINANCE
(Lessee) CORPORATION (Lessor)
By: By:
--------------------------- -----------------------------
Its: Its:
-------------------------- ----------------------------
Dated: Dated:
------------------------ --------------------------
Boeing Acknowledgment and Consent to Assignment
-----------------------------------------------
Receipt of the above letter acknowledged and transfer of rights under the
Purchase Agreement, with respect to the Aircraft, confirmed effective as of the
date indicated below:
THE BOEING COMPANY
By:
---------------------------------
Its:
--------------------------------
Dated:
------------------------------
123
<PAGE>
EXHIBIT I ASSIGNMENT OF RIGHTS (ENGINES)
--------- ------------------------------
_________________, 1997
In consideration of Frontier Airlines ("Lessee") leasing from International
Lease Finance Corporation ("ILFC") one (1) Boeing 737-3Q8 aircraft together with
two (2) CFMI Model CFM-56-3-C1 engines bearing manufacturer's serial numbers
_________ and _________, it is hereby agreed as follows:
1. (a) ILFC hereby assigns and transfers to Lessee all of ILFC's respective
rights and interest in and to and in and under the Engine Warranties set
forth in and subject to the limitations and liabilities set forth in
Exhibit B Warranty, Section X (the "Engine Warranties") of CFM
International, Inc. - ILFC General Terms Agreement No. 6-3987 dated 22
June 1984 (the "GTA") and to exercise and enforce, in Lessee's own name,
or with the prior written consent of CMFI, and subject to the limitations
set forth in the GTA, to assign to a further operator of the Aircraft from
time to time such rights and interests during the term of such lease so
long as Lessee is not in default thereunder.
(b) ILFC also hereby assigns to Lessee, to the extent not previously
assigned to Lessee, all product warranties, product support and training
applicable to the owner or operator of the Aircraft with respect to the
Engines, as set forth in the GTA, until the termination of the Lease.
2. Lessee hereby accepts such assignment including all the limitations and
liabilities pertaining to said Engine Warranties as stated in the
provisions of Exhibit B Warranty, Section X of the GTA.
3. This Agreement shall be binding upon and inure to the benefit of each of
the parties hereto and their respective successors and assigns to the
extent permitted by the GTA and hereunder.
4. This Agreement shall be governed by and construed in accordance with the
laws of California.
124
<PAGE>
5. This Agreement may be executed in any number of counterparts, each of
which when executed and delivered is an original but all of which taken
together constitute one and the same instrument and any party may execute
this Agreement by signing any counterpart.
6. ILFC shall, at Lessee's expense, cooperate with Lessee and take such
actions as Lessee reasonably deems necessary to enable Lessee to enforce
such rights, claims and interests as herein assigned. ILFC agrees that at
any time and from time to time, upon written request from Lessee, at
Lessee's expense, ILFC will promptly and duly execute and deliver any and
all such further documents and take such further action as Lessee may
reasonably request in order to obtain the full benefit of the assignment
hereunder and the rights and powers herein granted.
IN WITNESS WHEREOF, the authorized representative of the parties hereto have
executed this Agreement as of the day and year first above written.
INTERNATIONAL LEASE FINANCE FRONTIER AIRLINES
CORPORATION
By: By:
------------------------------ ------------------------------
Its: Its:
----------------------------- -----------------------------
Date: Date:
---------------------------- ----------------------------
125
<PAGE>
EXHIBIT J RETURN ACCEPTANCE RECEIPT
--------- -------------------------
Date , 19
- ---------------------------
1. FRONTIER AIRLINES, as LESSEE, and INTERNATIONAL LEASE FINANCE
CORPORATION, as LESSOR, have entered into an Aircraft Lease Agreement dated as
of June 12, 1996 (the "Lease"). Words used herein with capital letters and not
otherwise defined will have the meanings set forth in the Lease.
2. LESSOR has this __ day of ______, 19__ (Time: ____) at
_________________________ received from LESSEE possession of:
(a) One (1) Boeing 737-3Q8, bearing Manufacturer's serial number
27633, together with two (2) CFM-56-3-C1 engines bearing manufacturer's serial
numbers [LIST ENGINE SERIAL NUMBERS], all Parts attached thereto and thereon in
an airworthy condition and
(b) All Aircraft Documentation, including the usual and customary
manuals, logbooks, flight records and historical information regarding the
Aircraft, Engines and Parts, as listed in the Document Receipt attached hereto.
3. The Airframe, Engines and Parts had the following hours/cycles at
return:
(a) Airframe:
Total hours___________ Total landings_________
_____ hours/_____ cycles since last "C" check
_____ hours/_____ cycles since last "C7" check
(b) Engines:
Total Hrs/Cycles since
Position Serial No. Total Hrs Cycles last shop visit
- -------- ---------- --------- ------ ----------------
126
<PAGE>
Time Remaining to next
----------------------
Life Limited Part Removal
-------------------------
Hours Cycles
----- ------
MSN
MSN
(c) APU: MSN_____
Total hours ______
_____ hours/_____ cycles remaining until next HSI inspection
_____ hours/_____ cycles remaining on turbine and compressor
life limited parts
(d) Landing Gears:
Hrs/Cycles Hrs/Cycles to
Total since last next Sched. __
Position Serial No. Hrs/Cycles Overhaul Removal
- ------------ ----------- ---------- ----------- --------------
Nose
Right Main
Left Main
(e) Status of components or Parts with time/cycle and calendar limits
(see attached sheet)
(f) Fuel on board at return: _____ (circle one) pounds/kilos (_____
gallons)
4. Other technical information regarding the Aircraft and its
components are correctly set forth on the Technical Evaluation Report (in form
of Exhibit L) attached hereto.
5. The above specified aircraft, engines, and documentation are hereby
accepted by LESSOR subject to (a) the provisions of the Lease and (b) correction
by LESSEE (or
127
<PAGE>
procurement by LESSEE at LESSEE's cost) as soon as reasonably possible of the
discrepancies specified in Attachment 2 hereto.
6. Subject to the following paragraph, the leasing of the Aircraft by
LESSOR to LESSEE pursuant to the Lease is hereby terminated without prejudice to
LESSEE's continuing obligations under the Lease including, without limitation,
paragraph 5(b) above and Articles 10.5, 16 and 17.
7. LESSEE represents and warrants that during the term of the Lease all
maintenance and repairs to the Airframe and Engines were performed in accordance
with the requirements contained in the Lease. LESSEE further confirms that all
of its obligations under the Lease whether accruing prior to the date hereof or
which survive the termination of the Lease by their terms and accrue after the
date hereof, will remain in full force and effect until all such obligations
have been satisfactorily completed.
8. This Return Acceptance Supplement is executed and delivered by the
parties in [place].
IN WITNESS WHEREOF, the parties hereto have caused this Return Acceptance
Receipt to be executed in their respective corporate names by their duly
authorized representatives as of the day and year first above written.
INTERNATIONAL LEASE FINANCE FRONTIER AIRLINES
CORPORATION
By: By:
----------------------------- ---------------------------
Its: Its:
---------------------------- --------------------------
ATTACHMENTS: 1. Aircraft Documentation
2. List of Discrepancies
3. Technical Evaluation Report (in form of Exhibit L)
128
<PAGE>
ATTACHMENT 1
------------
TO RETURN ACCEPTANCE SUPPLEMENT
-------------------------------
AIRCRAFT DOCUMENTATION
----------------------
[The (a) manuals and (b) Aircraft records and historical documents set
forth below are to be returned with the Aircraft in a current, up-to-date and
correct status]
MANUALS
-------
Name
----
1. FAA Approved Airplane Flight Manual
2. Manufacturer's Operations Manual - Volume No.____
3. Quick Reference Handbook
4. Maintenance Manuals
5. Wiring Diagram Manuals
6. Structural Repair Manual
7. Illustrated Parts Catalog
8. Vendor Illustrated Parts Catalog
9. Overhaul Manuals
10. Vendor Overhaul Manuals
11. Drawings (Major Assembly and Installation)
12. Weight and Balance Control and Loading Manual
13. Weight and Balance Manual Supplement
14. Actual Weight and Balance Compliance
129
<PAGE>
AIRCRAFT RECORDS AND HISTORICAL DOCUMENTS
-----------------------------------------
1. Aircraft log book (current and file copies)
2. Aircraft Readiness Log (revised to time of return)
3. Maintenance Time Control Report (components, maintenance visit, special
items next due Airframe hours and cycles)
4. Aircraft previous maintenance visit record including the last inspection
performed.
5. Airworthiness Directive Compliance Summary
6. Rigging Document
7. Serviceable Tags for all rotable components installed (Airframe & Engines)
8. ADs requiring continuous surveillance
9. Service bulletin terminated accomplishment status
10. Service bulletin requiring continuous surveillance summary and maintenance
control action
11. Airframe and component history records
12. FAA Form 337 for Airframe, repair/overhaul certification of last major visit
13. FAA Form 337 for each Engine, repair/overhaul certification of last shop
visit
14. Engine Readiness Log for each Engine (components installed)
15. Summary of Service Bulletin's accomplished for each Engine
16. Summary of AD's accomplished for each Engine
17. SB and AD status requiring continuous surveillance with maintenance, control
action for each Engine
18. Engine time summary sheet including life limited items (for each Engine)
19. Engine log books for each Engine (current and file copies)
130
<PAGE>
Receipt of the foregoing documents, except as noted, is hereby acknowledged.
131
<PAGE>
ATTACHMENT 2
------------
TO RETURN ACCEPTANCE SUPPLEMENT
-------------------------------
Discrepancies
-------------
132
<PAGE>
EXHIBIT K MONTHLY REPORT
--------- --------------
(SEE FOLLOWING SHEET)
133
<PAGE>
MONTHLY AIRCRAFT UTILIZATION AND STATUS REPORT
To: INTERNATIONAL LEASE FINANCE CORPORATION
1999 Avenue of the Stars, 39th Floor
Los Angeles, California 90067 Fax: (310) 788-1990
From: FRONTIER AIRLINES Page 1 of 2
AIRCRAFT TYPE: _____________________ REGISTRATION: ___________
ENGINE TYPE: _____________________
SERIAL NUMBER: _________________ MONTH OF _________________ 19__
================================================================================
AIRCRAFT TOTAL TIME SINCE NEW HRS:
- --------------------------------------------------------------------------------
AIRCRAFT TOTAL CYCLES SINCE NEW CYCLES:
- --------------------------------------------------------------------------------
AIRFRAME HOURS FLOWN DURING MONTH HRS:
- --------------------------------------------------------------------------------
AIRFRAME CYCLES/LANDING DURING MONTH CYCLES:
- --------------------------------------------------------------------------------
TIME REMAINING TO D OR HEAVY MAINTENANCE CHECK
================================================================================
======================================================
HOURS FLOWN X US$ PER = OVERHAUL
DURING MONTH FLIGHT HOUR RESERVES
- --------------------------------------------------------------------------------
AIRFRAME HRS: X =
================================================================================
ORIGINAL ENGINE HRS:
SERIAL NUMBER:
- --------------------------------------------------------------------------------
ORIGINAL ENGINE HRS:
SERIAL NUMBER:
- --------------------------------------------------------------------------------
ORIGINAL ENGINE HRS:
SERIAL NUMBER:
- --------------------------------------------------------------------------------
ORIGINAL ENGINE HRS:
SERIAL NUMBER:
- --------------------------------------------------------------------------------
TOTAL ENGINES HRS: X =
================================================================================
AMOUNT OF OVERHAUL RESERVES (US$)
PAID THIS MONTH FOR AIRFRAME AND
ENGINES
================================================================================
<PAGE>
Page 2 of 2
================================================================================
ENGINE SERIAL NUMBER _____________ ENGINE SERIAL NUMBER _____________
ORIGINAL POSITION ___________________ ORIGINAL POSITION ____________________
- --------------------------------------------------------------------------------
ACTUAL LOCATION: ACTUAL LOCATION:
- --------------------------------------------------------------------------------
CURRENT THRUST RATING: CURRENT THRUST RATING:
- --------------------------------------------------------------------------------
HOURS: HOURS:
- --------------------------------------------------------------------------------
TOTAL TIME SINCE NEW TOTAL TIME SINCE NEW
- --------------------------------------------------------------------------------
TOTAL CYCLES SINCE NEW TOTAL CYCLES SINCE NEW
- --------------------------------------------------------------------------------
HOURS FLOWN DURING MONTH HOURS FLOWN DURING MONTH
- --------------------------------------------------------------------------------
CYCLES DURING MONTH CYCLES DURING MONTH
================================================================================
================================================================================
ENGINE SERIAL NUMBER _____________ ENGINE SERIAL NUMBER _____________
ORIGINAL POSITION ___________________ ORIGINAL POSITION ____________________
- --------------------------------------------------------------------------------
ACTUAL LOCATION: ACTUAL LOCATION:
- --------------------------------------------------------------------------------
CURRENT THRUST RATING: CURRENT THRUST RATING:
- --------------------------------------------------------------------------------
HOURS: HOURS:
- --------------------------------------------------------------------------------
TOTAL TIME SINCE NEW TOTAL TIME SINCE NEW
- --------------------------------------------------------------------------------
TOTAL CYCLES SINCE NEW TOTAL CYCLES SINCE NEW
- --------------------------------------------------------------------------------
HOURS FLOWN DURING MONTH HOURS FLOWN DURING MONTH
- --------------------------------------------------------------------------------
CYCLES DURING MONTH CYCLES DURING MONTH
================================================================================
NOTE: IF ILFC OWNED ENGINE IS REMOVED OR INSTALLED ON ANOTHER AIRCRAFT IT MUST
BE REPORTED MONTHLY ON THIS FORM.
<PAGE>
EXHIBIT L TECHNICAL EVALUATION REPORT
--------- ---------------------------
(SEE FOLLOWING SHEETS)
136
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATON REPORT
================================================================================
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
AIRCRAFT SUMMARY......................................................... 1
MAINTENANCE & INSPECTION................................................. 2
LANDING GEAR............................................................. 5
ENGINES.................................................................. 7
AUXILIARY POWER UNIT (APU)............................................... 12
PASSENGER CABIN CONFIGURATION (Seating).................................. 13
GALLEY PROVISIONS........................................................ 14
LAVATORIES, AUDIO/ENTERTAINMENT, INTERIOR................................ 15
HYDRAULIC, FUEL, WEIGHT & BALANCE........................................ 16
AVIONICS SYSTEMS......................................................... 17
AIRCRAFT MANUALS, RECORDS AND DOCUMENTS.................................. 21
INSPECTOR RECORD......................................................... 25
</TABLE>
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AIRCRAFT SUMMARY
----------------
AIRCRAFT MAKE _______________ MODEL _______________
FUS No. _______________ S/N _______________
MFG DATE _______________ PROD No. _______________ LN No._______________
DETAIL SPECIFICATION No. __________________________ REV. ________________
A/C TYPE CERT No. ____________________ ENG TYPE CERT No. ________________
CURRENT REGISTRATION ________________ COUNTRY __________________________
PREVIOUS REGISTRATION ________________ COUNTRY __________________________
ANNUAL UTILIZATION _____________________ HOUR/CYCLE RATIO ________________
TOTAL AIRCRAFT TIME: TAT (Hrs) _________________ AS OF
(Date) _______________
TOTAL AIRCRAFT CYCLES: TAC (Cyc) _________________
TIME SINCE LAST "C" CHECK (Hrs) _________________ (Cyc) ________________
TIME SINCE LAST "D" CHECK (Hrs) _________________ (Cyc) ________________
ENGINE MAKE __________________ MODEL ___________ THRUST RATING __________
ENGINE: 1 S/N_________ 2 S/N_________ 3 S/N_________ 4 S/N_________
TSN: (Hrs) ______________ ______________ ______________ ______________
CSN: (Cyc) ______________ ______________ ______________ ______________
TIME TO (Hrs) (Hrs) (Hrs) (Hrs)
1st LIMIT: __________(Cyc) _________(Cyc) _________(Cyc) _________(Cyc)
Page 1
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
MAINTENANCE PROGRAM GENERAL
---------------------------
AIRCRAFT MAINTENANCE PROGRAM OWNED BY: [ ] OPERATOR [ ] ______________________
PROGRAM APPROVED BY AUTHORITY OF: [ ] FAA APPROVED [ ] ______________________
MAINTENANCE PROGRAM/SCHEDULE (Document Title) _________________________________
REPAIR STATION PROVIDING SERVICE ______________________________________________
REPAIR STATION NUMBER ________________________ FAA APPROVED: [ ] YES [ ] NO
PRIMARY LINE MAINTENANCE PROVIDED BY: [ ] OPERATOR [ ] CONTRACT SERVICE
RELIABILITY CONTROLLED MAINTENANCE PROGRAM: [ ] YES [ ] NO
OPERATOR APPROVED FOR COMPONENT ESCALATION: [ ] YES [ ] NO
WHAT PERCENT WITHOUT AIRWORTHINESS AGENCY APPROVAL ____________________________
OPERATOR APPROVED FOR SCHEDULED CHECK ESCALATION: [ ] YES [ ] NO
WHAT PERCENT WITHOUT AIRWORTHINESS AGENCY APPROVAL ____________________________
METHOD OF RECORDING A/C HOURS & CYCLES: [ ] COMPUTER RUN [ ] LOG BOOK
FAA APPROVED "CORROSION PREVENTION & CONTROL PROGRAM": [ ] YES [ ] NO
CORROSION & STRUCTURAL MAINTENANCE PROGRAM: [ ] 100% [ ] SAMPLING
ALGAE CHEMICAL INHIBITOR USED IN FUEL SYSTEM: [ ] YES [ ] NO
TYPE OF INHIBITOR USED ________________________________ FREQ ______________
AIRCRAFT SUPPLEMENTAL STRUCTURAL INSPECTION "SSI" CANDIDATE: [ ] YES [ ] NO
MAINTENANCE CHECKS SCHEDULED AND RECORDED: [ ] CARD FILE [ ] COMPUTER
CONTROLLED COMPONENTS SCHEDULED AND RECORDED: [ ] CARD FILE [ ] COMPUTER
COMPONENT TAGS AVAILABLE FOR CONTROLLED COMPONENTS: [ ] YES [ ] NO
DOES OPERATOR HAVE AN APPROVED "MEL" DEFERRAL SYSTEM: [ ] YES [ ] NO
"MEL" DEFERRALS RECORDED (Document Name) ______________________________________
DOES OPERATOR HAVE A SYSTEM TO DEFER NON "MEL" ITEMS: [ ] YES [ ] NO
NON "MEL" DEFERRALS RECORDED (Document Name) __________________________________
Page 2
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
MAINTENANCE & INSPECTION PROGRAM DESCRIPTION
--------------------------------------------
<TABLE>
<CAPTION>
OPERATOR'S FREQUENCY NUMBER
CHECK NOMENCLATURE CALENDAR HRS CYC OF PHASES
- ----- ------------ -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
"A" ______________ __________ __________ __________ ___________
"B" ______________ __________ __________ __________ ___________
"C" ______________ __________ __________ __________ ___________
"D" ______________ __________ __________ __________ ___________
"CPCP" ______________ __________ __________ __________ ___________
"Structural" ______________ __________ __________ __________ ___________
</TABLE>
Describe any difference to the above program, list variations and special
inspections. Explain how phases are grouped and if a higher Check zero's the
lower Checks i.e., does the "C" Check zero the "A" & "B" Checks.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
PROVIDE COPIES OF THE FOLLOWING DOCUMENTS AS CHECKED
----------------------------------------------------
1. AIRWORTHINESS DIRECTIVE STATUS LIST ---------------- [ ]
2. SERVICE BULLETIN INCORPORATION LIST ---------------- [ ]
3. CONTROLLED COMPONENT STATUS LIST ------------------- [ ]
4. CURRENT INSPECTIONS STATUS REPORT ------------------ [ ]
5. LIST OF CURRENT MAJOR ALTERATIONS ------------------ [ ]
6. CURRENT STATUS OF LIFE LIMITED PARTS --------------- [ ]
7. A/C "LOPA" INTERIOR CONFIGURATION DRAWING----------- [ ]
8. MAINTENANCE INSPECTION PROGRAM SPECIFICATION-------- [ ]
9. LAST WEIGHT AND BALANCE REPORT --------------------- [ ]
10. ______________________________________ ------------ [ ]
Page 3
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
MAINTENANCE & INSPECTION PROGRAM STATUS
---------------------------------------
PHASE DATE A/C TAT A/C TAC
-------- -------------------- -------------- --------------
NEXT "A" ________ ______/______/______ ______________ ______________
LAST "A" ________ ______/______/______ ______________ ______________
TIME REMAINING (Days)_______________ (Hrs)_________ (Cyc)_________
NEXT "B" ________ ______/______/______ ______________ ______________
LAST "B" ________ ______/______/______ ______________ ______________
TIME REMAINING (Days)_______________ (Hrs)_________ (Cyc)_________
NEXT "C" ________ ______/______/______ ______________ ______________
LAST "C" ________ ______/______/______ ______________ ______________
TIME REMAINING (Days)_______________ (Hrs)_________ (Cyc)_________
NEXT "D" ________ ______/______/______ ______________ ______________
LAST "D" ________ ______/______/______ ______________ ______________
TIME REMAINING (Days)_______________ (Hrs)_________ (Cyc)_________
NEXT CPCP/STRUCTURAL
________ ______/______/______ ______________ ______________
LAST CPCP/STRUCTURAL
________ ______/______/______ ______________ ______________
TIME REMAINING (Days)_______________ (Hrs)_________ (Cyc)_________
ANTICIPATED DATE OF NEXT SCHEDULED "C" CHECK ______/______/______
DATE OF LAST ATC TRANSPONDER TEST: # 1 ______________ #2 _____________
DATE OF LAST PITOT STATIC TEST: CAPT ______________ F/O _____________
DATE OF LAST ALTIMETER INST. TEST: # 1 ______________ # 2 _____________
DATE OF LAST COMPASS SWING: _______________________________________________
DATE OF LAST FLIGHT RECORDER CHECK: _______________________________________
DATE OF LAST A/C WEIGHING: ________________________________________________
Page 4
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
LANDING GEAR
------------
MLG TIRES: (Size)___________ (MPH Rating) ________ (MFG) ________________
NLG TIRES: (Size)___________ (MPH Rating) ________ (MFG) ________________
LEFT MAIN : P/N_____________________ S/N____________________
- ---------
AGENCY PERFORMING SERVICE ____________________________ CERT # ____________
LAST OVERHAUL: (Date) ___/___/___ (Hrs)______________ (Cyc)______________
ALLOWABLE LIMIT TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
PRESENT LANDING GEAR TOTAL TIME (Hrs)______________ (Cyc)______________
TIME REMAINING TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
RIGHT MAIN : P/N_____________________ S/N____________________
- ----------
AGENCY PERFORMING SERVICE ____________________________ CERT # ____________
LAST OVERHAUL: (Date) ___/___/___ (Hrs)______________ (Cyc)______________
ALLOWABLE LIMIT TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
PRESENT LANDING GEAR TOTAL TIME (Hrs)______________ (Cyc)______________
TIME REMAINING TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
NOSE : P/N_____________________ S/N____________________
- ----
AGENCY PERFORMING SERVICE ____________________________ CERT # ____________
LAST OVERHAUL: (Date) ___/___/___ (Hrs)______________ (Cyc)______________
ALLOWABLE LIMIT TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
PRESENT LANDING GEAR TOTAL TIME (Hrs)______________ (Cyc)______________
TIME REMAINING TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
Page 5
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
LANDING GEAR (Continued)
------------ ---------
CENTER : P/N_____________________ S/N____________________
- ------
AGENCY PERFORMING SERVICE ____________________________ CERT # ____________
LAST OVERHAUL: (Date) ___/___/___ (Hrs)______________ (Cyc)______________
ALLOWABLE LIMIT TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
PRESENT LANDING GEAR TOTAL TIME (Hrs)______________ (Cyc)______________
TIME REMAINING TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
LEFT BODY : P/N_____________________ S/N____________________
- ---------
AGENCY PERFORMING SERVICE ____________________________ CERT # ____________
LAST OVERHAUL: (Date) ___/___/___ (Hrs)______________ (Cyc)______________
ALLOWABLE LIMIT TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
PRESENT LANDING GEAR TOTAL TIME (Hrs)______________ (Cyc)______________
TIME REMAINING TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
RIGHT BODY : P/N_____________________ S/N____________________
- ----------
AGENCY PERFORMING SERVICE ____________________________ CERT # ____________
LAST OVERHAUL: (Date) ___/___/___ (Hrs)______________ (Cyc)______________
ALLOWABLE LIMIT TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
PRESENT LANDING GEAR TOTAL TIME (Hrs)______________ (Cyc)______________
TIME REMAINING TO NEXT OVERHAUL (Hrs)______________ (Cyc)______________
Page 6
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
ENGINES
-------
ENGINE MAINTENANCE PROGRAM
--------------------------
ENGINE MAINTENANCE PROGRAM OWNED BY _______________________________________
PROGRAM APPROVED BY AUTHORITY OF _______________________________________
OPERATORS MAINTENANCE PROGRAM SPECIFICATION (Copy) ________________________
DOCUMENT NAME, NUMBER & REV. ______________________________________________
REPAIR STATION PROVIDING SHOP SERVICE _____________________________________
REPAIR STATION NUMBER ___________________ FAA APPROVED: [ ] YES [ ] NO
ENGINE MAINTENANCE PROGRAM PRIMARY MAINTENANCE PROCESS: [ ] HT [ ] OC [ ] CM
HSI (Hrs/Cyc) _________/__________ OVERHAUL (Hrs/Cyc) _________/__________
BORESCOPE INSPECTION SCHEDULE FREQ: (Hrs/Cyc) __________________________
HOT SECTION INSPECTION SCHEDULE FREQ: (Hrs/Cyc) __________________________
ENGINE CONDITION MONITORING TREND ANALYSIS PROGRAM: [ ] YES [ ] NO
SERVICE PROVIDED BY _______________________________________________________
OIL SPECTRAL ANALYSIS PART OF PROGRAM: [ ] YES [ ] NO (Freq)_________
SERVICE PROVIDED BY _______________________________________________________
ENGINE OIL TYPE _____________ CSD/IDG _____________ STARTER _____________
Engine(s) operated at INCREASED or DECREASED Thrust Rating Program
limitations & required Mods. to operate at designated thrust rating
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Page 7
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
ENGINE SPECIFICATIONS
---------------------
ENGINE NUMBER 1
---------------
ENGINE MAKE ________________ MODEL ________________ S/N _________________
DATE OF MFG: ___________ TOTAL TIME: (Hrs)_____________ (Cyc)_____________
LAST HOT SECTION (Date)_____________ (Hrs)_____________ (Cyc)_____________
LAST OVERHAUL VISIT (Date)___________ (Hrs)_____________ (Cyc)_____________
LAST SHOP VISIT (Date)_____________ (Hrs)_____________ (Cyc)_____________
WORK SCOPE ________________________________________________________________
AGENCY PERFORMING SERVICE _________________________________________________
AGENCY FAA APPROVED: [ ] Yes [ ] No CERT. # ______________________
1/st/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
2/nd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
3/rd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
4/th/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
Page 8
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
ENGINE SPECIFICATIONS
---------------------
ENGINE NUMBER 2
---------------
ENGINE MAKE ________________ MODEL ________________ S/N _________________
DATE OF MFG: ___________ TOTAL TIME: (Hrs)_____________ (Cyc)_____________
LAST HOT SECTION (Date)_____________ (Hrs)_____________ (Cyc)_____________
LAST OVERHAUL VISIT (Date)___________ (Hrs)_____________ (Cyc)_____________
LAST SHOP VISIT (Date)_____________ (Hrs)_____________ (Cyc)_____________
WORK SCOPE ________________________________________________________________
AGENCY PERFORMING SERVICE _________________________________________________
AGENCY FAA APPROVED: [ ] Yes [ ] No CERT. # ______________________
1/st/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
2/nd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
3/rd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
4/th/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
Page 9
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
ENGINE SPECIFICATIONS
---------------------
ENGINE NUMBER 3
---------------
ENGINE MAKE ________________ MODEL ________________ S/N _________________
DATE OF MFG: ___________ TOTAL TIME: (Hrs)_____________ (Cyc)_____________
LAST HOT SECTION (Date)_____________ (Hrs)_____________ (Cyc)_____________
LAST OVERHAUL VISIT (Date)___________ (Hrs)_____________ (Cyc)_____________
LAST SHOP VISIT (Date)_____________ (Hrs)_____________ (Cyc)_____________
WORK SCOPE ________________________________________________________________
AGENCY PERFORMING SERVICE _________________________________________________
AGENCY FAA APPROVED: [ ] Yes [ ] No CERT. # ______________________
1/st/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
2/nd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
3/rd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
4/th/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 10
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
ENGINE SPECIFICATIONS
---------------------
ENGINE NUMBER 4
---------------
ENGINE MAKE ________________ MODEL ________________ S/N _________________
DATE OF MFG: ___________ TOTAL TIME: (Hrs)_____________ (Cyc)_____________
LAST HOT SECTION (Date)_____________ (Hrs)_____________ (Cyc)_____________
LAST OVERHAUL VISIT (Date)___________ (Hrs)_____________ (Cyc)_____________
LAST SHOP VISIT (Date)_____________ (Hrs)_____________ (Cyc)_____________
WORK SCOPE ________________________________________________________________
AGENCY PERFORMING SERVICE _________________________________________________
AGENCY FAA APPROVED: [ ] Yes [ ] No CERT. # ______________________
1/st/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
2/nd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
3/rd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
4/th/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 11
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AUXILIARY POWER UNIT
--------------------
APU MAKE ________________ MODEL _________________ S/N _________________
DATE OF MFG ____________ TOTAL TIME (Hrs)_____________ (Cyc)N1 /N2
-------------
APU MAINTENANCE PROGRAM IS: [ ] O/C [ ] C/M [ ] H/T
APU TIMES ARE RECORDED BY: [ ] APU CLOCK or [ ] A/C TIME RATIO____:____
TIME BETWEEN OVERHAUL (Hrs)_____________ (Cyc)_____________
TIME BETWEEN HOT SECTION INSPECTIONS (Hrs)_____________ (Cyc)_____________
LAST HOT SECTION (Date)_____________ (Hrs)_____________ (Cyc)_____________
LAST OVERHAUL (Date)_____________ (Hrs)_____________ (Cyc)_____________
LAST SHOP VISIT (Date)_____________ (Hrs)_____________ (Cyc)_____________
WORK SCOPE ________________________________________________________________
AGENCY PERFORMING SERVICE ______________________________ CERT # ___________
AGENCY FAA APPROVED: [ ] Yes [ ] No APU OIL TYPE _______________
1/st/ LIMITED DISK/MODULE: _____________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
2/nd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
3/rd/ LIMITED DISK/MODULE: ______________________________________________
- -------------
ALLOWABLE LIFE/INSP LIMIT: (Hrs)________________ (Cyc)________________
TOTAL COMPONENT TIME: (Hrs)________________ (Cyc)________________
TIME REMAINING: (Hrs)________________ (Cyc)________________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 12
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
PASSENGER CABIN CONFIGURATION
-----------------------------
SEATING CONFIGURATION
---------------------
MAX CERTIFIED OCCUPANCY ________ PRESENT CONFIGURATION OCCUPANCY ________
NO. OF HANDICAP SEATS INSTALLED ________
FIRST CLASS
- -----------
PAX _____ SEAT MFG _____________ MODEL ____________ P/N ________________
SEATS FIREBLOCKED [ ] YES [ ] NO COLOR __________________________________
BUSINESS CLASS
- --------------
PAX _____ SEAT MFG _____________ MODEL ____________ P/N ________________
SEATS FIREBLOCKED [ ] YES [ ] NO COLOR __________________________________
COACH CLASS
- -----------
PAX _____ SEAT MFG _____________ MODEL ____________ P/N ________________
SEATS FIREBLOCKED [ ] YES [ ] NO COLOR __________________________________
UPPER DECK CLASS: [ ] FIRST [ ] BUSINESS [ ] ECONOMY
- ----------
PAX _____ SEAT MFG _____________ MODEL ____________ P/N ________________
SEATS FIREBLOCKED [ ] YES [ ] NO COLOR __________________________________
SEAT BAGGAGE RESTRAINTS INSTALLED: [ ] YES [ ] NO
PROVISIONS FOR LIFE VESTS UNDER SEAT: [ ] YES [ ] NO
ENTERTAINMENT CONTROLS INSTALLED: [ ] YES [ ] NO
SEATS/SEAT BELTS, TSO CONFORMITY: [ ] YES [ ] NO
SEAT BELTS PART NUMBER _________________________ COLOR _________________
CONFIGURATION DRAWING No. ______________________ SOURCE ________________
ENGINEERING ORDER / INSTALLATION DOCUMENT ________________________________
INSTALLATION FAA APPROVED: [ ] YES [ ] NO METHOD OF APPROVAL: ___________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 13
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
GALLEY PROVISIONS
-----------------
GALLEY MODEL PART EQUIPPED
LOCATION MANUFACTURER NUMBER NUMBER WATER POWER
-------- ------------ -------------- -------------- -------------------
1. ________ ____________ ______________ ______________ [ ] [ ]
2. ________ ____________ ______________ ______________ [ ] [ ]
3. ________ ____________ ______________ ______________ [ ] [ ]
4. ________ ____________ ______________ ______________ [ ] [ ]
5. ________ ____________ ______________ ______________ [ ] [ ]
6. ________ ____________ ______________ ______________ [ ] [ ]
7. ________ ____________ ______________ ______________ [ ] [ ]
8. ________ ____________ ______________ ______________ [ ] [ ]
9. ________ ____________ ______________ ______________ [ ] [ ]
10. ________ ____________ ______________ ______________ [ ] [ ]
NOTE: Galley Locations per Spec or LOPA drawing i.e., G1, G2 etc. Galley
Location numbers above correspond to the numbers below.
BUN REFER COFFEE WATER HOT HOT BEV
OVENS WARMERS UNITS CHILLERS MAKERS BOILERS JUGS CUPS JUGS
----- ------- ----- -------- ------ ------- ---- ---- ----
1. _____ _______ _____ ________ ______ _______ ____ ____ ____
2. _____ _______ _____ ________ ______ _______ ____ ____ ____
3. _____ _______ _____ ________ ______ _______ ____ ____ ____
4. _____ _______ _____ ________ ______ _______ ____ ____ ____
5. _____ _______ _____ ________ ______ _______ ____ ____ ____
6. _____ _______ _____ ________ ______ _______ ____ ____ ____
7. _____ _______ _____ ________ ______ _______ ____ ____ ____
8. _____ _______ _____ ________ ______ _______ ____ ____ ____
9. _____ _______ _____ ________ ______ _______ ____ ____ ____
10. _____ _______ _____ ________ ______ _______ ____ ____ ____
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 14
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
LAVATORIES
----------
NUMBER OF LAVATORIES ___________ TYPE: [ ] FLUSH or [ ] VACUUM
LOCATIONS: ________________________ HANDICAP PROVISIONS: __________________
COLOR SCHEME: ______________________________________________________________
IN-FLIGHT AUDIO & ENTERTAINMENT SYSTEM
--------------------------------------
BOARDING MUSIC: [ ] YES [ ] NO
AUTO EVAC & WARNING: [ ] YES [ ] NO
PRE-RECORDED ANNOUNCEMENT: [ ] YES [ ] NO
PASSENGER ENTERTAINMENT (Audio): [ ] YES [ ] NO
PASSENGER ENTERTAINMENT (Video): [ ] YES [ ] NO
[ ] PROJECTOR [ ] PSU MONITOR [ ] ISLE MONITOR [ ] IN-SEAT
PASSENGER EN-ROUTE INFORMATION
DISPLAY: [ ] YES [ ] NO
INTERIOR COLORS, SIGNS & PLACARDS
---------------------------------
INTERIOR COLOR SCHEME CARPETS _________________ CURTAINS _______________
GALLEY FLOOR MATS _______________ GALLEY DECORATIVE FACING _______________
CEILING PANELS ___________________ OVERHEAD BAGGAGE BINS _________________
BULKHEADS, WINDSCREENS & CLASS DIVIDERS ___________________________________
LOWER SIDEWALL PANELS __________________ SIDE WALL PANELS ________________
LAVATORY WALL PANELS ________________ LAVATORY FLOOR MATS ________________
PLACARDS & LIGHTED SIGNS ENGLISH [ ] YES [ ] NO BI-LINGUAL [ ] YES [ ] NO
FIRST LANGUAGE _____________________ SECOND LANGUAGE ____________________
FLOOR TRACK LIGHTING INSTALLED [ ] YES [ ] NO MFG ____________________
FLOOR TRACK LIGHTING INSTALLED [ ] AT PRODUCTION [ ] POST DELIVERY
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 15
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
HYDRAULIC SYSTEM
----------------
TYPE OF HYDRAULIC FLUID USED _____________________ (MFG) _________________
FUEL SYSTEM
-----------
FUEL CAPACITY (US GAL) ____________________ (LBS/KILOS) _________________
NUMBER OF TANKS ____________ AUXILIARY TANKS INSTALLED: [ ] YES [ ] NO
AUXILIARY TANK CAPACITY (U.S. GAL) _____________ (LBS/KILOS) _____________
FUEL DUMP SYSTEM INSTALLED: [ ] YES [ ] NO
FUEL INSTRUMENTATION / CALIBRATION: [ ] U.S. POUNDS [ ] KILOGRAMS
WEIGHT & BALANCE
----------------
HAS AIRCRAFT BEEN MODIFIED FOR INCREASED GROSS WEIGHT: [ ] YES [ ] NO
FROM ____________________ MTGW TO ____________________ MTGW
GROSS WEIGHT MODIFICATION AUTHORIZED BY WHAT DOCUMENT: ____________________
PERMANENT BALLAST INSTALLED TO CORRECT C.G. IMBALANCE: [ ] YES [ ] NO
IF YES, LOCATION OF BALLAST ________________ WEIGHT IN U.S. LBS. _________
WEIGHT & BALANCE CONTROL COMPUTER SYSTEM INSTALLED: [ ] YES [ ] NO
WEIGHT & BALANCE MANUAL DOCUMENT NO. ______________________ REV __________
For the below weights specify the source: [ ] AFM [ ] DESIGN SPECIFICATION
- -----------------------------------------
POUNDS KILOS
---------- ---------
MAXIMUM TAKEOFF GROSS WEIGHT (MTOGW) _____________/_____________
MAXIMUM TAXI WEIGHT (MTW) _____________/_____________
MAXIMUM LANDING WEIGHT (MLW) _____________/_____________
MANUFACTURERS EMPTY WEIGHT (MEW) _____________/_____________
MAXIMUM ZERO FUEL WEIGHT (MZFW) _____________/_____________
OPERATIONAL EMPTY WEIGHT (OEW) - _____________/_____________
MAXIMUM PAYLOAD = _____________/_____________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 16
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AVIONICS SYSTEMS
----------------
22 AUTO FLIGHT
-----------
MODEL or
QTY COMPONENT MANUFACTURER PART NUMBER
- --- ------------------------ ------------------- --------------------
____ FLIGHT CONTROL COMPUTER: ___________________ _____________________
____ AUTOTHROTTLE COMPUTER: ___________________ _____________________
____ STAB AUG COMPUTER: ___________________ _____________________
____ STALL MANAGEMENT COMPUTER: ___________________ _____________________
____ AUTOFLIGHT ACCESSORY UNIT: ___________________ _____________________
FLIGHT INSTRUMENT
____ ACCESSORY UNIT: ___________________ _____________________
____ AUTO PILOT SYSTEM: ___________________ _____________________
____ FLIGHT DIRECTOR: ___________________ _____________________
____ PITCH COMPUTER: ___________________ _____________________
____ ROLL COMPUTER: ___________________ _____________________
23 COMMUNICATIONS
--------------
____ PA AMPLIFIER: ___________________ _____________________
____ HF TRANSCEIVER: ___________________ _____________________
____ VHF TRANSCEIVER: ___________________ _____________________
____ COCKPIT VOICE RECORDER: ___________________ _____________________
TAPE REPRODUCER
____ (Pre-Recorded PAX Address):___________________ _____________________
TAPE REPRODUCER
____ (Audio) ENTERTAINMENT: ___________________ _____________________
TAPE REPRODUCER
____ (Video) ENTERTAINMENT: ___________________ _____________________
____ SELCAL DECODER: ___________________ _____________________
____ ACARS MANAGEMENT UNIT: ___________________ _____________________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 17
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AVIONICS SYSTEMS (Continued)
---------------- ---------
31 INDICATING AND RECORDING
------------------------
MODEL or
QTY COMPONENT MANUFACTURER PART NUMBER
- --- ------------------------- -------------------- -------------------
FLIGHT DATA
____ RECORDER (DFDR): ____________________ ___________________
DIGITAL FLIGHT DATA
____ ACQUISITION UNIT (DFDAU): ____________________ ___________________
____ ACCELEROMETER: ____________________ ___________________
WEIGHT AND BALANCE
____ COMPUTER: ____________________ ___________________
ELECTRONIC FLIGHT INSTRUMENT SYSTEM
EFIS DISPLAY PANEL ADI
____ (Attitude) / FLIGHT DISPLAY: ____________________ ___________________
EFIS DISPLAY PANEL HSI
____ (Directional) / NAV DISPLAY: ____________________ ___________________
____ EFIS SYMBOL GENERATORS: ____________________ ___________________
ENGINE INDICATING AND CREW ALERTING SYSTEM (EICAS)
EICAS DISPLAY PANEL/UNIT
____ (Primary): ____________________ ___________________
EICAS DISPLAY PANEL/UNIT
____ (Secondary): ____________________ ___________________
____ EFIS/EICAS INTERFACE UNIT: ____________________ ___________________
AIRPLANE CONDITION MONITORING SYSTEM (ACMS)
____ DATA MANAGEMENT UNIT (DMU): ____________________ ___________________
____ AIRBORNE DATA LOADER: ____________________ ___________________
____ AIR DATA COMPUTER: ____________________ ___________________
GROUND PROXIMITY WARNING
____ SYSTEM (GPWS) COMPUTER: ____________________ ___________________
WINDSHEAR SYSTEM: [ ] YES [ ] NO
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 18
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
- --------------------------------------------------------------------------------
AVIONICS SYSTEMS (Continued)
---------------- ---------
34 NAVIGATION
----------
MODEL or
QTY COMPONENT MANUFACTURER PART NUMBER
- --- ------------------------- -------------------- -------------------
INERTIAL REFERENCE SYSTEM (IRS)
INERTIAL REFERENCE
____ UNIT (IRU): ____________________ ___________________
OMEGA NAVIGATION SYSTEM (ONS)
RECEIVER PROCESSOR
____ UNIT (RPU): ____________________ ___________________
____ CONTROL DISPLAY UNIT (CDU): ____________________ ___________________
VHF NAVIGATION
DISTANCE MEASURING EQUIPMENT
____ (DME) INTERROGATORS: ____________________ ___________________
____ VHF VOR/ILS RECEIVER: ____________________ ___________________
____ VHF VOR/MKR RECEIVER: ____________________ ___________________
____ VHF ILS/only RECEIVER: ____________________ ___________________
RADIO DIGITAL DISTANCE
____ MAGNETIC INDICATOR (RDDMI): ____________________ ___________________
____ RADIO MAGNETIC INDICATOR: ____________________ ___________________
____ RADIO ALTIMETER TRANSCEIVER: ____________________ ___________________
____ WEATHER RADAR TRANSCEIVER: ____________________ ___________________
TRAFFIC ALERT AND COLLISION AVOIDANCE
____ SYSTEM (TCAS) COMPUTER: ____________________ ___________________
AIR TRAFFIC CONTROL (ATC)
____ SYSTEM TRANSPONDER: ____________________ ___________________
____ MICRO WAVE LANDING RECEIVER: ____________________ ___________________
____ MARKER BEACON RECEIVER: ____________________ ___________________
AUTOMATIC DIRECTION FINDER
____ (ADF) RECEIVER: ____________________ ___________________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 19
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AVIONICS SYSTEMS (Continued)
---------------- ---------
34 NAVIGATION
----------
MODEL or
QTY COMPONENT MANUFACTURER PART NUMBER
- --- ------------------------- -------------------- -------------------
FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS)
____ FLIGHT MANAGEMENT COMPUTER: ____________________ ___________________
____ CONTROL DISPLAY UNIT (CDU): ____________________ ___________________
45 CENTRAL MAINTENANCE SYSTEM (CMS)
--------------------------------
CENTRAL MAINTENANCE
____ COMPUTER: ____________________ ___________________
MAINTENANCE CONTROL
____ AND DISPLAY PANEL: ____________________ ___________________
____ PRINTER: ____________________ ___________________
77 ENGINE INDICATING
-----------------
PRIMARY ENGINE DISPLAY
____ PANEL: ____________________ ___________________
SECONDARY ENGINE DISPLAY
____ PANEL: ____________________ ___________________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 20
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AIRCRAFT MANUALS
----------------
QTY QTY
MICRO HARD
MANUAL or DOCUMENT DOCUMENT No. REV FILM COPY
---------------------------- ------------------ ----- ------ ------
1 FAA APPROVED FLIGHT MANUAL: __________________ _____ ______ ______
2 AIRPLANE FLIGHT OPERATION MANUAL: __________________ _____ ______ ______
3 AIRCRAFT RECOVER MANUAL: __________________ _____ ______ ______
4 QUICK REFERENCE HANDBOOK (QRH): __________________ _____ ______ ______
5 WEIGHT AND BALANCE MANUAL: __________________ _____ ______ ______
6 AIRCRAFT FUELING MANUAL: __________________ _____ ______ ______
7 AIRCRAFT MAINTENANCE MANUAL (MM): __________________ _____ ______ ______
8 AIRCRAFT MAINTENANCE MANUAL
SUPPLEMENT: __________________ _____ ______ ______
9 RAMP MAINTENANCE MANUAL (RMM): __________________ _____ ______ ______
10 CARGO LOADING MANUAL: __________________ _____ ______ ______
11 FAULT REPORTING MANUAL (FRM): __________________ _____ ______ ______
12 FAULT ISOLATION MANUAL (FIM): __________________ _____ ______ ______
13 ILLUSTRATED PARTS CATALOG (IPC): __________________ _____ ______ ______
14 LIFE LIMITED PARTS MANUAL: __________________ _____ ______ ______
15 STRUCTURAL REPAIR MANUAL (SRM): __________________ _____ ______ ______
16 APERTURE CARDS: __________________ _____ ______ ______
17 WIRING DIAGRAM MANUAL (WD): __________________ _____ ______ ______
18 WIRING PRACTICES MANUAL: __________________ _____ ______ ______
19 SYSTEM SCHEMATICS MANUAL: __________________ _____ ______ ______
20 B.I.T.E. MANUAL: __________________ _____ ______ ______
21 NON-DESTRUCTIVE TEST MANUAL: __________________ _____ ______ ______
22 CORROSION PREVENTION MANUAL: __________________ _____ ______ ______
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 21
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AIRCRAFT MANUALS (Continued)
---------------- ---------
QTY QTY
MICRO HARD
MANUAL or DOCUMENT DOCUMENT No. REV FILM COPY
---------------------------- ------------------ ----- ------ ------
23 AIRCRAFT OVERHAUL MANUAL (OHM): __________________ _____ ______ ______
24 COMPONENT MAINTENANCE MANUAL: __________________ _____ ______ ______
25 APU LOG BOOK: __________________ _____ ______ ______
26 ENGINE MAINTENANCE MANUAL: __________________ _____ ______ ______
27 ENGINE LOG BOOK: __________________ _____ ______ ______
28 ENGINE ILLUSTRATED PARTS CATALOG: __________________ _____ ______ ______
29 ENGINE DATA SUBMITTAL BOOK: __________________ _____ ______ ______
30 ENGINE OVERHAUL MANUAL: __________________ _____ ______ ______
31 POWER PLANT BUILD-UP MANUAL: __________________ _____ ______ ______
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 22
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AIRCRAFT RECORDS AND DOCUMENTS
------------------------------
AVAILABLE
---------
1 CERTIFICATE OF AIRWORTHINESS [ ]
2 EXPORT CERTIFICATE OF AIRWORTHINESS [ ]
3 COPY OF ORIGINAL EXPORT CERTIFICATE OF AIRWORTHINESS [ ]
4 OPERATOR'S SCHEDULED MAINTENANCE AND INSPECTION
PROGRAM SPECIFICATION (to include component limits) [ ]
5 OPERATOR ACCIDENT/INCIDENT STATEMENT [ ]
6 ORIGINAL AIRCRAFT READINESS LOG [ ]
7 OPERATOR EMERGENCY EQUIPMENT LAYOUT [ ]
8 AIRCRAFT TECHNICAL LOG CURRENT OPERATOR [ ]
9 AIRCRAFT TECHNICAL LOG PREVIOUS OPERATOR [ ]
10 CURRENT FUEL SAMPLE MICROBIAL GROWTH LABORATORY RESULTS [ ]
11 AIRCRAFT FLIGHT LOG OR FLIGHT TIME REPORT [ ]
12 ENGINE CONDITION MONITORING REPORT [ ]
13 ENGINE LOG CURRENT OPERATOR [ ]
14 CURRENT ENGINE DISC SHEET [ ]
15 ENGINE LOG PREVIOUS OPERATOR (including Delivery Records) [ ]
16 APU/ENGINE LOG & HISTORICAL RECORDS [ ]
17 APU/ENGINE SHOP VISIT REPORTS/RECORDS [ ]
18 TIME CONTROLLED / LIFE LIMITED COMPONENT STATUS FOR
AIRFRAME, ENGINES, LANDING GEAR AND APU
(including component tags) [ ]
19 FAA AIRWORTHINESS DIRECTIVE STATUS LIST [ ]
20 FAA AIRWORTHINESS DIRECTIVE METHOD OF COMPLIANCE DOCUMENTS [ ]
21 FAA REPETITIVE AIRWORTHINESS DIRECTIVE STATUS LIST [ ]
Page 23
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
AIRCRAFT RECORDS AND DOCUMENTS
------------------------------
AVAILABLE
---------
22 INTERIOR MATERIAL BURN CERTIFICATES [ ]
23 AIRCRAFT WEIGHT AND BALANCE RECORDS & EQUIPMENT LIST (Current) [ ]
24 EXPLANATION OF ANY OPERATOR SAMPLING PROGRAMS [ ]
25 MAJOR REPAIR / MAJOR ALTERATION RECORDS (to include
STC's, FAA 337's, Operator EO's, 8110-3'S [ ]
26 LIST OF NON-TSO'D ITEMS INSTALLED ON AIRCRAFT [ ]
27 SERVICE BULLETIN & ALL OPERATOR LETTER INCORPORATION LIST [ ]
28 OPERATOR DENT AND DAMAGE REPORT/MAP [ ]
29 AIRCRAFT INSPECTION STATUS & "CHECK RECORDS" [ ]
30 OPERATOR COMPONENT PART NUMBER TO MANUFACTURER PART NUMBER
CROSS REFERENCE [ ]
31 GALLEY CERTIFICATE OF SANITARY CONSTRUCTION [ ]
32 FLIGHT CONTROL BALANCE RECORDS [ ]
33 FLIGHT DATA RECORDER READOUT OF PARAMETERS [ ]
34 DEFERRED ITEMS LIST [ ]
35 AIRFRAME AND ENGINE OWNERSHIP PLACARDS [ ]
CONFIDENTIAL INORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 24
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION
AIRCRAFT/OPERATOR
TECHNICAL EVALUATION REPORT
================================================================================
INSPECTOR RECORD
----------------
INSPECTED BY _____________________________________ DATE __________________
OPERATOR ______________________ REGISTERED OWNER _________________________
ADDRESS OF OPERATOR _______________________________________________________
_________________________________________________________________________
_________________________________________________________________________
CONTACT (Name/Title) ______________________________________________________
PHONE _____________________________ FAX _______________________________
CONFIDENTIAL INFORMATION REVISION 3
NOT FOR DISTRIBUTION 18 January 1995 Page 25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1995
<PERIOD-START> APR-01-1995 APR-01-1994
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 6,359,000 0
<SECURITIES> 0 0
<RECEIVABLES> 5,904,299 0
<ALLOWANCES> 32,141 0
<INVENTORY> 569,176 0
<CURRENT-ASSETS> 25,797,029 0
<PP&E> 2,747,599 0
<DEPRECIATION> 764,539 0
<TOTAL-ASSETS> 30,990,191 0
<CURRENT-LIABILITIES> 25,844,376 0
<BONDS> 0 0
0 0
0 0
<COMMON> 5,421 0
<OTHER-SE> 4,695,599 0
<TOTAL-LIABILITY-AND-EQUITY> 30,990,191 0
<SALES> 70,392,575 24,595,538
<TOTAL-REVENUES> 70,392,575 24,595,538
<CGS> 0 0
<TOTAL-COSTS> 76,325,239 32,717,823
<OTHER-EXPENSES> 46,103 100,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 22,671 21,871
<INCOME-PRETAX> (5,581,682) (8,122,285)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,581,682) (7,998,593)
<EPS-PRIMARY> 0<F1> 0<F1>
<EPS-DILUTED> 0<F2> 0<F2>
<FN>
<F1>PRIMARY EARNINGS PER SHARE IS NOT PRESENTED AS THE DIFFERENCE BETWEEN EARNINGS
PER SHARE AND PRIMARY IS INSIGNIFICANT.
<F2>FULLY DILUTED EARNINGS PER SHARE IS NOT PRESENTED AS IT IS ANTI-DILUTIVE.
</FN>
</TABLE>
