<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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)
Issuers telephone number, including area code: (303) 371-7400
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
--- ---
The number of shares of the Companys Common Stock outstanding as of
February 13, 1997 is 8,844,375.
Transitional Small Business Disclosure Format Yes: ; No: X
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRONTIER AIRLINES, INC.
CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 8,604,456
Short-term investments 3,312,707
Restricted investments 2,000,000
Trade receivables 5,291,506
Maintenance deposits 9,518,521
Prepaid expenses and other assets 3,457,571
Inventories 890,857
Deferred lease expenses 279,570
Note receivable - current portion 27,018
-------------
Total current assets 33,382,206
Security, maintenance and other deposits 5,973,023
Property and equipment, net 4,055,961
Note receivable - long-term portion 38,634
Deferred lease expenses 802,766
Restricted investments 718,007
-------------
$ 44,970,597
=============
(continued)
2
<PAGE>
FRONTIER AIRLINES, INC.
CONDENSED BALANCE SHEET, CONTINUED
DECEMBER 31, 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,259,129
Air traffic liability 9,455,496
Other accrued expenses (note 3) 3,151,075
Accrued maintenance expense 11,094,145
Note payable 29,575
Current portion of obligations under capital leases 34,701
------------
Total current liabilities 31,024,121
Accrued maintenance expense 969,242
Obligations under capital leases, excluding current portion 65,739
------------
Total liabilities 32,059,102
------------
Stockholders' equity
Preferred stock, no par value, authorized 1,000,000 shares;
none issued and outstanding -
Common stock, no par value, stated value of $.001 per share,
authorized 20,000,000 shares; 8,813,125 shares issued and
outstanding 8,766
Additional paid-in capital 35,502,530
Accumulated deficit (22,599,801)
------------
Total stockholders' equity 12,911,495
------------
$ 44,970,597
============
See accompanying notes to financial statements
3
<PAGE>
FRONTIER AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
-----------------------------
Revenues:
Passenger $ 81,590,883 $ 42,977,482
Cargo 1,317,002 821,529
Other 527,347 544,069
------------ ------------
Total revenues 83,435,232 44,343,080
------------ ------------
Operating expenses:
Flight operations 38,094,385 18,502,320
Aircraft and traffic servicing 18,819,068 12,126,679
Maintenance 17,105,586 8,039,622
Promotion and sales 15,003,575 9,611,396
General and administrative 3,253,505 2,450,063
Depreciation and amortization 885,778 379,094
------------ ------------
Total operating expenses 93,161,897 51,109,174
------------ ------------
Operating income (loss) (9,726,665) (6,766,094)
------------ ------------
Nonoperating income:
Interest income 861,474 311,151
Other, net (30,291) 57,595
------------ ------------
Total nonoperating income, net 831,183 368,746
------------ ------------
Net loss $ (8,895,482) $ (6,397,348)
============ ============
Loss per common share $ (1.12) $ (1.51)
============ ============
Weighted average shares outstanding 7,932,592 4,247,695
============ ============
See accompanying notes to financial statements
4
<PAGE>
FRONTIER AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,895,482) $ (6,397,348)
Adjustments to reconcile net loss
to net cash used by operating activities:
Employee stock option plan compensation expense 375,000 721,000
Issuance of compensatory comnmon stock options - 60,500
Depreciation and amortization 1,066,992 379,094
Loss on sale of equipment 4,591 20,000
Changes in operating assets and liabilities:
Restricted investments 98,584 (842,462)
Trade receivables 580,652 (2,199,191)
Security, maintenance and other deposits (3,925,029) (3,681,437)
Prepaid expenses and other assets (511,784) (1,791,498)
Inventories (321,681) 66,747
Note receivable 4,348 -
Accounts payable 2,856,667 1,594,644
Air traffic liability (1,745,064) 3,877,266
Other accrued expenses 1,156,069 (558,551)
Accrued maintenance expense 3,529,352 3,999,587
------------- -------------
Net cash used by operating activities (5,726,785) (4,751,649)
------------- -------------
Cash flows used by investing activities:
Increase in short-term investments (2,144,507) -
Increase in restricted investments (600,000) -
Aircraft lease deposits (2,292,250) (1,536,250)
Acquisition of property and equipment (2,963,271) (840,047)
Proceeds from sale of property and equipment - 19,745
------------- -------------
Net cash used in investing activities (8,000,028) (2,356,552)
------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 15,999,107 7,282,183
Short-term borrowings 95,911 101,496
Principal payments on short-term borrowings (76,776) (60,160)
Principal payments on obligations under capital leases (46,227) (25,403)
------------- -------------
Net cash provided by financing activities 15,972,015 7,298,116
------------- -------------
Net increase in cash and cash equivalents 2,245,202 189,915
Cash and cash equivalents, beginning of period 6,359,254 3,834,741
------------- -------------
Cash and cash equivalents, end of period $ 8,604,456 $ 4,024,656
============= =============
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
FRONTIER AIRLINES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB and Regulation S-
B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the nine
months ended December 31, 1996 are not necessarily indicative of the
results that will be realized for the full year. For further information,
refer to the audited financial statements and notes thereto for the year
ended March 31, 1996 contained in the Form 10-KSB for the fiscal year ended
March 31, 1996.
(2) REDEMPTION OF 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 entitled the 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 and on May 14, 1996 the Company notified the
warrant holders of the Companys intent to exercise its redemption rights
with respect to the warrants not exercised on or before June 28, 1996. As a
result, warrant holders exercised 2,666,133 warrants, the Company issued a
like number of shares of common stock and received net proceeds of
approximately $13,276,000.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company was incorporated in February 1994 and began flight operations
on July 5, 1994 with two leased Boeing 737-200 jet 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 six
lesser traveled regional markets 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 more Boeing 737-200 jets to the Company's fleet. Effective
September 11, 1996, the Company eliminated its Bismarck and Fargo, North Dakota
destinations.
In November 1996, the Company took delivery of an additional Boeing
737-300 which was available for passenger service in December 1996. When this
aircraft became available for service, the Company rotated each of its remaining
aircraft through scheduled maintenance checks beginning in December 1996. All
ten aircraft are expected to be available for scheduled service following
completion of the maintenance cycles in early March 1997. Since September 11,
1996, the Company's ten leased jet aircraft have been serving 13 cities from its
base of operations at Denver International Airport ("DIA").
The Company has agreed to lease four additional new Boeing 737-300s with
one scheduled for delivery in April 1997, two in August 1997, and the fourth in
January 1998. The Company plans to add approximately two new cities to its route
system and approximately four additional frequencies to cities it presently
serves. Pending future aircraft availability, the Company plans to lease
additional jets in the 737 series for possible deliveries in 1997, which would
permit the Company to further expand its lines of service. The demand for used
Boeing 737 aircraft has increased significantly in the past year and aircraft
supplies are limited.
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.
The Company further modified and expanded its operations beginning in
September 1995 to emphasize higher volume markets, operated seven aircraft for
the first two months of the quarter ended June 30, 1996, and added two
additional aircraft in June 1996. The Company operated an average of 5.2
aircraft during the nine months ended December 31, 1995. Therefore, the
Company's results of operations for the nine months ended December 31, 1996 and
1995 are not necessarily comparable or indicative of future operating results.
Effective in September 1996, the Company began performing scheduled
maintenance on its aircraft using its
7
<PAGE>
own mechanics, with the exception of major maintenance cycles which continue to
be performed by a major contractor.
In February 1997, the Company filed a complaint with the U.S. Department
of Justice ("DOJ") alleging that United Airlines has engaged in predatory,
anticompetitive and monopolistic practices at DIA. The complaint asks the agency
to investigate eight separate counts of potential antitrust violations. The
eight counts range from "capacity dumping" in markets served by competitors to
alleged abuses relating to United's pricing practices, "exclusive dealing" with
corporate customers and commuter carriers, and other tactics used by United to
allegedly drive competitors from its markets. The Company is unable to predict
what action, if any, the DOJ will take in response to this complaint. However,
management believes that these alleged practices by United have had, and to the
extent they continue will have, a material adverse effect on the Company's
revenues and results of operation.
This report contains forward-looking statements that describe the
Company's business and prospects and the expectations of the Company and
management. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those set forth. These
risks and uncertainties include, but are not limited to: the timing of, and
expense associated with, expansion and modification of the Company's operations
in accordance with its business strategy or in response to competitive pressures
or other factors such as the Company's commencement of passenger service and
ground handling operations at several airports and assumption of maintenance
operations at DIA with its own employees; general economic factors and behavior
of the fare-paying public and the federal government, such as the crash in May
1996 of another low-fare carrier's aircraft that resulted in a federal
investigation of the carrier, suspension of the carrier's operations and
increased federal scrutiny of low-fare carriers generally that may increase the
Company's operating costs or otherwise adversely affect the Company; actions of
competing airlines, including a recent announcement by a low fare air carrier
operating at Colorado Springs, Colorado, that it is considering entering the
Denver market and United Airlines' commencement of its United "Shuttle"
operation in Denver; pricing actions of United and other competitors; the
current limited supply of Boeing 737 aircraft and the higher lease costs
associated with such aircraft, which inhibits the Company's ability to achieve
operating economies and implement its business strategy; the likely
reinstatement of the 10% excise tax on air transportation or another type of
consumer paid tax, charge or other user fees on air transportation and
increasing aviation fuel prices. Because the Company's business, like that of
the airline industry generally, is characterized by high fixed costs relative to
revenues and low profit margins, small fluctuations in the Company's yield per
RPM or expense per ASM can significantly affect operating results.
RESULTS OF OPERATIONS
The Company incurred a net loss of $8,895,000 or $1.12 per share for the
nine months ended December 31, 1996 as compared to a net loss of $6,397,000 or
$1.51 per share, for the nine months ended December 31, 1995. The Company
incurred operating losses of $8,318,000 and $2,547,000 for the quarters ended
December 31, 1996 and September 30, 1996, respectively, following two profitable
quarters with operating incomes of $833,000 and $1,138,000 for the quarters
ended March 31, 1996 and June 30, 1996, respectively. During the quarters ended
December 31, 1996 and September 30, 1996, the Company experienced higher fuel
costs, short-term lease expenses for aircraft to replace its aircraft during
scheduled maintenance cycles, increased competition largely from DIA's dominant
carrier, United Airlines, that resulted in lower average fares, increased
maintenance expenses as it commenced in-house maintenance operations in
September 1996, and the return of the 10% passenger excise tax on August 27,
1996.
8
<PAGE>
The following table sets forth certain quarterly financial and operating
data regarding the Company for the last fifteen months of operations ended
December 31, 1996.
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
QUARTER ENDED
---------------------------------------------------------------------------
DECEMBER 30, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------- ------------- ------------- --------------- -------------
1995 1996 1996 1996 1996
-------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Passenger revenue $ 16,831,000 $ 25,553,000 $ 27,570,000 $ 29,518,000 $ 24,503,000
Revenue passengers carried 202,000 267,000 271,000 308,000 272,000
Revenue passenger miles
(RPMs)(1) 136,454,000 183,340,000 190,541,000 220,982,000 193,316,000
Available seat miles
(ASMs)(2) 226,106,000 296,974,000 313,216,000 363,667,000 354,103,000
Passenger load factor(3) 60.4% 61.7% 60.8% 60.8% 54.6%
Break-even load factor(4) 73.6% 59.7% 58.3% 66.0% 73.1%
Block hours(5) 5,426 6,964 7,297 8,414 8,089
Average daily block hour
utilization(6) 10.33 11.14 10.97 10.24 9.86
Yield per RPM(7) 12.33c 13.94c 14.47c 13.36c 12.68c
Yield per ASM(8) 7.44c 8.60c 8.80c 8.12c 6.92c
Expense per ASM 9.24c 8.48c 8.62c 8.98c 9.46c
Passenger revenue per block hour $ 3,102.90 $ 3,669.30 $ 3,778.27 $ 3,508.20 $ 3,029.18
Average fare(9) $ 80 $ 93 $ 98 $ 92 $ 86
Average aircraft in service 5.7 7.0 7.3 8.9 8.9
Operating income (loss) ($3,687,000) $ 833,000 $ 1,138,000 ($2,547,000) ($8,318,000)
Net income (loss) ($3,555,000) $ 816,000 $ 1,336,000 ($2,189,000) ($8,043,000)
</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.
9
<PAGE>
The following table provides information regarding the Company's
operating revenues and expenses for the nine months ended December 31, 1995.
<TABLE>
<CAPTION>
REVENUE/ YIELD/ YIELD/
AMOUNT PERCENT BLOCK HOUR ASM RPM
----------- ------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
REVENUES
Passenger $42,977,000 96.9% $3,109.99 7.85c 14.49c
Cargo $ 822,000 1.9% $ 59.48 0.15c 0.28c
Other $ 544,000 1.2% $ 39.37 0.10c 0.18c
----------- ------- ---------- ------ ------
Total operating revenues $44,343,000 100.0% $3,208,84 8.10c 14.95c
=========== ======= ========== ====== ======
PERCENT
OF EXPENSE/ EXPENSE/
AMOUNT REVENUE BLOCK HOUR ASM
----------- ------- ---------- --------
EXPENSES
Flight operations $18,502,000 41.7% $1,338.88 3.38c
Aircraft and traffic servicing $12,127,000 27.3% $ 877.56 2.22c
Maintenance $ 8,040,000 18.1% $ 581.81 1.47c
Promotion and sales $ 9,611,000 21.7% $ 695.49 1.76c
General and administrative $ 2,450,000 5.5% $ 177.29 0.45c
Depreciation and amortization $ 379,000 0.9% $ 27.43 0.07c
----------- ------- ---------- ------
$51,109,000 115.3% $3,698.46 9.34c
=========== ======= ========== ======
</TABLE>
The following table provides information regarding the Company's
operating revenues and expenses for the nine months ended December 31, 1996.
<TABLE>
<CAPTION>
REVENUE/ YIELD/ YIELD/
AMOUNT PERCENT BLOCK HOUR ASM RPM
----------- ------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
REVENUES
Passenger $81,591,000 97.8% $3,428.19 7.91c 13.49c
Cargo $ 1,317,000 1.6% $ 55.34 0.13c 0.22c
Other $ 527,000 0.6% $ 22.14 0.05c 0.09c
----------- ------- ---------- ------ ------
Total operating revenues $83,435,000 100.0% $3,505.67 8.09c 13.79c
=========== ======= ========== ====== ======
PERCENT
OF EXPENSE/ EXPENSE/
AMOUNT REVENUE BLOCK HOUR ASM
----------- ------- ---------- ------
EXPENSES
Flight operations $38,094,000 45.7% $1,600.59 3.69c
Aircraft and traffic servicing $18,819,000 22.6% $ 790.71 1.83c
Maintenance $17,106,000 20.5% $ 718.74 1.66c
Promotion and sales $15,004,000 18.0% $ 630.42 1.46c
General and administrative $ 3,253,000 3.9% $ 136.68 0.32c
Depreciation and amortization $ 886,000 1.1% $ 37.23 0.09c
----------- ------- ---------- ------
$93,162,000 111.7% $3,914.37 9.04c
=========== ======= ========== ======
REVENUES
</TABLE>
10
<PAGE>
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. During the nine months ended
December 31, 1996, the Company commenced service to Seattle-Tacoma, Washington
on May 1, 1996 and San Diego, California and St. Louis, Missouri on June 1,
1996.
The Company's financial results are highly sensitive to changes in fare
levels. Fare pricing policies have a significant impact on the Company's
revenues. The Company's average fare for the nine months ended December 31, 1996
of $92 was slightly higher than the average fare of $87 for the nine months
ended December 31, 1995 largely as a result of the Company's new yield
management system and the expiration of a 10% excise tax on air transportation
which was effective December 31, 1995 through August 26, 1996 offset slightly by
lower introductory fares to its new markets. On August 27, 1996 the 10% excise
tax on air transportation was reinstated through December 31, 1996. The decrease
in the average fare of $98 for the three months ended June 30, 1996 to $92 for
the three months ended September 30, 1996 and to $86 for the three months ended
December 31, 1996 was largely due to increased competition for traffic from
United Airlines and other airlines in the Company's markets and partially a
result of the reinstatement of the 10% excise tax. The excise tax expired again
on December 31, 1996. Management believes that the 10% excise tax or some other
type of consumer paid tax will be likely in the future which could exceed 10% of
the fare. Given the elasticity of passenger demand, increases in fares and
associated taxes may result in a decrease in passenger demand. To maintain
passenger traffic if there is an excise tax increase, the Company may be
required to adjust its net fares downward. 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.
The Company had anticipated that the September quarter would be its
strongest and the March quarter its weakest in terms of revenue. Passenger
volumes and therefore revenues are seasonal due to highly competitive pricing in
its markets. Revenue for the September 1996 quarter was lower than anticipated
because the Company experienced lower fares during the September quarter due to
highly competitive pricing in its markets. This continued in the December 1996
quarter. In addition, management believes that consumer demand for its service
may have been higher during the first six months of the year as a result of
passengers traveling before the excise tax was reinstated, which reduced traffic
in the September and December quarters. Additionally, the Company found it
necessary to decrease prices beginning in August to maintain passenger traffic
because of the reinstatement of the excise tax and increased competitive pricing
in its markets.
Passenger Revenue. Passenger revenues totaled $81,591,000 for the nine
months ended December 31, 1996 compared to $42,977,000 for the nine months ended
December 31, 1995, or an increase of 90%. The number of revenue passengers
carried was 851,000 for the nine months ended December 31, 1996 compared to
491,000 for the nine months ended December 31, 1995 or an increase of 73%. The
Company had an average of 8.4 aircraft in service during the nine months ended
December 31, 1996 compared to an average of 5.2 aircraft during the nine months
ended December 31, 1995 for an increase in ASMs of 483,799,000 or 88%.
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 nine months ended
December 31, 1996, the Company's break-even load factor was 66.3% compared to a
passenger load factor of 58.7%. For the nine months ended December 31, 1995, the
Company's break-even load factor was 62.7% compared to a passenger load factor
of 54.2%. The Company's break-even load factor increased over the prior
comparable period as a result of the decrease in the average fare due to
reimposition of the 10% excise tax and increased price competition coupled with
higher fuel prices and fuel taxes, short term aircraft lease expenses, and
increased maintenance expenses associated with the Company's maintenance
facility which began operations in September 1996. The increase in these
expenses began during the month of August 1996 and had their full impact on the
December quarter increasing the break-even load factor to 73.1%. The Company's
low load factors during the nine months ended December 31, 1995 reflect the
start-up nature of the airline, the difficulties the Company encountered in
entering the connecting traffic market at Denver, the modification to the
Company's initial strategy to create its own hub at Denver and to enter higher
volume markets, and public reaction
11
<PAGE>
to higher fares necessary to cover the increased costs of DIA.
The improvement in the Company's load factor from 54.2% to 58.7% for
the nine months ended December 31, 1996 over the prior comparable period
reflects the result of the Company's change in business strategy to provide
service to higher volume markets. However, management believes that its load
factor for the nine months ended December 31, 1996 could have been higher but
was adversely affected by increased competitive fare pricing and by the public's
initial reaction to two significant airline accidents which occurred during the
nine months ended December 31, 1996. One of the accidents involved a low fare
carrier and the other involved a major national airline. In both accidents the
aircraft was destroyed and all passengers and crew were killed.
Cargo revenues, consisting of revenues from freight and mail service,
totaled $1,317,000 and $822,000 for the nine months ended December 31, 1996 and
1995, representing 1.6% and 1.9% of total operating revenues, respectively.
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 $527,000 and $544,000 or .6% and 1.1% of total operating revenues
for the nine months ended December 31, 1996 and 1995, respectively.
OPERATING EXPENSES
Operating expenses include those related to flight operations, aircraft
and traffic servicing, maintenance, promotion and sales, general and
administrative and depreciation and amortization. Total operating expenses
declined to 111.7% of revenue for the nine months ended December 31, 1996
compared to 115.3% of revenue for the nine months ended December 31, 1995
because of the 88.2% increase in revenue during the nine months ended December
31, 1996.
Flight Operations. Flight operations expenses of $38,094,000 and
$18,502,000 were 45.7% and 41.7% of total revenue for the nine months ended
December 31, 1996 and 1995, respectively. Flight operations expenses 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 including
taxes as well as the cost of delivering fuel into the aircraft. Aircraft fuel
costs of $15,839,000 for 19,028,000 gallons used and $7,751,000 for 11,151,000
gallons used resulted in an average fuel cost of 83.2c and 69.5c per gallon and
represented 41.6% and 41.9% of total flight operations expense for the nine
months ended December 31, 1996 and 1995, respectively. The average fuel cost per
gallon increased for the nine months ended December 31, 1996 over the comparable
prior period due to an overall increase in the cost of fuel and loss of the fuel
tax exemption next discussed. In August 1993, the United States increased taxes
on domestic fuel, including aviation fuel, by 4.3 cents per gallon. This tax
increase was imposed on the Company and other airlines effective October 1,
1995. Fuel prices are subject to change weekly as the Company does not purchase
supplies in advance for inventory. Fuel consumption for the nine months ended
December 31, 1996 and 1995 averaged 800 and 807 gallons per block hour,
respectively. Fuel consumption per block hour decreased as a result of more fuel
efficient aircraft and an increase in the average length of haul.
Aircraft lease and insurance expenses, including passenger liability
insurance but excluding short-term wet lease expenses, totaled $10,979,000
(13.2% of total revenue) and $5,045,000 (11.4% of total revenue) for the nine
months ended December 31, 1996 and 1995, respectively, or an increase of 117.6%.
The increase is attributable to the increase in the number of aircraft in
service. The increase in these expenses as a percentage of revenue is generally
due to higher lease expenses on more recent aircraft fleet additions. Beginning
August 1996 and November 1995, the Company entered into short-term wet lease
agreements in order to add a partial spare aircraft to its fleet to improve the
Company's on-time performance and completion factors for the nine months ended
December 31, 1996, and to substitute for aircraft in the Company's fleet which
rotated out of service for scheduled maintenance for the nine months ended
December 31, 1996 and
12
<PAGE>
1995. The final short term aircraft lease agreement terminates March 31, 1997,
approximately the date on which the Company takes delivery of its eleventh
aircraft. Total expenses associated with the short term wet lease agreements
totaled $2,231,000 during the months of August through December 1996 and
$526,000 for the months of November 1995 through December 1995. The Company pays
a premium for short-term lease agreements and does not anticipate continuing
such agreements after March 1997.
Pilot and flight attendant compensation totaled $5,434,000 and $3,232,000
for the nine months ended December 31, 1996 and 1995, respectively, or an
increase of 68.1%. Pilot and flight attendant compensation increased principally
as a result of a 61.5% increase in the average number of aircraft in service and
an increase of 72.3% in block hours. The Company added two leased aircraft to
its fleet in June 1996 and one in December 1996. The Company pays pilot and
flight attendant salaries for training consisting of approximately six and three
weeks, respectively, prior to scheduled increases in service, causing the
compensation expense for the nine months ended December 31, 1996 to appear high
in relationship to the average number of aircraft in service. When the Company
is not in the process of adding aircraft to its system, it expects that pilot
and flight attendant expense per aircraft will normalize. 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
and fuel expenses the principal exception.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses
were $18,819,000 and $12,127,000 for the nine months ended December 31, 1996 and
1995, respectively, and represented 22.6% and 27.3% of total revenue. 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. Station expenses as a percentage of revenue decreased during
the nine months ended December 31, 1996 over the nine months ended December 31,
1995 as a result of the Company's rental costs (in particular, the gate rentals
at DIA) which are largely fixed costs, remaining relatively constant as compared
to the increase in revenue. Additionally, the Company began its own "above wing"
operations at DIA (including passenger check-in at ticket counters, concourse
gate operations and cabin cleaning) effective April 1996, Los Angeles
International Airport in June 1996, Chicago (Midway) in July 1996, Seattle-
Tacoma in August 1996, and El Paso, Texas effective October 1996 rather than
contracting these services through a third party supplier. Aircraft and traffic
servicing expenses will increase with the addition of new cities; however, the
increased existing gate utilization at DIA is expected to reduce per unit
expenses.
Maintenance. Maintenance expenses of $17,106,000 and $8,040,000 were
20.5% and 18.1% of total revenue for the nine months ended December 31, 1996 and
1995, respectively. 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. Maintenance cost per block hour
was $719 and $582 per block hour for the nine months ended December 31, 1996 and
1995, respectively. Continental Airlines had been providing routine aircraft
maintenance services for the Company at Denver. Continental discontinued this
service in mid-September 1996. As a result of the discontinued service, the
Company hired its own aircraft mechanics to perform routine maintenance and
subleased a portion of a hangar from Continental at DIA in which to perform this
work. The performance of this work by the Company, together with the cost of
leasing adequate hangar space, increased the Company's maintenance cost per
block hour. Management believes that these costs will normalize as it adds
additional aircraft to its fleet.
During the nine months ended December 31, 1996, the Company revised the
timing of its scheduled maintenance and related estimates for its engine
maintenance reserves. The revised estimate resulted in an additional reserve
accrual of approximately $533,000 which approximates $22 of the total
maintenance cost per block hour of $719 for the nine months ended December 31,
1996.
Promotion and Sales. Promotion and sales expenses totaled $15,004,000
and $9,611,000 and were 18.4% and 22.4% of passenger revenue for the nine months
ended December 31, 1996 and 1995, respectively. 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
was $17.63 and $19.57 for
13
<PAGE>
the nine months ended December 31, 1996 and 1995, respectively. The $1.94 per
passenger decrease is largely a result of a reduction in advertising expenses,
communications, interline service charges, and credit card fees.
Advertising expenses of $1,491,000 were 1.8% of passenger revenues for
the nine months ended December 31, 1996, compared to approximately $1,122,000 or
2.6% of passenger revenues for the nine months ended December 31. 1995. As new
cities are added to the Company's flight schedule, advertising and marketing
promotions are designed and implemented to increase awareness of the Company's
new service, name and brand awareness. Advertising expenses decreased as a
percentage of passenger revenues as the Company entered three new markets during
the nine months ended December 31, 1996, as compared to six new markets during
the nine months ended December 31, 1995.
During the nine months ended December 31, 1996, the Company's credit
card fees were reduced because of the increase in the dollar volume of
transactions as a result of the Company's growth in revenues. Additionally, the
Company began electronic processing of credit card transactions for its direct
sales which also reduced credit card fees. The Company's interline service
charges decreased as a result of a 3.1% reduction in the percentage of interline
revenue to total revenues. Interline revenue is for travel on the Company's
flights ticketed by another airline on connecting traffic. The decrease in
interline revenue as a percentage of total revenues is a result of the decrease
in routes in regional markets.
14
<PAGE>
General and Administrative. General and administrative expenses for the
nine months ended December 31, 1996 and 1995 totaling $3,253,000 and $2,450,000
were 3.9% and 5.5% of total revenue, respectively. These expenses 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. The overall
increase in general and administrative expenses is largely a result of an
increase in employee benefits and office rent as a result of an increase in the
number of full and part-time employees from 447 in December 1995 to 714 in
December 1996 and an increase in revenue accounting fees as a result of a 73.3%
increase in revenue passengers carried.
Depreciation and Amortization. Depreciation and amortization expense of
$886,000 and $379,000 were approximately one percent of total revenue for the
nine months ended December 31, 1996 and 1995, respectively. These expenses
include 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. The Company's expenses per ASM for the nine months
ended December 31, 1996 and 1995 were 9.04c and 9.34c, respectively, or a
decrease of 3.2%. Increased service, as evidenced by a 88.4% increase in ASMs,
and additional aircraft contributed to economies of scale as the fixed costs
associated with the airline were spread across a larger base of operation.
Expenses per ASM are influenced to some 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet reflected cash, cash equivalents and short-
term investments of $11,917,000 at December 31, 1996. At December 31, 1996,
total current assets were $33,382,000 as compared to $31,024,000 of total
current liabilities, resulting in working capital of $2,358 000. At March 31,
1996, total current assets were $25,797,000 and total current liabilities were
$25,844,000, resulting in a working capital deficit of $47,000.
Cash used by operating activities for the nine months ended December 31,
1996 was $5,727,000. This is attributed primarily to the Company's net loss for
the period, increases in maintenance and other deposits, prepaid expenses and
other assets, aircraft parts inventories for the Company's maintenance facility
which began operations in September 1996 and a decrease in air traffic
liability, offset by decreases in restricted investments and trade receivables
and increases in accounts payable, and other accrued expenses and accrued
maintenance. Cash used by operating activities for the nine months ended
December 31, 1995 was $4,752,000. This is attributed primarily to the Company's
net loss for the period, increases in restricted investments to secure credit
card transactions, trade receivables, maintenance and other deposits, prepaid
expenses and other assets and a decrease in other accrued expenses, offset by a
decrease in inventories, and increases in accounts payable, air traffic
liability, and accrued maintenance expenses.
Cash used in investing activities for the nine months ended December 31,
1996 was $8,000,000. The Company invested $2,145,000 in short-term investments
comprised of government backed agencies with maturities of one year or less.
Restricted cash increased $600,000 for collateral for a letter of credit given
to an aircraft lessor in lieu of a cash security deposit for the Boeing 737-300
aircraft leased in November 1996. The Company used $2,292,000 for security
deposits for the two Boeing 737-200 aircraft leased during the nine months ended
December 31, 1996 and partial security deposits for the four aircraft to be
delivered in the Company's fiscal year ended March 31, 1998. The Company also
acquired property and equipment totaling $2,963,000 for equipment, spare engine
and aircraft parts, and improvements to the Boeing 737-300s and the two
additional Boeing 737-200s leased during the nine months ended December 31,
1996, maintenance equipment for its maintenance facility which began operations
in September 1996, ground equipment, computer equipment, and leasehold
improvements.
15
<PAGE>
Cash used in investing activities totaled $2,357,000 for the nine months
ended December 31, 1995. The Company used $1,536,000 for security deposits for
the two Boeing 737-300 aircraft leased in November 1995 and the remaining
security deposit requirements on the five Boeing 737-200 aircraft leased in
1994. The Company acquired property and equipment totaling $840,000 which
consisted of capital expenditures for spare parts, ground equipment, computer
equipment, leasehold improvements and maintenance equipment and was partially
offset by miscellaneous equipment sales as a result of closing operations in
Montana.
Cash provided by financing activities for the nine months ended December
31, 1996 and 1995 was $15,972,000 and $7,298,000, respectively. In April 1996,
the Company completed a private placement of its Common Stock that resulted in
net proceeds of approximately $2,723,000. 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. The Company
received net proceeds from the exercise of these warrants of approximately
$13,276,000. During the nine months ended December 31, 1995, the Company
completed a secondary public offering of the Company's common stock with net
proceeds of $6,309,000. 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. The Company's present intent is to
renew these leases in 1997. Under these leases, the Company was required to make
security deposits and makes deposits for maintenance of these leased aircraft.
These deposits totaled $625,000 and $7,105,000 respectively, at December 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 makes deposits for maintenance of these leased aircraft.
Security and maintenance deposits for these aircraft totaled $1,505,000 and
$2,241,000, respectively, at December 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. Commencing July 1996 the Company is
required to make monthly deposits for maintenance for these leased aircraft. At
December 31, 1996, these deposits totaled $1,013,000. These aircraft were "hush-
kitted" by the lessor at its expense during 1996 making them compliant with FAA
Stage 3 noise regulations. The Company has issued to the aircraft lessor two
warrants, each of which entitles the lessor to purchase 70,000 shares 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
aircraft 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 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. As of December 31, 1996, the Company has made deposits
totaling $626,250 for this lease with the final $100,000 due in February 1997.
In November 1996, the Company took delivery of a leased Boeing 737-300
aircraft which it placed in scheduled service in December 1996. The lease term
for this aircraft is eight years from date of delivery. The Company was
required to secure the aircraft lease with a letter of credit totaling $600,000.
Effective January 1997, the Company is required to make monthly deposits for
maintenance for this leased aircraft.
The Company has signed a letter of intent to lease a new Boeing 737-300
with scheduled delivery in August 1997. The lease term for this aircraft is
eight years from date of delivery. The Company has entered into lease
agreements to lease two new Boeing 737-300 aircraft, scheduled for delivery to
the Company in August 1997 and January 1998. The lease terms for these aircraft
are for seven years each from date of delivery with the option for the Company
to extend the terms for up to two one year periods. The Company is required to
make security deposits with respect to these aircraft
16
<PAGE>
which may be in the form of letters of credit.
Management is continuing to take steps designed to improve the Company's
operating performance. Effective September 11, 1996, the Company eliminated its
Bismarck and Fargo, North Dakota destinations due to the unprofitability of
these routes. The aircraft used to serve these destinations were redeployed to
more heavily traveled routes elsewhere on the Company's route system.
Effective January 28, 1997 the Company introduced electronic ticketing.
Passengers who call the Company directly are presently given the option of
receiving a paper ticket or a confirmation number in lieu of a paper ticket.
Electronic ticketing will save the Company postage and handling costs, the cost
of paper tickets, and reduced revenue accounting fees as the accounting for
electronic ticketing is automated. Additionally, management believes that
passengers desiring "paperless" tickets are more likely to call the Company
directly rather than purchasing tickets through a travel agent which will save
the Company agency commissions and computer reservation systems fees.
The Company is exploring various means to reduce expenses. These include
further reductions 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 rather than
continuing to contract out these services. The Company commenced performing such
operations at DIA in April 1996, at Los Angeles International Airport in June
1996, at Chicago/Midway in July 1996, and Seattle-Tacoma in August 1996.
Effective October 1996, the Company began its own "above wing" operation in El
Paso, Texas.
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.
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. The proceeds from the private placement
completed in April 1996 and the exercise 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 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 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.
Effective February 11, 1997, United Airlines commenced service using
its low fare United "Shuttle" between Denver, on the one hand, and Phoenix and
Las Vegas on the other hand, two markets in which the Company provides service,
as well as additional United Airlines flights in certain of the Company's other
markets. This additional competition, as well as other competitive activities
by United (see Part I, Item 2 "General" and Part II, Item 1 "Legal Proceedings"
in this report) and other carriers, have had and could continue to have a
material adverse effect on the Company's revenues and results of operations.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
-----------------
In February 1997, the Company filed a complaint with the U.S.
Department of Justice ("DOJ") alleging that United Airlines has engaged
in predatory, anticompetitive and monopolistic practices at DIA. The
complaint asks the agency to investigate eight separate counts of
potential antitrust violations. The eight counts range from "capacity
dumping" in markets served by competitors to alleged abuses relating to
United's pricing practices, "exclusive dealing" with corporate
customers and commuter carriers, and other tactics used by United to
allegedly drive competitors from its markets. The Company is unable to
predict what action, if any, the DOJ will take in response to this
complaint. However, management believes that these alleged practices by
United have had, and to the extent they continue will have, a material
adverse effect on the Company's revenues and results of operation.
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 Operating Lease Agreement dated November 1, 1996 between the
Company and First Security Bank, National Association.
Portions of this Exhibit have been excluded from the
publicly available document and an application for an order
granting confidential treatment of the excluded material has
been made.
10.2 Aircraft Lease Agreement (MSN 28760) dated as of December
12, 1996 between the Company and Boullioun Aircraft Holding
Company, Inc. Portions of this Exhibit have been excluded
from the publicly available document and an application for
an order granting confidential treatment of the excluded
material has been made.
10.3 Aircraft Lease Agreement (MSN 28662) dated as of December
12, 1996 between the Company and Boullioun Aircraft Holding
Company, Inc. Portions of this Exhibit have been excluded
from the publicly available document and an application for
an order granting confidential treatement of the excluded
material has been made.
(b) Reports on Form 8-K
None
Item 27.1 Financial Data Schedule
-----------------------
18
<PAGE>
SIGNATURES
In accordance with the requirements 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: February 13, 1997 By: /s/ Samuel D. Addoms
-------------------------
Samuel D. Addoms, Principal Executive
Officer and Principal Financial Officer
Date: February 13, 1997 By: /s/ Elissa A. Potucek
--------------------------
Elissa A. Potucek, Vice President,
Controller and Principal Accounting
Officer
19
<PAGE>
EXHIBIT 10.1
AIRCRAFT N303FL
________________________________________________________________________________
OPERATING LEASE AGREEMENT
DATED AS OF NOVEMBER 1, 1996
BETWEEN
FRONTIER AIRLINES, INC.,
AS LESSEE
AND
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
NOT INDIVIDUALLY BUT SOLELY AS OWNER TRUSTEE
AS LESSOR
-----------------
ONE BOEING MODEL 737-3M8 AIRCRAFT
________________________________________________________________________________
To the extent, if any, that this Operating Lease Agreement constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Operating
Lease Agreement may be created through the transfer or possession of any
counterpart other than the original.
Vedder, Price, Kaufman & Kammholz
Chicago, Illinois
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT AND IS BEING
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Definitions.............................................................................. -1-
SECTION 2. Notice of Delivery Date; Acceptance and Leasing of Aircraft; Conditions.................. -1-
(a) Notice of Delivery Date.................................................................. -1-
(b) Agreement to Lease....................................................................... -1-
(c) Delivery Conditions; Inspections......................................................... -1-
(iii) Demonstration Flight..................................................................... -2-
(iv) Final Ground Check....................................................................... -2-
(v) Technical Acceptance..................................................................... -3-
(vi) Indemnification.......................................................................... -3-
(vii) Initial Maintenance Visit................................................................ -3-
(d) Changes in Delivery Date; Limitation of Lessor's Obligation to Deliver Aircraft.......... -3-
(e) Conditions............................................................................... -4-
(1) Conditions Precedent to the Obligations of Lessor................................ -4-
(2) Conditions Precedent to the Obligations of Lessee................................ -7-
SECTION 3. Term and Rent............................................................................ -8-
(a) Term..................................................................................... -8-
(b) Basic Rent............................................................................... -8-
(c) Supplemental Rent........................................................................ -8-
(d) Payments in General...................................................................... -8-
(e) Security Deposit......................................................................... -9-
SECTION 4. Representations, Warranties and Covenants................................................ -11-
(a) Lessee's Representations, Warranties and Covenants....................................... -12-
(b) Covenants of Lessee...................................................................... -14-
(i) Maintenance of Corporate Existence............................................... -14-
(ii) Payment of Taxes................................................................. -15-
(iii) Financial Covenant............................................................... -15-
(iv) Permits and Licenses............................................................. -15-
(v) Compliance with Laws............................................................. -15-
(vi) Further Acts..................................................................... -15-
(vii) Reporting Requirements........................................................... -15-
(viii) Maintain Certificates, Consents, etc............................................. -15-
(ix) Notification..................................................................... -15-
(x) Records.......................................................................... -16-
SECTION 5. Return of the Aircraft................................................................... -16-
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(a) Return of the Aircraft; Condition Upon Return............................................ -16-
(b) Manuals.................................................................................. -16-
(c) Cooperation.............................................................................. -16-
(d) Extension of Term Due to Conditions upon Return.......................................... -17-
(e) Non-Compliance........................................................................... -17-
(f) Aircraft Documents....................................................................... -17-
SECTION 6. Liens.................................................................................... -18-
SECTION 7. Registration, Maintenance and Operation; Possession; Insignia............................ -18-
(a) (1) Registration and Maintenance..................................................... -18-
(2) Operation and Use................................................................ -20-
(b) Possession............................................................................... -23-
(c) Insignia................................................................................. -24-
(d) Maintenance Reserves..................................................................... -24-
SECTION 8. Replacement of Parts; Alterations, Modifications and Additions........................... -27-
(a) Replacement of Parts..................................................................... -27-
(b) Alterations, Modifications and Additions................................................. -28-
SECTION 9. [Intentionally Omitted].................................................................. -29-
SECTION 10. Loss, Destruction, Requisition, etc...................................................... -29-
(a) Event of Loss with Respect to the Aircraft............................................... -29-
(b) Event of Loss with Respect to an Engine.................................................. -29-
(c) Application of Payments from Governmental Authorities for Requisition of Title, etc...... -30-
(d) Requisition for Use of the Aircraft by the Government of Registry........................ -31-
(e) Application of Payments During Existence of Events of Default............................ -31-
SECTION 11. Insurance................................................................................ -31-
SECTION 12. Inspection............................................................................... -34-
SECTION 13. Assignment; Subject and Subordinate...................................................... -34-
SECTION 14. Events of Default........................................................................ -35-
SECTION 15. Remedies................................................................................. -37-
SECTION 16. FAA Filing; Tax Indemnity; General Indemnity; etc........................................ -39-
(a) FAA Filing............................................................................... -39-
(b) General Tax Indemnity.................................................................... -39-
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
(c) General Indemnity........................................................................ -42-
SECTION 17. Notices.................................................................................. -43-
SECTION 18. Net Lease; Set-Off, Counterclaim, etc.................................................... -44-
SECTION 19. Miscellaneous; Governing Law; Expenses................................................... -45-
SECTION 20. Bankruptcy............................................................................... -46-
</TABLE>
-iii-
<PAGE>
APPENDIX A Definitions
EXHIBIT A Lease Supplement No. 1
EXHIBIT B Basis Rent, Stipulated Loss Value and Maintenance Reserves
EXHIBIT B-1 Officer's Monthly Maintenance Reserve Certificate
EXHIBIT C Form of Acceptance Certificate
EXHIBIT D-1 Aircraft Documents on Delivery Date
EXHIBIT D-2 Aircraft Documents on Return Date
EXHIBIT E Return Conditions
EXHIBIT E-1 Return Certificate
EXHIBIT F Insurance Requirements
EXHIBIT G Reporting Requirements
EXHIBIT H Delivery Conditions
EXHIBIT I Demonstration Flight Procedures
EXHIBIT J Form of Letter of Credit
-iv-
<PAGE>
OPERATING LEASE AGREEMENT, dated as of November 1, 1996, between
FRONTIER AIRLINES, INC., a Colorado corporation ("Lessee"), and FIRST SECURITY
------
BANK, NATIONAL ASSOCIATION, not individually but solely as trustee under that
certain Trust Agreement dated as of November 1, 1996 between itself and Sanwa
Business Credit Corporation (the "Lessor").
SECTION 1. Definitions. Unless the context otherwise requires, all
-----------
capitalized terms used herein and not otherwise defined herein shall have the
meanings set forth in Appendix A hereto for all purposes of this Lease Agreement
and shall be equally applicable to both the singular and the plural forms of the
terms herein defined.
SECTION 2. Notice of Delivery Date; Acceptance and Leasing of
--------------------------------------------------
Aircraft; Conditions.
- --------------------
(a) Notice of Delivery Date. Lessor agrees to give Lessee at least
-----------------------
three Business Days' prior written notice of the scheduled Delivery Date for the
Aircraft, which scheduled Delivery Date shall be, unless otherwise agreed
between Lessee and Lessor, a Business Day not later than November 15, 1996.
(b) Agreement to Lease. Subject to satisfaction of the conditions set
------------------
forth in this Section 2, Lessor hereby agrees to deliver the Aircraft to Lessee
at the Delivery Location and to lease the Aircraft to Lessee, and Lessee hereby
agrees to accept the Aircraft at the Delivery Location and to lease the Aircraft
from Lessor, in each case on the Delivery Date and in the condition specified in
Exhibit H, but otherwise in "as is, where is" condition, pursuant to the terms
and conditions of this Agreement and the other Operative Documents, the
commencement of such leasing to be evidenced by the execution by Lessor and
Lessee of the Initial Lease Supplement. Lessee hereby agrees that its execution
of the Initial Lease Supplement shall, without further act, constitute
unconditional and irrevocable acceptance by Lessee of the Aircraft for all
purposes of this Agreement.
(c) Delivery Conditions; Inspections.
--------------------------------
(i) Lessee and Lessor shall cooperate and use reasonable efforts to
ensure that the delivery of the Aircraft from Lessor to Lessee hereunder shall
be completed in an efficient and mutually satisfactory manner. Lessor shall use
reasonable best efforts to procure that Air Invest complies with Air Invest's
obligations with regard to delivery pursuant to the Purchase Agreement. Lessee
shall be entitled to participate in the preliminary inspection (the "Preliminary
Inspection") relating to the delivery of the Aircraft from Air Invest to Lessor,
which inspection shall take place from October 22 to October 27 in Brussels,
Belgium (the "Preliminary Inspection Location").
(ii) (A) Following the Preliminary Inspection, and prior to the Test
Flight, and as soon as practicable in accordance with the Purchase Agreement,
the Aircraft, including the
<PAGE>
Aircraft Documents, shall be made available to Lessee and/or Lessee's agents,
representatives and designees (each for purposes of this Section 2(c), an
"Inspecting Party") for ground inspection by the Inspecting Parties (the "Second
Inspection") at the Preliminary Inspection Location. The Second Inspection shall
be for the purpose of determining whether (i) there has been any change in the
condition of the Aircraft from its condition at the Preliminary Inspection, and
(ii) the Aircraft meets the redelivery conditions in the Air Invest Lease. The
Second Inspection also may, at Lessor's or Lessee's option, include a power
assurance run of the Engines. Lessor shall make available to the Inspecting
Parties such documentation regarding the condition, use, maintenance, operation
and history of the Aircraft during the term of the Air Invest Lease as Air
Invest may have access to under the Air Invest Lease.
(B) Promptly after such inspections, except as otherwise agreed in
writing by Lessor and Lessee, any discrepancies from the Aircraft delivery
condition requirements set forth in this Section 2, shall be corrected by Air
Invest at its cost (Lessor agreeing to use its reasonable best efforts to
procure such payment) prior to the demonstration flight described in Section
2(c)(iii).
(iii) Demonstration Flight.
--------------------
(A) Immediately following the correction of any
discrepancies pursuant to Section 2(c)(ii), but prior to Lessee's technical
acceptance of the Aircraft, Lessee shall participate in a demonstration flight
in the Aircraft, which shall be the first two hours of the ferry flight of the
Aircraft from the Preliminary Inspection Location to the Delivery Location under
the Purchase Agreement, in accordance with such procedures as may be mutually
agreed between Lessor and Lessee (including, without limitation, such procedures
set forth on Exhibit I) to demonstrate the proper functioning of the Aircraft
systems and components within limits and/or guidelines established by the
relevant manufacturers, the FAA. Such flight shall continue for a duration of up
to two (2) hours. The power assurance run shall be performed immediately prior
to the ferry flight.
(B) Except as otherwise agreed in writing by the Lessor and
Lessee, promptly following such demonstration flight (which for purposes of
noting discrepancies shall be considered to be the entire ferry flight) (but
subject to completion of the final ground inspection pursuant to Section
2(c)(iv) hereof), any deficiencies from the Aircraft return condition
requirements set forth in this Section 2, shall be corrected by Air Invest at
its cost (Lessor agreeing to use its reasonable best efforts to procure such
payment) prior to the delivery of the Aircraft.
(iv) Final Ground Check.
------------------
(A) Prior to or promptly after the correction of any
discrepancies pursuant to Section 2(c)(iii), Lessor shall conduct a final ground
check of the Aircraft for the purpose of demonstrating to the reasonable
satisfaction of Lessee the operation of the systems
-2-
<PAGE>
that are normally ground-checked by Lessee. The final ground check shall
include, without limitation, complete Engine video borescope inspections
performed in the presence of the Inspecting Parties (the results of which shall
be within manufacturer's limits).
(B) Promptly after the final ground check, except as otherwise
agreed in writing by Lessor and Lessee, any discrepancies from the Aircraft
return condition requirements set forth in this Section 2, and any discrepancies
that must be corrected in order to comply with the Maintenance Program and the
Manufacturer's maintenance manual criteria, shall be corrected by Air Invest at
its cost (Lessor agreeing to use its reasonable best efforts to procure such
payment) prior to the demonstration flight described in Section 2(c)(iv).
(v) Technical Acceptance. Upon completion of the final ground check
--------------------
and, unless otherwise agreed in writing by Lessor and Lessee, correction of any
discrepancies or deficiencies required to be corrected by Air Invest prior to
the Delivery, Lessee shall execute and deliver to Lessor, an Acceptance
Certificate in the form attached hereto as Exhibit C which shall, for all
purposes hereof, constitute complete, irrevocable and absolute evidence of
Lessee's technical acceptance of the Aircraft, except as validly noted in such
Acceptance Certificate.
(vi) Indemnification. Without limiting the provisions of Section 9
---------------
hereof, Lessee hereby assumes liability for and shall fully indemnify and hold
harmless each Indemnified Party on demand and shall keep each Indemnified Party
fully indemnified at all times and on an after-tax basis from and against all
Expenses arising directly or indirectly from any injuries to or deaths of
Lessee's representatives or loss of or damage to property of Lessee or its
representatives or designees during the Aircraft delivery (including, without
limitation, all inspections and the ferry flight) described in this Section 2(c)
except to the extent occasioned by the gross negligence or willful misconduct of
such Indemnified Party.
(vii) Initial Maintenance Visit. Lessee shall accept the Aircraft
-------------------------
without the Aircraft having undergone a bridging maintenance visit and without
having TCAS installed thereon. Immediately following execution and delivery of
the Acceptance Certificate pursuant to Section 2(c)(v) hereof, Lessee shall
perform, or cause to be performed, a bridging maintenance visit (at which Lessee
shall perform, or cause to be performed, all maintenance, modifications and
inspections necessary to standardize the Aircraft passenger cabin, cockpit,
flight instruments and emergency equipment to the Lessee's configuration and
place the Aircraft on Lessee's operating certificate) for the Aircraft in order
to integrate the Aircraft onto Lessee's operating certificate and to install
TCAS on the Aircraft (the "Initial Maintenance Visit").
(d) Changes in Delivery Date; Limitation of Lessor's Obligation to
--------------------------------------------------------------
Deliver Aircraft.
- ----------------
-3-
<PAGE>
(i) Lessee acknowledges and agrees that Lessor's ability to perform
its obligations to deliver the Aircraft in the condition, at the time, at the
location and otherwise as specified in this Agreement is dependent upon, among
other things, delivery of the Aircraft under, and at the time, at the location
and otherwise in accordance with, the Purchase Agreement. Lessee also
acknowledges and agrees that Lessor may delay in the delivery of, or fail to
deliver, the Aircraft for reasons of Force Majeure.
(ii) Lessor shall use reasonable efforts to give advance written
notice to Lessee of any change in the Delivery Date.
(iii) Accordingly, if, owing to (y) any delay in the delivery of, or
failure to deliver, the Aircraft to Lessee due to a delay in the delivery of the
Aircraft to Lessor pursuant to the terms of the Lease and/or (z) reasons of
Force Majeure, Lessor shall delay in the delivery of the Aircraft under this
Agreement beyond the calendar date specified in the definition of "Delivery
Date," then Lessee shall accept delivery of the Aircraft on the first Business
Day after such date on which Lessor has possession of the Aircraft at the
Delivery Location; provided, however, that if delivery of the Aircraft under
this Agreement is delayed beyond the Commitment Termination Date, then either
party hereto may, by written notice to the other, terminate this Agreement and
each other Operative Document, whereupon neither Lessor nor Lessee shall have
any further obligation to the other hereunder or thereunder and any amounts of
Basic Rent, and the Initial Deposit and Security Deposit paid by Lessee prior to
such termination shall be promptly returned by Lessor to Lessee. In the event
of any such delay or any eventual termination of this Agreement, Lessor shall
not be responsible for any losses, including loss of profit, costs or Expenses
arising therefrom suffered or incurred by Lessee.
(e) Conditions.
----------
(1) Conditions Precedent to the Obligations of Lessor. The
-------------------------------------------------
obligation of Lessor to lease the Aircraft and the Aircraft Documents to
Lessee is subject to the satisfaction on the Delivery Date of the
conditions precedent set forth below:
(i) The following documents shall have been duly authorized,
executed and delivered by the respective party or parties thereto and
shall be in full force and effect:
(A) this Lease Agreement;
(B) the Initial Lease Supplement (to be delivered on the
Delivery Date);
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<PAGE>
(C) the Acceptance Certificate (to be delivered on the
Delivery Date); and
(D) the Trust Agreement.
(ii) The Lessor shall have received the following, in each
case in form and substance reasonably satisfactory to it: a copy of
the certificate of incorporation of Lessee and a copy of the general
authorizing resolutions of the board of directors (or executive
committees) or other reasonably satisfactory evidence of authorization
of Lessee certified as of the Delivery Date by the Secretary or an
Assistant Secretary of Lessee, which authorize the execution, delivery
and performance by Lessee of all the Operative Documents to which it
is a party, together with such other documents and evidence with
respect to Lessee as Lessor or its counsel may reasonably request in
order to establish the consummation of the transactions contemplated
hereby, the taking of all corporate proceedings in connection
therewith and compliance with the conditions herein set forth.
(iii) All appropriate action required to have been taken
prior to the Delivery Date by the Federal Aviation Administration or
any governmental or political agency, subdivision or instrumentality
of the United States in connection with the transactions contemplated
hereby shall have been taken, and all orders, permits, licenses,
waivers, authorizations, exemptions and approvals of such entities
required to be in effect on the Delivery Date in connection with the
transactions contemplated hereby shall have been issued, and all such
orders, permits, licenses, waivers, authorizations, exemptions and
approvals shall be in full force and effect on the date hereof and on
the Delivery Date (no such orders, permits, licenses, waivers,
authorizations, exemptions and approvals shall be issued on a
temporary basis pending further review by the entity requiring such to
be in effect).
(iv) On the Delivery Date, (A) the representations and
warranties of Lessee contained in Section 4(b) hereof shall be true
and accurate as though made on and as of such date, except to the
extent that such representations and warranties relate solely to an
earlier date (in which case such representations and warranties shall
be true and accurate on and as of such earlier date), (B) no event
shall have occurred and be continuing, or would result from the lease
of the Aircraft, which constitutes (or would, with the passage of time
or the giving of notice or both, constitute) an Event of Default
hereunder, and (C) no event shall have occurred that may reasonably be
expected to adversely affect the ability of Lessee to perform its
obligations under the Operative Documents.
-5-
<PAGE>
(v) Lessor shall have received an opinion from the
General Counsel of Lessee, in form and substance satisfactory to it.
(vi) Lessor shall have received a certificate signed by
the President or any Vice President of Lessee certifying as to the
matters with respect to such party specified in clause (iv) above.
(vii) Lessor shall have received an independent insurance
broker's report, and certificates of insurance, in form and substance
reasonably satisfactory to Lessor, as to the due compliance with the
terms of Section 11 and Exhibit F hereof relating to insurance with
respect to the Aircraft.
(viii) No action or proceeding shall have been instituted
nor shall governmental action be threatened before any United States
or foreign court or governmental agency, nor shall any order, judgment
or decree have been issued or proposed to be issued by any United
States or foreign court or governmental agency at the time of the
Delivery Date to set aside, restrain, enjoin or prevent the completion
and consummation of this Lease or the transactions contemplated hereby
and thereby.
(ix) No change shall have occurred after the date of
execution and delivery of this Lease in applicable law or regulations
thereunder or interpretations thereof by appropriate regulatory
authorities which, in the reasonable opinion of Lessor, would make it
a violation of a law or regulations for Lessor to execute, deliver and
perform its obligations hereunder or under any other Operative
Document to which it is a party.
(x) All proceedings taken in connection with the
transactions contemplated hereby and by the Operative Documents and
all documents and papers relating hereto and thereto shall be
reasonably satisfactory to Lessor and its counsel, and Lessor and its
counsel shall have received copies of such documents and papers as
such Person may reasonably request, in connection herewith and
therewith or as a basis for such counsel's closing opinion, all in
form and substance satisfactory to Lessor and its counsel.
(xi) The Purchase Agreement shall have been executed and
delivered and Air Invest shall have delivered the Aircraft to Lessor
in accordance with the terms thereof.
(xii) The Aircraft shall be registered with the FAA in
the name of the Lessor.
-6-
<PAGE>
(xiii) Lessor shall have received an opinion from
Daugherty, Fowler & Peregrin, special FAA counsel, in form and
substance satisfactory to it.
(xiv) Prior to the Delivery Date, Lessee shall have
provided to Lessor a written summary of the proposed Maintenance
Program and such information reasonably requested by Lessor regarding
the proposed Maintenance Program and the minimum equipment list
required by the FAA, in each case, for the Aircraft (including,
without limitation, evidence that the FAA has approved the Maintenance
Program and such minimum equipment list), and Lessor shall have
reviewed and approved such summary of the proposed Maintenance Program
and such minimum equipment list.
(xv) Lessor shall receive from Lessee a good standing
certificate from the Secretary of State of Colorado;
(xvi) A precautionary Uniform Commercial Code financing
statement shall have been executed, delivered and filed by the Lessee.
The conditions specified in this Section 2(e)(1) are inserted 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 the said
conditions are outstanding on the Delivery Date and Lessor (in its absolute
discretion) nonetheless agrees to deliver the Aircraft to Lessee, Lessee
shall ensure that such outstanding conditions are fulfilled within such
time period as Lessor shall reasonably select and Lessor shall be entitled
to treat the failure of Lessee to perform such outstanding conditions
within the selected time period as an Event of Default.
(2) Conditions Precedent to the Obligations of Lessee. The
-------------------------------------------------
obligation of Lessee to accept delivery of the Aircraft and the Aircraft
Documents under this Lease is subject to the fulfillment to the
satisfaction of Lessee prior to or on the Delivery Date of the conditions
precedent set forth below:
(i) The Lessor Documents shall have been duly authorized,
executed and delivered by Lessor, shall be in full force and effect on
the Delivery Date, and a Lessor executed counterpart of each shall
have been delivered to Lessee or its counsel.
(ii) On the Delivery Date, the representations and
warranties of Lessor contained in Section 4(a) hereof shall be true
and accurate as though made on and as of such date, except to the
extent that such representations and warranties relate solely to an
earlier date (in which case such representations and warranties shall
be true and accurate on and as of such earlier date).
-7-
<PAGE>
(iii) No action or proceeding shall have been instituted
nor shall governmental action be threatened before any United States
or foreign court or governmental agency, nor shall any order, judgment
or decree have been issued or proposed to be issued by any United
States or foreign court or governmental agency at the time of the
Delivery Date to set aside, restrain, enjoin or prevent the completion
and consummation of this Lease or the transactions contemplated hereby
and thereby.
SECTION 3. Term and Rent.
-------------
(a) Term. Unless earlier terminated pursuant to the provisions
----
hereof, the Term shall commence on the Delivery Date at the Delivery Time and
end on the Lease Expiry Date at the Delivery Time.
(b) Basic Rent. Lessee shall pay to Lessor basic rent ("Basic Rent")
----------
for the Aircraft in the amount per month equal to the amount set forth on
Exhibit B hereto for the Aircraft, payable monthly in advance on the Base Term
Commencement Date and the first day of each month thereafter during the Term
(each, a "Basic Rent Payment Date"); provided that Basic Rent payable for the
period commencing on the Base Term Commencement Date and ending on the last day
of the month in which the Base Term Commencement Date occurs shall be an amount
equal to the sum of each applicable Basic Rent multiplied by a fraction the
numerator of which is the number of days from and including the Base Term
Commencement Date to and including the last day of the month in which the Base
Term Commencement Date occurred and the denominator is 30 days. The Base Term
Commencement Date shall be the date which is 21 days after the Delivery Date.
Lessee shall have no obligation to pay Basic Rent for the period from the
Delivery Date through (but not including) the Base Term Commencement Date;
provided, however, if the Aircraft is put into service by Lessee earlier than
forty-two (42) days after the Delivery Date, then Lessee shall pay to Lessor
additional Basic Rent on the first Basic Rent Payment Date after Lessee's
payment obligation under this Section 3(b) arises for the period from (A) the
date which is (x) one-half (1/2) the number of days between the Delivery Date
and the date the Aircraft is placed in service after (y) the Delivery Date to
(B) the Base Term Commencement Date, at a rate per day equal to the Daily Rate
as set forth in Exhibit B hereto.
(c) Supplemental Rent. Lessee shall pay (or cause to be paid)
-----------------
promptly to Lessor, or to whomsoever shall be entitled thereto, any and all
Supplemental Rent constituting Stipulated Loss Value, Maintenance Reserves and
all other amounts of Supplemental Rent as the same shall become due and owing,
and in the event of any failure on the part of Lessee to pay any Supplemental
Rent when due, Lessor shall have all rights, powers and remedies provided for
herein or in any other Operative Document or by law or equity or otherwise in
the case of nonpayment of Basic Rent. Lessee will also pay to Lessor, or to
whomsoever shall be entitled thereto, as Supplemental Rent, to the extent
permitted by applicable law, interest at
-8-
<PAGE>
the Overdue Rate with respect to any payment of Basic Rent not paid prior to
12:00 p.m., Chicago time, on the date when due for any period for which the same
shall be overdue and on any payment of Supplemental Rent not paid prior to 12:00
p.m., Chicago time, on the date when due for the period until the same shall be
paid.
(d) Payments in General. All payments of Rent payable to Lessor shall
-------------------
be made without set-off directly by Lessee by wire transfer of immediately
available funds prior to 12:00 p.m., Chicago time, on the date of payment in
Dollars, to the following account of the Owner Participant:
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
Account #401-689-5
ABA #071-000-288
Ref: Frontier Airlines, Inc.
ATTN: Ida Renaud
or to such other account as the Owner Participant shall direct in a notice to
Lessee at least five (5) Business Days prior to the date such payment of Rent is
due.
Notwithstanding anything to the contrary contained herein, if any date
on which a payment of Rent becomes due and payable is not a Business Day, then
such payment shall be made on the immediately succeeding Business Day without
adjustment to the amount of interest which would otherwise be due and owing on
the date scheduled for such payment.
(e) Security Deposit.
----------------
(i) Initial Deposit. Lessee has previously paid to Lessor, as
---------------
security for its obligations hereunder, * in cash (the "Initial Deposit").
The Initial Deposit shall be and remain the property of Lessor unless the
Delivery Date fails to occur due to (i) the fact that Lessee is not satisfied
with the correction of discrepancies noted by it during the Preliminary
Inspection pursuant to Section 2(c)(ii) hereof; (ii) Lessor does not purchase
the Aircraft pursuant to the Purchase Agreement; or (iii) Lessor does not
deliver the Aircraft under this Agreement, in which case Lessor will return the
Initial Deposit without interest.
(ii) Security Deposit. Lessee shall on or prior to the Delivery Date
----------------
pay to Lessor as security for its obligations hereunder * in immediately
available Dollars (the "Security Deposit") (the Initial Deposit to be credited
towards Lessee's obligations to make such payment). In lieu of payment of the
Security Deposit, Lessee may cause an irrevocable letter of credit substantially
in the form of Exhibit I hereto (the "Letter of Credit") issued by a U.S. Money
Center Bank (the "Letter of Credit Bank") to be issued in favor of Lessor in an
amount equal to * (the "Stated Amount") on the following terms and
conditions
-9-
<PAGE>
(A) Drawings under any Letter of Credit may be made by Lessor in part
or in full upon the occurrence of any of the following (each, a
"Drawing Event"):
(1) if Lessor receives a notice from the Letter of Credit Bank
that it will not renew such Letter of Credit, and Lessee
fails to provide Lessor with a substitute Letter of Credit
in the Stated Amount by the 10th Business Day preceding the
day on which the existing Letter of Credit is to expire; or
(2) if an Event of Default shall have occurred and be
continuing.
(B) Forty-five (45) days after the Lease Expiry Date, and provided
Lessee shall have satisfied all of its obligations hereunder
(other than potential contingent obligations (of which Lessor has
no knowledge) under the indemnity provisions of this Agreement),
Lessor shall take any and all actions which Lessee may reasonably
request to terminate and return to Lessee any outstanding Letter
of Credit.
(iii) If at any time Lessor makes a drawing on the Letter of Credit
in excess of the amount then owing to Lessor hereunder, such excess amount shall
be treated as a deposit held by Lessor as security for Lessee's obligations
hereunder (such excess amount being referred to herein as the "Letter of Credit
Deposit"). In the event of the occurrence of the foregoing, Lessee may obtain a
replacement Letter of Credit in an amount equal to the Letter of Credit Deposit.
If Lessee obtains such a replacement Letter of Credit and provided that no
Default or Event of Default has occurred and is continuing, Lessor shall return
the balance of the Letter of Credit Deposit to Lessee.
(iv) At any time during the Term while a Letter of Credit shall
remain outstanding and provided that no Default or Event of Default has occurred
and is continuing Lessee shall have the option of providing Lessor with a
Security Deposit in the Stated Amount and Lessor will promptly thereafter
terminate and return to Lessee the outstanding Letter of Credit.
(v) Any of the Initial Deposit, the Security Deposit or Letter of
Credit Deposit (collectively, the "Deposit") shall be held by Lessor during the
Lease Term as security for the full and punctual performance of all of Lessee's
obligations to Lessor under this Agreement including, without limitation,
satisfaction of the requirements of the condition of the Aircraft at the end of
the Lease Term as set forth in Section 7; provided, however, that, if Lessee
provides the Letter of Credit in the full amount of the Security Deposit, then,
so long as no Event of Default shall have occurred and be continuing, Lessor
shall credit the Initial Deposit toward Lessee's payment of Basic Rent on the
Deliver Date and, if any amounts remain thereafter, on the next succeeding Basic
Rent Date. Lessee acknowledges that Lessor may
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<PAGE>
commingle any Deposit with its general funds. Lessee hereby grants to Lessor a
security interest by way of priority security interest in its interest, if any,
in any Deposit and hereby charges to Lessor any and all of Lessee's right, title
and interest therein, if any, as security for Lessee's obligations hereunder. No
interest shall accrue in favor of Lessee in respect of any Deposit held by
Lessor. At the end of the Lease Term, upon satisfactory performance by Lessee of
all of its obligations hereunder (other than potential contingent obligations
(of which Lessor has no knowledge) under the indemnity provisions of this
Agreement), Lessor shall refund any remaining Deposit to Lessee. Lessor's
obligations in respect of the return of the Deposit and payment of interest
shall be those of a debtor of Lessee, not as a trustee or other fiduciary.
(vi) If an Event of Default shall have occurred and be continuing,
Lessor may, but shall not be obliged to, apply the Deposit (or any amount drawn
under any Letter of Credit provided hereunder) in whole or in part for the
payment of any Rent, indemnities, legal fees and other expenses, insurance and
other casualty payments and any other amount owing from time to time by Lessee
under this Agreement, for the payment of any loss or damage suffered by Lessor
as a result of any Event of Default or utilize the Deposit (or any amount drawn
under any Letter of Credit provided hereunder) in whole or in part to perform
any of Lessee's obligations under this Agreement or to otherwise remedy any
circumstance giving rise to an Event of Default, including in the redelivery
condition of the Aircraft, without prejudice to any other remedy of Lessor (it
being understood that an application of the Deposit (or amount drawn under a
Letter of Credit) shall not constitute a cure of any Event of Default unless and
until Lessee shall have complied with the following sentence). In any such event
Lessee shall, on demand, restore the Deposit to the Stated Amount by payment to
Lessor of an amount in cash equal to such amount or by increasing the amount
available to be drawn on any Letter of Credit then held by Lessor pursuant to
the foregoing.
SECTION 4. Representations, Warranties and Covenants.
-----------------------------------------
(1) LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-
IS." LESSEE ACKNOWLEDGES AND AGREES THAT AS BETWEEN LESSOR AND LESSEE (A)
THE AIRFRAME AND EACH ENGINE ARE OF A SIZE, DESIGN, CAPACITY AND
MANUFACTURE SELECTED BY AND ACCEPTABLE TO LESSEE, (B) LESSEE IS SATISFIED
THAT THE AIRFRAME AND EACH ENGINE ARE SUITABLE FOR ITS PURPOSES, (C) LESSOR
IS NOT A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND, AND (D) LESSOR
HAS NOT MADE, AND LESSOR SHALL NOT BE DEEMED TO HAVE MADE, WHETHER BY
VIRTUE OF HAVING LEASED THE AIRCRAFT AND THE AIRCRAFT DOCUMENTS UNDER THIS
LEASE, OR HAVING ACQUIRED THE AIRCRAFT AND THE AIRCRAFT DOCUMENTS, OR
HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO
ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS
-11-
<PAGE>
LEASE OR OTHERWISE, AND LESSOR, EXCEPT AS EXPRESSLY REPRESENTED HEREIN, WILL BE
DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE FOR ANY PARTICULAR PURPOSE OF THE AIRCRAFT,
THE AIRCRAFT DOCUMENTS OR ANY PART THEREOF, AS TO THE QUALITY OF THE MATERIAL OR
WORKMANSHIP WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE
OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF
ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING
FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE
AIRCRAFT, THE AIRCRAFT DOCUMENTS OR ANY PART THEREOF, except that Lessor (i)
represents and warrants that (x) on the Delivery Date, Lessor has whatever title
to the Aircraft and the Aircraft Documents as was conveyed to it pursuant to the
Purchase Agreement and (y) it has the power and authority to lease the Aircraft
and Aircraft Documents to Lessee pursuant to the terms hereof, and (ii) subject
to Section 13 hereof, covenants that it will not, through its own actions,
interfere in, or take any action intended to be inconsistent with, Lessee's
quiet enjoyment, use, possession or operation of the Aircraft or permit third
parties acting under color of claim against Lessor or its predecessors in
interest to interfere in, or take any action intended to be inconsistent with,
Lessee's quiet enjoyment, use, possession or operation of the Aircraft, in each
case unless a Default or an Event of Default has occurred and is continuing.
(2) Lessor further represents and warrants that as of the
Delivery Date:
(i) it is a national banking association duly organized and
validly existing in good standing under the laws of the jurisdiction
of its organization and has the corporate power and authority to enter
into and perform its obligations under the Lessor Documents;
(ii) each of the Lessor Documents has been duly authorized
by all necessary corporate action on its part, and neither the
execution and delivery thereof nor its performance of or compliance
with any of the terms and provisions thereof will violate any federal
or Delaware law or regulation or contravene or result in any breach
of, or constitute any default under its charter or by-laws or the
provisions of any indenture, mortgage, contract or other
-12-
<PAGE>
agreement to which it is a party or by which it or its properties may
be bound or affected;
(iii) each of the Lessor Documents has been duly executed
and delivered by it; and
(iv) each of the Lessor Documents is a legal, valid and
binding obligation of Lessor, enforceable against Lessor in accordance
with its respective terms.
(a) Lessee's Representations, Warranties and Covenants. Lessee
--------------------------------------------------
hereby represents and warrants to Lessor that:
(i) Lessee is a corporation duly organized and validly existing
in good standing, in accordance with the laws of the State of Colorado and
has the corporate power and authority, and all material licenses, rights,
permits, certificates, franchises and other privileges, necessary to
perform its obligations under this Lease and the other Operative Documents
to which it is a party; Lessee is duly qualified to do business as a
foreign corporation in each jurisdiction in which its operations or the
nature of its business requires; and Lessee is a "citizen of the United
States" and an "air carrier" as such terms are defined in 49 U.S.C. Section
40102(a) operating pursuant to operating certificates issued under 49
U.S.C. Sections 41102 and 44705;
(ii) The execution, delivery and performance by Lessee of this
Lease and the other Operative Documents to which it is a party have been
duly authorized by all necessary corporate action on the part of Lessee and
neither the execution and delivery hereof or thereof nor the consummation
of the transactions contemplated hereby and by the other Operative
Documents to which it is a party nor compliance by Lessee with any, nor
Lessee's performance of all, of the terms and provisions hereof or thereof
will contravene or has contravened any judgment or order applicable to or
binding on it or any applicable law or conflict with, result in any breach
of, or constitute any default under, its corporate charter or by-laws or
conflict with, result in the creation of a Lien under, or require the
consent of any trustee or creditor pursuant to, any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease, bank
loan or credit agreement or other agreement or instrument to which Lessee
is a party or by which it or its assets are bound, which in any such case
would have a material adverse effect upon Lessee or its ability to perform
its obligations hereunder;
(iii) Lessee has received and has complied with every necessary
consent, approval, order, or authorization of, or registration with, and
has given prior notice to, each government body having jurisdiction with
respect to the execution and delivery of this Lease and the other Operative
Documents to which it is a party, and to perform any of the transactions
and obligations contemplated hereby and thereby
-13-
<PAGE>
required to be obtained or given by it, where failure to do so would have
an adverse effect upon Lessee or its ability to perform its obligations
hereunder;
(iv) This Lease and the other Operative Documents to which it is
or will be a party have been duly executed and delivered by Lessee and,
assuming the due authorization, execution and delivery thereof by the other
parties thereto, constitute or will constitute legal, valid and binding
obligations of Lessee, enforceable against it in accordance with their
respective terms, except as enforceability of any Operative Document is
subject to bankruptcy, insolvency or similar laws affecting creditors'
rights generally;
(v) Except for the filing for recordation of this Lease and
the Lease Supplement with the FAA, no further filing or recording of this
Lease, and no further action is necessary, under the laws of the United
States, in order to fully protect and establish Lessor's interests in the
Aircraft and this Lease as against Lessee or any third party;
(vi) There are no suits or legal proceedings (including any
administrative proceeding) pending or threatened before any court or
administrative agency 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 hereunder;
(vii) Lessee has not taken any corporate action nor have other
steps been taken or legal proceedings been started or (to the best of
Lessee's knowledge and belief) threatened against it for its winding-up,
dissolution, administration or re-organization or for the appointment of a
receiver, administrator, administrative receiver, trustee or similar
officer of it or of any or all of its assets or revenues;
(viii) Lessee is not in breach of or in default under any
agreement to which it is a party or which is binding on it or any of its
assets to an extent or in a manner which would have a material adverse
effect on its ability to perform its obligations under this Agreement and
each other Operative Document to which it is a party;
(ix) No Default or Event of Default has occurred and is
continuing;
(x) The annual and first quarter financial statements of
Lessee dated March 31, 1996 and June 30, 1996 (copies of which were
provided to the Lessor) were prepared in accordance with generally accepted
accounting principles and consistently applied and give (in conjunction
with the notes thereto) a true and fair view of the financial condition of
the Lessee at the dates as of which they were prepared and the results of
Lessee's operations during the financial year and month then ended;
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(xi) Since publication of the financial statements referred to in
(x) above, there has been no material adverse change in the business or
financial condition of Lessee; and
(xii) Lessee's chief executive office, as such term is defined
in Article 9 of the Uniform Commercial Code as in effect from time to time
in the State of Colorado, is located at 12015 East 46th Street, Denver,
Colorado 80239.
(b) Covenants of Lessee.
-------------------
(i) Maintenance of Corporate Existence. Lessee will continue to
----------------------------------
operate as a U.S. Air Carrier and will preserve and maintain its corporate
existence and its rights, privileges, licenses and franchises material to
Lessee's ability to perform its obligations hereunder and under the other
Operative Documents in each applicable jurisdiction, and Lessee shall take all
actions within Lessee's reasonable control necessary to allow Lessor to become,
and remain, throughout the Term, entitled to the benefits of Section 1110 of the
United States Bankruptcy Code in any action or proceeding before any court in
which Lessee is the debtor;
(ii) Payment of Taxes. Lessee will pay or cause to be paid all
----------------
Taxes imposed upon it, or upon its income or profits, or upon any property
belonging to it, on or prior to the due date thereof, including any extensions
which have been duly obtained or granted except to the extent Lessee has elected
in good faith to contest any such Tax with respect to which the failure to pay
would not result in a risk of criminal or civil liability for the Lessor or the
Owner Trustee or a material risk, of forfeiture of the Aircraft;
(iii) Financial Covenant. [Intentionally Reserved];
------------------
(iv) Permits and Licenses. Lessee shall make or obtain, and
--------------------
maintain in full force and effect, each and every consent, license, approval,
notice, registration, filing or other action with any government body the lack
of which would have an adverse effect upon the operation, performance or use of
the Aircraft, the Airframe, any Engine or Part or the execution, delivery or
performance of this Lease;
(v) Compliance with Laws. Lessee shall comply with all laws and
--------------------
regulations from time to time in force in the United States and in any country
to, from, in or over which the Aircraft is flown;
(vi) Further Acts. At its own expense from time to time Lessee
------------
shall do and perform such other and further acts and execute and deliver any and
all further instruments as may be required by law or reasonably requested by
Lessor to establish, maintain and protect the respective rights and remedies of
Lessor and to carry out and give effect to the intents and purposes of this
Agreement and the parties hereto;
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<PAGE>
(vii) Reporting Requirements. Lessee shall comply with the
----------------------
reporting requirements set forth in Exhibit G hereto;
(viii) Maintain Certificates, Consents, etc. Lessee shall
-------------------------------------
obtain and maintain all necessary governmental and other certificates, consents,
licenses, permits and authorizations and take all action which may be necessary
or desirable for the continued due performance of Lessee's obligations under
this Agreement and for the use and operation of the Aircraft;
(ix) Notification. Lessee shall notify Lessor as soon as
------------
practicable after becoming aware of any loss, theft, damage or destruction of or
to the Aircraft (including any Engine) or any Part of any thereof if the
potential cost of repair or replacement may exceed $100,000 (One Hundred
Thousand Dollars); and
(x) Records. Lessee shall keep accurate, complete and current
-------
records in English of all flights made by the Aircraft during the Term and all
records required pursuant to Section 7(a)(1) hereof. Such records shall be kept
in such manner as the FAA may from time to time require (including, without
limitation, pursuant to any applicable FARs). Upon Lessor's request, Lessee
shall provide Lessor and/or Lessor's technical advisor access to complete
updated copies of all such records and to the Maintenance Program; and Lessor
and/or Lessor's technical advisor may, at Lessor's cost and expense, make copies
or reproductions of any thereof, provided, however, with respect to the
Maintenance Program, Lessor and any of Lessor's technical advisors shall
deliver, or cause to be delivered, a confidentiality agreement with regard
thereto in form and substance reasonably satisfactory to Lessee (which agreement
shall, however, allow access to such records and Maintenance Program for the
purposes of performing maintenance in regard to the Aircraft or for the purpose
of transitioning the Aircraft to another operator's maintenance program at the
end of the Term).
SECTION 5. Return of the Aircraft.
----------------------
(a) Return of the Aircraft; Condition Upon Return. On the expiration
---------------------------------------------
or earlier termination of this Lease with respect to the Aircraft, Lessee will
(at Lessee's sole expense) return the Aircraft, together with the Aircraft
Documents with respect thereto, to Lessor at such location in the continental
United States as shall be notified to Lessee by Lessor (any such location being
herein called the "Return Location"). At the time of any such return the
---------------
Aircraft to be returned shall be in compliance with Exhibit E hereto and the
parties hereto shall execute the Return Certificate attached as Exhibit E-1
hereto. In the event that the Airframe (with respect to the next "D" Check or
its equivalent under the Maintenance Program), either Engine, any landing gear
or life limited or time controlled part shall have less than their required
amount of time remaining (based upon Exhibit E hereto), an economic adjustment
based upon Lessee's historical maintenance costs shall be negotiated. The
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appropriate Maintenance Reserve Account balances shall be available to the
Lessee to comply with this paragraph.
(b) Manuals. Upon the return of the Aircraft upon any termination of
-------
this Lease with respect to such Aircraft in accordance with paragraph (a) of
this Section 5, Lessee shall deliver or cause to be delivered to Lessor all
Aircraft Documents and any other logs, manuals, drawings and data and
inspection, maintenance, modification and overhaul records required to be
maintained during the Term (in each case in English) by the FAA. In addition,
Lessee shall re-assign to Lessor, at the expense of Lessee, the benefit of any
manufacturer's warranty which has been assigned to Lessee with respect to the
Aircraft.
(c) Cooperation. During the Term, with reasonable notice, Lessee will
-----------
cooperate, at Lessor's cost, in all reasonable respects with the efforts of
Lessor to sell or lease (after expiration of the applicable Term) the Aircraft
and the Aircraft Documents and the documents referred to in Section 5(b) with
respect thereto, including, without limitation, permitting prospective
purchasers or lessees to inspect the Aircraft and the Aircraft Documents, and
the documents referred to in Section 5(b) with respect thereto, all in
accordance with Section 12 hereof. In addition, if Lessor requests at any time
prior to or after the end of the applicable Term (but in any event within 90
days after the end of the applicable Term), Lessee will, at Lessor's expense,
assist Lessor in transitioning the Aircraft to the next operator's maintenance
program, provided, however, such assistance shall not disrupt Lessee's operation
of the applicable Aircraft or otherwise unreasonably interfere with the business
or operations of the Lessee.
(d) Extension of Term Due to Conditions upon Return. Should
-----------------------------------------------
redelivery of the Aircraft and the Aircraft Documents and the documents referred
to in Section 5(b) with respect thereto from Lessee to Lessor be delayed (which
delay shall be deemed to have occurred until Lessee shall have complied with all
of the return conditions set forth in this Section 5 and Exhibit E with respect
to the Aircraft) beyond the date required by the terms of this Lease, all of
Lessee's obligations under this Lease with respect to the Aircraft will remain
in full force and effect, including, without limitation the obligation (subject
to Section 5(e) hereof) to pay Rent hereunder with respect to the Aircraft;
provided, however, that Lessee shall pay Basic Rent for the Aircraft during any
extension pursuant to this Section 5(d) at a rate equal to 150% of the Basic
Rent that was payable by Lessee immediately prior to the scheduled return date
of the Aircraft.
(e) Non-Compliance. To the extent that, at the time of the Final
--------------
Inspection of the Aircraft, the condition of the Aircraft and the Aircraft
Documents or the documents referred to in Section 5(b) with respect to the
Aircraft does not comply with this Section 5 and Exhibit E, Lessee will, at its
sole cost and expense, diligently proceed to rectify any defect or non-
compliance as promptly as practicable (and in any event within thirty (30) days)
to Lessor's reasonable satisfaction; and the Term will be automatically extended
and this Lease will remain in full force and effect as provided in Section 5(d)
above with respect to the
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<PAGE>
Aircraft. If Lessee shall not have rectified any such defect or non-compliance
within such thirty day period, Lessee shall, upon expiration of such thirty day
period (unless Lessor shall request an earlier redelivery), redeliver the
Aircraft and the Aircraft Documents and the documents referred to in Section
5(b) with respect thereto to Lessor and Lessor shall, at Lessee's sole expense,
diligently proceed to rectify such defect or non-compliance to Lessor's
reasonable satisfaction and the applicable Term will be automatically extended
and this Lease will remain in full force and effect as provided in Section 5(d)
above until the date on which such defect or non-compliance has been so
rectified.
(f) Aircraft Documents. Prior to the Return Date of the Aircraft and
------------------
upon Lessor's request, Lessee will provide Lessor or its representative or any
prospective lessee or purchaser of the Aircraft access to the Aircraft Documents
and the documents referred to in Section 5(b) with respect to the Aircraft, in
order to facilitate the transition, integration and bridging of the Aircraft
into any subsequent operator's fleet, and any thereof shall have the right to
make copies, at their expense, of such Aircraft Documents and the documents
referred to in Section 5(b) hereof.
SECTION 6. Liens. Lessee will not directly or indirectly create,
-----
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
title thereto or any interest therein or in this Lease, except (i) the
respective rights of Lessor and Lessee as herein provided and any other rights
existing pursuant to the Operative Documents, (ii) Lessor Liens, (iii) Liens for
Taxes of Lessee not yet due and (iv) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like Liens arising in the ordinary course of
Lessee's business securing obligations that are not overdue for a period of more
than 30 days so long as during such 30-day period there is not any material risk
of the sale, forfeiture or loss of any Airframe or any Engine or any interest in
any thereof. Lessee will promptly, at its own expense, take (or cause to be
taken) such actions as may be necessary duly to discharge any such Lien not
excepted above if the same shall arise at any time.
SECTION 7. Registration, Maintenance and Operation; Possession;
----------------------------------------------------
Insignia.
- --------
(a) (1) Registration and Maintenance. Lessee shall, at its sole
----------------------------
cost and expense, except as otherwise explicitly set forth below, commencing on
the Delivery Date and through the balance of the Term:
(i) cause the Aircraft to remain duly registered in the name of Lessor
with the FAA, the responsibility (including the cost except as expressly
provided for herein) of maintaining such registration will be Lessee's,
provided, however, that Lessor shall, at Lessee's expense, execute and
deliver all such documents as Lessee may reasonably request for the purpose
of maintaining and continuing such registration;
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<PAGE>
(ii) maintain, service, repair, and overhaul (or cause to be
maintained, serviced, repaired, and overhauled) the Aircraft (including,
without limitation, the Airframe, Engines, Parts, APU and landing gear of
the Aircraft):
(w) so as to keep the Aircraft in as good an operating condition
as when delivered by Lessor to Lessee hereunder (or, if better, the
condition immediately following the Initial Maintenance Visit),
ordinary wear and tear excepted, and so as to keep the Aircraft in
such condition as may be necessary to enable the airworthiness
certification for the Aircraft to be maintained in good standing at
all times (other than when the Aircraft is undergoing maintenance by
an FAA-approved maintenance provider) with the FAA,
(x) in compliance with (I) the Maintenance Program (Lessee shall
not change the Maintenance Program unless, if Lessee contemplates a
change in the Maintenance Program, Lessee shall, subject to the
proviso contained in Section 4(b)(x) hereof, provide a copy of the new
proposed program specifications to Lessor, certified as true and
correct by Lessee at least fifteen (15) Business Days prior to
implementation of the same and Lessor does not object to such change
within such fifteen (15) Business Day period) and providing for the
inspection of corrosion and the cleaning, repair and treatment thereof
in accordance with the corrosion treatment and correction criteria as
specified by the FAA approved corrosion prevention and control program
applicable to 737 Aircraft; (II) all manufacturer's mandatory service
bulletins applicable to 737 aircraft requiring compliance pursuant to
Section 7(a)(3) hereof, and (III) all applicable Airworthiness
Directives issued by the FAA with an effective date requiring
compliance pursuant to Section 7(a)(3) hereof;
(y) *
(z) in substantially the same manner as Lessee maintains,
services, repairs and overhauls similar aircraft and engines operated
by Lessee and without in any way discriminating against the Aircraft
whether by reason of the leased status thereof or otherwise,
including, without limitation, in regard to compliance with
Airworthiness Directives;
(iii) not install replacement components with excessive wear or having
an inferior value, utility or modification status or exchange components on
or in the Aircraft when the Aircraft is about to be returned to Lessor for
other aircraft components in Lessee's possession for use on aircraft that
will remain in Lessee's possession after such return to reduce or avoid
future maintenance requirements on such aircraft; and
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<PAGE>
(iv) maintain, or cause to be maintained during the Term (as
applicable to the Aircraft), in English, all Aircraft Documents and other
records, logs and other materials required to be maintained in respect of
the Aircraft by the FAA or that are required to be returned with the
Aircraft pursuant to Section 5(b) hereof (which Aircraft Documents,
records, logs and other materials shall, as between Lessor and Lessee and
all parties claiming through Lessee, be kept at Lessee's maintenance
facilities in Denver, Colorado (or such other single location as Lessee may
designate in writing to Lessor), but shall be the property of Lessor;
provided, however, that the Aircraft Documents and other documents referred
to in Section 5(b) hereof with respect to the Aircraft shall become the
property of Lessee only upon the occurrence of an Event of Loss with
respect to the Aircraft and Lessee's compliance with Section 10 hereof with
respect to the Aircraft.
(2) Operation and Use. From and after the Delivery Date and for the
-----------------
balance of the Term:
(A) Lessee will not maintain, use, service, repair, overhaul or
operate the Aircraft or any Aircraft Documents (aa) in violation of the
rules and regulations of the FAA or any other law or any rule, regulation,
treaty, order or certificate of any government or governmental authority
having jurisdiction over the Aircraft or the Aircraft Documents, or an
owner or operator in respect thereof (including without limitation, any
country to, from, in or over which the Aircraft is flown), (bb) in
violation of any airworthiness certificate, license or registration
relating to the Aircraft issued by any such authority or (cc) contrary to
any recommendation of the manufacturer of the Airframe, the Engines or any
Part of any thereof.
(B) Lessee shall ensure that the crew and engineers employed by it in
connection with the operation and maintenance of the Aircraft shall have
such qualifications and hold such licenses as are required by applicable
law.
(C) Lessee shall use the Aircraft solely in commercial passenger
operations and shall not use or permit the Aircraft to be used for any
purpose for which it is not designed or reasonably suitable.
(D) Lessee shall 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 and
safekeeping of the animal; (ii) acids, toxic chemicals, other corrosive
materials, explosives, nuclear fuels, 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; or (iii) any other goods, materials or items of
cargo which could reasonably be expected to
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<PAGE>
cause damage to the Aircraft and which would not be adequately covered by
the insurance required by or obtained pursuant to the terms of this Lease.
(E) Lessee will not cause or permit the Aircraft to proceed to, or
remain at, any locations which are the subject of a prohibition order (or
any similar order or directive) by the federal government of the United
States or the United Nations.
(F) Lessee will not knowingly do or permit to be done anything which
may expose the Aircraft or any part thereof to penalty, forfeiture,
seizure, arrest, impounding, detention, confiscation, taking in execution,
attachment, appropriation or destruction nor abandon the Aircraft or any
part of any thereof and, if any such penalty, forfeiture, seizure, arrest,
impounding, detention, confiscation, taking in execution, attachment or
appropriation shall occur, Lessee shall give Lessor immediate notice
thereof and shall procure the immediate release of the Aircraft, or the
relevant part therefrom.
(G) Lessee will promptly pay or procure that all license and
registration fees, charges and all Taxes of any nature (together with any
penalties, fines or interest thereon) assessed or demanded by any
government or any revenue authority, upon or with respect to the delivery,
leasing, possession, use, operation or return of the Aircraft by Lessee are
promptly paid, and shall immediately provide Lessor, upon Lessor's request
(no more often than quarterly), with an itemized statement of all such
fees, charges or taxes outstanding as applied as of the date of such
request.
(H) Lessee will, on request of Lessor, furnish to Lessor evidence
satisfactory to Lessor that all charges incurred by Lessee with respect to
the Aircraft, including, without limitation, all payments due to any air
navigation control authorities, have been paid and discharged in full.
(I) Lessee will not at any time
(i) represent or hold out Lessor or Owner Participant as carrying goods or
passengers on the Aircraft or as being in any way connected or associated with
any operation of carriage (whether for hire or reward or gratuitously) which may
be undertaken by Lessee or (ii pledge the credit of Lessor or Owner Participant.
(J) Lessee will obtain or procure the obtaining of all and any
necessary certificates, licenses, permits and authorizations required for
the use and operation of the Aircraft, and for the making of payments
required by, and the compliance by Lessee with its other obligations under,
this Lease and will maintain each thereof or procure that each thereof is
maintained in full force and effect for so long as the same shall be
required.
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<PAGE>
(K) Lessee will, upon Lessor's request, keep Lessor, and if required
by the insurances required hereby, Lessee's insurers, informed as to
current engine serial numbers of the Engines and any engines installed on
the Aircraft in accordance with the provisions hereof, and the location of
any Engine for the time being not installed on the Airframe.
(L) Except as provided in Sections 7(b) and 10(b) hereof, Lessee shall
ensure that any Engine which is not installed on an Airframe is being
diligently repaired and shall keep any such Engine properly and safely
stored and free from Liens. Lessee may install (or cause to be installed)
on the Aircraft any Acceptable Alternate Engine not owned by Lessor if an
Engine is undergoing maintenance work as provided in Section 7(b) hereof
and no other Engine is available for installation on such Aircraft;
provided, however, that as promptly as practicable after the completion of
-------- -------
such maintenance in respect of such Engine, Lessee shall reinstall (or
shall cause the reinstallation of) such Engine on such Aircraft.
(M) Lessee shall ensure that the Aircraft is operated only in such
countries as the Lessee is permitted by applicable law. Lessee will not
operate the Aircraft (or allow the Aircraft to be on the ground), or suffer
or permit any Person to operate the Aircraft (or suffer or permit any
Person to keep the Aircraft on the ground), in or to any areas excluded
from coverage by any insurance required to be maintained by the terms of
Section 11 hereof.
(N) Lessee shall at all times comply with all requirements of all
insurance policies required to be maintained pursuant to Section 11 hereof
and not take any actions that would have the effect of voiding any such
policy.
(3) Airworthiness Directives. Lessee agrees to comply with all
------------------------
Airworthiness Directives which become due during the Term or are otherwise
required to be performed on the Aircraft within twelve (12) months following the
end of the Term (or, if such Airworthiness Directives shall relate to a cycle or
hour standard, the proportionate cycle or hour equivalent thereof). All
Airworthiness Directives shall be accomplished in strict compliance with all
issuing agency's specific instructions. Lessee shall include within the Aircraft
Documents all documentation necessary to establish the source data, method of
compliance, verification of accomplishment, quality assurance, and all schedules
of recurring action of any Airworthiness Directive.
(4) Service Bulletins. Lessee agrees, at its sole cost and expense,
-----------------
to incorporate into the Aircraft all those Airframe and Engine manufacturer and
other vendor service bulletins (other than "alert" service bulletins, it being
understood that "alert" service bulletins are Airworthiness Directives) which
Lessee plans to adopt during the Term for the rest of its 737 aircraft fleet.
The Aircraft, with respect to the rest of Lessee's fleet, shall not be
discriminated against in service bulletin compliance or other maintenance
matters.
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<PAGE>
(5) Corrosion Control. Lessee shall adopt and incorporate in the
-----------------
Maintenance Program specific measures for the control of corrosion in
conformance with the Airframe manufacturer's corrosion prevention manual, and
shall carry out such work as may be required to comply therewith, including
without limitation, periodic inspections by penetration of fuel tanks, periodic
inspection and clean-up under cargo areas and periodic treatment of all mild and
moderate corrosion and correcting of all severe or exfoliated corrosion in
accordance with the Maintenance Program.
(b) Possession. Lessee will not sublease or otherwise in any manner
----------
deliver, transfer or relinquish possession of any Airframe or any Engine or
install or permit any Engine to be installed on any airframe other than an
Airframe; provided that, so long as no Default or Event of Default shall have
occurred and be continuing at the time of such delivery, transfer or
relinquishment of possession or installation, and so long as the action to be
taken shall not deprive Lessor of its title or its interest to any of the
Equipment, Lessee may:
(i) deliver temporary possession and control of any Airframe or
any Engine or Part to the manufacturer thereof for testing, service,
maintenance, overhaul or repair or, to the extent permitted by Section 8,
for modifications or additions;
(ii) install an Engine on an airframe owned by the Lessee free
and clear of all Liens except Permitted Liens;
(iii) install an Engine on an airframe leased to the Lessee or
owned by the Lessee and subject to a security agreement under which the
Lessee is the debtor, provided that (A) such airframe is free and clear of
-------- ----
all Liens except the rights of the parties to such lease or security
agreement and except Permitted Liens, and (B) such lessor or secured party
shall not acquire any right, title or interest in such Engine; and
(iv) in the ordinary course of testing, servicing, maintenance,
repair or overhaul, remove any Part from an Airframe or any Engine,
provided that the Lessee replaces such Part as promptly as possible with a
--------
Part which has a value and utility at least equal to the Part being
replaced and is owned by the Lessee free and clear of all Liens except
Permitted Liens (it being understood that any Part, prior to its
installation on the Aircraft may have been (but will not upon installation
be) leased by Lessee under the terms of a parts lease agreement which
permits an exchange of ownership of parts); and any such replacement Part
shall thereby become subject to this Lease without necessity of further
act; provided, however, that any Part removed from an Airframe or any
--------
Engine for such purpose shall remain subject to this Lease until replaced
by a replacement Part as provided above in this clause (iv).
No transfer of possession or control or other right afforded the Lessee pursuant
to this Section 7(b) shall in any manner affect any of the obligations of the
Lessee under this Lease or under the other Operative Documents, which
obligations shall remain primary and shall continue to
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<PAGE>
the same extent as in the absence of such transfer or other right. In the event
that the Lessor shall have received a written agreement or existing security
agreement or lease complying with the terms of clause (iii) of this Section
7(b), the Lessor hereby agrees for the benefit of the lessor or secured party
furnishing such agreement that the Lessor will not acquire or claim, as against
such lessor or secured party, any right, title or interest in any engine owned
by such lessor or in which such secured party has a security interest by reason
of such engine being installed on the Airframe.
(c) Insignia. Lessee agrees to affix and maintain (or cause to be
--------
affixed and maintained) in the cockpit of the Airframe adjacent to the
registration certificate therein and on each Engine a nameplate (no smaller than
5" x 7") bearing the inscription:
"This [Aircraft]/[Engine] is owned by First Security Bank, National
Association, not individually but solely as Owner Trustee."
(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Lessor, as permitted under the Operative Documents).
Except as above provided, Lessee will not allow the name of any Person
to be placed on any Airframe or any Engine as a designation that might be
interpreted as a claim of ownership; provided that nothing herein contained
shall prohibit Lessee from placing its customary colors and insignia on any
Airframe or any Engine.
(d) Maintenance Reserves. In addition to installments of Basic Rent,
--------------------
Lessee shall pay maintenance reserves monthly in arrears in an amount equal to
the amount set forth on Exhibit B hereto under the heading ""D" Check
Maintenance Reserves" per Hour of operation (or portion thereof) of the Airframe
(the ""D" Check Maintenance Reserves"), plus the amount set forth on Exhibit B
hereto under the heading "Landing Gear Maintenance Reserves" per Hour (or
portion thereof) of the Airframe (the "Landing Gear Maintenance Reserves"), plus
the sum of the amount set forth on Exhibit B hereto under the heading "Life
Limited Parts Maintenance Reserves" per Hour (or portion thereof) of each of the
Engines (the "Life Limited Parts Maintenance Reserves"), plus the amount set
forth on Exhibit B hereto under the heading "Engine Maintenance Reserves" per
Hour (or portion thereof) of each of the Engines (the "Engine Maintenance
Reserves"; and the "D" Check Maintenance Reserves, the Engine Maintenance
Reserves, the Life Limited Parts Maintenance Reserves and the Landing Gear
Maintenance Reserves hereinafter may be referred to collectively as the
"Maintenance Reserves"). Each of the amounts set forth opposite "D" Check
Maintenance Reserves, Engine Maintenance Reserves, Landing Gear Maintenance
Reserves and Life Limited Parts Maintenance Reserves on Exhibit B is subject to
revision by Lessor on each anniversary of the Delivery Date based upon (A)
changes in actual maintenance cost, changes in the hourly earnings index (SIC
Code 3721), and the industrial commodities index, each index as published by the
U.S. Department of Labor, Bureau of Labor Statistics and (B) changes in
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<PAGE>
Lessee's operating Hours to Cycles ratio from 1.75 Hours to 1 Cycle (or such
ratio as was used for the previous years adjustment). On the tenth day of each
calendar month during the Term (or, if such date is not a Business Day, then the
next preceding Business Day), Lessee shall (i) transmit to Lessor an officer's
certificate in the form of Exhibit B-1 attached hereto setting forth the actual
number of Hours of operation of the Airframe and each Engine during the
immediately preceding month and the calculation of the Maintenance Reserves
payable with respect to such operation and (ii) pay Lessor on or before such
date, in the manner set forth in Section 3(d) hereof, the applicable Maintenance
Reserves for such period. The "D" Check Maintenance Reserves shall be paid into
the "D" Check Maintenance Account, the Engine Maintenance Reserves for each
Engine shall be paid into separate Engine Maintenance Accounts, the Landing Gear
Maintenance Reserves shall be paid into the Landing Gear Maintenance Account and
the Life Limited Parts Maintenance Reserves shall be paid into the Life Limited
Parts Maintenance Account (the "D" Check Maintenance Account, the Engine
Maintenance Accounts, the Landing Gear Maintenance Account and the Life Limited
Parts Maintenance Account may be referred to collectively as the "Maintenance
Accounts"). Lessor shall note all deposits and disbursements from each
Maintenance Account and, within 10 days following Lessor's receipt of each
officer's certificate specified in clause (i) above, shall provide Lessee a
report of all such deposits and disbursements during the preceding calendar
month and setting forth the amount of Maintenance Reserves attributable to each
of the Maintenance Accounts at the end of such calendar month, which report
shall be conclusive absent manifest error by Lessor in producing such report.
As used herein, the terms ""D" Check Maintenance Account", "Engine
Maintenance Accounts", "Landing Gear Maintenance Account" and Life Limited Parts
Maintenance Account" (collectively the "Reserve Accounts"), shall mean accounts
kept by Lessor (or Owner Participant) on its books in which Lessor (or Owner
Participant) notes the deposits and disbursements from the respective Reserve
Account (or subaccount thereof). Lessor (or Owner Participant) need not
segregate the monies deposited in such Reserve Accounts (or subaccount thereof)
and may instead commingle such monies with its own funds. Interest accrued on
the Reserve Accounts shall be for the account of the Lessor and shall not be
available for drawdown by the Lessee.
So long as no Default or Event of Default then exists, and no Event of
Loss shall have occurred, but subject to the provisions of the next following
paragraph, Lessor shall distribute funds deposited in the Maintenance Accounts
as follows:
(a) funds deposited in the "D" Check Maintenance Account shall be
disbursed by Lessor to reimburse Lessee for its costs in performing, or causing
to be performed, a "D" Check maintenance visit required to be performed during
the Term pursuant to the Maintenance Program;
(b) funds deposited in a specific Engine Maintenance Account shall be
disbursed by Lessor to reimburse Lessee for its costs in performing, or causing
to be
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performed, Engine maintenance visits required to be performed on the
applicable Engine only during the Term pursuant to the Maintenance Program;
provided, however, that any funds deposited in the Engine Maintenance Accounts
shall not be used to pay for replacing life limited parts;
(c) funds deposited in the Landing Gear Maintenance Account shall be
disbursed by Lessor to reimburse Lessee for its costs in performing, or causing
to be performed landing gear shop visits required to be performed during the
Term pursuant to the Maintenance Program; and
(d) funds deposited in the Life Limited Parts Maintenance Account
shall be disbursed by Lessor to reimburse Lessee for its costs in replacing, or
causing to be replaced, life limited parts installed on the Engine (except to
the extent such replacement is as the result of improper maintenance or misuse,
off-wing engine mishandling or foreign object damage, with respect to which
Lessee shall be solely responsible).
Except as explicitly set forth herein, Lessor shall not be required to
reimburse Lessee for the payment of any costs incurred to the extent that the
amounts in the appropriate Maintenance Account shall be insufficient to
reimburse Lessee for its costs to which it would otherwise be entitled to
reimbursement from such Maintenance Account, nor shall Lessor be required to pay
or reimburse Lessee for the cost of work related to improper maintenance or
misuse, off-wing engine mishandling or foreign object damage, all such costs
relating to such work to be solely for Lessee's account. Notwithstanding the
foregoing, Lessor agrees that it shall reimburse Lessee for the following: (i)
* of costs incurred by Lessee in performing, or causing to be performed, the
first "D" Check maintenance visit for the Airframe during the Term to the extent
there are insufficient funds in the "D" Check Maintenance Account to otherwise
reimburse Lessee; (ii) * of costs incurred by Lessee in performing, or
causing to be performed, the first Engine Maintenance Visit for the Engine
bearing manufacturer's serial number 724892 to the extent there are insufficient
funds in the Engine Maintenance Account to otherwise reimburse Lessee; and (iii)
* of costs incurred in performing, or causing to be performed, the first
Engine Maintenance Visit for the Engine bearing manufacturer's serial number
725897 to the extent there are insufficient funds in the Engine Maintenance
Account to otherwise reimburse Lessee. In addition, Lessor shall reimburse
Lessee for Lessee's costs incurred in performing, or causing to be performed,
the Initial Maintenance Visit in an aggregate up to the sum of * which
Lessor is able to procure (using its best good faith efforts) from Air Invest as
a result of the Aircraft being painted white at the end of the Air Invest Lease.
Lessee shall give Lessor ninety (90) days (or such shorter period as
is reasonably practicable in the case of unplanned and non-deferrable
maintenance) prior written notice of any proposed "D" Check, "C" Check, Engine
shop visit, landing gear shop visit or life limited part replacement. Such
notice shall disclose the scope of the proposed work, the name of the
maintenance provider and the proposed cost of the maintenance work. Actual
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<PAGE>
disbursements shall be made by Lessor upon at least five (5) Business Days prior
written notice to Lessor, which notice shall (i) request reimbursement for at
least * (or such lesser amount as shall equal the total cost of the
maintenance for which Lessee is then seeking reimbursement) of maintenance costs
and (ii) include an invoice from the maintenance provider indicating the cost of
the work completed, the scope of the work completed and a statement that the
work has been completed. Lessor shall be entitled, at its expense, to have an
employee or agent on site at the maintenance provider's facility to monitor the
work to be performed.
Lessee acknowledges that, subject to the foregoing, it is solely
responsible (without reimbursement from the Lessor) for any and all maintenance
costs for which the Lessor has not agreed to pay or reimburse the Lessee.
Upon the expiration or early termination of this Lease, Lessee shall
immediately pay to Lessor that portion of the Maintenance Reserves that is
applicable to the period commencing on the first day of the month in which such
termination occurs and ending with the date the Aircraft is returned to Lessor
in accordance with Section 5 hereof.
It is the intent of the parties hereto that all Maintenance Reserves
shall be the sole and exclusive property of Lessor. Accordingly, at the end of
the term all Maintenance Reserves shall be retained by Lessor and Lessee shall
have no right with respect thereto nor shall Lessee be entitled to an accounting
thereof. If, notwithstanding the first sentence of this paragraph, a court of
law disregards the intent of the parties hereto and determines such Maintenance
Reserves are the property of Lessee, Lessee hereby grants Lessor a first
priority security interest in such Maintenance Reserves.
SECTION 8. Replacement of Parts; Alterations, Modifications and
----------------------------------------------------
Additions.
- ---------
(a) Replacement of Parts. Lessee will promptly replace or cause to be
--------------------
replaced all Parts which may from time to time become worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use for any reason whatsoever, except as otherwise provided in Section
8(b) hereof. All replacement parts shall be (i) reasonably acceptable to
Lessor, (ii) owned by Lessee free and clear of all Liens (it being understood
that any part, prior to its installation on the Aircraft, may have been (but
will not upon installation be) leased by Lessee under the terms of a parts lease
agreement which permits an exchange of ownership of parts) and (iii) have a
serviceability tag attached and be accompanied by all records required by the
FAA, shall be interchangeable as to form, fit and function, shall be in at least
the same mandatory and recommended service bulletin accomplishment status, shall
have been overhauled or repaired and inspected (if applicable) by an agent
acceptable to the FAA and shall be in as good an operating condition as, and
shall have a value and utility at least equal to, the Parts replaced, assuming
such replaced Parts were in the condition and repair required to be maintained
by the terms hereof and all historical records with respect to such Parts shall
be retained. All Parts at any time removed from any
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<PAGE>
Airframe or any Engine shall remain the property of Lessor and subject to this
Lease, no matter where located, until such time as such Parts shall be replaced
by parts which have been incorporated or installed in or attached to the
applicable Airframe or Engine and which meet the requirements for replacement
parts specified above. Immediately upon any replacement part becoming
incorporated or installed in or attached to the applicable Airframe or Engine as
provided above, without further act, (i) title thereto shall vest in and such
replacement part shall become the property of Lessor and shall become subject to
this Lease and be deemed a Part for all purposes hereof to the same extent as
the Parts originally incorporated or installed in or attached to such Airframe
or such Engine; (ii) the replaced Part shall no longer be the property of Lessor
and shall no longer be deemed a Part hereunder; and (iii) title to the replaced
Part shall thereupon vest in Lessee, free and clear of all rights of Lessor.
(b) Alterations, Modifications and Additions. Lessee will make (or
----------------------------------------
cause to be made) such alterations and modifications in and additions to the
Airframe and each Engine as may be required to be made during the Term to meet
the applicable standards of the FAA and any applicable regulatory agency or body
of any other jurisdiction in which any part of the Equipment may then be
registered or that takes jurisdiction over any part of the Equipment, to reflect
such (and any other permitted) modifications in the records and manuals
maintained in respect of the Aircraft, Airframe and/or Engine in accordance with
all applicable laws and the Maintenance Program and to maintain at all times the
standard certificate of airworthiness for the Aircraft. All such alterations,
modifications and additions shall be documented by the applicable FAA-approved
Original Equipment Manufacturer ("OEM") Service Bulletin, OEM Master Change or
FAA-approved Supplemental Type Certificate, whichever is applicable under the
Federal Aviation Act and/or applicable FARs. All Parts incorporated or
installed in or attached or added to any Airframe or any Engine as the result of
such alteration, modification or addition shall, without further act, become
subject to this Lease and become the property of, and title to such Parts shall
vest in, Lessor. Lessee will not, without the prior written consent of Lessor,
make any additions to, or alterations or modifications (including without
limitation a change in configuration) of, the Aircraft other than as expressly
required by this paragraph (b) or which shall adversely affect the value,
utility or airworthiness of the Airframe or Engine, as the case may be. Prior
to commencing work on any such addition, alteration or modification permitted by
this Section 8(b), Lessee shall give Lessor at least twenty (20) Business Days
notice of the same (except when such work is mandated by an Airworthiness
Directive, or mandatory service bulletin which makes a twenty (20) day notice
impractical, in which case Lessee shall provide notice as soon as it becomes
aware of the applicable Airworthiness Directive or mandatory service bulletin),
which notice shall contain a detailed description of the workscope of such
addition, alteration or modification and the name of the proposed maintenance
facility that shall complete the work, each of which workscope and maintenance
facility shall be reasonably acceptable to Lessor. In respect of the last
maintenance check or shop visit for the Aircraft or any Engine, as the case may
be, prior to the Lease Expiry Date, Lessee shall comply with any reasonable
request of Lessor in regard thereto, including, without limitation, a request by
Lessor to change the scope of the work to be performed, provided, however,
--------
Lessor shall be responsible for any incremental cost
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<PAGE>
resulting directly from any such request to change or otherwise alter the scope
of work beyond that which would otherwise be required to be performed under this
Lease during such maintenance check or shop visit, as the case may be.
SECTION 9. [Intentionally Omitted].
SECTION 10. Loss, Destruction, Requisition, etc.
-----------------------------------
(a) Event of Loss with Respect to the Aircraft. Upon the
------------------------------------------
occurrence of an Event of Loss with respect to the Airframe or the Airframe and
the Engines or engines then installed thereon, Lessee shall (1) forthwith (and
in any event, within three (3) days after such occurrence) give Lessor written
notice of such Event of Loss and (2) to the extent not previously paid to Lessor
as insurance proceeds, pay or cause to be paid in the manner specified in
Section 3(d) hereof to Lessor (the date required for such payment being herein
referred to as the "Loss Payment Date") within the earlier of (x) 45 days after
such occurrence and (y) three (3) days of the receipt of insurance proceeds, the
sum of (A) the Stipulated Loss Value with respect to the Aircraft, plus (B) all
Rent then due and unpaid hereunder.
At such time as Lessor shall have actually received the sum of the
amounts specified in clauses (A) and (B) above, (I) the obligation of Lessee to
pay Basic Rent hereunder with respect to the Aircraft and the Aircraft Documents
with respect thereto shall cease to accrue, (II) the Lease shall terminate,
(III) Lessor will transfer to or at the direction of Lessee, without recourse or
warranty (except as to the absence of Lessor Liens), all of Lessor's right,
title and interest in and to the Airframe, the Aircraft Documents with respect
thereto and, if an Aircraft has suffered such Event of Loss, the Engines of such
Aircraft "as-is, where-is" and furnish to or at the direction and cost of Lessee
a bill of sale in form and substance reasonably satisfactory to Lessee,
evidencing such transfer, and (IV) Lessee will be subrogated to all claims of
Lessor, if any, against third parties (other than in respect of any insurance
policy independently maintained by the Lessor pursuant to Section 11 hereof) to
the extent the same relate to physical damage to or loss of the Airframe and any
Engines which were subject to such Event of Loss.
(b) Event of Loss with Respect to an Engine. Upon the occurrence
---------------------------------------
of an Event of Loss with respect to an Engine under circumstances in which there
an Event of Loss with respect to an Engine under circumstances in which there
has not occurred an Event of Loss with respect to the Airframe, Lessee shall
forthwith (and in any event, within three (3) days after such occurrence) give
Lessor written notice thereof and shall, within 45 days after the occurrence of
such Event of Loss (the "Replacement Period"), convey or cause to be conveyed to
Lessor, as replacement for the Engine with respect to which such Event of Loss
occurred, title to an Acceptable Alternate Engine free and clear of all Liens,
in as good an operating condition as, and having a value, utility, modification
status and remaining useful life at least equal to the Engine with respect to
which such Event of Loss occurred, assuming such Engine was of the value,
utility, modification status and remaining useful life and in the condition and
repair required by the terms hereof immediately prior to the occurrence of such
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<PAGE>
Event of Loss. Prior to or at the time of any such conveyance, Lessee, at its
own expense, will (i) furnish Lessor with a warranty (as to title) bill of sale,
in form and substance reasonably satisfactory to Lessor, with respect to such
Acceptable Alternate Engine, (ii) cause a Lease Supplement relating thereto to
be duly executed by Lessee and to be duly filed under the applicable laws, rules
and regulations of the FAA, (iii) furnish Lessor with such evidence of Lessor's
title to such Acceptable Alternate Engine and compliance with the insurance
provisions of Section 11 hereof with respect to such Acceptable Alternate Engine
as Lessor may reasonably request, (iv) furnish Lessor with such documents as
Lessor shall request with respect to such Acceptable Alternate Engine,
including, without limitation, all disk records reasonably requested by Lessor
or which are otherwise required by the FAA to maintain or establish the
airworthiness of such Acceptable Alternate Engine, and (v) furnish the Lessor
with an opinion of counsel to the effect that title to such Acceptable Alternate
Engine has been duly conveyed to the Lessor free and clear of all Liens, and
Lessor will transfer to or at the direction of Lessee without recourse or
warranty except as to the absence of Lessor Liens (on an "AS-IS", "WHERE-IS"
basis) all of Lessor's right, title and interest, if any, in and to (A) the
Engine with respect to which such Event of Loss occurred and furnish to or at
the direction of Lessee at Lessee's expense a bill of sale in form and substance
reasonably satisfactory to Lessee evidencing such transfer and (B) all claims,
if any, against third parties (other than in respect of any insurance policy
independently maintained by Lessor), for damage to or loss of the Engine subject
to such Event of Loss, and such Engine shall thereupon cease to be an Engine
leased hereunder. For all purposes hereof, each such Acceptable Alternate
Engine shall, after such conveyance, be deemed part of the property leased
hereunder, and shall be deemed an "Engine". No Event of Loss with respect to
an Engine under the circumstances contemplated by the terms of this paragraph
(b) shall result in any reduction in Basic Rent or any other amounts due from
Lessee under any Operative Document.
During the Replacement Period, the Lessee may install on an Airframe an
engine of the same or an improved make and model as the Engine which has
suffered such Event of Loss, and which is otherwise suitable for installation on
such Airframe, but which does not otherwise constitute an Acceptable Alternate
Engine. Lessee shall have no obligation to pay Maintenance Reserves with
respect to such temporarily installed engine.
(c) Application of Payments from Governmental Authorities for
---------------------------------------------------------
Requisition of Title, etc. Any payments (other than insurance proceeds the
- --------------------------
application of which is provided for in Section 11) received at any time by
Lessor or Lessee from any governmental authority or other Person with respect to
an Event of Loss, will be applied as follows:
(i) if payments are received with respect to the Airframe (or the
Airframe and any Engine or engines then installed thereon and the Aircraft
Documents related thereto), after reimbursement of Lessor for its
reasonable costs and expenses, so much of such payments remaining as shall
not exceed the Stipulated Loss Value of the Aircraft shall be applied in
reduction of Lessee's obligation to pay Stipulated Loss Value with respect
to the Aircraft if not already paid by Lessee, or, if already paid by
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<PAGE>
Lessee, shall be applied to reimburse Lessee for its payment of such
Stipulated Loss Value and following the foregoing application, the balance,
if any, of such payments shall be distributed to Lessor; and
(ii) if such payments are received with respect to an Engine
under circumstances contemplated by Section 10(b) hereof, so much of such
payments remaining after reimbursement of Lessor for its reasonable costs
and expenses shall be paid over to, or retained by, Lessee, provided that
Lessee shall have fully performed the terms of Section 10(b) with respect
to the Event of Loss for which such payments are made.
(d) Requisition for Use of the Aircraft by the Government of
--------------------------------------------------------
Registry. In the event of the requisition for use of the Aircraft or the
- --------
Airframe and the Engines or engines installed on such Airframe during the Term
not constituting an Event of Loss, Lessee shall promptly notify Lessor of such
requisition, and all of Lessee's rights and obligations under this Lease
Agreement shall continue to the same extent as if such requisition had not
occurred. All payments received by Lessor or Lessee for the use during the Term
of the Airframe and Engines or engines shall be paid over to, or retained by,
Lessee, with all such amounts for use after the Term to be paid to Lessor. No
such requisition shall result in any reduction of Basic Rent or any other sum
due from Lessee under any Operative Document and Lessee's obligations shall
continue throughout the Term.
(e) Application of Payments During Existence of Events of Default.
-------------------------------------------------------------
Any amount referred to in this Section 10 which is payable to or retainable by
Lessee shall not be paid to or retained by Lessee if at the time of such payment
or retention a Default or an Event of Default shall have occurred and be
continuing, but shall be held by or paid over to Lessor as security for the
obligations of Lessee under this Lease and applied against Lessee's obligations
hereunder as and when due. At such time as there shall not be continuing any
such Default or Event of Default, such amount shall be promptly paid to Lessee
to the extent not previously applied in accordance with the preceding sentence.
SECTION 11. Insurance.
---------
(a) From the Delivery Date and at all times thereafter Lessee shall
be responsible for effecting and maintaining or causing to be effected and
maintained, in full force and effect, insurances in respect of the Aircraft and
the Aircraft Documents in accordance with insurance customarily carried by
airlines similarly situated to Lessee and of a type, in such amounts and
covering such risks from time to time as specified in Exhibit F attached hereto
and made part hereof, and procured through such brokers and maintained with such
primary insurers as shall be reasonably acceptable to Lessor (the "Insurances").
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<PAGE>
(b) As between Lessor and Lessee, it is agreed that all proceeds of
insurance maintained in compliance herewith and received as the result of the
occurrence of an Event of Loss will be applied as follows:
(x) if such payments are received with respect to the Airframe
(or the Airframe and the Engines installed thereon), (i) so much of
such payments remaining, after reimbursement of Lessor for reasonable
costs and expenses, as shall not exceed the Stipulated Loss Value of
the Aircraft and other amounts payable by Lessee hereunder shall be
applied in reduction of Lessee's obligation to pay such amounts, if
not already paid by Lessee, or, if already paid by Lessee, shall be
applied to reimburse Lessee for its payment of such amounts and the
balance, if any, of such payments remaining thereafter will be paid
over to, or retained by, Lessee; and
(y) if such payments are received with respect to an Engine under
the circumstances contemplated by Section 10(b) hereof, so much of
such payments remaining after reimbursement of Lessor for reasonable
costs and expenses shall be paid over to, or retained by, Lessee,
provided that Lessee shall have fully performed the terms of Section
10(b) hereof with respect to the Event of Loss for which such payments
are made.
(c) Lessee shall:
(1) ensure that the Additional Insureds shall be named as
additional insureds on the Insurances covering the Aircraft and the
Lessor shall be named as "Loss Payee" under the insurances required by
Sections (a), (b) and (c) of Exhibit F hereto;
(2) ensure that all legal requirements as to insurance of the
Aircraft or any Part of any thereof which may from time to time be
imposed by the laws of the government of registry or any state to,
from or over which the Aircraft shall be flown, in so far as they
affect or concern the operation of the Aircraft, are complied with and
in particular those requirements for which compliance is necessary to
ensure that (a) the Aircraft is not in danger of detention or
forfeiture, (b) the Insurances remain valid and in full force and
effect, and (c) the interests of the Additional Insureds in the
Insurances, the Aircraft or any Part of any thereof are not thereby
prejudiced;
(3) not use, cause or permit any of the Aircraft to be used for
any purpose or in any manner not covered by the Insurances or outside
any geographical limit imposed by such Insurances or for any purpose
or in any manner which is contrary to applicable law. Lessee shall
comply, and procure compliance, with the terms and conditions of each
and every policy of the
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Insurances and shall not do, consent, suffer, or agree to any act or
omission which invalidates or may invalidate or renders unenforceable
or may render unenforceable the whole or any part of any such
Insurances;
(4) ensure that at all times during the Term, all Insurances
(which term shall include, for the purposes of this sentence,
replacement policies) have a minimum remaining term of not less than
two (2) weeks. Written confirmation of completion of renewal is to be
delivered to Lessor prior to the expiry date. Certificates of
insurance, in the English language, detailing the coverage and
confirming the insurers' agreement to the specified insurance
requirements of this Agreement and being in substantially the same
form as the previously delivered certificate must be provided to
Lessor at the same time;
(5) furnish, or cause to be furnished, to Lessor and Owner
Participant, on or before the Delivery Date and on each annual
anniversary of the Delivery Date, a report, signed by an independent
firm of insurance brokers reasonably acceptable to Lessor (the
"Insurance Broker"), describing in reasonable detail the insurance
then carried and maintained with respect to the Aircraft and stating
the opinion of such firm that (a) all premiums in connection with such
insurance then due have been paid, (b) such insurance complies with
the terms hereof, and (c) such insurance provides coverages against
risks that are customarily insured against by other air carriers
similarly situated to Lessee and that such coverages are in
substantially similar forms, are of such types and have limits within
the range of limits as are customarily carried by other air carriers
similarly situated to Lessee;
(6) cause the Insurance Broker to agree to advise Lessor and
Owner Participant in writing of any default in the payment of any
premium and of any other act or omission on the part of Lessee of
which it has knowledge and which might invalidate or render
unenforceable, in whole or in part, any insurance on the Aircraft or
cause any of the Insurances to lapse;
(7) promptly notify Lessor of any occurrence likely to give rise
to a claim under the Insurances;
(8) not make or cause to be made any modification or alteration
to the Insurances adverse to any of the Additional Insureds, nor do or
leave undone anything which may invalidate such insurance coverage;
(9) be responsible for any deductible/excluded loss under the
Insurances;
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<PAGE>
(10) provide and cause Lessee's insurance broker to provide any
other insurance related information, or assistance, as Lessor or Owner
Participant may reasonably require; and
(11) reimburse Lessor and/or any of the Additional Insureds for
any premiums (together with interest thereon at the Overdue Rate from
the date of payment until the date of reimbursement) paid by any of
them pursuant to Section 11(e).
(d) Any amount referred to in this Section 11 which is payable to or
retainable by Lessee shall not be paid to or retained by Lessee if at the time
of such payment or retention a Default or an Event of Default shall have
occurred and be continuing, but shall be held by or paid over to Lessor as
security for the obligations of Lessee under this Lease and, if a Default or an
Event of Default shall have occurred and be continuing, applied against Lessee's
obligations hereunder as and when due. At such time as there shall not be
continuing any such Default or Event of Default, such amount shall be paid to
Lessee to the extent not previously applied in accordance with the preceding
sentence.
(e) Each of the Additional Insureds shall be entitled, if at any time
Lessee fails to maintain the Insurances in any respect to pay the premiums due
or to effect and maintain Insurances required hereunder to the extent such
Additional Insured considers appropriate. Any sums so expended by it shall
become immediately due and payable by Lessee together with interest thereon at
the Overdue Rate, from the date of expenditure by such Additional Insured up to
the date of reimbursement by Lessee. At any time while such failure is
continuing, the Lessor may require the Aircraft to remain at any airport or (as
the case may be) to proceed to and remain at any airport designated by it until
such failure is remedied. No exercise by any such Additional Insured of said
option shall affect any provision of this Lease, including the provision that
failure by the Lessee to maintain the prescribed insurance shall constitute an
Event of Default.
(f) Lessee may not self-insure in respect of any of the Insurances.
SECTION 12. Inspection. At any time, and from time to time, Lessor
----------
or Owner Participant, or their respective authorized representatives, may
inspect the Aircraft (subject to the proviso set forth at the end of the
penultimate sentence of this Section 12), and inspect and make copies of the
Aircraft Documents and other books and records of Lessee referred to in Section
5(b) (at Lessor's expense). Any such inspection of the Aircraft shall include a
visual, walk-around inspection of the interior and exterior of the Aircraft.
Neither Lessor nor Owner Participant shall have any duty to make any such
inspection nor shall Lessor or Owner Participant incur any liability or
obligations by reason of not making any such inspection. Lessee will cooperate
with Lessor's and Owner Participant's reasonable requests in connection with
such inspection (including information as to where the Airframe or any Engine
is, or will be, at any point in time, when panels, bays or the like will be open
and the time,
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<PAGE>
location and availability of personnel to assist in such inspection); provided
that, so long as no Default or Event of Default shall have occurred and be
continuing hereunder, Lessor or Owner Participant, as the case may be, shall
give Lessee reasonable notice of the exercise of any inspection right and no
exercise of any inspection right shall interfere with normal operation of the
Aircraft by Lessee. If a Default or an Event of Default shall have occurred and
be continuing, the cost of any such inspection shall be for the account of
Lessee.
SECTION 13. Assignment; Subject and Subordinate. (a) Except as
-----------------------------------
otherwise provided herein or in any Operative Document, Lessee will not during
the Term, without the prior written consent of Lessor, assign any of its rights
hereunder. Subject to the foregoing, the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of Lessor and Lessee and their
respective successors and permitted assigns.
(b) Lessee hereby agrees and consents to the collateral assignment by
Lessor of this Lease and all rights and remedies hereunder to secure Lessor's
obligations under any loan agreement which Lessor may from time to time enter
into. Lessee hereby agrees, at Lessor's own cost and expense (including,
without limitation, payment of Lessee's legal fees and expenses), to cooperate
with Lessor in so assigning this Lease for security, including, without
limitation, the execution and delivery of such documents and instruments as may
be reasonably requested by the lender under such loan agreement in connection
therewith. In addition, at the request of Lessor, Lessee shall confirm in
writing that any such lender and its Affiliates, successors, assigns, agents,
servants, directors, officers and employees are Additional Insureds and
Indemnified Parties hereunder.
Without limiting the foregoing, Lessor's fixed or contingent rights to
receive payments hereunder or other proceeds hereof are also freely assignable
and transferable by Lessor, in whole or in part, without restriction of any kind
whatsoever.
SECTION 14. Events of Default. Each of the following events shall
-----------------
constitute an Event of Default (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(a) Lessee shall not have made a payment of Basic Rent, Maintenance
Reserves or Stipulated Loss Value after the same shall have become due and such
failure shall continue for three (3) Business Days beyond such due date; or
(b) Lessee shall have failed to make a payment of Supplemental Rent
(other than Stipulated Loss Value or Maintenance Reserves) after the same shall
have become due and such failure shall continue for five (5) Business Days
beyond such due date; or
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<PAGE>
(c) Lessee shall fail to carry and maintain on or with respect to the
Aircraft (or cause to be carried and maintained) any insurance required to be
maintained in accordance with the provisions of Section 11 hereof (including
without limitation the requirement contained in Section 11 that all insurance
policies shall at all times have a minimum remaining term of at least 2 weeks);
or
(d) Lessee shall have failed to perform or observe any other covenant
or agreement to be performed or observed by it under any Operative Document
(other than those relating to matters covered by subparagraphs (a), (b) and (c)
above and subparagraph (h) below); provided, however, such failure shall not
constitute an Event of Default hereunder unless such failure shall have
continued in excess of fifteen (15) days after notice from Lessor to Lessee
specifying the default and requiring that the same be remedied; or
(e) any representation or warranty made by Lessee herein, in any other
Operative Document or in any certificate delivered in connection herewith or
therewith shall prove to have been incorrect or untrue in any material respect
at the time made or deemed to be made; or
(f) the commencement of an involuntary case or other proceeding in
respect of Lessee under United States bankruptcy laws, as now or hereafter
constituted, or any other applicable bankruptcy, insolvency or other similar law
in the United States or seeking the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of Lessee or
for all or substantially all of its property, or seeking the winding-up or
liquidation of its affairs and the continuation of any such case or other
proceeding undismissed or unstayed for a period of 60 consecutive days or an
order for relief or any other order, judgment or decree shall be entered in any
proceeding by any court of competent jurisdiction appointing, without the
consent of Lessee, a receiver, trustee or liquidator of Lessee, or for all or
substantially all of its property, or a sequestering of all or substantially all
of the property of Lessee and any such order, judgment or decree or appointment
or sequestration shall be final or shall remain in force undismissed, unstayed
or unvacated for a period of 60 consecutive days after the date of entry
thereof; or
(g) the commencement by Lessee of a voluntary case under United States
bankruptcy laws, as now or hereafter constituted, or any other applicable
bankruptcy, insolvency or other similar law, or the consent by Lessee to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of Lessee or for
all or substantially all of its property, or the making by Lessee of any
assignment for the benefit of creditors or Lessee shall take any corporate
action to authorize any of the foregoing; or
(h) the Lessee shall fail to pay when due any amount due and payable
or shall otherwise be in default under any agreement or document (other than
this Lease) after
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expiration of any applicable notice or cure requirements (A) to which the Lessee
and Lessor are party, or (B) to which the Lessee is a party and which has been
assigned to the Lessor; or
(i) Lessee shall cease to be a U.S. Air Carrier or shall lose or have
revoked, cancelled or otherwise terminated any material franchises, concessions,
permits, rights or privileges required for the conduct of the business and
operations of Lessee (including without limitation the DOT certificate of public
convenience and necessity and the FAA Air Carrier Operating Certificate) or
shall have the free and continued use and exercise thereof curtailed or
prevented; or
(j) Lessee shall cease to operate 50% or more of the aircraft (without
replacement therefor with additional aircraft) which Lessee is operating on the
Delivery Date; or
(k) an event of default shall have occurred under any agreement
wherein Lessee is a debtor or a lessee with respect to aircraft or aircraft
engines; or an uninsured judgment or judgments in excess of $300,000 for the
payment of money shall be rendered against Lessee and such judgment shall not be
effectively stayed; or Lessee shall fail to pay (after expiration of any grace
or cure period) any portion of any material indebtedness or other material
obligation of Lessee, or there shall occur a declaration of default, an
acceleration or any exercise of remedies with respect to any material obligation
or liability of Lessee.
SECTION 15. Remedies. Upon the occurrence of any Event of Default
--------
and at any time thereafter, Lessor may do one or more of the following with
respect to all or any part of or all of the Airframes and any or all of the
Engines as Lessor in its sole discretion shall elect:
(a) upon the written demand of Lessor and at Lessee's expense, cause
Lessee to return promptly, and Lessee shall return promptly, the Airframe, any
Aircraft Documents or any Engine as Lessor may so demand to Lessor or its order
in the manner and condition required by, and otherwise in accordance with all
the provisions of, Section 5 and Exhibit E as if the Airframe, Aircraft
Documents or Engine were being returned at the end of the Term, or Lessor, at
its option, may enter upon the premises where all or any part of the Airframe,
the Aircraft Documents, the documents referenced in Section 5(b) hereof or any
Engine is located and take immediate possession of and remove the same (together
with any engine or any part which is not an Engine or a Part which is installed
on the Airframe, subject to the rights of the owner, lessor or secured party of
such engine or part, provided that such engine or part shall be held for the
account of any such owner, lessor or secured party or, if owned by Lessee, may
at the option of Lessor, be exchanged for an Engine or Part in accordance with
the provisions of Section 8) by summary proceedings or otherwise (and/or, at
Lessor's option, store the same at Lessee's premises until disposal thereof by
Lessor);
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(b) sell the Aircraft, the Aircraft Documents and the documents
referenced in Section 5(b) hereof at public or private sale, as Lessor may
determine, or otherwise dispose of, hold, use, operate, lease to others or keep
idle the Aircraft, the Aircraft Documents and the documents referenced in
Section 5(b) hereof as Lessor, in its sole discretion, may determine, all free
and clear of any rights of Lessee, except as hereinafter set forth in this
Section 15;
(c) whether or not Lessor shall have exercised, or shall thereafter at
any time exercise, any of its rights under paragraph (a) or (b) above with
respect to the Aircraft, the Aircraft Documents and the documents referenced in
Section 5(b), Lessor, by written notice to Lessee specifying a payment date not
earlier than ten (10) days from the date of such notice, may demand that Lessee
pay to Lessor, and Lessee shall pay Lessor, on the payment date so specified, as
liquidated damages for loss of a bargain and not as a penalty, any unpaid Basic
Rent due on or prior to such payment date plus all Basic Rent due subsequent to
such payment date, after discounting such subsequently due Basic Rent to its
present value using the discount rate specified therefor in the Initial Lease
Supplement (together with interest, if any, on such amount at the Overdue Rate
from such specified payment date until the date of actual payment of such
amount) plus an amount equal to the excess, if any, of the Stipulated Loss Value
of the Aircraft over the fair market sales values of the Aircraft as of the
payment date specified as the payment date in such notice;
(d) Lessor may terminate this Lease Agreement, and/or may exercise any
other right or remedy which may be available to it under applicable law or
proceed by appropriate court action to enforce the terms hereof or to recover
damages for breach hereof; or
(e) Lessor shall have, and may exercise, any and all of the rights and
remedies under the Uniform Commercial Code as enacted in the State of Illinois
and any other jurisdiction in which the Aircraft, the Airframe, any Engine, any
other Part, the Aircraft Documents or the documents referenced in Section 5(b)
may be located.
In addition to the foregoing, Lessee shall be liable, except as
otherwise provided above, without duplication of amounts payable hereunder, for
any and all unpaid Rent due hereunder before, during or after the exercise of
any of the foregoing remedies and for all reasonable and actual legal fees and
other costs and expenses incurred by Lessor in connection with the exercise of
Lessor's remedies hereunder, including the return of the Aircraft, the Aircraft
Documents and the documents referenced in Section 5(b) in accordance with the
terms of Section 5 and Exhibit E hereof or in placing the Aircraft in the
condition and with airworthiness certification as required by such Section.
At any sale of the Aircraft, the Airframe, the Engines, the Aircraft
Documents, the documents referenced in Section 5(b) hereof or any part thereof
pursuant to this Section 15, Lessor may bid for and purchase such property.
Except as otherwise expressly provided above, no remedy referred to in this
Section 15 is intended to be exclusive, but each shall be
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cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at law or in equity; and the exercise or beginning of
exercise by Lessor of any one or more of such remedies shall not preclude the
simultaneous or later exercise by Lessor of any or all of such other remedies.
No waiver by Lessor of any Event of Default shall in any way be, or be construed
to be, a waiver of any future or subsequent Event of Default. To the extent
permitted by applicable law, Lessee hereby waives any and all rights to notice
and judicial hearing with respect to the repossession of the Aircraft, the
Airframe, the Aircraft Documents, the documents referenced in Section 5(b) or
any Engine by Lessor upon the occurrence of an Event of Default and agrees that,
except as may be required by law, Lessor shall not be required to sell or lease
the Aircraft, the Airframe, the Aircraft Documents, the documents referenced in
Section 5(b) or any Engine in order to reduce, offset or mitigate the damages
for which Lessee is liable hereunder.
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 of Lessee where it
reasonably believes the Aircraft, the Airframe, the Aircraft Documents, the
Documents referenced in Section 5(b), an Engine or Part to be located and
Lessee shall cooperate in giving Lessor such access; and
(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 were on the Aircraft at the time Lessor retakes possession
of the Aircraft.
If upon the expiration of the Term of this Lease, Lessor owes Lessee
money and has not paid such money due to the existence of a Default or Event of
Default, Lessor shall pay such amount to Lessee immediately upon the cure of the
same unless such amount has previously been applied against any Expenses
incurred by Lessor as a result of such Default or Event of Default.
SECTION 16. FAA Filing; Tax Indemnity; General Indemnity; etc.
-------------------------------------------------
(a) FAA Filing. Forthwith upon the execution and delivery of each
----------
Lease Supplement (other than the Initial Lease Supplement delivered in
connection with the execution and delivery of this Lease Agreement) from time to
time required by the terms hereof and upon the execution and delivery of any
amendment to this Lease, Lessee at its expense will cause such Lease Supplement
or amendment to be duly filed and recorded, and maintained of record, with the
FAA.
(b) General Tax Indemnity.
---------------------
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<PAGE>
(i) Indemnity. Except as provided in Section 16(b)(ii), Lessee
---------
shall pay, pursuant to Section 16(b)(v), and on written demand shall indemnify
and hold harmless each Indemnified Party (individually referred to as an
"Indemnitee") from and against, any and all Taxes imposed against, including by
----------
way of withholding, any Indemnitee, Lessee or any Affiliate, the Aircraft, the
Airframe, or any Engine or Part thereof or interest therein by the Federal,
state or local government of the United States or other taxing authority in the
United States or by any foreign government or any international taxing authority
or any political subdivision or taxing authority of any of the foregoing upon or
with respect to (A) the acceptance, rejection, delivery, transport, ownership,
control, insuring, possession, repossession, operation, location, landing,
departure, use, condition, maintenance, repair, sale, return, abandonment,
preparation, installation, storage, redelivery, leasing, subleasing,
modification, rebuilding, transfer of title or other application or disposition
of, or the imposition of any Lien on, the Aircraft, the Airframe, or any Engine
or Part thereof or interest therein (or the incurrence of any liability to
refund or pay over any interest as the result of any such Lien), (B) any amount
paid or payable pursuant to or in connection with this Lease and any amendments,
supplements or modifications thereto which have been approved by Lessee, (C)
otherwise with respect to the Transaction or (D) the Aircraft, the Airframe, the
Engines, the Parts or any part thereof.
(ii) Exclusions from General Tax Indemnity. The provisions of
-------------------------------------
Section 16(b)(i) shall not apply to:
(1) Income Taxes (as defined in Section 16(b)(viii)) imposed on
an Indemnitee by the United States Federal government;
(2) Income Taxes imposed on an Indemnitee by any state or local
government or other state or local taxing authority in the United States
("Local Tax Authority") or any international taxing authority or foreign
---------------------
taxing jurisdiction (except for any such Income Taxes imposed by any Local
Tax Authority or by any international or foreign taxing authority by reason
of the use, operation or location of the Aircraft, the Airframe, an Engine
or Part thereof or interest therein, or the activities or location of the
Lessee or any other user of the Aircraft, the Airframe, an Engine or Part
thereof, in the jurisdiction imposing such tax);
(3) Taxes imposed on an Indemnitee which result from the willful
misconduct or gross negligence of such Indemnitee; and
(4) Taxes for any taxable period (or portion thereof) before
commencement of the Term or after the Term (or the return of the Aircraft
if later).
Notwithstanding anything to the contrary contained in this Section
16(b)(ii), the provisions of this Section 16(b)(ii) shall not apply to any Taxes
imposed by any Federal, state or local government or other taxing authority in
the United States or any foreign government
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or subdivision thereof or any international authority or any political
subdivision or taxing authority of any of the foregoing in respect of the
receipt or accrual of any indemnity payment pursuant to this Section 16(b) or
Section 16(c).
(iii) Calculation of General Tax Indemnity Payments. Any
---------------------------------------------
payment which Lessee is required to make to or for the account of Indemnitee
with respect to any Tax subject to indemnification under this Section 16(b)
shall include the amount necessary to hold the Indemnitee harmless on an after-
tax basis from the amount of any and all Taxes required to be paid by the
Indemnitee as a result of the receipt or accrual of any such payment pursuant to
the laws of any Federal, state or local government or other taxing authority in
the United States, any foreign government or subdivision thereof or an
international authority or any political subdivision or taxing authority of any
of the foregoing.
(iv) Reports. Lessee will provide, at Lessee's expense, such
-------
information maintained or readily obtainable by Lessee as may be reasonably
requested by an Indemnitee (including logs as appropriate) or required to enable
the Indemnitee to fulfill its tax filing or other information reporting
requirements with respect to the Transaction. If any report, return or
statement is required to be filed with respect to any Tax which is subject to
indemnification under this Section 16(b), Lessee shall, at its own expense,
timely file the same (except for any such report, return or statement which an
Indemnitee has notified Lessee that the Indemnitee intends to file, or for
Income Tax returns or any other return, report or statement which the Indemnitee
is required by law to file in its own name or for any report, return or
statement the filing of which is not based on Lessee's operation or movement of
the Aircraft, the Airframe or any Engine (or any Part)). Lessee shall have no
filing obligation under the preceding sentence nor any indemnification
obligation with respect to such Tax if the Indemnitee after receipt of Lessee's
written request fails to furnish Lessee with such information as is solely
within the Indemnitee's control and is required to file such returns. Lessee
will file or cause to be filed any report, return or statement and take such
actions and execute such documents as required by law to be taken by Lessee or
as reasonably requested by the Indemnitee as may be reasonable and necessary to
accomplishment of the intent hereof. Lessee shall be liable to each Indemnitee
for any fines, penalties, or interest imposed as a result of the failure of
Lessee to fulfill its obligations hereunder.
(v) Payment. Lessee shall pay any Tax for which it is liable
-------
pursuant to this Section 16(b) directly to the appropriate taxing authority, or,
if previously paid by an Indemnitee, upon demand of such Indemnitee, to such
Indemnitee, within the later of (1) fifteen (15) days after receipt of written
request by such Indemnitee or (2) five (5) Business Days before the date such
Tax is due to the taxing authority, in immediately available funds. Any such
demand for payment from an Indemnitee shall specify in reasonable detail the
amount of the payment and the facts upon which the right to payment is based and
shall be verified in a manner reasonably satisfactory to Lessee. Each
Indemnitee shall promptly forward to Lessee any notice, bill or advice in the
nature of a notice or bill received by it concerning any Tax. As soon as
practicable after each payment by Lessee of any Tax, Lessee
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<PAGE>
shall furnish the appropriate Indemnitee the original or a certified copy of a
receipt for Lessee's payment of such Tax or such other evidence of payment of
such Tax as is reasonably acceptable to the Indemnitee.
(vi) Contest. If (A) within 45 days after Lessee receives the
-------
notice, bill or advice described in Section 16(b)(v), Lessee delivers to such
Indemnitee a written request that such Indemnitee contest such Taxes, which
written request shall be accompanied by an opinion of independent tax counsel
(which counsel is reasonably satisfactory to such Indemnitee) that there is a
reasonable basis for contesting such Taxes, (B) Lessee delivers to such
Indemnitee an indemnity, in form and substance reasonably satisfactory to such
Indemnitee, for such Taxes and for any liability, loss or expense that such
Indemnitee may incur as a result of contesting such Taxes, including, all costs,
expenses, losses, legal and accounting fees and disbursements, penalties and
interest, and Lessee agrees to pay, and shall pay, on demand all such taxes,
liabilities, losses or expenses, and (C) provided no Default or Event of Default
shall have occurred and be continuing, then, as long as such conditions shall
remain satisfied, Indemnitee shall contest the validity, applicability or amount
of such taxes by (I) resisting payment thereof, if practicable, (II) if payment
is made, using reasonable efforts to obtain a refund thereof in appropriate
administrative and judicial proceedings, and (III) taking such other reasonable
action as Lessee shall request from time to time, but only if such contest shall
not, in such Indemnitee's reasonable opinion (confirmed by an opinion of
independent legal counsel), involve a material risk of loss or forfeiture of any
part of the Aircraft.
If an Indemnitee obtains a refund of all or any part of the Taxes, to
the extent such amount has been paid to such Indemnitee pursuant to this Section
16(b), Lessee shall promptly be paid the amount of such refund and, if in
addition to such refund an Indemnitee receives an amount representing interest
on such refund, Lessee shall promptly be paid that proportion of such interest
that is fairly attributable to Taxes paid by Lessee prior to the receipt of such
refund, but such amounts shall not be payable if a Default or an Event of
Default shall have occurred and be continuing.
(vii) Definition of Indemnitee. For purposes of this Section
------------------------
16(b), the term Indemnitee shall mean and include the successors and permitted
assigns of each respective Indemnitee, and any consolidated, combined or unitary
group of which the Indemnitee is a member if such group is treated as a single
taxpayer for purposes of any Tax.
(viii) Income Tax. For purposes of this Section 16(b), the term
----------
Income Tax means, in the case of an Indemnitee, any Tax imposed on, based on or
measured by or with respect to the gross or net income (including, without
limitation, capital gains Taxes, minimum or alternative minimum Taxes, Taxes on
Tax preference items, accumulated earnings Taxes, personal holding company Taxes
and succession or estate Taxes) and interest, additions to Tax, penalties, or
other charges in respect thereof (in each case other than sales,
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use, rental, license, ad valorem, property or value-added Taxes or Taxes in the
nature of such Taxes).
(c) General Indemnity.
-----------------
(i) Indemnification. Lessee hereby agrees to assume liability
---------------
for, and does hereby agree to indemnify, protect, save and keep harmless each
Indemnified Party from and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits and related costs, expenses and
disbursements, including reasonable legal and investigative fees and expenses,
of whatsoever kind and nature, but excluding overhead expenses (for purposes of
this Section 16(c), collectively called "Expenses"), imposed on, asserted
--------
against or incurred by any Indemnified Party, in any way relating to or arising
out of this Lease, the other Operative Documents or the transactions
contemplated hereby or thereby, including but not limited to (A) a Default or an
Event of Default related to the breach by Lessee of any covenant contained
herein or therein or inaccuracy or incompleteness of any representation or
warranty of Lessee contained herein or therein and (B) claims by third parties
relating to the construction, acceptance, delivery, transport, control,
assembly, possession, repossession, operation, location, landing, departure,
use, condition, maintenance, repair, return, abandonment, installation, storage,
redelivery, leasing, subleasing, modification, rebuilding, or the imposition of
any Lien on, the Aircraft, the Airframe, the Aircraft Documents, any Engine or
Part thereof or interest therein (or the incurrence of any liability to refund
or pay over any interest as the result of any such Lien), including, without
limitation, latent or other defects, whether or not discoverable, strict tort
liability, and any claim for patent, trademark or copyright infringement.
However, Lessee shall not be required to indemnify any Indemnified
Party pursuant to this Section 16(c) for (A) any Tax or (B) Expenses to the
extent attributable to the willful misconduct or gross negligence of such
Indemnified Party (other than gross negligence or willful misconduct imputed to
such Indemnified Party by virtue of its interest in the Aircraft). Except to
the extent attributable to the failure of Lessee fully to discharge its
obligations hereunder, and except for claims arising as a consequence of a
Default or an Event of Default, the indemnities contained in this Section 16(c)
apply only to acts (or failures to act) or events or conditions which exist or
existed after the Delivery Date and on or before, or Expenses fairly
attributable to the period before, the termination of this Lease and return or
disposition of the Aircraft in accordance with the provisions of this Lease. If
any Indemnified Party has knowledge of any claim or liability hereby indemnified
against, it shall give prompt written notice thereof to Lessee, but the failure
of the Indemnified Party to give such notice shall not relieve Lessee of any of
its obligations hereunder unless and solely to the extent such failure shall
have materially and adversely affected Lessee.
(ii) Payments, Survival and Other Provisions. All amounts
---------------------------------------
payable by Lessee pursuant to this Section 16(c) shall (A) be payable directly
to the parties entitled to indemnification within 10 days of written demand
therefor and (B) be adjusted for payment on
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an after tax basis as provided in Section 16(b)(i) as if such amount payable
were an indemnity obligation under said Section. All the indemnities contained
in this Section 16(c) shall continue in full force and effect notwithstanding
the expiration or other termination of this Lease and are expressly made for the
benefit of, and shall be enforceable directly by, each Indemnified Party.
Lessee's obligations under this Section 16(c) shall be that of a primary obligor
irrespective of whether the Indemnified Party shall also be indemnified with
respect to the same matter under any other agreement by any other Person.
SECTION 17. Notices. All notices required under the terms and
-------
provisions hereof shall be in English and in writing (including telecopier or
similar writing) and shall be effective (a) if given by telecopier when
transmitted and the appropriate confirmation received, (b) if given by certified
mail, five (5) days after being deposited in the mails, (c) if given by telex,
upon receipt by the party transmitting the telex of such party's callback code
at the end of such telex (receipt of confirmation in writing not being necessary
to the effectiveness of any telex) and (d) if given by other means, when
received or personally delivered, addressed:
(i) if to Lessor, to First Security Bank, National Association,
79 South Main Street, Salt Lake City, Utah 84111, Attn: Corporate Trust
Department, telecopier no.: (801) 246-5053, with a copy to the Owner
Participant at One South Wacker Drive, Chicago, Illinois 60606-4614,
Attention: Senior Vice-President, Transportation Finance, telecopier
number (312) 782-7168 and a further copy to Vedder, Price, Kaufman &
Kammholz, 222 North LaSalle Street, Chicago, Illinois 60601, telecopier
no.: (312) 609-5005; Attention: Dean N. Gerber, Esq., or to such other
address or telecopier number as Lessor shall from time to time designate in
writing to Lessee; and
(ii) if to Lessee, at 12015 E. 46th Avenue, Denver, Colorado
80239, telecopier no.: (303) 371-7007, Attention: General Counsel or to
such other address or telecopier number as Lessee shall from time to time
designate in writing to Lessor.
SECTION 18. Net Lease; Set-Off, Counterclaim, etc.
--------------------------------------
(a) This Lease is a net lease, and, except as otherwise explicitly
provided herein, it is intended that Lessee shall pay all costs and expenses of
every character, whether foreseen or unforeseen, ordinary or extraordinary or
structural or non-structural, in connection with the use, operation,
maintenance, insurance, repair, replacement of Parts, taxes and required
alterations and modifications of, on or in respect of the Airframe and each
Engine by the Lessee, including the costs and expenses particularly set forth in
this Lease. The Rent which Lessee is obligated to pay shall be paid without
invoice, notice or demand and, without set-off, counterclaim, abatement,
suspension, deduction or defense or any other right which Lessee may have
against Lessor for any reason whatsoever.
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<PAGE>
(b) Except as otherwise expressly provided, this Lease shall not
terminate, nor shall Lessee have any right to terminate this Lease or be
entitled to abatement, suspension, deferment or reduction of any Rent which the
Lessee is obligated to pay hereunder, nor shall the obligations hereunder of
Lessee be affected, by reason of (A) any damage to or the destruction or loss of
all or any portion of the Airframe or any Engine from whatever cause, (B) the
loss, theft or inaccessibility of any portion of the Airframe or any Engine, (C)
the taking of the Airframe or any Engine or any portion thereof by condemnation,
confiscation, requisition or otherwise, (D) the prohibition, limitation or
restriction of the Lessee's use of all or any part of the Airframe or any Engine
or the interference with such use by any Person, (E) the inadequacy or
incorrectness of the description of any portion of the Airframe or any Engine,
(F) Lessee's acquisition or ownership of all or any part of the Airframe or any
Engine otherwise than pursuant to an express provision of this Lease, (G) any
defect in compliance with specifications, condition, merchantability, design,
airworthiness, quality, durability, operation or fitness for use or any purpose
of any Airframe or any Engine or any portion thereof, (H) any insolvency,
bankruptcy, reorganization or similar proceedings by or against Lessee, Lessor,
the Owner Participant or any other Person, (I) any breach, default or
misrepresentation by the Lessor under this Lease or any other Operative Document
or any of the documents referred to herein or therein, (J) any invalidity or
unenforceability, in whole or in part, of this Lease or any other Operative
Document or any of the documents referred to herein or therein, or any other
infirmity herein or therein, or any lack of power or authority of any party to
this Lease or any other Operative Document or any such documents to enter into
the same or any termination of this Lease by operation of law, or (K) any other
circumstance, happening or act whatsoever, whether or not foreseen or similar to
any of the foregoing, it being the intention of the parties hereto that the
obligations of Lessee shall be absolute and unconditional and shall be separate
and independent covenants and agreements and shall continue unaffected unless
and until the covenants have been terminated pursuant to an express provision of
this Lease.
Except as expressly provided herein, Lessee waives all rights now or
hereafter conferred by law (x) to quit, terminate, rescind or surrender this
Lease or the Airframe or any Engine or any part thereof, or (y) to any
abatement, suspension, deferment, return or reduction of the Rent.
SECTION 19. Miscellaneous; Governing Law; Expenses. (a) Any
--------------------------------------
provision of this Lease which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To
the extent permitted by applicable law, Lessee hereby waives any provision of
law which renders any provisions hereof prohibited or unenforceable in any
respect. No term or provision of this Lease may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which the enforcement of the change, waiver, discharge or termination is
sought. This Lease shall constitute an agreement of lease,
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<PAGE>
and nothing contained herein shall be construed as conveying to Lessee any
right, title or interest in the Aircraft or the Aircraft Documents except as a
lessee only. The section and paragraph headings in this Lease and the table of
contents are for convenience of reference only and shall not modify, define,
expand or limit any of the terms or provisions hereof and all references herein
to numbered sections, unless otherwise indicated, are to sections of this Lease.
This Lease may be executed by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument. The
representations, warranties, covenants, agreements and indemnities of Lessee and
Lessor set forth in this Lease and Lessor's and Lessee's obligations hereunder,
shall survive the expiration or other termination of this Lease to the extent
required for full performance and satisfaction thereof.
(b) THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE. This Lease is being delivered in
Chicago, Illinois.
(c) Each of Lessor and Lessee agrees that it shall be responsible for
any and all fees and expenses it incurs in connection with the negotiation,
preparation, execution and delivery of this Agreement and any other documents or
instruments relating to the transaction contemplated hereby, including, without
limitation, legal fees, expenses and disbursements; provided, however, that
Lessee agrees to pay all reasonable expenses incurred in connection with
recording and filing fees of the FAA, including, without limitation the
reasonable fees and disbursements of Daugherty, Fowler & Peregrin, FAA counsel.
(d) Lessee (a) hereby irrevocably submits itself to the exclusive
jurisdiction of (i) the courts of the State of Illinois and (ii) any United
States District Court in Illinois for the purposes of any suit, action or other
proceeding arising out of this Agreement or any other Operative Document, or the
subject matter hereof or thereof or any of the transactions contemplated hereby
or thereby, brought by or on behalf of Lessor, Owner Participant or their
respective successors, subrogees or assigns, and (b) hereby irrevocably agrees
that all claims in respect of such action or proceeding shall be heard and
determined in either such Illinois State or Federal court.
LESSEE HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH
IT IS A PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
WITH THIS LEASE AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS OR THE RELATIONSHIP
ESTABLISHED HEREUNDER OR THEREUNDER AND WHETHER ARISING OR ASSERTED BEFORE OR
AFTER THE DATE HEREOF OR BEFORE OR AFTER THE PAYMENT, OBSERVANCE AND PERFORMANCE
OF LESSEE'S OBLIGATIONS UNDER THIS LEASE AGREEMENT OR THE OTHER OPERATIVE
DOCUMENTS.
-46-
<PAGE>
SECTION 20. Bankruptcy. It is the intention of the parties that the
----------
Lessor shall be entitled to the benefits of Section 1110 of the United States
Bankruptcy Code with respect to the right to repossess the Aircraft, the
Airframe, any Engines and Parts as provided herein, and in any circumstances
where more than one construction of the terms and conditions of this Agreement
is possible, a construction which would preserve such benefits shall control
over any construction which would not preserve such benefits or would render
them doubtful. It is the intention of the parties hereto that this Lease be
treated as a lease for federal income tax purposes.
* * *
-47-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to
be duly executed as of this ___ day of ________, 1996.
FRONTIER AIRLINES, INC.,
Lessee
By:_______________________________
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, but solely as Owner Trustee,
Lessor
By:________________________________
-48-
<PAGE>
Aircraft (N303FL)
- --------------------------------------------------------------------------------
APPENDIX A
DEFINITIONS
OPERATING LEASE OF ONE BOEING 737-3M8 AIRCRAFT
- --------------------------------------------------------------------------------
<PAGE>
The definitions stated herein shall apply equally to both the singular
and plural forms of the terms defined.
"Acceptable Alternate Engine" means, a CFM International, Inc. model
---------------------------
CFM56-3B2 engine or an engine of the same manufacturer of the same or a
comparable model or an improved model, in each case of equivalent or greater
value, modification status and utility and suitable for installation and use on
the Airframe.
"Acceptance Certificate" means, with respect to the Aircraft, an
----------------------
acceptance certificate for the Aircraft, substantially in the form of Exhibit C
to the Lease, signed by Lessee and Lessor.
"Additional Insureds" means each of the Lessor (in its individual
-------------------
capacity and as trustee), the Owner Participant and, for the first five years of
the term, Air Invest, together with their respective Affiliates, successors and
permitted assigns and each of their respective officers, directors, agents,
employees, partners and shareholders and "Additional Insured" means any of the
foregoing.
"Affiliate" of any Person means any other Person directly or
---------
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, "control" when used with respect to any
-------
specified Person means the power generally to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
-----------
"controlled" have meanings correlative to the foregoing.
----------
"Air Invest" means Air Invest IV, B.V., a Netherlands corporation.
----------
"Air Invest Lease" means that certain Lease Agreement dated January 7,
----------------
1992, between Air Invest, as lessor and Eurobelgian Air Lines, as lessee, as
amended, modified and supplemented from time to time.
"Aircraft Documents" means, as applicable, the items provided to
------------------
Lessee on the Delivery Date, which includes the items identified in Exhibit D-1
to the Lease, and the items to be provided to Lessor upon the Return Date, which
includes the logs, manuals, drawings, data, inspection, maintenance,
modification and overhaul records (in English) required to be maintained during
the Term with respect to the Aircraft in accordance with the Lease Agreement.
"Aircraft" means the Airframe together with the two (2) Engines
--------
specified in the Initial Lease Supplement as being a part of the Aircraft,
whether or not any of such Engines may from time to time be installed on the
Airframe or may be installed on any other airframe or any other aircraft.
A-1
<PAGE>
"Airframe" means (i) the Boeing model 737-3M8 airframe bearing U.S.
--------
Registration Number N303FL (except Engines or engines from time to time
installed thereon) leased under the Lease by Lessor to Lessee pursuant to the
Initial Lease Supplement; and (ii) the landing gear and APU and any and all
Parts so long as the same shall be incorporated or installed in or attached to
such airframe, or so long as title thereto shall remain vested in Lessor in
accordance with the terms of Section 8 of the Lease after removal from the
Airframe.
"Airworthiness Directive" means any airworthiness directive applicable
-----------------------
to the use, operation or maintenance of any Airframe or any Engine which may
from time to time be issued by the FAA, and all "alert" service bulletins
applicable to the use, operation or maintenance of any Airframe or any Engine
which may from time to time be issued by the Manufacturers of the Airframe or
the Engines.
"APU" means the auxiliary power unit relating to the Aircraft.
---
"Base Rate" means the rate of interest announced from time to time by
---------
The First National Bank of Chicago at its principal office in Chicago, Illinois
as its "corporate base rate" (or its equivalent successor rate if the corporate
base rate is no longer used).
"Base Term Commencement Date" has the meaning set forth in Section
---------------------------
3(b) of the Lease.
"Basic Rent" has the meaning set forth in Section 3(b) hereof.
----------
"Business Day" means any day (other than a Saturday or Sunday) on
------------
which banking institutions in Chicago, Illinois are authorized or required by
law, regulation or executive order to be open for business.
""C" Check" means a "C" Check, as such term is defined in the
---------
Maintenance Program relating to the Aircraft.
"Code" means the United States Internal Revenue Code of 1986, as
----
currently in effect or hereafter amended.
"Commitment Termination Date" shall mean November 30, 1996, at the
---------------------------
Delivery Location.
"Contractual Obligation" means, as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such person is a party or by which it or any of its
property is bound.
"Cycle" means one take-off and landing of the Aircraft.
-----
A-2
<PAGE>
""D" Check" means a "D" Check, as such term is defined in the
--------
Maintenance Program relating to the Aircraft or an equivalent check that meets
the requirements of a "7C" Check as defined in the Boeing 737 Maintenance
Planning Document (MPD); or such other structural check which shall then be the
most significant maintenance check under the MPD.
"Daily Rate" has the meaning set forth in Section 3(b) of the Lease.
----------
"Default" means any event or condition which, with the giving of
-------
notice, lapse of time or both, would become an Event of Default.
"Delivery Date" means the date the Aircraft is leased by Lessor to
-------------
Lessee and accepted by Lessee under the Lease as evidenced by the Acceptance
Certificates.
"Delivery Location" means Everett, Washington, U.S.A.
-----------------
"Delivery Time" has the meaning specified in the definition of Term.
-------------
"Dollars" and "U.S. Dollars" and "$" and "U.S. $" each means the
------- ------------ - ------
lawful currency of the United States of America.
"Engine" means (i) each of the two CFM International, Inc. Model
------
CFM56-3B2 engines listed by manufacturer's serial numbers in the Initial Lease
Supplement and originally designated as being parts of the Aircraft including
all quick engine change kit components normally installed thereon whether or not
from time to time thereafter installed on such Airframe or installed on any
other airframe or on any other aircraft; (ii) any Acceptable Alternate Engine
which may from time to time be substituted for an Engine leased under the Lease;
and (iii) any and all Parts incorporated or installed in or attached to any such
Engine or any and all Parts removed from such Engine so long as title thereto
shall remain vested in Lessor in accordance with the terms of Section 8 of the
Lease after removal from such Engine. Except as otherwise set forth in any
Operative Document, at such time as an Acceptable Alternate Engine shall be so
substituted, the replaced Engine shall cease to be an Engine. The term
"Engines" also means, as of any date of determination, all Engines then leased
under the Lease.
"Engine Manufacturer" means CFM International, Inc.
-------------------
"Equipment" shall mean the Aircraft, the Airframe, any Engine and/or
---------
any Part.
"Event of Default" has the meaning set forth in Section 14 of the
----------------
Lease.
"Event of Loss" with respect to the Aircraft, the Airframe or any
-------------
Engine means any of the following events with respect to such property: (i) the
loss of such property or of
A-3
<PAGE>
the use thereof due to the destruction of or damage to such property which
renders repair uneconomic or which renders such property permanently unfit for
normal use by Lessee for any reason whatsoever; (ii) any damage to such property
which results in an insurance settlement with respect to such property on the
basis of a total loss or a constructive or compromised total loss; or (iii) (a)
the theft or disappearance of such property for a period in excess of 30
consecutive days or, if earlier, beyond the Lease Expiry Date or (b) the
confiscation, condemnation or seizure of, or requisition of title to, or use of,
such property by any governmental or purported governmental authority, which
shall have resulted in the loss of possession of such property by the Lessee or
loss of title by Lessor, as the case may be, for a period in excess of 60
consecutive days or, if earlier, beyond the Lease Expiry Date. An Event of Loss
with respect to the Aircraft shall be deemed to have occurred if an Event of
Loss occurs with respect to the Airframe.
"Expenses" means any and all liabilities, obligations, losses,
--------
damages, penalties, claims (including, but not limited to, negligence, strict or
absolute liability, liability in tort and liabilities arising out of violation
of laws or regulatory requirements of any kind), actions, suits, out-of-pocket
costs, expenses and disbursements (including reasonable legal fees and expenses
and all costs and expenses relating to amendments, supplements, waivers and
consents to and under the Operative Documents).
"FAA" and "Federal Aviation Administration" means the Federal Aviation
--- -------------------------------
Administration of the United States of America and any successor governmental
authority.
"FAR" means the Federal Aviation Regulations of the FAA, or any
---
successor provisions thereto.
"Federal Aviation Act" means Title 49 of the United States Code, as
--------------------
amended.
"Hour" means, with respect to the Aircraft, each 60 minute period or
----
portion thereof elapsing from the moment at which the wheels of the Aircraft
leave the ground on take-off of the Aircraft until the wheels of the Aircraft
touch the ground on landing of the Aircraft following each flight of such
Aircraft.
"Indemnified Parties" means each of the Lessor (in its individual
-------------------
capacity and as trustee), the Owner Participant and any Affiliates, successors,
assigns, agents, servants, directors, officers and employees of each of the
foregoing and "Indemnified Party" means any of the foregoing.
"Initial Deposit" has the meaning specified in Section 3(c) of the
---------------
Lease.
"Initial Lease Supplement" means Lease Supplement No. 1, substantially
------------------------
in the form of Exhibit A to the Lease, to be entered into between Lessor and
Lessee on the Delivery
A-4
<PAGE>
Date for the purpose of leasing the Aircraft and the Aircraft Documents under
and pursuant to the terms of the Lease.
"Initial Maintenance Visit" has the meaning set forth in Section
-------------------------
2(c)(vii) of the Lease.
"Insurances" shall have the meaning specified in Section 11(a) of the
----------
Lease.
"Lease" or "Lease Agreement" or "Agreement" means the Operating Lease
----- --------------- ---------
Agreement dated as of November 1, 1996, between Lessor and Lessee, including all
annexes, supplements and exhibits thereto, all as amended, modified or
supplemented from time to time in accordance with the applicable provisions
thereof.
"Lease Expiry Date" means the last day of the month which is ninety-
-----------------
six (96) months after the month in which the Base Term Commencement Date occurs.
"Lease Supplement" means the Initial Lease Supplement and any
----------------
subsequent Lease Supplement entered into in accordance with the terms of the
Lease.
"Lessee" means Frontier Air Lines, Inc., a corporation organized and
------
existing pursuant to the laws of the State of Colorado and its successors and
permitted assigns.
"Lessee Documents" means the Lease, any Lease Supplement, the
----------------
Acceptance Certificate and any other documents executed by Lessee in connection
with the transactions contemplated by the Lease.
"Lessor" means First Security Bank, National Association, not
------
individually but solely as Owner Trustee under the Trust Agreement.
"Lessor Documents" means the Lease, any Lease Supplement, the Trust
----------------
Agreement and any other documents executed by the Lessor in connection with the
transactions contemplated by the Lease.
"Lessor Liens" means any Lien or disposition of title arising as a
------------
result of (i) claims against Lessor not related to the transactions contemplated
by the Operative Documents, (ii) any act or omission of Lessor which is not
related to the transactions contemplated by the Operative Documents or
constitutes a breach by Lessor of any of the terms of the Operative Documents,
or (iii) any Lien that Lessor may grant over the Aircraft.
"Lien" means any mortgage, pledge, lien, charge, right of detention,
----
right of set-off, encumbrance, lease, exercise of rights, or other security
interest of any kind whatsoever and howsoever created (including, without
limitation, any conditional sale or other title retention agreements) or claim.
A-5
<PAGE>
"Maintenance Program" means an FAA-approved maintenance program
-------------------
adopted by Lessee for the Aircraft derived from the Manufacturer's Planning
Document (MPD) encompassing scheduled maintenance (including block maintenance),
condition monitored maintenance, and on-condition maintenance of the Airframe,
Engines, landing gear, APUs and parts, including, but not limited to, servicing,
testing, preventive maintenance, repairs, structural repairs, inspections,
system checks, overhauls, approved modifications, service bulletins, engineering
orders, airworthiness directives, corrosion control, inspections and treatments,
and otherwise conforming to the requirements of Section 7(a)(1) of the Lease and
reasonably acceptable to the Owner Participant.
"Maintenance Reserves" has the meaning specified therefor in Section
--------------------
7(d) of the Lease.
"Manufacturer" means The Boeing Company, a Delaware corporation.
------------
"Operative Documents" means the Lease, any Lease Supplement, the
-------------------
Acceptance Certificate, the Trust Agreement and any other documents executed in
connection with the transactions contemplated by the Lease.
"Overdue Rate" means a rate per annum equal to 4% over the Base Rate.
------------
"Owner Participant" means Sanwa Business Credit Corporation, a
-----------------
Delaware corporation.
"Owner Trustee" means First Security Bank, National Association, in
-------------
its capacity as trustee under the Trust Agreement.
"Parts" means all appliances, parts, instruments, appurtenances,
-----
accessories, furnishings and other equipment of whatever nature (other than
complete Engines or engines); that at any time of determination are incorporated
or installed in or attached to the Airframe or any Engine or the title to which
remains vested in Lessor in accordance with Section 8 of the Lease. Except as
otherwise set forth in any Operative Document, at such time as a replacement
part shall be substituted for a Part, the Part so removed shall cease to be a
Part hereunder.
"Permitted Liens" means any Lien of the type described in clauses (i)
---------------
through (iv) of Section 6 of the Lease.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
or government or any agency or political subdivision thereof.
A-6
<PAGE>
"Preliminary Inspection" has the meaning ascribed thereto in Section
----------------------
2(c) of the Lease.
"Purchase Agreement" means that certain Aircraft Purchase and Sale
------------------
Agreement dated as of November 1, 1996 by and between Lessor and Air Invest.
"Rent" means, collectively, Basic Rent and Supplemental Rent.
----
"Return Certificate" means, with respect to the Aircraft, the return
------------------
certificate for such Aircraft, substantially in the form of Exhibit E-1 to the
Lease, signed by the Lessee and Lessor.
"Return Date" means, with respect to the Aircraft, the date of return
-----------
of the possession of the Aircraft and the Aircraft Documents and the documents
referenced in Section 5(b) of the Lease with respect thereto from Lessee to
Lessor at the end of the Term or upon Lessor taking possession thereof pursuant
to Section 15 of the Lease, as such date may be adjusted pursuant to the terms
of the Operative Documents.
"Return Location" has the meaning specified therefor in Section 5(a)
---------------
of the Lease.
"Shop Visit" means a shop visit under the Maintenance Program at
----------
which, at a minimum, the high pressure turbine was refurbished and such Engine
was produced with at least 20 degrees EGT margin.
"Stipulated Loss Value" means, with respect to the Aircraft, the
---------------------
Dollar amount set forth under such term on Exhibit L hereto for the Aircraft.
"Supplemental Rent" means all amounts, liabilities, Stipulated Loss
-----------------
Value, Maintenance Reserves and obligations (other than Basic Rent) which Lessee
agrees to pay under the Lease or under any other Operative Document to Lessor or
others.
"Taxes" means any and all fees (including, without limitation,
-----
license, documentation and registration fees), taxes (including, without
limitation, income, gross receipts, sales, rental, use, turnover, value-added,
property (tangible and intangible), excise, franchise, capital, doing business
and stamp taxes), licenses, levies, imposts, duties, recording charges or fees,
charges, assessments, or withholdings of any nature whatsoever, together with
any assessments, penalties, fines, additions to tax and interest thereon (each,
individually a "Tax").
"Term" means, with respect to the Aircraft, the term for the Aircraft
----
and the Aircraft Documents are leased hereunder pursuant to Section 3(a) of the
Lease beginning on the Delivery Date at the time of delivery of the Aircraft and
the Aircraft Documents with
A-7
<PAGE>
respect thereto by Lessor to Lessee (the "Delivery Time"), as set forth in the
-------------
Initial Lease Supplement, and ending on the Lease Expiry Date at the Delivery
Time, or such earlier or later date or dates as the Lease may be terminated with
respect to the Aircraft in accordance with the terms of the Lease or the other
Operative Documents.
"Transaction" means all the transactions and activities referred to in
-----------
or contemplated by the Lease.
"Trust Agreement" means that certain Trust Agreement dated as of
---------------
November 1, 1996 between Owner Participant and Owner Trustee.
"U.S. Air Carrier" means any United States air carrier holding a
----------------
carrier operating certificate issued by the Secretary of Transportation pursuant
to Chapter 447 of Title 49, United States Code, for aircraft capable of carrying
ten or more individuals or 6,000 pounds or more of cargo, and as to which there
is in force an air carrier operating certificate issued pursuant to Part 121 of
the FAR, or which may operate as an air carrier by certification or otherwise
under any successor or substitute provisions therefor or in the absence thereof.
"U.S. Money Center Bank" shall mean any of the following: Citibank,
----------------------
N.A.; The Chase Manhattan Bank, N.A.; NationsBank, National Association; First
NBD Bank of Chicago; Bank of America, N.A. or Wells Fargo Bank, N.A. or such
other bank as may be agreed by the parties hereto; provided, however, that, if,
--------
in Lessor's reasonable discretion, there is a material adverse change in the
condition, financial or otherwise, of any of such institutions prior to the
Delivery Date, such institution shall no longer constitute a "U.S. Money Center
Bank."
A-8
<PAGE>
EXHIBIT A
LEASE SUPPLEMENT NO. __
-----------------------
LEASE SUPPLEMENT No. __ dated __________, between FRONTIER AIRLINES,
INC., a Colorado corporation ("Lessee"), and FIRST SECURITY BANK, NATIONAL
------
ASSOCIATION, not individually but solely as Owner Trustee under the Trust
Agreement ("Lessor").
Lessor and Lessee have heretofore entered into that certain Operating
Lease Agreement dated as of November 1, 1996 relating to one Boeing Model 737-
3M8 airframe (herein called the "Lease" and the defined terms therein being
-----
hereinafter used with the same meanings). The Lease provides for the execution
and delivery from time to time of Lease Supplements for the purpose of leasing
the Aircraft, Airframe and Engines under the Lease as and when delivered by
Lessor to Lessee in accordance with the terms thereof.
/1/ The Lease relates to the Aircraft described below, and a counterpart
of the Lease is attached hereto, and made a part hereof, and this Lease
Supplement together with such attachment, is being filed for recordation on the
date hereof with the Federal Aviation Administration as one document.
/2/ The Lease relates to the Aircraft described below, and a counterpart
of the Lease, attached and made a part of Lease Supplement No. 1 dated
__________, 1996, has been recorded by the Federal Aviation Administration on
_______________, as one document and assigned Conveyance No. _________.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease and
Lessee hereby accepts and leases from Lessor under the Lease the following
described Boeing Model 737-3M8 aircraft (the "Aircraft"), which Aircraft as of
the date hereof consists of the following components:
(i) Airframe: U.S. Registration No. N303FL; manufacturer's
serial no. 25039; and
__________________
/1/ This language for the InitialLease Supplement.
/2/ Thislanguage for the other Supplements.
<PAGE>
(ii) Engines: two (2) CFM International, Inc. CFM56-3B2 engines
bearing, respectively, manufacturer's serial nos. 724892 and
725897 (each of which engines has 750 or more rated takeoff
horsepower or the equivalent of such horsepower).
2. The Delivery Date of the Lease is the date of this Lease
Supplement set forth in the opening paragraph hereof, the Delivery Time is
__:__, __.m., (C.S.T.).
3. Except as otherwise provided in the Lease, the Term for the
Aircraft shall commence on the Delivery Date and end on the Lease Expiry Date.
4. Lessee hereby confirms its agreement to pay Lessor Basic Rent for
the Aircraft throughout the Term therefor in accordance with Section 3 of the
Lease.
5. The discount rate to be used in connection with the Lessor's
exercise of its rights under paragraph (c) of Section 15 of the Lease shall be
the then Base Rate.
6. Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof and of the Lease as being airworthy, in good
working order and repair and without defect or inherent vice in condition,
design, operation or fitness for use; provided, however, that nothing contained
herein or in the Lease shall in any way diminish or otherwise affect any right
Lessee or Lessor may have with respect to the Aircraft against The Boeing
Company, United Technologies, CFM International, Inc. or any subcontractor or
supplier of each of the above.
8. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
9. This Lease Supplement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
* * *
A-2
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease
Supplement to be duly executed on the day and year first above written.
FRONTIER AIRLINES, INC.,
Lessee
By:________________________________
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, but solely as Owner Trustee,
Lessor
By:________________________________
A-3
<PAGE>
EXHIBIT B
TO THE LEASE AGREEMENT
BASIC RENT, STIPULATED LOSS VALUE
AND MAINTENANCE RESERVES
BASIC RENT: *
STIPULATED LOSS VALUE: *
MAINTENANCE RESERVES:
"D" Check Maintenance Reserves: * /Hour of
operation of the
Airframe
Engine Maintenance Reserves: * /Hour of
operation of each
Engine
Life Limited Parts Maintenance Reserves: * /Hour of
operation of each
Engine
Landing Gear Maintenance Reserves: * /Hour of
operation of the
Airframe
DAILY RENT: *
<PAGE>
EXHIBIT B-1
TO THE LEASE AGREEMENT
OFFICER'S MONTHLY MAINTENANCE RESERVE CERTIFICATE
-------------------------------------------------
Re: Operating Lease Agreement dated as of November __, 1996 (the "Lease
-----
Agreement") between FRONTIER AIR LINES, INC., a ________ corporation
---------
("Lessee"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually
--------
but solely as Trustee, with respect to one Boeing model 737-3M8 Aircraft
and certain CFM International, Inc. Model CFM56-3B2 Engines.
The undersigned, a duly authorized officer of the Lessee, hereby certifies
in accordance with Section 7(d) of the Lease Agreement, that the number of Hours
the Aircraft and Engines identified below were used during the month of
______________, 199_ for purposes of calculating Maintenance Reserves payable on
____________, 199_ are as follows:
<TABLE>
<CAPTION>
Maintenance
Hours Cycles Rate Reserve $
----- ------ ---- -----------
<S> <C> <C> <C> <C>
"D" Check Maintenance
Reserves ________ _____ ___ __________
Life Limited Parts
Maintenance Reserves ________ _____ ___ __________
Landing Gear Maintenance ________ _____ ___ __________
Reserves
Engine Maintenance
Reserves (MSN _______) ________ _____ ___ __________
Engine Maintenance
Reserves (MSN _______) ________ _____ ___ __________
TOTAL __________
</TABLE>
The undersigned represents that simultaneous with the delivery hereof
to Lessor an amount equal to the total amount of Maintenance Reserves as above
calculated has been paid to Lessor by wire transfer in accordance with Section
3(d) of the Lease Agreement.
<PAGE>
IN WITNESS WHEREOF, I have affixed hereto my signature this ___ day of
_________________, ____.
By:
Name:
Title:
B-2
<PAGE>
EXHIBIT C
TO LEASE AGREEMENT
ACCEPTANCE CERTIFICATE
----------------------
On this ____ day of _____________________, 1996 (referred to in the below
referenced Lease as the "Delivery Date"), FRONTIER AIRLINES, INC. ("Lessee")
hereby unconditionally accepts the below-described Aircraft for all purposes
under that certain Operating Lease Agreement dated as of November 1, 1996 (the
"Lease"), between Lessee and FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually but solely as Owner Trustee. Capitalized terms used herein and not
otherwise defined herein shall have the same meaning as in the Lease. Lessee
hereby acknowledges that it has found the below described Aircraft to comply
with all delivery requirements set forth in the Lease and acknowledges
unconditional acceptance of the below-described Aircraft.
Airframe:
- --------
Manufacturer's Serial Number __________
U.S. Registration Number __________
Total Hours __________
Total Cycles __________
Hours since last D Check __________
Cycles since last D check __________
Months since last D check __________
Hours since last C Check __________
Cycles since last C check __________
Months since last C check __________
Pounds of fuel on board __________
Gallons of oil on board __________
Engine Serial Nos.: ____ ____ ____ ____
Total Hours ____ ____ ____ ____
Total Cycles ____ ____ ____ ____
Hours since last Shop Visit ____ ____ ____ ____
Cycles since last Shop Visit ____ ____ ____ ____
Right Left
Landing Gears: Main Main Nose
- --------------
Cycles since last overhaul ____ ____ ____
Days since last overhaul ____ ____ ____
<PAGE>
Hours since last overhaul ____ ____ ____
APU:
- ---
Total Hours ____
Total Cycles ____
C-1-2
<PAGE>
Attached as Exhibit 1 hereto is a complete and accurate list of the items
of loose equipment delivered with the Aircraft.
FRONTIER AIRLINES, INC.,
Lessee
By:______________________
The above completed information is found acceptable by the undersigned.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually but solely
as Owner Trustee,
Lessor
By:______________________
C-1-3
<PAGE>
Exhibit 1
---------
Loose Equipment
---------------
<PAGE>
EXHIBIT D-1
-----------
AIRCRAFT DOCUMENTS ON DELIVERY DATE
-----------------------------------
A. CERTIFICATES
- FAA Certificate of Airworthiness (on board aircraft)
- Current Aircraft Registration Certificate (on board aircraft)
B. AIRCRAFT STATUS SUMMARIES
- Aircraft record of flight time and cycles (listing of accumulated
hours and cycles as of specific dates)
- Airworthiness Directive Applicability and Compliance Report
- Supplemental Structural Inspection (SSID) Status (if applicable)
- Corrosion Prevention and Control Program Task Status
- List of Major Repairs and Alterations
- List and Status of Life Limited Components
- Check/Inspection Status
- List and Current Status of Time-Controlled Components
- 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.
- 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).
- 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
<PAGE>
- Supplemental Structural Inspection (SSID) compliance documents and
findings (if applicable)
- Corrosion Prevention and Control Program compliance documents and
findings
- 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
- Aircraft weighing records
D. AIRCRAFT HISTORY RECORDS
- Service Difficulty Reports
- Accident or Incident Reports
E. ENGINE RECORDS (for each engine)
- Engine Master Record (record of installation and removal and
accumulated flight time and cycles)
- Airworthiness Directive Applicability and Compliance Report
- Manufacturer Service Bulletin Compliance Report
- List of Operator Modifications Incorporated, if any
- List of Major Repairs and Alterations, if any
- List of Current Status of Life Limited Components
- Check/Inspection Status
- List and Status of Time Controlled Components
- Serialization On-Condition/Condition Monitored Components Inventory of
Installed Units
- Repair, overhaul and inspection documents including FAA Forms 337
- Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
D-1-2
<PAGE>
- Test Cell Records for last test
F. APU RECORDS
- APU Master Record (record of installation and removal and accumulated
time and cycles)
- Airworthiness Directive Applicability and Compliance Report
- Manufacturer Service Bulletin Compliance Report
- List of Operator Modifications Incorporated, if any
- List and Current Status of Life Limited Components
- List and Status of Time Controlled Components
- Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
- Repair, overhaul and inspection documents including FAA Forms 337
G. COMPONENT RECORDS
- Time Controlled Component Historical Records with installation and
serviceability tags
- Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
- Installation records and serviceability tags for Serialized On-
condition/Condition Monitored Components (minimum of last twelve
months)
H. MANUALS
Airplane Delivered Used:
- Airplane Flight Manual
- Weight and Balance Control and Loading Manual
- Maintenance Manual (microfilm)
- Wiring Diagram Manual (paper)
D-1-3
<PAGE>
- Illustrated Parts Catalog (microfilm)
- Operator Weight and Balance Manual
- Minimum Equipment List
I. MISCELLANEOUS TECHNICAL DOCUMENTS
- Maintenance Program Specifications
- Interior configuration drawings including FAA approval of such
drawings
- Boeing Aircraft Readiness Log
- Loose Equipment Inventory
- FAA Burn Certificates of Aircraft Interiors
- FAA Burn and Flotation Certificates for passenger seat cushions
D-1-4
<PAGE>
EXHIBIT D-2
-----------
AIRCRAFT DOCUMENTS ON RETURN DATE
---------------------------------
A. CERTIFICATES
- FAA Certificate of Airworthiness (on board aircraft)
- Current Aircraft Registration Certificate (on board aircraft)
B. AIRCRAFT STATUS SUMMARIES
- Aircraft record of flight time and cycles (listing of accumulated
hours and cycles as of specific dates)
- Airworthiness Directive Applicability and Compliance Report
- Supplemental Structural Inspection (SSID) Status (if applicable)
- Corrosion Prevention and Control Program Task Status
- List of Major Repairs and Alterations
- List and Status of Life Limited Components
- Check/Inspection Status
- List and Current Status of Time-Controlled Components
- 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.
- 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).
- 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
<PAGE>
- Supplemental Structural Inspection (SSID) compliance documents and
findings (if applicable)
- Corrosion Prevention and Control Program compliance documents and
findings
- 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
- Aircraft weighing records
D. AIRCRAFT HISTORY RECORDS
- Service Difficulty Reports
- Accident or Incident Reports
E. ENGINE RECORDS (for each engine)
- Engine Master Record (record of installation and removal and
accumulated flight time and cycles)
- Airworthiness Directive Applicability and Compliance Report
- Manufacturer Service Bulletin Compliance Report
- List of Operator Modifications Incorporated, if any
- List of Major Repairs and Alterations, if any
- List of Current Status of Life Limited Components
- Check/Inspection Status
- List and Status of Time Controlled Components
- Serialization On-Condition/Condition Monitored Components Inventory of
Installed Units
- Repair, overhaul and inspection documents including FAA Forms 337
- Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
D-2-2
<PAGE>
- Test Cell Records for last test
F. APU RECORDS
- APU Master Record (record of installation and removal and accumulated
time and cycles)
- Airworthiness Directive Applicability and Compliance Report
- Manufacturer Service Bulletin Compliance Report
- List of Operator Modifications Incorporated, if any
- List and Current Status of Life Limited Components
- List and Status of Time Controlled Components
- Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
- Repair, overhaul and inspection documents including FAA Forms 337
G. COMPONENT RECORDS
- Time Controlled Component Historical Records with installation and
serviceability tags
- Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
- Installation records and serviceability tags for Serialized On-
condition/Condition Monitored Components (minimum of last twelve
months)
H. MANUALS
Airplane Delivered Used:
- Airplane Flight Manual
- Weight and Balance Control and Loading Manual
- Maintenance Manual (microfilm)
- Wiring Diagram Manual (paper)
D-2-3
<PAGE>
- Illustrated Parts Catalog (microfilm)
- Operator Weight and Balance Manual
- Minimum Equipment List
I. MISCELLANEOUS TECHNICAL DOCUMENTS
- Maintenance Program Specifications
- Interior configuration drawings including FAA approval of such
drawings
- Boeing Aircraft Readiness Log
- Loose Equipment Inventory
- FAA Burn Certificates of Aircraft Interiors
- FAA Burn and Flotation Certificates for passenger seat cushions
D-2-4
<PAGE>
EXHIBIT E
RETURN CONDITIONS
-----------------
The Lessee undertakes with the Lessor that the Aircraft at the time of
redelivery thereof shall have been maintained and repaired in accordance with
this Agreement and the Maintenance Program as if the Aircraft were to be kept in
further service by the Lessee, and shall meet the requirements set forth in this
Exhibit E.
1. General Condition
-----------------
(a) the Aircraft shall be in the same configuration and working order (with all
equipment installed therein), and in as good an airworthy condition (or if
better, the condition immediately following the Initial Maintenance Visit,
as at the Delivery Date thereof, excepting only (subject to the following
provisions of this Exhibit E) ordinary wear and tear from normal commercial
operation and such replacement parts and substitute parts and equipment as
may have been properly installed by the Lessee pursuant to the provisions
of this Agreement (including this Exhibit E);
(b) the Aircraft shall be (i) in good operating condition with all the Aircraft
equipment, components and systems functioning in accordance with their
intended use, (ii) capable of certificated full rated performance without
limitation throughout the entire operating envelope as defined by the FAA-
approved Aircraft Flight Manual and (iii) capable of entering into
immediate revenue service in the United States under FAR Part 121
regulations;
(c) the Aircraft shall be clean by commercial airlines standards;
(d) the Aircraft shall have accomplished thereon and be in compliance with all
outstanding regulations, mandatory orders, directives and instructions
affecting the aircraft and issued by the FAA which have a date for
compliance prior to or within (one) year after the return date, but so that
(i) Lessee has obtained from the FAA, or is entitled to, any waivers,
deviations, dispensations or extensions from or for having to comply with
any such regulations, mandatory orders, directives and instructions, or
(ii) the Maintenance Program permits the carry over or deferral of
maintenance items, performance of which would, but for such carry over or
deferral, have otherwise been required hereby, the Lessee shall
nevertheless, prior to redelivery of the Aircraft to the Lessor and at the
Lessee's cost and sole expense, comply with all such regulations, mandatory
orders, directives and instructions covered by such waiver, deviation,
dispensation or extension and perform or cause to be performed such
maintenance items;
(e) the Aircraft shall have had accomplished thereon all outstanding deferred
maintenance items;
<PAGE>
(f) if corrosion is detected during the course of scheduled maintenance (as
defined in the Maintenance Program) the Lessee shall accomplish the
cleaning and treating of all mild and moderate corrosion and correcting of
all severe or exfoliated corrosion in accordance with the corrosion
treatment and correction criteria set forth in the Maintenance Program;
(g) the Aircraft shall have installed therein all applicable Vendors' and
Manufacturer's service bulletin kits theretofore received by the Lessee
which are appropriate for the Aircraft and to the extent not installed,
such kits shall be furnished free of charge to the Lessor by being loaded
on board the Aircraft as cargo;
(h) if requested by Lessor, the Aircraft shall have a valid and current
exemption free FAA Certificate of Airworthiness for Export;
(i) the Aircraft shall be fresh from its next or currently due "C" Check, and
it shall have an equal or greater amount of time remaining to its next
scheduled "D" Check, or its equivalent under a phased or progressive
maintenance program, as it had on the Delivery Date. However, in no event
shall the Aircraft have less than 3000 Hours remaining until the next
scheduled "D" Check (or its equivalent) as determined under the Maintenance
Program.]
2. Fuselage, Windows and Doors
---------------------------
(a) the fuselage shall be free of major dents and abrasions, and loose or
pulled or missing rivets and all exterior repairs and patches will be
permanent repairs installed in accordance with the manufacturer's approved
procedures;
(b) the windows shall be free of delamination, blemishes, crazing and shall be
properly sealed;
(c) the doors shall be free moving, correctly rigged and be fitted with
serviceable seals.
3. Wings and Empennage
-------------------
(a) all leading edges shall be free from damage;
(b) all control surfaces shall be waxed and polished to industry standards;
(c) all unpainted cowlings and fairing shall be polished to industry standards;
(d) wings shall be free of fuel leaks.
4. Interior
--------
(a) all galleys shall be dry, clean, effectively sealed and in good condition;
E-2
<PAGE>
(b) sealings, sidewalls and bulkhead panels shall be cleaned and free of cracks
and stains;
(c) all carpets and seat covers shall be in good condition, clean and shall
meet fire resistance regulations of the FAA;
(d) all seats shall be serviceable, in good condition and repainted as
necessary;
(e) all signs and decals shall be clean and legible;
(f) all emergency equipment having a calendar life shall have a minimum of one
year or 100% (one hundred percent) of its total approved life whichever is
less, remaining.
5. Cockpit
-------
(a) all decals shall be clean, secure and legible;
(b) all fairing panels shall be free of cracks, shall be clean, secure and
repainted as necessary;
(c) floor coverings shall be clean and effectively sealed;
(d) seat covers shall be in good condition, clean and shall conform to fire
resistance regulations;
(e) seats shall be fully serviceable and shall be repainted as necessary.
6. Cargo Compartments
------------------
(a) all panels shall be in good condition;
(b) any nets shall be in good condition;
(c) the cargo system shall be operational.
7. Landing Gears and Wheel Wells
-----------------------------
(a) shall be clean, free of leaks and repaired as necessary;
(b) all decals shall be clean, secure and legible;
(c) the service life remaining on all tires and brakes shall not be less than
50% (fifty percent);
(d) shall have at least the same number of Hours or Cycles remaining as on the
Delivery Date, subject to a minimum of 3000 Hours/Cycles per landing gear.
E-3
<PAGE>
8. Fuel Tanks
----------
Fuel tanks shall be free from contamination and corrosion.
9. Livery
------
The livery, insignia and markings of the Lessee shall have been removed
from the Aircraft by industry methods and to industry standard and the Aircraft
shall be painted freshly white, to industry standard and acceptable to the
Lessor.
10. Fuel
----
All fuel and oil on board the Aircraft at the time of redelivery to the
Lessor shall be the property of the Lessor without charge.
11. Aircraft Documents
------------------
(a) Lessee shall have returned to Lessor, at the time of return, at least one
copy of all the applicable Aircraft and Engine historical records,
documents, manuals and data, which shall have been updated and maintained
by the Lessee up to the date of redelivery and shall be in the English
language.
(b) The Lessee shall also provide to the Lessor all records, documents,
manuals, authorizations, drawings and data in English which were developed
or caused to be developed by the Lessee and/or required by the FAA, which
shall have been updated and maintained by the Lessee for the Aircraft up to
the date of redelivery. Any records, documents, manuals, authorizations,
drawings and data not previously returned shall be returned to the Lessor
at the time of redelivery. All documentation, of any type, referred to in
the preceding two sentences is herein individually and collectively
referred to as the "Aircraft Documents". Any Aircraft Documents not
already owned by the Lessor when delivered to the Lessor pursuant to this
paragraph, shall thereupon become the property of the Lessor, at no cost to
the Lessor. If the Lessor requires copies of any of the Aircraft Documents
prior to return to the Lessor in order for the Lessor to plan or accomplish
modifications, recertifications, sale, lease or other disposition of or
utilization of the Aircraft upon such return, the Lessee shall, immediately
upon request by the Lessor, provide advance copies of such Aircraft
Documents so requested by the Lessor.
12. Engine
------
(a) Each Engine shall be in serviceable condition, shall have undergone a video
boroscope inspection of all accessible stages performed by a representative
of Lessor (at the expense of the Lessee), shall be free of any limiting
condition and shall pass a power assurance run satisfactory to Lessor.
E-4
<PAGE>
(b) No engine shall be on engineering watch or on a reduced interval inspection
of any nature.
(c) If engine historical records or trend monitoring data indicate a rate of
acceleration in performance deterioration or oil consumption, which based
on the manufacturer's specifications and/or experience would require
maintenance to be performed prior to the next anticipated or scheduled shop
visit, Lessee shall correct or cause to be corrected, such conditions as
necessary to rectify all Engine performance parameters in accordance with
the manufacturer's specifications.
(d) Each Engine shall have the same number of Hours/Cycles remaining until its
next scheduled shop visit as it had on the Delivery Date, but in no event
shall any Engine have less than 3000 Hours or Cycles (whichever is more
limiting) remaining.
13. APU
---
(a) The APU shall be delivered in serviceable condition with at least the same
number of Hours and/or Cycles since its last shop visit as it had on the
Delivery Date, subject to the Lessee conducting a complete borescope
inspection in accordance with the manufacturer's maintenance manual.
14. Life Limited Parts
------------------
(a) Each life limited part shall have at least the same number of hours
remaining (subject to a minimum of one year) as they had upon the
Aircraft's entry into revenue service by Lessee.
E-5
<PAGE>
EXHIBIT E-1
TO LEASE AGREEMENT
RETURN CERTIFICATE
------------------
On this ____ day of _____________________, ____ FRONTIER AIRLINES, INC.
("Lessee") hereby returns the below-described Aircraft for all purposes under
that certain Operating Lease Agreement dated as of November __, 1996 (the
"Lease"), between Lessee and FIRST SECURITY BANK, NATIONAL ASSOCIATION,not
individually but solely as Owner Trustee. Capitalized terms used herein and
not otherwise defined herein shall have the same meaning as in the Lease.
Lessor hereby acknowledges that it has found the below-described Aircraft or
Airframe to comply with all return conditions set forth in the Lease and
acknowledges return of the below-described Aircraft.
Airframe:
- --------
Manufacturer's Serial Number __________
U.S. Registration Number __________
Total Hours __________
Total Cycles __________
Hours since last D Check __________
Cycles since last D check __________
Months since last D check __________
Hours since last C Check __________
Cycles since last C check __________
Months since last C check __________
Pounds of fuel on board __________
Gallons of oil on board __________
Engine Serial Nos.: ____ ____ ____ ____
Total Hours ____ ____ ____ ____
Total Cycles ____ ____ ____ ____
Hours since last Shop Visit ____ ____ ____ ____
Cycles since last Shop Visit ____ ____ ____ ____
E-1-1
<PAGE>
Right Left
Landing Gears: Main Main Nose
- -------------
Cycles since last overhaul
____ ___ ___
Hours since last overhaul
____ ___ ___
Days since last overhaul
____ ___ ___
APU:
- ---
Total Hours ____
Total Cycles ____
Operating Hours since overhaul ____
E-1-2
<PAGE>
Attached as Exhibit 1 hereto is a complete and accurate list of the items
of loose equipment returned with the Aircraft.
FRONTIER AIRLINES, INC.,
Lessee
By:______________________________
The above completed information is found acceptable by the undersigned.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually but solely
as Owner Trustee,
Lessor
By:_____________________________
E-1-3
<PAGE>
EXHIBIT F
---------
INSURANCE REQUIREMENTS
----------------------
The Insurances required to be maintained shall be as follows:
(a) HULL ALL RISKS of Loss or Damage with respect to each Aircraft
(including contingent hull risk coverage) in an amount not less than
the Stipulated Loss Value of the Aircraft or such other amounts as may
be reasonably required by Lessor.
(b) WORLDWIDE HULL WAR AND ALLIED PERILS, being such risks excluded from
the Hull All Risks Policy (mentioned in (a) above) (such insurance to
be in the respective amounts not less than the values required by
clause (a) above per occurrence and to cover the perils of (i) war,
invasion, acts of foreign enemies, hostilities (whether war be
declared or not), civil war, rebellion, revolution, insurrection,
martial law, military or usurped power or attempts at usurpation of
power, (ii) strikes, riots, civil commotions or labor disturbances,
(iii) any act of one or more persons, whether or not agents of a
sovereign power, for political or terrorist purposes and whether the
loss or damage resulting therefrom is accidental or intentional, (iv)
any malicious act or act of sabotage, (v) confiscation,
nationalization, seizure, restraint, detention, appropriation,
requisition for title or use by or under the order of any government
(whether civil, military or de facto) or public or local authority,
and (vi) hijacking, or any unlawful seizure or wrongful exercise of
control of the Aircraft or crew in flight (including any attempt at
such seizure or control) made by any person or persons on board the
Aircraft acting without the consent of the insured).
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISKS) property damage and fire
and extended coverage insurance on all Engines, Parts and aircraft
equipment when not installed on the Aircraft for their full
replacement value.
(d) COMPREHENSIVE AIRLINE LIABILITY, AIRCRAFT THIRD PARTY, CONTRACTUAL
LIABILITY (as per endorsement), 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 U.S. $350,000,000 for the time
being any one occurrence. War and Allied Risks are also to be covered
under this Policy to the same extent as set forth above.
(e) All required insurance (as specified in paragraphs (a), (b), (c) and
(d) above), shall:-
(i) name each Additional Insured as additional assureds for
their respective rights and interests, warranted, each as to
itself only, no operational interest;
<PAGE>
(ii) in the case of the insurance required by paragraphs (a), (b)
and (c), provide that any loss shall be settled with the
Lessee and shall for amounts in excess of $100,000 be
payable in Dollars to the Lessor as Loss Payee;
(iii) include a Severability of Interest Clause which provides
that the insurance shall operate to give each assured the
same protection as if there were a separate policy issued to
each assured;
(iv) contain a provision confirming that the policy is primary
without right of contribution and the liability of the
insurers shall not be affected by any other insurance of
which any Additional Insured or Lessee have the benefit so
as to reduce the amount payable to the Additional Insureds
under such policies;
(v) contain a 50/50% clause per AVS 103 or its equivalent;
(vi) shall provide that in respect of the respective interests of
each Additional Insured in such policies the insurance shall
not be invalidated or impaired by any action or inaction of
Lessee or any other Person and shall insure the respective
interests of each Additional Insured, as they appear,
regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by
Lessee or by any other Person;
(vii) be in accordance with normal industry practice of
organizations operating similar aircraft in similar
circumstances;
(viii) provide coverage denominated in Dollars;
(ix) acknowledge the insurer is aware of the Lease and that the
Aircraft is owned by Lessor;
(x) provide that the insurers shall hold harmless and waive any
rights of recourse and/or subrogation against each
Additional Insured;
(xi) provide that an Additional Insured shall 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 an Additional Insured;
F-2
<PAGE>
(xii) provide that the Insurances shall continue unaltered for the
benefit of each Additional Insured for at least thirty (30)
days after written notice by registered mail or telex of any
cancellation, changes, event of non-payment of premium or
installment thereof shall have been sent to Lessor, except
in the case of war risks for which seven (7) days will be
given, or in the case of war between the five great powers
or nuclear peril for which termination is automatic;
(xiii) accept and insure the indemnity provisions of the Lease
(Section 16(c)) to the extent of the risks covered by the
policies; and
(xiv) contain an initial term of at least twelve (12) months and
it (or any replacement policy) shall at all times have a
remaining term of at least one (1) month in regard to all
required insurance.
F-3
<PAGE>
EXHIBIT G
---------
Reporting Requirements
----------------------
Lessee will furnish to Lessor during the Term:
(1) Quarterly Statements - As soon as practicable after the end
--------------------
of the first, second and third quarterly fiscal periods in each fiscal year
of Lessee, and in any event within 45 days thereafter, duplicate copies of:
(x) a consolidated balance sheet of the Lessee as at the
end of such quarter setting forth in comparative form the amount for
the end of the corresponding period of the preceding fiscal year,
(y) consolidated statements of income and retained earnings
of Lessee for such quarterly period and
(z) consolidated statements of cash flow of Lessee for the
portion of the fiscal year ending with said quarter;
in each case prepared in accordance with generally accepted accounting
principles consistently applied and certified by the Chief Financial
Officer of Lessee as having been prepared in accordance with generally
accepted accounting principles consistently applied; and
(2) Annual Statements - As soon as practicable after the end of
-----------------
each fiscal year of Lessee, and in any event within 90 days thereafter,
duplicate copies of:
(x) a consolidated balance sheet of Lessee as at the end of
such year, and
(y) consolidated statements of income and retained earnings
and of cash flow of Lessee for such year,
prepared in accordance with generally accepted accounting principles
setting forth in each case in comparative form the figures for the previous
fiscal year and accompanied by an auditor's report of a firm of independent
certified public accountants of recognized national standing reasonably
satisfactory to Lessor stating that such balance sheet and consolidated
statements have been prepared in accordance with generally accepted
accounting principles consistently applied; and
(3) Notice of Default or Claimed Default - Immediately upon an
------------------------------------
officer of Lessee becoming aware of the existence of a Default or an Event
of Default, a written notice
<PAGE>
specifying the nature of the Default or Event of Default and what action
Lessee is taking or proposes to take with respect thereto;
(4) No Default Certificate. Concurrently with the delivery of
----------------------
the financial statements referred to in clauses (1) and (2) above, Lessee
will deliver to Lessor a certificate of Lessee, signed by the President, a
Vice President, the Chief Financial Officer or the principal accounting
officer of Lessee to the effect that the signer is familiar with or has
reviewed the relevant terms of each of the Lessee Documents and the signer
does not have knowledge of the existence, as of the date of such
certificate, of any condition or event which constitutes a Default or an
Event of Default; and
(5) Quarterly Operating Report. Not more than sixty (60) days
--------------------------
after the end of each fiscal quarter of the Lessee, a report of Lessee's
operations during the preceding fiscal quarter, which report shall include
(a) on a fleetwide basis, revenue passenger miles, available seat miles,
load factor, average yield, cost per ASM, fuel gallons consumed and average
price paid per gallon of fuel and (b) for the Aircraft only, a detailed
description of maintenance activities performed on the Aircraft.
G-2
<PAGE>
EXHIBIT H
DELIVERY
--------
At the time of delivery of the Aircraft to Lessee, the Aircraft, Engines,
Aircraft Documents and all Parts shall comply with the following:
1. General Condition
-----------------
(a) the Aircraft shall be in good operating condition with all the Aircraft
equipment, components and systems functioning in accordance with their
intended use;
(b) the Aircraft shall be clean by commercial airlines standards;
(c) the Aircraft shall have accomplished thereon and be in compliance with all
outstanding regulations, mandatory orders, directives and instructions
affecting the aircraft and issued by the FAA which have a date for
compliance prior to or within (one) year after the Delivery date, but so
that (i) Air Invest has obtained from the FAA, or is entitled to, any
waivers, deviations, dispensations or extensions from or for having to
comply with any such regulations, mandatory orders, directives and
instructions, or (ii) the Air Invest Maintenance Program permits the carry
over or deferral of maintenance items, performance of which would, but for
such carry over or deferral, have otherwise been required hereby, the
Lessor shall nevertheless, prior to delivery of the Aircraft to the Lessee,
use its best efforts to cause the then current operator of the Aircraft to
comply with all such regulations, mandatory orders, directives and
instructions covered by such waiver, deviation, dispensation or extension
and perform or cause to be performed such maintenance items;
(d) the Aircraft shall have had accomplished thereon all outstanding deferred
maintenance items;
(e) the Aircraft shall have installed therein all applicable Vendors' and
Manufacturer's service bulletin kits theretofore received by the Lessee
which are appropriate for the Aircraft and to the extent not installed,
such kits shall be furnished free of charge to the Lessor by being loaded
on board the Aircraft as cargo;
2. Fuselage, Windows and Doors
---------------------------
(a) the fuselage shall be free of major dents and abrasions, and loose or
pulled or missing rivets and all exterior repairs and patches will be
permanent repairs installed in accordance with the manufacturer's approved
procedures;
(b) the windows shall be free of delamination, blemishes, crazing and shall be
properly sealed;
(c) the doors shall be free moving, correctly rigged and be fitted with
serviceable seals.
<PAGE>
3. Wings and Empennage
-------------------
(a) all leading edges shall be free from damage;
(b) all control surfaces shall be waxed and polished to industry standards;
(c) all unpainted cowlings and fairing shall be polished to industry standards;
(d) wings shall be free of fuel leaks.
4. Interior
--------
(a) all galleys shall be dry, clean, effectively sealed and in good condition;
(b) sealings, sidewalls and bulkhead panels shall be cleaned and free of cracks
and stains;
(c) all carpets and seat covers shall be in good condition, clean and shall
meet fire resistance regulations of the FAA;
(d) all seats shall be serviceable, in good condition and repainted as
necessary;
(e) all signs and decals shall be clean and legible;
(f) all emergency equipment having a calendar life shall have a minimum of one
year or 100% (one hundred percent) of its total approved life whichever is
less, remaining.
5. Cockpit
-------
(a) all decals shall be clean, secure and legible;
(b) all fairing panels shall be free of cracks, shall be clean, secure and
repainted as necessary;
(c) floor coverings shall be clean and effectively sealed;
(d) seat covers shall be in good condition, clean and shall conform to fire
resistance regulations;
(e) seats shall be fully serviceable and shall be repainted as necessary.
6. Cargo Compartments
------------------
(a) all panels shall be in good condition;
(b) any nets shall be in good condition;
H-2
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(c) the cargo system shall be operational.
7. Landing Gears and Wheel Wells
-----------------------------
(a) shall be clean, free of leaks and repaired as necessary;
(b) all decals shall be clean, secure and legible;
(c) the service life remaining on all tires and brakes shall not be less than
50% (fifty percent);
8. Fuel Tanks
----------
Fuel tanks shall be free from contamination and corrosion.
9. Fuel
----
All fuel and oil on board the Aircraft at the time of redelivery to the
Lessor shall be the property of the Lessor without charge.
10. Aircraft Documents
------------------
(a) Lessor shall have provided to Lessee, at the time of delivery, at least one
copy of all the applicable Aircraft and Engine historical records,
documents, manuals and data, which shall have been updated and maintained
by Air Invest up to the date of delivery and shall be in the English
language.
(b) Lessor shall also provide to Lessee all records, documents, manuals,
authorizations, drawings and data in English which were developed or caused
to be developed by Air Invest and/or required by the FAA, which shall have
been updated and maintained by Air Invest for the Aircraft up to the date
of delivery.
H-3
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EXHIBIT I
DEMONSTRATION FLIGHT PROCEDURES
[List to be consistent with demonstration flight procedures on delivery.]
<PAGE>
EXHIBIT J
FORM OF LETTER OF CREDIT
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT J TO THE OPERATING LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE OPERATING LEASE AGREEMENT ON FILE
WITH THE FEDERAL AVIATION ADMINISTRATION.
<PAGE>
EXHIBIT 10.2
AIRCRAFT LEASE AGREEMENT
(MSN 28760)
between
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC., as Lessor
and
FRONTIER AIRLINES, INC., as Lessee
Dated as of December 12, 1996
Relating to One B737-36Q Aircraft
Bearing Manufacturer's Serial Number 28760
Together with Two CFM56-3C-1 Engines
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT AND IS BEING
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
AIRCRAFT LEASE AGREEMENT
(MSN 28760)
TABLE OF CONTENTS
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SECTION 1. SCHEDULES 1 AND 2; GENERAL DEFINITIONS; CONSTRUCTION OF
TERMS.......................................................... 1
1.1 Schedule 1............................................. 1
1.2 Certain Transaction Specific Definitions............... 1
1.3 General Definitions.................................... 1
1.4 Construction........................................... 1
SECTION 2. LEASE OF AIRCRAFT.................................. 1
2.1 Agreement to Lease..................................... 1
2.2 Inspections............................................ 1
2.2.1 Delivery Inspection........................... 1
2.2.2 Delivery Discrepancies........................ 1
2.2.3 Delivery Indemnity............................ 1
2.3 Changes in Delivery Date; Limitation of Lessor's
Obligation to Deliver Aircraft......................... 1
SECTION 3. LEASE TERM; RENT; SECURITY DEPOSIT; PAYMENTS....... 1
3.1 Basic Lease Term....................................... 1
3.2 Renewal Lease Term..................................... 1
3.3 Basic Rent and Renewal Rent............................ 1
3.4 Supplemental Rent...................................... 1
3.5 Security Deposit....................................... 1
3.5.1 Lessor's Interest in Security Deposit......... 1
3.5.2 Return of Security Deposit.................... 1
3.5.3 Substitution of Letter of Credit.............. 1
3.5.4 Return of Letter of Credit.................... 1
3.6 Payments in General.................................... 1
3.6.1 Timing and Place of Payment................... 1
3.6.2 Business Day Convention....................... 1
3.6.3 Calculation of Interest....................... 1
SECTION 4. CONDITIONS PRECEDENT............................... 1
4.1 Agreements and Documents............................... 1
4.1.1 Lease Agreement............................... 1
4.1.2 Lease Supplement No. 1........................ 1
4.1.3 Insurance Documents........................... 1
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4.1.4 Legal Opinion................................. 1
4.1.5 Process Agent Letter.......................... 1
4.1.6 Assignment of Insurances...................... 1
4.1.7 Officer Certificate........................... 1
4.2 Approved Maintenance Program........................... 1
4.3 Truth and Performance.................................. 1
4.3.1 First Rent Payment Made....................... 1
4.3.2 Security Deposit Paid or Letter of
Credit Delivered.............................. 1
4.3.3 Representations True.......................... 1
4.3.4 No Default.................................... 1
4.4 Section 1110........................................... 1
4.5 Filing................................................. 1
4.6 Delivery from Airframe Manufacturer.................... 1
4.7 Other Matters.......................................... 1
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.......... 1
5.1 Lessor's Disclaimer; Representations and Warranties.... 1
5.1.1 Lessor's Disclaimer........................... 1
5.1.2 Lessor's Representations and Warranties....... 1
5.2 Lessee's Representations and Warranties................ 1
5.2.1 Continuing Representations and Warranties..... 1
5.2.2 Initial Representations and Warranties........ 1
5.2.3 No Prejudice.................................. 1
SECTION 6. GENERAL COVENANTS.................................. 1
6.1 Lessor's Covenants..................................... 1
6.1.1 Quiet Enjoyment............................... 1
6.1.2 No Claims by Lessee........................... 1
6.2 Lessee's Covenants..................................... 1
6.2.1 Continuing Business; Merger,
Consolidation, Etc............................ 1
6.2.2 Reporting Requirements........................ 1
6.2.3 Liens......................................... 1
6.2.4 Section 1110.................................. 1
SECTION 7. TITLE; REGISTRATION AND FILINGS; ETC............... 1
7.1 Title to the Aircraft.................................. 1
7.1.1 Lessor as Owner............................... 1
7.1.2 Lessee Not Owner.............................. 1
7.1.3 Title Vis a Vis Third Parties................. 1
7.2 Registration and Filings; Etc.......................... 1
7.2.1 Register Aircraft............................. 1
7.2.2 Recordation of Lease.......................... 1
</TABLE>
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7.2.3 Further Actions............................... 1
7.2.4 Geneva Convention............................. 1
SECTION 8. POSSESSION. 1
8.1 Subleasing............................................. 1
8.2 Maintenance, Etc....................................... 1
8.3 Installation of Engines on Other Airframes............. 1
8.4 Wet Lease.............................................. 1
SECTION 9. INDEMNITIES........................................ 1
9.1 General Indemnity...................................... 1
9.2 Exceptions to General Indemnity........................ 1
9.3 Taxes.................................................. 1
9.4 Currency Indemnity..................................... 1
9.5 Scope, Survival, Etc................................... 1
9.6 Indemnities Payable on After-Tax Basis................. 1
SECTION 10. RISK OF LOSS, DESTRUCTION AND REQUISITION, ETC..... 1
10.1 Risk of Loss.......................................... 1
10.2 Event of Loss With Respect to the Aircraft............ 1
10.3 Event of Loss With Respect to an Engine............... 1
10.4 Requisition for Use of the Aircraft by
any Government Entity................................. 1
10.5 Application of Payments During
Existence of Default.................................. 41
SECTION 11. INSURANCE.......................................... 1
11.1 Scope of Insurances................................... 1
11.1.1 Liability Coverage........................... 1
11.1.2 Hull Coverage................................ 1
11.1.3 War Hull and Liability Coverage.............. 1
11.2 Application of Proceeds of Hull Insurance............. 1
11.2.1 Event of Loss................................ 1
11.2.2 Damage....................................... 1
11.3 Application of Payments During Existence of a Default. 1
11.4 Continuation of Liability Insurance................... 1
11.5 Reports, Etc.......................................... 1
11.6 Self-Insurance........................................ 1
11.7 Change of Practice or Insurers........................ 1
11.8 Change of Circumstance................................ 1
11.9 Negative Undertakings................................. 1
11.10 Failure to Insure..................................... 1
11.11 Additional Insurance by Lessor........................ 1
</TABLE>
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SECTION 12. EVENTS OF DEFAULT. 1
12.1 Failure to Pay Scheduled Amounts...................... 1
12.2 Failure to Pay Demand Amounts......................... 1
12.3 Insurance............................................. 1
12.4 Return................................................ 1
12.5 Certain Covenants..................................... 1
12.6 Other Covenants....................................... 1
12.7 Representations and Warranties........................ 1
12.8 Voluntary Bankruptcy, Etc............................. 1
12.9 Involuntary Bankruptcy, Etc........................... 1
12.10 Illegality............................................ 1
12.11 Indebtedness or Lease Default......................... 1
12.12 Government Action..................................... 1
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12.13 Judgments........................................ .... 1
12.14 Material Adverse Event................................ 1
SECTION 13. REMEDIES........................................... 1
13.1 Retake Possession..................................... 1
13.2 Termination or Enforcement............................ 1
13.3 Application of Funds.................................. 1
13.4 Damages............................................... 1
SECTION 14. ASSIGNMENT OF LEASE................................ 1
14.1 Assignment by Lessor.................................. 1
14.1.1 Right to Assign.............................. 1
14.1.2 Cooperation and Limitations.................. 1
14.1.3 Absolute Transfer............................ 1
14.1.4 Transfer as Security......................... 1
14.2 Assignment by Lessee.................................. 1
14.3 Successors and Assigns................................ 1
SECTION 15. NO SETOFF, COUNTERCLAIM, ETC....................... 1
SECTION 16. FURTHER ASSURANCES, ETC............................ 1
16.1 Further Assurances.................................... 1
16.2 Lessor's Performance of Lessee's Obligations.......... 1
16.3 No Implied Waivers; Rights Cumulative................. 1
SECTION 17. CONFIDENTIALITY.................................... 1
SECTION 18. GOVERNING LAW AND JURISDICTION..................... 59
18.1 New York Law.......................................... 59
18.2 Nonexclusive Jurisdiction in New York................. 59
18.3 Service of Process.................................... 61
SECTION 19. MISCELLANEOUS..................................... 61
19.1 Amendments............................................ 61
19.2 Severability.......................................... 61
19.3 Counterparts.......................................... 61
19.4 Chattel Paper......................................... 62
19.5 Time of the Essence................................... 62
19.6 Notices............................................... 62
19.7 Entire Agreement...................................... 62
</TABLE>
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SCHEDULES AND EXHIBITS
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SCHEDULE 1 -- RETURN CONDITIONS
SECTION 1. GENERAL DEFINITIONS............................. 1
SECTION 2. MAINTENANCE; OPERATION; ETC..................... 1
2.1 General Maintenance................................. 1
2.2 Modifications and Other Maintenance................. 1
2.2.1 Required Modifications..................... 1
2.2.2 CPCP....................................... 1
2.2.3 Repairs.................................... 1
2.2.4 Aviation Authority Communications.......... 1
2.2.5 Correction of Discrepancies................ 1
2.2.6 Approved Maintenance Performer............. 1
2.2.7 Aviation Authority Approved Parts.......... 1
2.2.8 Maintenance of Non-"Engine."............... 1
2.3 Replacement of Parts................................ 1
2.3.1 Replacement of Parts Required.............. 1
2.3.2 Ownership of Parts......................... 1
2.4 Modifications....................................... 1
2.4.1 Ability to Modify.......................... 1
2.4.2 No Obligation of Lessor to Pay............. 11
2.4.3 Removal of Modification Part............... 1
2.4.4 Reversal of Modification................... 1
2.4.5 Title to Removed Modification Part......... 1
2.4.6 Passenger Communication Equipment.......... 12
2.4.7 Service Bulletin Kits...................... 1
2.5 Documentation....................................... 1
2.6 Operation........................................... 1
2.7 Insignia............................................ 1
2.8 Costs of Maintenance, Operation, Etc................ 15
2.8.1 In General................................. 15
2.8.2 Payment of Flight Charges.................. 1
2.9 Inspection.......................................... 1
2.9.1 Maintenance Schedule....................... 1
2.9.2 Reasonable Inspections..................... 16
2.9.3 No Duty to Inspect......................... 1
SECTION 3. MAINTENANCE RESERVE PAYMENTS.................... 17
3.1 Maintenance Reserve Amounts......................... 17
3.1.1 Maintenance Reserve Amounts................ 17
3.1.2 Assumed Hour-to-Cycle Ratio Amount......... 1
3.1.3 Reserve Inflation Factor................... 18
3.2 Reimbursement....................................... 1
3.2.1 Airframe Reimbursement..................... 1
3.2.2 Engine Reimbursement....................... 1
</TABLE>
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3.2.3 APU Reimbursement.......................... 1
3.2.4 Landing Gear Reimbursement................. 19
3.3 Account Balances.................................... 1
3.4 No Negative Balances................................ 1
3.5 Rights in Reserves.................................. 1
3.6 Payments............................................ 20
SECTION 4. RETURN OF THE AIRCRAFT.......................... 1
4.1 Date and Location of Return......................... 1
4.2 Condition of Aircraft............................... 1
4.3 Final Inspection.................................... 1
4.4 Operational Ground Check............................ 1
4.5 Demonstration Flight................................ 22
4.6 Technical Acceptance................................ 1
4.7 Failure to Return Aircraft.......................... 1
4.8 Transition.......................................... 23
4.9 Indemnity........................................... 1
4.10 Storage Upon Return................................. 24
4.11 Deferred Discrepancy Correction..................... 24
ANNEX 1 TO SCHEDULE 1 -- RETURN CONDITIONS
SECTION 1. CONDITION OF AIRFRAME AND ENGINES............... 1
1.1 General Requirements................................ 1
1.2 Condition Permitting Commercial Operation........... 1
1.3 Export Matters...................................... 1
1.4 Final Airframe Check................................ 1
1.5 ADs, Service Bulletins, Etc......................... 1
1.6 Engine Condition.................................... 1
1.6.1 Engine Borescope........................... 1
1.6.2 Full-Rated Performance..................... 1
1.7 APU Condition....................................... 3
1.8 Landing Gear Condition.............................. 1
1.9 Life Limited Parts.................................. 1
1.10 Tires and Brakes.................................... 1
1.11 Paint............................................... 1
1.12 Service Bulletin Kits............................... 4
1.13 Fuel and Oil........................................ 4
1.14 Lessee Certificate.................................. 5
SECTION 2. AIRCRAFT DOCUMENTATION.......................... 5
SCHEDULE 2 -- CERTAIN TRANSACTION SPECIFIC DEFINED TERMS
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SECTION 1. GENERAL DEFINITIONS............................ 1
SECTION 2. BASIC RENT AND RENEWAL RENT.................... 1
2.1 Rent Amount......................................... 1
2.2 Fair Market Rental.................................. 1
2.3 Renewal Rent Determination.......................... 1
SECTION 3. AMOUNT OF SECURITY DEPOSIT...................... 1
SECTION 4. TERMINATION OF LEASE PRIOR TO DELIVERY.......... 1
4.1 Termination Triggers................................ 1
4.2 Effect of Termination............................... 1
4.3 Cooperation......................................... 1
SCHEDULE 3 -- DELIVERY CONDITIONS
SCHEDULE 4 -- NOTICE AND ACCOUNT INFORMATION
SCHEDULE 5 -- TAX MATTERS
SECTION 1. LESSEE LIABILITY................................ 1
SECTION 2. EXCLUSIONS FROM LESSEE'S LIABILITY.............. 1
SECTION 3. NO REDUCTION FOR WITHHOLDING, ETC............... 1
SECTION 4. REPORTS......................................... 1
SECTION 5. PAYMENT......................................... 1
EXHIBIT A -- LEASE SUPPLEMENT
EXHIBIT B -- FORM OF CERTIFICATE OF INSURANCE
EXHIBIT C -- FORM OF BROKER'S LETTER
EXHIBIT D -- FORM OF LEGAL OPINION
EXHIBIT E -- FORM OF ASSIGNMENT
SECTION 1. ASSIGNMENT...................................... 1
SECTION 2. NOTICE TO INSURERS.............................. 1
SECTION 3. RIGHTS OF LESSOR................................ 1
SECTION 4. COUNTERPARTS.................................... 1
SECTION 5. GOVERNING LAW................................... 1
EXHIBIT F -- FORM OF MONTHLY UTILIZATION REPORT
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EXHIBIT G -- FORM OF LETTER OF CREDIT
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<PAGE>
AIRCRAFT LEASE AGREEMENT
(MSN 28760)
AIRCRAFT LEASE AGREEMENT (MSN 28760), dated as of December 12, 1996 (this "Lease
Agreement"), between BOULLIOUN AIRCRAFT HOLDING COMPANY, INC., a Washington
corporation ("Lessor"), and FRONTIER AIRLINES, INC., a Colorado corporation
("Lessee").
RECITAL:
Lessee desires, upon the terms and conditions hereof, to lease the Aircraft (as
defined below) from Lessor, and Lessor is willing, upon the terms and conditions
hereof, to lease the Aircraft to Lessee.
AGREEMENT:
In consideration of the foregoing premise, and for other good and valuable
consideration the adequacy and receipt of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. SCHEDULES 1 AND 2; GENERAL DEFINITIONS; CONSTRUCTION OF TERMS.
1.1 SCHEDULE 1.
Schedule 1 of this Lease Agreement is intended to be used by Lessee's and
Lessor's aircraft operations personnel as a separate document containing the
large majority of the provisions of this Lease Agreement related to the
maintenance, operation and return of the Aircraft (and the definitions related
thereto), but both Lessor and Lessee acknowledge that the respective legal
rights and obligations of Lessor and Lessee are governed by this Lease Agreement
(including Schedule 1) and the other Operative Documents as an entirety.
The following terms are defined in Schedule 1:
AD
Aircraft Documentation
Airframe
Airframe Cycle
Airframe Flight Hour
Airworthiness Certificate
Approved Maintenance Performer
Approved Maintenance Program
APU
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Basic Shop Visit
Cabin
CPCP
Delivery Documentation
Engine
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Engine Cycle
Engine Flight Hour
External Repair
Final Inspection
Final Maintenance
Flight Charges
Follow-On Operator
Inspecting Party
Landing Gear
Landing Gear Overhaul
Major Checks
Major Modifications
Modification
Modification Parts
Obsolete Parts
Parts
Replacement Engine
Required Modifications
Reserves
Return
Return Acceptance Certificate
SB
1.2 CERTAIN TRANSACTION SPECIFIC DEFINITIONS.
Schedule 2 of this Lease Agreement is intended as a central short document
containing the majority of the transaction specific terms and conditions, such
as rent amounts and rent payment dates.
The following terms are defined in Schedule 2:
Airframe Manufacturer
Airframe Manufacturer Purchase Agreement
Airframe Reserve Amount
APU Reserve Amount
Assumed Hour-to-Cycle Ratio
Aviation Authority
Basic Lease Term Termination Date
Business Day
Commitment Termination Date
Damage Notice Threshold
Delivery Location
Engine Life Limited Part Reserve Amount
Engine Manufacturer
Engine Overhaul Reserve Amount
Insurance Brokers
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Landing Gear Reserve Amount
Lessee Jurisdiction
Past Due Rate
Permitted Jurisdiction
Renewal Lease Term Termination Date
Rent Determination Request
Reserve Inflation Factor
Return Location
Scheduled Delivery Date
State of Registration
Stipulated Loss Value
Stipulated Deductible Amount
Stipulated Liability Coverage
1.3 GENERAL DEFINITIONS.
The following terms shall have the following meanings for all purposes of
this Lease Agreement:
"Absolute Transfer" has the meaning set forth in Section 14.1.3.
"Affiliate" shall mean in relation to a Person, any other Person directly
or indirectly controlling, controlled by or under common control with that
Person.
"Aircraft" shall mean, collectively, the Airframe and the Engines and,
unless the context does not permit, the Aircraft Documentation.
"Authorizations" shall mean each and every approval, waiver,
authorization, consent, license, certificate or order of, or registration with,
or requirement for the giving of prior notice to, or the taking of any action in
respect of, the Aviation Authority or any other Government Entity having
jurisdiction over Lessee, the operation of the Aircraft or any action or
transaction contemplated hereby or by any Operative Document.
"Basic Lease Term" shall mean the period described in Section 3.1.
"Basic Rent" shall mean the rent payable during the Basic Lease Term with
respect to the Aircraft pursuant to Section 3.3.
"Basic Rent Payment Date" shall mean (i) the date one Business Day prior
to the Delivery Date and (ii) the date in each
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calendar month during the Basic Lease Term after the Delivery Date numerically
corresponding to the Delivery Date (or, if no corresponding date exists in any
such calendar month, the last day of such month).
"basis point" shall mean 1/100th of 1%.
"contractual currency" shall have the meaning set forth in Section 9.4.
"Default" shall mean any Event of Default or any condition, circumstance,
act or event which, upon the giving of notice, the lapse of time and/or the
fulfillment of any other condition would constitute or give rise to an Event of
Default.
"Delivery Date" shall mean the date, local time at the Delivery Location,
on which the Aircraft is delivered by Lessor and accepted by Lessee pursuant to
this Lease Agreement as such date is set forth in Lease Supplement No. 1.
"Dollars" and "US$" mean the lawful currency of the United States of
America.
"Event of Default" has the meaning set forth in Section 12.
"Event of Loss" shall mean, with respect to the Aircraft, the Airframe or
any Engine, any of the following events, conditions or circumstances with
respect to such property:
(1) retention of possession of the Aircraft by Lessee for more than
60 days beyond the last day of the Lease Term without the express written
consent or instructions of Lessor.
(2) the destruction of or damage of such property which renders (a)
repair of such property uneconomical or (b) such property permanently unfit for
normal use by Lessee or Lessor.
(3) any loss of or damage to such property or other occurrence which
the insurers determine or agree to be a total loss .
(4) the confiscation, condemnation, seizure, forfeiture, requisition
or similar taking of the title to such property (for any reason whatsoever and
whether de jure or de facto).
(5) the disappearance, hijacking or theft (including a
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confiscation, condemnation, seizure, forfeiture, requisition or similar taking
of title or use not otherwise included in this definition) of such property
which shall have resulted in the loss of possession or use of such property by
Lessee for a period that continues until the earliest of (a) the date that is 60
days following the commencement of such loss of possession or use (or, if less,
the remaining Lease Term) and (b) the date upon which the Aircraft is modified
in such a manner as would render conversion of such property for use in normal
commercial passenger service impractical or uneconomical.
(6) the confiscation, condemnation, seizure, requisition or similar
taking by any Government Entity or purported Government Entity (other than a
requisition for use or hire by a Government Entity of the State of Registration
or any political subdivision thereof) of use or hire of such property which
shall have resulted in the loss of possession or use of such property by Lessee
for a period that continues until the earliest of (a) the date that is 90 days
following the commencement of such loss of property or use (or, if earlier, the
last day of the Lease Term) and (b) the date upon which the Aircraft is modified
in such a manner as would render conversion of such property for use in normal
commercial passenger service impractical or uneconomical.
(7) the requisition for use or hire by a Government Entity of the
State of Registration which shall have resulted in the loss of possession or use
of such property by Lessee for a period that continues until the earliest of (a)
the last day of the Lease Term and (b) the date upon which the Aircraft is
modified in such a manner as would render conversion of such property for use in
normal commercial passenger service impractical or uneconomical.
(8) as a result of any Law, the use of such property in the normal
course of the business of air transportation of persons and/or cargo shall have
been prohibited for a continuous period in excess of 180 days (or if less, the
remaining Lease Term), unless Lessee, prior to the expiration of such period,
shall have undertaken and shall be diligently carrying forward all steps which
are necessary or desirable to permit such use of such property by Lessee and so
long as such use shall not have been prohibited for a continuous period in
excess of 270 days (or if less, the remaining Lease Term), provided that at
Lessor's option (to be exercised prior to the last day of the Lease Term),
Lessor may waive such incipient event of loss and Lessee shall return the
Aircraft in accordance with the terms and conditions
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of this Agreement and the other Operative Documents).
(9) any divestiture or impairment of any right, title or interest of
Lessor in or to an Engine as a result of the installation of such Engine on any
other airframe in violation of Section 8.
An Event of Loss with respect to the Aircraft shall be deemed to have occurred
if an Event of Loss occurs with respect to the Airframe. An Event of Loss with
respect to one or more Engines without loss of the Airframe shall not be deemed
an Event of Loss with respect to the Aircraft.
"Expense" shall mean any liabilities, obligations, losses (including any
loss, premium, penalty, termination fee or other cost or expense which may be
incurred, directly or indirectly, in the early termination of this Agreement or
any other Operative Document or in repaying funds raised to finance the Aircraft
or in unwinding any swap, forward interest rate agreement or other financial
instrument relating in whole or in part to Lessor's financing of the Aircraft),
damages (including damages for loss of life, injury to persons or damage to any
property), penalties, fines, sanctions, claims (whether fraudulent, groundless,
false or not), actions, suits, judgments, legal proceedings (whether civil or
criminal), investigations, Taxes, costs, disbursements and expenses (including
reasonable legal fees and expenses, costs of investigation and related expenses)
of every kind and nature whatsoever (including any liability, obligation or
claim arising in contract or tort, whether or not arising from the negligence,
actual, implied or imputed, active or passive, or absolute or strict liability
of an Indemnified Party, Airframe Manufacturer or any other Person or under any
other theory) (but excluding any liability, obligation or claim for any other
incidental and consequential damages).
"Financing Party" shall mean (1) each Person, if any, providing, directly
or indirectly, equity financing or refinancing related to the purchase price of
the Aircraft, as identified by Lessor to Lessee from time to time, and (2) the
Security Agent, if any.
"Force Majeure" shall mean delay or nonperformance 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, Lessor,
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Airframe Manufacturer or Engine Manufacturer 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 suppliers in a timely manner, any other "Excusable Delay" as defined in the
Airframe Manufacturer Purchase Agreement 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.
"GAAP" shall mean generally accepted accounting principles in Lessee
Jurisdiction, as such principles may at any time or from time to time be varied
by any applicable financial accounting rules and, with respect to any Person,
shall mean such principles applied on a basis consistent with prior periods.
"Government Entity" shall mean (1) any national, state or local government
of any country or any international authority (including in each case, any
central bank or fiscal, tax or monetary authority), (2) any board, commission,
department, division, instrumentality, court, agency, territory, possession or
political subdivision of any entity described in clause (1) above, however
constituted, (3) any association, organization or institution of which any
entity described in clause (1) or (2) above is a member or to whose jurisdiction
any thereof is subject or in whose activities any thereof is a participant and
(4) any taxing authority of any entity described in clause (1), (2) or (3)
above.
"Indebtedness" shall mean all obligations of Lessee that would, in
accordance with GAAP, be shown as a liability on Lessee's balance sheet, and in
any footnotes or notations thereto, including (1) obligations for the repayment
of monies borrowed or raised, (2) obligations under finance leases, hire-
purchase arrangements, conditional sale agreements and other obligations for the
deferred purchase price of property, (3) guarantees, direct or indirect, of the
obligations of any other Person, including any such obligations secured by a
Lien on any property of Lessee, (4) indemnity and reimbursement obligations,
including any such obligations arising to any issuer of a letter of credit or
similar instrument, and (5) obligations to purchase or otherwise acquire any
indebtedness of, or to advance monies to or on behalf of, or make any investment
in any other Person.
"Indemnified Party" shall mean Lessor, its Affiliates, each Financing
Party and the successors and permitted assigns of each of the foregoing and the
directors, officers, corporate
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stockholders, partners, employees, servants and agents of each of the foregoing.
"Insured Party" shall mean each Indemnified Party and, to the extent
Airframe Manufacturer is indemnified hereunder or under any other Operative
Document, Airframe Manufacturer.
"Lease Supplement" shall mean a supplement to this Lease Agreement
substantially in the form of Exhibit A, to be entered into between Lessor and
Lessee on the Delivery Date, and any subsequent lease supplement entered into in
accordance with the terms hereof.
"Lease Supplement No. 1" shall mean Lease Supplement No. 1, dated the
Delivery Date, between Lessor and Lessee in the form of Exhibit A.
"Lease Term" shall mean the Basic Lease Term and, if any, the Renewal
Lease Term.
"Lessor Lien" shall mean any Lien over all or any part of the Aircraft
arising as a result of any act or omission by Lessor.
"Letter of Credit" has the meaning set forth in Section 3.3.5.3.
"Lien" shall mean any mortgage, pledge, lien, charge, encumbrance,
hypothecation, lease, sublease, seizure, exercise of rights, security interest,
judgment, writ, order or other claim or right of possession of any kind or
nature whatsoever, however and wherever created or arising and whether or not
consensual (including any agreement or arrangement to give or effect any of the
foregoing and any conditional sale or other title retention agreement).
"Material Adverse Effect" shall mean (1) as of any date, a material
adverse change between the date hereof and such date, in the business, assets,
financial condition or prospects of Lessee, or (2) the occurrence of any event
or the existence of any circumstances that has or will, in Lessor's reasonable
judgment, have a material adverse effect on (a) the ability of Lessee to carry
on its business or to perform its obligations under any Operative Document to
which it is or will be a party or (b) the rights or interests of Lessor under
any Operative Document to which it is or will be a party.
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"Operative Documents" shall mean this Lease Agreement, each Lease
Supplement, each document delivered by Lessee to Lessor pursuant to Section 4
and any other document which Lessor and Lessee agree is an "Operative Document".
"Other Lease" shall mean any other aircraft lease agreement between (1)
Lessor, or any Affiliate of Lessor, and (2) Lessee, or any Affiliate of Lessee.
"Permitted Lien" shall mean any Lien referred to in Sections 6.2.3.1.1
through 6.2.3.1.5.
"Person" shall mean any individual, corporation, trust, partnership,
unincorporated association, joint venture, association, joint-stock company,
government or Government Entity.
"Rent" shall mean, collectively, Basic Rent, Renewal Rent and Supplemental
Rent.
"Renewal Lease Term" shall mean the period described in Section 3.2.
"Renewal Rent" shall mean the rent payable during the Renewal Lease Term
with respect to the Aircraft pursuant to Section 3.3.
"Renewal Rent Payment Date" shall mean (1) the first day of the Renewal
Lease Term and (2) the date in each calendar month during the Renewal Lease Term
after the first day of the Renewal Lease Term corresponding to the first day of
the Renewal Lease Term (or, if no corresponding date exists in any such calendar
month, the last day of such month).
"Rent Payment Date" shall mean a Basic Rent Payment Date and/or a Renewal
Rent Payment Date, as the context may require.
"Reserves" shall mean all amounts payable by Lessee pursuant to Section 3
of Schedule 1.
"Secured Obligations" has the meaning set forth in Section 3.5.1.
"Security Agent" shall mean the designated representative, howsoever
denominated, of one or more of the Financing Parties, as such agent is
identified by Lessor to Lessee from time to time.
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"Security Assignment" has the meaning set forth in Section 14.1.4.
"Security Deposit" has the meaning set forth in Section 3 of Schedule 2.
"Security Transaction" has the meaning set forth in Section 14.1.4.
"Successor" has the meaning set forth in Section 6.2.1.3.1.
"Supplemental Rent" shall mean all amounts, liabilities and obligations
(other than Basic Rent and Renewal Rent) which Lessee assumes, agrees or
otherwise becomes liable to pay to Lessor, any Indemnified Party or any other
Person hereunder or under any of the other Operative Documents, including
payments of or in respect of the Reserves, Stipulated Loss Value, Expenses,
Taxes, interest accrued pursuant to Section 3.6 or other amounts payable under
any indemnities.
"Tangible Net Worth" shall mean, for any Person, the excess of the total
assets (excluding goodwill, intangible assets and revaluation of fixed assets)
over total liabilities of such Person, each determined in accordance with
generally accepted accounting principles consistently applied.
"Taxes" shall mean any and all present or future fees (including license,
documentation and registration fees), taxes (including income, gross receipts,
sales, rental, use, turnover, value-added, property (tangible or intangible),
excise, franchise, capital, user, transfer, doing business and stamp taxes or
duties), licenses, levies, imposts, duties, recording charges or fees, or other
charges, assessments, deductions or withholdings of any nature whatsoever,
together with any assessments, penalties, late payment charges, notary charges,
fines, additions to tax or other similar liabilities with respect to any of the
foregoing and interest on any of the foregoing.
"Tax Indemnitee" shall mean Lessor, each Affiliate of Lessor and each
Financing Party and any successor or assign of any of the foregoing and any
Person that is a member of a group that files a consolidated or combined tax
return that includes Lessor or such Financing Party.
"Transaction Documents" has the meaning set forth in Section 3.5.1.
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"U.S. Air Carrier" shall mean a commercial United States air carrier as to
which there is in force an operating certificate issued by the Secretary of
Transportation pursuant to chapter 447 of U.S. Aviation Laws for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo and
an operating certificate issued pursuant to Part 121 of the U.S. Aviation
Regulations, or which may operate as an air carrier by certification or
otherwise under any successor or substitute provisions therefor.
"U.S. Aviation Laws" shall mean the provisions of Subtitle VII of Title 49
of the U.S. Code, as amended from time to time, or any similar legislation of
the United States enacted in substitution, replacement or supplement of all or
any part of such subtitle, together with the U.S. Aviation Regulations.
1.4 CONSTRUCTION.
1.4.1 In this Lease Agreement and each other Operative Document,
unless expressly provided otherwise, a reference to:
1.4.1.1 Each of "Lessor" or "Lessee" or any other Person includes,
without prejudice to the provisions of this Lease Agreement or any other
Operative Document, any successor in interest to it and any permitted assignee
and, in the case of any Government Entity, any Government Entity succeeding to
all or any of its functions.
1.4.1.2 The word "including" shall be construed as "including,
without limitation."
1.4.1.3 Words importing the plural include the singular and vice
versa.
1.4.1.4 Any document includes that document as amended, modified or
supplemented from time to time in accordance with its terms, and any document
entered into in substitution or replacement therefor.
1.4.1.5 A "Law" (1) includes any statute, decree, constitution,
regulation, decision, finding, order, rule, judgment or directive of any
Government Entity, (2) includes any treaty, pact, compact or other agreement to
which any Government Entity is a signatory or party having the force of law, (3)
includes any judicial or administrative interpretation or application thereof
binding upon the relevant party, (4) includes any guideline, directive,
interpretation, rule or regulation of
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any Person having the force of law and (5) is a reference to any of the
foregoing as amended, substituted, reissued or reenacted.
1.4.1.6 The words "this Lease," "this Agreement," "this Lease
Agreement," "hereby," "herein," "hereto," "hereof" and "hereunder" and words of
similar import when used in this Lease Agreement refer to this Lease Agreement
as a whole including the Schedules and Exhibits, and all Annexes, Attachments
and Supplements thereto, and not to any particular provisions of this Lease
Agreement.
1.4.1.7 A Section or an Exhibit or a Schedule is a reference to a
section of, or an exhibit or a schedule to, this Lease Agreement.
1.4.2 Headings used in this Lease Agreement and each other Operative
Document are for convenience only and shall not in any way affect the
construction of, or be taken into consideration in interpreting, this Lease
Agreement or such Operative Document.
SECTION 2. LEASE OF AIRCRAFT.
2.1 AGREEMENT TO LEASE.
Subject to satisfaction of the conditions set forth in Section 4 and to
the provisions of this Section 2, Lessor hereby agrees to deliver the Aircraft
to Lessee at the Delivery Location and to lease the Aircraft to Lessee, and
Lessee hereby agrees to accept the Aircraft at the Delivery Location and to
lease the Aircraft from Lessor, in each case, on the Scheduled Delivery Date and
in the condition specified in Schedule 3, but otherwise in the "as is, where is"
condition of the Aircraft, pursuant to the terms and conditions of this Lease
Agreement and the other Operative Documents, the commencement of such leasing to
be evidenced by the execution and delivery by Lessor and Lessee of Lease
Supplement No. 1.
2.2 INSPECTIONS.
2.2.1 DELIVERY INSPECTION.
Lessor shall use reasonable efforts to cause Airframe Manufacturer to
permit Lessee to participate in a customer acceptance inspection and a customer
acceptance flight conducted by Airframe Manufacturer under the Airframe
Manufacturer Purchase Agreement, provided that Lessee shall have no right to
direct
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Airframe Manufacturer and shall not interfere with the manufacturing process of
the Aircraft in any way, except that at Lessee's written request, Lessor shall
use reasonable efforts to cause Airframe Manufacturer to correct any
discrepancies from the condition of the Aircraft as described in Schedule 3
discovered during such inspection and test flight. Lessee, at its own expense,
shall participate in the final physical inspection and customer acceptance
flight of the Aircraft under the Airframe Manufacturer Purchase Agreement (but
shall not direct Airframe Manufacturer) and shall provide pilots and other crew
and personnel for the customer acceptance flight. Upon delivery of the Aircraft
to Lessor under the Airframe Manufacturer Purchase Agreement, the Lease Term
shall automatically commence and no further or other inspections or
demonstration flights shall be conducted by or for the benefit of Lessee and
Lessee shall have no right to reject the Aircraft or refuse to deliver Lease
Supplement No. 1 to Lessor.
2.2.2 DELIVERY DISCREPANCIES.
Any discrepancies from the condition of the Aircraft as described in
Schedule 3 which were identified by Lessee pursuant to Section 2.2.1 on or prior
to the Delivery Date, and which were not corrected by Lessor or Airframe
Manufacturer on or prior to the Delivery Date, shall be corrected by Lessee or
its designee and Lessor shall reimburse Lessee at 100% of Lessee's reasonable
actual cost for such correction, payable on demand. Such claim for
reimbursement shall be Lessee's sole remedy for noncompliance, and Lessee shall
not have the right to refuse acceptance of the Aircraft because of such
discrepancies.
2.2.3 DELIVERY INDEMNITY.
Without limiting the provisions of Section 9 hereof, Lessee hereby
assumes liability for and shall fully indemnify and hold harmless each
Indemnified Party on demand and shall keep such Indemnified Party fully
indemnified at all times and on an after-tax basis from and against all Expenses
arising directly or indirectly from any injuries to or deaths of Lessee's
representatives or loss of or damage to property of Lessee or their respective
representatives or designees during the inspections described in this Section
2.2.
2.3 CHANGES IN DELIVERY DATE; LIMITATION OF LESSOR'S OBLIGATION TO
DELIVER AIRCRAFT.
If, owing to (1) any of the conditions precedent specified
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in Section 4 not having been met or not having been waived by Lessor in
accordance with Section 4, (2) any delay in the delivery of, or failure to
deliver, the Aircraft to Lessor for whatsoever reason and/or (3) reasons of
Force Majeure, the delivery of the Aircraft under this Lease Agreement shall be
delayed beyond the Scheduled Delivery Date, then Lessee shall accept delivery of
the Aircraft on the first Business Day after such date on which Lessor has
possession of the Aircraft at the Delivery Location and all of such conditions
precedent have been satisfied or waived in accordance with Section 4, provided
that if delivery of the Aircraft under this Lease Agreement is delayed beyond
the Commitment Termination Date, then either party hereto may, by written notice
to the other, terminate this Lease Agreement and each other Operative Document,
whereupon neither Lessor nor Lessee shall have any further obligation to the
other hereunder or thereunder, except as otherwise expressly provided herein and
except that Lessor shall be obligated to return the Security Deposit and any
amounts of Basic Rent paid by Lessee prior to such termination. In the event of
any such delay or any eventual termination of this Lease Agreement, neither
Lessor nor Lessee shall be responsible for any losses, including loss of profit,
costs or expenses arising therefrom suffered or incurred by the other.
Notwithstanding the foregoing, (y) if such delay or failure is caused by a
Default, Lessor shall have all the rights and remedies against Lessee described
in Section 13, including the right to collect damages for Expenses or other
amounts payable to Airframe Manufacturer under the Airframe Manufacturer
Purchase Agreement in connection with any delay in delivery of the Aircraft, and
shall not be obligated to return the Security Deposit or any amounts of Basic
Rent paid by Lessee and (z) if Lessor shall delay or fail to deliver the
Aircraft in breach of its obligations hereunder or under the other Operative
Documents, Lessee shall have all rights provided by Law arising out of such
breach, including the right to terminate this Lease Agreement and the other
Operative Documents and to recover Expenses related to such breach and costs
associated with paying a higher lease rental on any replacement aircraft.
SECTION 3. LEASE TERM; RENT; SECURITY DEPOSIT; PAYMENTS.
3.1 BASIC LEASE TERM.
The Basic Lease Term shall commence on the Delivery Date and, unless this
Lease Agreement is terminated earlier pursuant to the provisions hereof, shall
end on the Basic Lease Term Termination Date, provided that if the last day of
the Basic Lease Term shall not be a Business Day, then the Basic Lease Term
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shall expire on the next preceding Business Day.
3.2 RENEWAL LEASE TERM.
Lessee shall have the option to extend the Lease Term * . Such option
may be exercised only by delivery of (1) a Rent Determination Request (as
defined in Section 2 to Schedule 2) on a timely basis and (2) written notice to
Lessor at least 12 months prior to the then scheduled expiration of the Lease
Term electing to extend the Lease Term * , provided that Lessee may not
exercise such option at any time when an Event of Default has occurred and is
continuing. The Renewal Lease Term shall end on the Renewal Lease Term
Termination Date, provided that if the last day of the Renewal Lease Term shall
not be a Business Day, then the Renewal Lease Term shall expire on the next
preceding Business Day.
3.3 BASIC RENT AND RENEWAL RENT.
Lessee shall pay rent for the Aircraft in installments on each Basic Rent
Payment Date during the Basic Lease Term and on each Renewal Rent Payment Date
during the Renewal Lease Term, if any, in advance in immediately available
Dollars. Each such installment shall be in an amount equal to the amount so
specified in Section 2 of Schedule 2.
3.4 SUPPLEMENTAL RENT.
Lessee shall pay, or cause to be paid, promptly to Lessor, or to
whomsoever shall be entitled thereto, any and all Supplemental Rent when and as
the same shall become due and owing. Lessee also shall pay to Lessor, or to
whomsoever shall be entitled thereto, on demand, as Supplemental Rent, to the
extent permitted by applicable Law, interest at the Past Due Rate on any Rent
(including any interest accrued thereon pursuant to this Section 3 (compounded
on a daily basis)) not paid when due for any period for which the same shall be
overdue.
3.5 SECURITY DEPOSIT.
3.5.1 LESSOR'S INTEREST IN SECURITY DEPOSIT.
The Security Deposit shall be held by Lessor to secure the timely
payment and performance by Lessee of (1) its obligations hereunder and under
each other Operative Document and (2) its obligations under each of the Other
Leases and under each of the "Operative Documents" (howsoever denominated)
related to
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the Other Leases) (such documents and agreements referred to in subclause (1)
and (2), collectively, the "Transaction Documents" and such obligations referred
to in subclause (1) and (2), collectively, the "Secured Obligations"). The
Security Deposit shall be held by Lessor as security for the timely and due and
punctual payment by Lessee of the Secured Obligations and Lessee hereby assigns,
transfers and pledges to Lessor, and hereby grants to Lessor, a first-priority
security interest in the Security Deposit to secure such payment and such
performance. Lessee shall not assign, transfer, pledge or otherwise dispose of
any right, title or interest in or to the Security Deposit except as provided in
the preceding sentence. Subject only to Sections 2.3 and 3.5.2, the Security
Deposit may be assigned or pledged by Lessor to any Person. Any interest earned
on the Security Deposit shall be for Lessor's sole account. If an Event of
Default (hereunder or under any of the Other Leases) shall occur and be
continuing, then in addition to any other rights Lessor may have under
applicable Law as a secured party or otherwise, or under this Agreement or any
other Transaction Document, Lessor or such Person, as the case may be, may at
any time as an agreed remedy set off against, use, apply or retain all or any
portion of the Security Deposit in full or partial payment for amounts
constituting or corresponding to the Secured Obligations (including to
compensate Lessor or such Person, as the case may be, for any amount it may in
its reasonable discretion advance as a result of the occurrence of any Default
(hereunder or under any of the Other Leases), or to apply toward Expenses
arising as a result of the occurrence of any Default (hereunder or under any of
the Other Leases) or otherwise). If Lessor or such Person uses or applies all or
a portion of the Security Deposit, such application shall not be deemed a cure
by Lessee, or waiver by Lessor or any other Person, of any Default (hereunder
and under any of the Other Leases), and Lessee shall, within ten days after
Lessor's or such Person's demand therefor, pay to Lessor or such Person, as the
case may be, an amount sufficient to restore the Security Deposit to its
original total sum.
3.5.2 RETURN OF SECURITY DEPOSIT.
So long as no Default shall have occurred and be continuing, that
portion, if any, of the Security Deposit that has not previously been used or
applied, or set off against, as provided for in this Agreement or any other
Operative Document, shall be returned to Lessee by wire transfer of immediately
available Dollars to an account of Lessee, specified in writing by Lessee to
Lessor, at the bank used by Lessee as specified in Schedule 4 hereto, on the
date which is not more than 30 Business
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Days after and excluding the date upon which the Aircraft is returned to Lessor
in accordance with this Agreement.
3.5.3 SUBSTITUTION OF LETTER OF CREDIT.
At any time prior to five days prior to the Scheduled Delivery Date,
Lessee shall have the option to substitute for the Security Deposit a letter of
credit (a "Letter of Credit"), in respect of all of the Secured Obligations,
with a stated amount equal to * . The Letter of Credit shall (1) be in the
form of Exhibit G, (2) shall be issued or confirmed by a bank satisfactory to
Lessor and (3) shall have an expiry date of no earlier than the date one month
after the Scheduled Return Date. In the event that at any time during the Lease
Term the bank issuing or confirming a Letter of Credit becomes unacceptable to
Lessor, in its reasonable judgment, Lessee shall within fourteen days of demand
therefor by Lessor provide Lessor with a replacement letter of credit issued or
confirmed, as the case may be, by a bank that is acceptable to Lessor, in its
reasonable judgment. The Letter of Credit may be assigned or pledged by Lessor
to any Person. If for any reason Lessor or such other Person is paid under the
Letter of Credit, then in addition to any other rights Lessor may have under
applicable Law, or under this Lease Agreement or any other Transaction Document,
Lessor or such Person, as the case may be, (1) may at any time as an agreed
remedy set off against, use, apply or retain all or any portion of the amounts
so paid in full or partial payment for amounts constituting or corresponding to
the Secured Obligations (including to compensate Lessor or such Person, as the
case may be, for any amount it may in its reasonable discretion advance as a
result of the occurrence of any Default (hereunder or under any of the Other
Leases), or to apply toward Expenses arising as a result of the occurrence of
any Default (hereunder or under any of the Other Leases) or otherwise) and/or
(2) may retain all or any portion of the amounts so paid as security for the
performance the Secured Obligations (and Lessee hereby grants Lessor a security
interest in all such amounts). Any such use or application shall not, however,
be deemed a cure by Lessee, or waiver by Lessor, of any Default (hereunder or
under any of the Other Leases). Any interest earned on the amounts so drawn
shall be for Lessor's sole account. If for any reason, Lessor is paid under a
Letter of Credit, then Lessee shall cause an additional Letter of Credit to be
issued so that the Lessor shall at all times have the benefit of a Letter of
Credit for the full Security Deposit.
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3.5.4 RETURN OF LETTER OF CREDIT.
So long as no Default shall have occurred and be continuing, the Letter
of Credit, unless drawn by Lessor, shall be returned to Lessee on the date which
is not more than 30 Business Days after and excluding the date upon which the
Aircraft is returned to Lessor in accordance with this Agreement.
3.6 PAYMENTS IN GENERAL.
3.6.1 TIMING AND PLACE OF PAYMENT.
All payments of Rent shall be made directly by Lessee in Dollars by
wire transfer of immediately available funds on the required date of payment for
receipt on such date and with value on such date to the account for Lessor
specified in Schedule 4, or to other such account as Lessor shall otherwise
direct by prior notice to Lessee.
3.6.2 BUSINESS DAY CONVENTION.
If the due date for any payment of Rent is not a Business Day, then,
unless otherwise provided herein, such payment shall be made on the Business Day
next preceding such scheduled date with the same force and effect as if made on
such scheduled date and without adjustment in the amount due.
3.6.3 CALCULATION OF INTEREST.
All amounts of interest or amounts calculated by reference to interest
payable under any of the provisions of this Lease Agreement or any other
Operative Document shall be calculated on the basis of the actual number of days
elapsed in a 360-day year.
SECTION 4. CONDITIONS PRECEDENT.
The obligation of Lessor to lease the Aircraft to Lessee under this Lease
Agreement is subject to the fulfillment to the satisfaction of Lessor, and
Lessee shall procure such fulfillment, to the satisfaction of Lessor, on or
prior to the Delivery Date (or, if another date is specified below, on or prior
to such date) of the following conditions precedent:
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4.1 AGREEMENTS AND DOCUMENTS.
The following documents, agreements, instruments or certificates shall
have been duly authorized, executed and delivered by the respective party or
parties thereto (other than Lessor), shall each be satisfactory in form and
substance to Lessor and shall be in full force and effect and in the English
language, and executed counterparts shall have been delivered to Lessor:
4.1.1 LEASE AGREEMENT.
This Lease Agreement.
4.1.2 LEASE SUPPLEMENT NO. 1.
Lease Supplement No. 1 evidencing the delivery and acceptance of the
Aircraft and dated the Delivery Date.
4.1.3 INSURANCE DOCUMENTS.
(1) A certificate of insurance in the form of Exhibit B and which
otherwise complies with the requirements of Section 11 and (2) a broker's letter
in the form of Exhibit C from the Insurance Broker and which otherwise complies
with the requirements of Section 11, in each case, to be effective on the
Delivery Date.
4.1.4 LEGAL OPINION.
An opinion of Lessee's General Counsel.
4.1.5 PROCESS AGENT LETTER.
A letter from the process agent appointed by Lessee pursuant to Section
18.3 accepting such appointment, duly executed by such process agent.
4.1.6 ASSIGNMENT OF INSURANCES.
An assignment of insurances and requisition compensation in the form of
Exhibit E.
4.1.7 OFFICER CERTIFICATE.
A certificate signed by a duly authorized officer of
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Lessee:
4.1.7.1 Attaching a copy of Lessee's certificate or articles of
incorporation, bylaws and any other organizational or charter documents and
certifying the same to be true, accurate, complete and in full force and effect
as of the Delivery Date.
4.1.7.2 Attaching copies of resolutions of the Board of Directors
of Lessee or other written evidence of appropriate corporate action, duly
authorizing or ratifying the lease of the Aircraft hereunder, and the execution,
delivery and performance of this Lease Agreement and the other Operative
Documents, and certifying the same, in the case of any such resolutions, to have
been passed at a duly convened and constituted meeting, and in each case to be
true, accurate, complete, unamended and in full force and effect as of the
Delivery Date.
4.1.7.3 Certifying the incumbency, and the accuracy of the
signatures, of the Person or Persons authorized to execute and deliver this
Lease Agreement and the other Operative Documents on behalf of Lessee.
4.2 APPROVED MAINTENANCE PROGRAM.
At least 10 Business Days prior to the Scheduled Delivery Date, Lessee
shall have provided to Lessor a copy of the proposed Approved Maintenance
Program and such information reasonably requested by Lessor regarding the
proposed Approved Maintenance Program, in each case, for the Aircraft (including
evidence that the Aviation Authority has approved the Approved Maintenance
Program), and Lessor shall have approved such proposed Approved Maintenance
Program.
4.3 TRUTH AND PERFORMANCE.
Each of the following shall be true on the Delivery Date:
4.3.1 FIRST RENT PAYMENT MADE.
Lessee shall have paid the first installment of Basic Rent when due
pursuant to Section 3.3 hereof.
4.3.2 SECURITY DEPOSIT PAID OR LETTER OF CREDIT DELIVERED.
Lessee shall have (1) paid all installments of the Security Deposit due
on or before the Delivery Date pursuant to
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Section 3.5 or (2) delivered to Lessor a Letter of Credit, which Letter of
Credit complies with the requirements of Section 3.5.3.
4.3.3 REPRESENTATIONS TRUE.
All representations and warranties of Lessee hereunder and under the
other Operative Documents shall be true and correct on and as of the Delivery
Date as though made on and as of such date (unless made as of a specified date,
in which case such representations and warranties shall be true and correct as
of such specified date).
4.3.4 NO DEFAULT.
No Default or Event of Loss, or event, condition or circumstance that
would with the giving of notice or passage of time become or give rise to an
Event of Loss, shall have occurred.
4.4 SECTION 1110.
Lessor shall have received evidence that Lessor is entitled to the
protection of Section 1110 of the United States Bankruptcy Code in connection
with its right to take possession of the Aircraft in the event of a case under
Chapter 11 of the United States Bankruptcy Code in which Lessee is a debtor.
4.5 FILING.
This Lease and Lease Supplement No. 1 shall have been duly filed for
recording with the Aviation Authority. Promptly upon the recording of this
Lease and Lease Supplement No. 1 with the Aviation Authority, Lessee will cause
Messrs. Crowe & Dunlevy, special counsel in Oklahoma City, Oklahoma, to deliver
to Lessor and Lessee an opinion as to the due recording of this Lease and Lease
Supplement No. 1.
4.6 DELIVERY FROM AIRFRAME MANUFACTURER.
The Aircraft shall have been delivered to Lessor at the Delivery Location,
new from Airframe Manufacturer, and shall comply with the requirements of
Schedule 3.
4.7 OTHER MATTERS.
All other matters incident to this Agreement and the other Operative
Documents and the lease of the Aircraft shall be
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reasonably satisfactory to Lessor.
The conditions precedent specified in this Section 4 are for the sole
benefit of Lessor and may be waived or deferred in whole or in part and with or
without condition by Lessor. If any of such conditions is not satisfied or
waived in writing by Lessor on and as of the Delivery Date and Lessor, in its
sole discretion, nonetheless delivers the Aircraft to Lessee hereunder, Lessee
hereby covenants and agrees to satisfy, or cause the satisfaction of, such
outstanding conditions within 15 days after the Delivery Date.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
5.1 LESSOR'S DISCLAIMER; REPRESENTATIONS AND WARRANTIES.
5.1.1 LESSOR'S DISCLAIMER
EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT BY LESSEE, WHICH SHALL BE
EVIDENCED BY LESSEE'S EXECUTION AND DELIVERY OF LEASE SUPPLEMENT NO. 1, THE
AIRCRAFT SHALL BE LEASED UNDER THIS LEASE AGREEMENT "AS IS, WHERE IS WITH ALL
FAULTS" (LESSEE HEREBY CONFIRMING THAT IT HAS BEEN ADVISED OF AND FULLY
UNDERSTANDS THE LEGAL IMPORT AND IMPLICATIONS OF SUCH PHRASE AND THE PROVISIONS
OF THIS SECTION 5.1 AND THAT SUCH IS APPROPRIATE IN A TRANSACTION OF THIS KIND)
AND LESSEE AGREES, ACKNOWLEDGES AND ACCEPTS THAT NONE OF LESSOR OR ANY OTHER
INDEMNIFIED PARTY OR AIRFRAME MANUFACTURER MAKES ANY WARRANTY OR REPRESENTATION
WHATSOEVER CONCERNING THE AIRCRAFT. EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT
BY LESSEE, WHICH SHALL BE EVIDENCED BY LESSEE'S EXECUTION AND DELIVERY OF LEASE
SUPPLEMENT NO. 1, LESSEE, FOR THE BENEFIT OF LESSOR AND EACH INDEMNIFIED PARTY
AND AIRFRAME MANUFACTURER, HEREBY WAIVES, RELEASES AND RENOUNCES ALL WARRANTIES,
REPRESENTATIONS AND OTHER INDEMNITIES, GUARANTIES, OBLIGATIONS AND LIABILITIES
OF LESSOR AND ANY OTHER INDEMNIFIED PARTY AND AIRFRAME MANUFACTURER AND ANY
RIGHTS, CLAIMS AND REMEDIES OF LESSEE, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE, IN EACH CASE, WITH RESPECT TO THE AIRCRAFT, ANY ENGINE, ANY PART, ANY
AIRCRAFT DOCUMENTATION OR ANY OTHER THING DELIVERED, LEASED, SOLD OR TRANSFERRED
UNDER THIS LEASE AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, INCLUDING:
5.1.1.1 ANY WARRANTY AS TO THE AIRWORTHINESS, VALUE, CONDITION,
DESIGN OR OPERATION OF, OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, OR THE
ABSENCE OF ANY DEFECT IN, THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY
AIRCRAFT DOCUMENTATION OR ANY OTHER THING DELIVERED, SOLD OR TRANSFERRED
HEREUNDER OR ANY
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OTHER OPERATIVE DOCUMENT.
5.1.1.2 ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE
OR FOR A PARTICULAR PURPOSE.
5.1.1.3 ANY EXPRESS OR IMPLIED WARRANTY AS TO TITLE.
5.1.1.4 ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE.
5.1.1.5 ANY OBLIGATION OR LIABILITY WITH RESPECT TO ANY ACTUAL OR
ALLEGED PATENT OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT.
5.1.1.6 ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT,
WHETHER OR NOT IN STRICT OR ABSOLUTE LIABILITY OR ARISING FROM THE NEGLIGENCE OF
LESSOR, OR ANY INDEMNIFIED PARTY OR AIRFRAME MANUFACTURER, ACTUAL OR IMPUTED,
ACTIVE OR PASSIVE.
5.1.1.7 ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS
OR DAMAGE TO THE AIRCRAFT, ANY ENGINE, ANY PART, ANY AIRCRAFT DOCUMENTATION OR
ANY OTHER THING, FOR ANY LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER DIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES.
FOR THE AVOIDANCE OF DOUBT, THE FOREGOING SHALL NOT AFFECT OR LESSEN IN ANY WAY
LESSEE'S RIGHTS AGAINST AIRFRAME MANUFACTURER UNDER ANY ASSIGNMENT BY LESSOR TO
LESSEE OF THE WARRANTY AND/OR CUSTOMER SUPPORT PROVISIONS OF THE AIRFRAME
MANUFACTURER PURCHASE AGREEMENT.
EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT BY LESSEE, WHICH SHALL BE EVIDENCED BY
LESSEE'S EXECUTION AND DELIVERY OF LEASE SUPPLEMENT NO. 1, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES
CONFERRED UPON A LESSEE BY ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN THE STATE OF NEW YORK AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY ANY
OTHER STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY LESSOR'S RIGHTS AS DESCRIBED
IN THIS LEASE AGREEMENT.
LESSEE'S EXECUTION AND DELIVERY OF LEASE SUPPLEMENT NO. 1 WILL BE CONCLUSIVE
PROOF AS BETWEEN LESSOR AND LESSEE (BUT WITHOUT PREJUDICE TO ANY CLAIMS LESSOR
OR LESSEE MAY HAVE AGAINST THE AIRFRAME MANUFACTURER, ENGINE MANUFACTURER OR ANY
VENDOR WITH RESPECT TO THE AIRCRAFT) THAT LESSEE HAS EXAMINED AND INVESTIGATED
THE AIRCRAFT, THAT THE AIRCRAFT AND THE AIRCRAFT DOCUMENTATION ARE SATISFACTORY
TO LESSEE AND THAT LESSEE HAS
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IRREVOCABLY AND UNCONDITIONALLY ACCEPTED THE AIRCRAFT FOR LEASE HEREUNDER
WITHOUT ANY RESERVATIONS WHATSOEVER.
5.1.2 LESSOR'S REPRESENTATIONS AND WARRANTIES.
In order to induce Lessee to enter into this Lease Agreement and each
other Operative Document and to lease the Aircraft from Lessor, Lessor hereby
represents and warrants to Lessee that:
5.1.2.1 ORGANIZATION, CORPORATE POWER, ETC.
Lessor (1) is a corporation duly organized under the laws of the
State of Washington and (2) has the corporate power and authority to own or hold
under lease its properties wherever located or used and to enter into and
perform its obligations hereunder and under each other Operative Document.
5.1.2.2 CORPORATE AUTHORITY.
The execution, delivery and performance by Lessor of this Lease
Agreement, Lease Supplement No. 1 and each other Operative Document to which
Lessor is a party have been duly authorized by all necessary corporate action on
the part of Lessor.
5.1.2.3 LEGAL, VALID AND BINDING AGREEMENTS.
This Lease Agreement, Lease Supplement No. 1 and the other Operative
Documents each have been (as and when delivered to Lessor) duly executed and
delivered by Lessor and constitutes the legal, valid and binding obligation of
Lessor, enforceable against Lessor in accordance with its terms, except as may
be limited by (1) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other laws relating to or affecting creditors' rights
generally and (2) general principles of equity (regardless of whether considered
in a proceeding in equity or at law), including those relating to the
availability of the remedy of specific performance or injunctive relief.
5.2 LESSEE'S REPRESENTATIONS AND WARRANTIES.
In order to induce Lessor to enter into this Lease Agreement and each
other Operative Document and to lease the Aircraft to Lessee:
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5.2.1 CONTINUING REPRESENTATIONS AND WARRANTIES.
Lessee hereby represents and warrants to Lessor that:
5.2.1.1 ORGANIZATION, CORPORATE POWER, ETC.
Lessee (1) is a corporation duly organized under the laws of the
State of Colorado and (2) has the corporate power and authority to own or hold
under lease its properties wherever located or used and to enter into and
perform its obligations hereunder and under each other Operative Document.
5.2.1.2 CORPORATE AUTHORITY.
The execution, delivery and performance by Lessee of this Lease
Agreement, Lease Supplement No. 1 and each other Operative Document to which
Lessee is a party have been duly authorized by all necessary corporate action on
the part of Lessee.
5.2.1.3 AUTHORIZATIONS.
Lessee holds all Authorizations necessary to (1) authorize Lessee to
engage in air transport and to carry on scheduled passenger and cargo service in
each case as presently conducted, (2) permit the execution and delivery by
Lessee of this Lease Agreement, Lease Supplement No. 1 and each other Operative
Document and the performance by Lessee of its obligations hereunder and
thereunder and (3) operate the Aircraft in compliance with applicable Law.
5.2.1.4 NO CONTRAVENTION.
Neither the execution and delivery of this Lease Agreement, Lease
Supplement No. 1 or any other Operative Document by Lessee nor the performance
by Lessee of its obligations hereunder or thereunder contravenes any of the
provisions of the organizational or charter documents of Lessee.
5.2.1.5 LEGAL, VALID AND BINDING AGREEMENTS.
This Lease Agreement, Lease Supplement No. 1 and the other
Operative Documents each have been (as and when delivered to Lessor) duly
executed and delivered by Lessee and constitutes the legal, valid and binding
obligation of Lessee, enforceable against Lessee in accordance with its terms,
except as may be limited by (1) applicable bankruptcy, insolvency,
reorganization,
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moratorium, fraudulent transfer or other laws relating to or affecting
creditors' rights generally and (2) general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including those
relating to the availability of the remedy of specific performance or injunctive
relief.
5.2.1.6 TAXES.
Lessee has filed or caused to be filed all tax returns which are
required to be filed and has paid or caused to be paid all Taxes shown to be due
and payable on such returns and (except to the extent being contested in good
faith and by appropriate proceedings, and for the payment of which adequate
reserves have been provided but only as long as such proceedings do not involve
any material danger of the sale, forfeiture, confiscation, seizure or loss
(including loss of use) of the Aircraft or any interest therein or of criminal
or civil liability of Lessor) on any assessment received by Lessee to the extent
that such Taxes have become due and payable. No Taxes (including any stamp or
value-added taxes), levies, imposts, duties or similar charges may be imposed by
the government of the Lessee Jurisdiction, or any Government Entity or political
or taxing subdivision therein, upon or with respect to the execution or delivery
of this Lease Agreement or any other Operative Document or the performance by
Lessee of its obligations hereunder or under any other Operative Documents.
5.2.1.7 PARI PASSU.
The obligations of Lessee under this Lease Agreement and the other
Operative Documents are direct, general and unconditional obligations of Lessee
and rank at least pari passu in right of payment 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.
5.2.1.8 GOVERNING LAW.
In any proceedings taken in the Lessee Jurisdiction for the
enforcement of this Agreement or any other Operative Document, the choice in
Section 18 of the governing law for this Agreement and the Operative Documents,
and any judgment obtained in any jurisdiction referred to in Section 18, will be
recognized and enforced.
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5.2.1.9 ALL DISCLOSURES MADE.
The financial and other information furnished by Lessee in
connection with this Agreement or any other Operative Document 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 in any material respect, nor omits to disclose any material
matter to Lessor.
5.2.1.10 SECTION 1110.
Lessor is entitled to the protection of Section 1110 of the United
States Bankruptcy Code in connection with its right to take possession of the
Aircraft in the event of a case under Chapter 11 of the United States Bankruptcy
Code in which Lessee is a debtor.
5.2.1.11 CITIZEN.
Lessor is a "citizen of the United States" as defined in the U.S.
Aviation Laws and is a U.S. Air Carrier.
The representations and warranties contained in this Section 5.2.1 are
continuing representations, warranties and covenants and shall be deemed made
and given throughout the Lease Term.
5.2.2 INITIAL REPRESENTATIONS AND WARRANTIES.
Lessee hereby represents and warrants to Lessor as of the date hereof
and as of the Delivery Date (unless, in each case, such representation and
warranty is expressly applicable on and as of another date or dates) that:
5.2.2.1 NO VIOLATION.
Neither the execution and delivery of this Lease Agreement, Lease
Supplement No. 1 or any other Operative Document by Lessee nor the performance
by Lessee of its obligations hereunder or thereunder violate any Law applicable
to or binding upon the Aircraft or Lessee.
5.2.2.2 LITIGATION.
There are no pending or, to Lessee's knowledge, threatened actions
or proceedings before any court or
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administrative agency (1) in respect of this Lease Agreement or any other
Operative Document or the Aircraft or the performance by Lessee of its
obligations hereunder or under any other Operative Document or (2) which might
if adversely determined materially adversely affect the ability of Lessee to
perform its obligations under the Operative Documents.
5.2.2.3 FILING.
Except for the filings or recordings described in Section 7, each of
which will be duly made and effected by Lessee on or prior to the Delivery Date,
no further action, including the filing or recording of any instrument or
document is necessary or advisable under the Laws of the State of Registration,
the Lessee Jurisdiction, or any jurisdiction in which the Aircraft will be
operated by Lessee (1) in order for this Lease Agreement to constitute a valid
and enforceable lease of record relating to the Aircraft, (2) to authorize or
permit Lessee to perform its obligations hereunder or under each other Operative
Document or (3) fully to protect, establish, perfect and preserve Lessor's title
to, and Lessor's rights and interests in, the Aircraft and the Operative
Documents as against Lessee and any other Person.
5.2.2.4 NO DEFAULT.
There has not occurred any event which is presently continuing and
which would constitute a Default under this Lease Agreement or any of the other
Operative Documents.
5.2.2.5 FINANCIAL CONDITION.
The Annual Financial Report of Lessee dated March 31, 1996, a copy
of which has been furnished to Lessor fairly presents the financial condition of
Lessee as at such date and the results of operations of Lessee for the period
ended on such date, all in accordance with GAAP, consistently applied.
5.2.3 NO PREJUDICE.
The rights and remedies of Lessor in relation to any misrepresentation
or breach of warranty on the part of Lessee shall not be prejudiced by any
investigation by or on behalf of Lessor into the affairs of Lessee, by the
performance of this Lease Agreement or any other Operative Document or by any
other act or thing which may be done or omitted to be done by Lessor under this
Lease Agreement or any other Operative Document or any
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related document and which would or might, but for this provision, prejudice
such rights and remedies.
SECTION 6. GENERAL COVENANTS.
6.1 LESSOR'S COVENANTS.
In order to induce Lessee to enter into this Lease Agreement and each
other Operative Document and to lease the Aircraft from Lessor:
6.1.1 QUIET ENJOYMENT.
Lessor hereby covenants to Lessee that so long as no Event of Default
shall have occurred and be continuing, except as may be expressly provided in
this Lease Agreement or any other Operative Document, neither Lessor nor any
Person claiming by or through Lessor shall take or cause to be taken any action
inconsistent with Lessee's right of quiet enjoyment of, or otherwise in any way
interfere with or interrupt, the continuing use, operation and possession of the
Aircraft by Lessee.
6.1.2 NO CLAIMS BY LESSEE.
For the benefit of each lessor of an airframe leased to Lessee and each
seller of an airframe purchased by Lessee subject to a conditional sale or other
security agreement, Lessor hereby covenants that it shall not acquire or claim,
as against such lessor or seller, any right, title or interest in any engine
covered by any such lease or conditional sale and owned by such lessor or
seller, which engine is attached to the Airframe, provided that such agreement
of Lessor shall not be for the benefit of any lessor or seller of any airframe
leased to Lessee or purchased by Lessee subject to a conditional sale, unless
such lessor or seller has expressly agreed (which agreement may be contained in
such lease or conditional sale agreement) that neither it nor its successors or
assigns will acquire, as against Lessor, any right, title or interest in an
Engine as a result of such Engine's being installed on such airframe.
6.2 LESSEE'S COVENANTS.
Lessee covenants and agrees with Lessor, at Lessee's sole cost and
expense, as follows:
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6.2.1 CONTINUING BUSINESS; MERGER, CONSOLIDATION, ETC.
Lessee shall not:
6.2.1.1 DISCONTINUE BUSINESS.
Either temporarily or permanently discontinue its business as a
commercial passenger or cargo air carrier.
6.2.1.2 SUSPEND OPERATIONS.
Voluntarily suspend all or substantially all of its commercial
airline operations (Lessor and Lessee agree that a labor stoppage or strike
shall not in itself constitute a discontinuance of business).
6.2.1.3 CONSOLIDATION, MERGER, ETC.
Consolidate with or merge into any other corporation, or permit any
other corporation to consolidate with or merge into Lessee, or convey, transfer
or lease substantially all of Lessee's assets as an entirety to any Person,
provided that Lessee may consolidate with or merge into any other corporation,
or permit any other corporation to consolidate with or merge into Lessee, and
Lessee may convey, transfer or lease substantially all of Lessee's assets as an
entirety to any Person if:
6.2.1.3.1 The corporation formed by such consolidation or merger
or the Person which acquires by conveyance, transfer or lease substantially all
of the assets of Lessee as an entirety (each such corporation and such Person
being hereinafter called the "Successor") shall be a corporation under the laws
of the United States or any state thereof or District of Columbia and shall be a
"citizen of the United States" as defined in the U.S. Aviation Laws and shall be
a U.S. Air Carrier.
6.2.1.3.2 Such Successor shall execute and deliver to Lessor an
agreement in form and substance reasonably satisfactory to Lessor containing an
assumption by such Successor of the due and punctual performance of each
covenant and condition of Lessee under this Lease, the Lease Supplements and all
other Operative Documents.
6.2.1.3.3 Immediately after giving effect to such transaction,
(1) no Event of Default or Default under this Lease shall have occurred and be
continuing and (B) the Tangible Net
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Worth of the Successor shall not be less than the Tangible Net Worth of Lessee
immediately prior to such transaction.
6.2.1.3.4 Lessee shall have delivered to Lessor an officer's
certificate, and an opinion of counsel reasonably satisfactory to Lessor, each
stating that such consolidation, merger, conveyance, transfer or lease and the
assumption agreement required by Section 6.2.1.3.2 comply with this Section
6.2.1.3 and that all conditions precedent herein provided for relating to such
action have been complied with.
Upon any consolidation or merger, or any conveyance, transfer or
lease of substantially all of the assets of Lessee as an entirety in accordance
with this Section 6.2.1.3, the Successor shall succeed to, and be substituted
for, and may exercise every right and power of, Lessee under this Lease with the
same effect as if such Successor or such Person had been named as Lessee herein.
No such conveyance, transfer or lease of substantially all of the assets of
Lessee as an entirety shall have the effect of releasing Lessee, or any
Successor which shall theretofore have become such in the manner prescribed in
this Section 6.2.1.3, from its liability hereunder or under any other Operative
Document to which Lessee is a party. Nothing contained herein shall permit any
lease, sublease or other arrangement for the use, operation or possession of the
Aircraft except in compliance with the applicable provisions of this Lease.
6.2.2 REPORTING REQUIREMENTS.
6.2.2.1 FINANCIAL REPORTS.
Lessee shall furnish to Lessor:
6.2.2.1.1 [INTENTIONALLY LEFT BLANK].
6.2.2.1.2 QUARTERLY REPORTS.
Within 45 days after the close of each fiscal quarter of Lessee
(other than the last fiscal quarter in each fiscal year of Lessee), copies of
unaudited (consolidated, if prepared) financial statements (including a balance
sheet, statement of cash flows and a profit and loss statement) prepared in
Dollars in accordance with GAAP.
6.2.2.1.3 ANNUAL REPORTS.
Within 90 days after the close of each fiscal year
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of Lessee, copies of audited consolidated financial statements (including a
balance sheet, statement of cash flows and a profit and loss statement) prepared
in Dollars in accordance with GAAP, all in reasonable detail and setting forth
in comparative form the respective figures as of the end of and for the
preceding fiscal year as certified by Lessee's independent public accountants,
including their certificate and accompanying comments.
6.2.2.1.4 OTHER INFORMATION.
Such other information respecting the business and properties,
operations or condition (financial or otherwise) of Lessee as Lessor may from
time to time reasonably request, including copies of all regular, periodic and
special reports, that Lessee makes available for review by the public or other
creditors.
6.2.2.2 NOTICE OF LOSS OR DAMAGE.
Lessee shall notify Lessor promptly of any loss or damage (whether
or not constituting an Event of Loss) of or to the Aircraft or the Airframe or
any Engine for which the cost of correction or repairs may exceed the Damage
Notice Threshold and, if not constituting an Event of Loss, shall provide a
proposal for carrying out the correction or repair. If after its receipt of such
proposal, Lessor does not reasonably believe that Lessee's proposal complies
with the provisions hereof or applicable Law, Lessor shall promptly notify
Lessee of such disagreement. Lessee and Lessor shall then consult with Airframe
Manufacturer, Engine Manufacturer or other relevant manufacturer, as
appropriate, and Lessee and Lessor agree to accept as conclusive, and be bound
by, such Person's directions or recommendations as to the manner in which to
carry out such repairs.
6.2.2.3 NOTICE OF MATERIAL ADVERSE EFFECT OR DEFAULT.
Lessee shall provide notice in writing to Lessor immediately after
an officer of Lessee obtains knowledge of the occurrence of a Default.
6.2.2.4 INFORMATION REGARDING AIRCRAFT OR LESSEE.
From time to time, Lessee shall promptly provide such other
information as Lessor may reasonably request concerning the
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location, condition, use and operation of the Aircraft or the financial
condition and business of Lessee.
6.2.2.5 MONTHLY AIRCRAFT STATUS REPORT.
Lessee shall provide Lessor on the tenth day of each calendar month
during the Lease Term with a completed and duly executed Aircraft status report
substantially in the form of Exhibit F.
6.2.2.6 PRINCIPAL PLACE OF BUSINESS.
Lessee shall give at least 30 days' prior written notice to Lessor
of any change of its principal place of business or chief executive office or
major executive office, in each case, as set forth in Schedule 4.
6.2.2.7 GOVERNMENT FILINGS.
Lessee shall promptly on request furnish or cause to be furnished to
Lessor such information as may be required to enable Lessor to file on a timely
basis any reports required to be filed by Lessor with any Government Entity
because of Lessor's rights, title and interests in and to the Aircraft or under
the Lease Agreement or any other Operative Document.
6.2.2.8 PERIODIC CERTIFICATION.
Upon not less than 10 days' prior written request by Lessor (but not
more than three times in any 12-month period) execute, acknowledge and deliver
to Lessor, or any intended successor or permitted assign of Lessor, a statement
in writing (which may be conclusively relied upon by Lessor or any such intended
successor or permitted assign):
6.2.2.8.1 Certifying that this Lease and each other Operative
Document (together with any amendments and modifications) are in full force and
effect.
6.2.2.8.2 Certifying that there are not any uncured Defaults, or
if any such Default is then existing, stating the nature of such Default or
Defaults.
6.2.2.8.3 In connection with any transaction described in
Section 14.1, certifying (1) that there has been no amendment or modification of
this Lease Agreement or any other Operative Document, if any such amendment or
modification has
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been effected, stating the nature of all such amendments or modifications, (2)
the date to which Basic Rent has been paid, (3) that Lessee has no claim against
Lessor by reason of the condition of the Aircraft (a) as of the Delivery Date or
(b) arising subsequent thereto and (4) the amount of the Reserves (by account)
as of the date of the certificate.
Lessee's failure to deliver such statement within such time shall be
deemed to constitute a material misrepresentation under Section 12.7.
6.2.3 LIENS.
6.2.3.1 NO LIENS.
Lessee shall not directly or indirectly create, incur, assume or
suffer to exist, or agree to create or assume, any Lien on or with respect to
the Aircraft, any Engine or any Part or any Operative Document, or in any right,
title or interest in any of the foregoing, except:
6.2.3.1.1 LIENS OF THE OPERATIVE DOCUMENTS.
The rights of Lessor and Lessee provided in this Lease Agreement
and the other Operative Documents.
6.2.3.1.2 PERMITTED TRANSFER OF POSSESSION.
The rights of others under agreements or arrangements to the
extent permitted by the terms of Section 8.
6.2.3.1.3 LESSOR LIENS.
Lessor Liens.
6.2.3.1.4 CERTAIN TAX LIENS.
Liens for Taxes of Lessee arising in the ordinary course of
business either not yet due or being contested in good faith by appropriate
proceedings (and for the payment of which adequate reserves have been provided)
so long as such contest does not involve any material danger of the sale,
forfeiture, seizure or loss (including loss of use) of the Airframe, any Engine
or any Part or any interest therein or of any criminal or civil liability of
Lessor.
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6.2.3.1.5 MECHANICS' LIENS.
Materialmen's, mechanic's, workmen's, repairmen's, employees' or
other like Liens arising by operation of Law in the ordinary course of Lessee's
business (including those arising under maintenance agreements entered into in
the ordinary course of business) securing obligations that are not yet due or
are being contested in good faith by appropriate proceedings (and for the
payment of which adequate reserves have been provided) so long as such contest
does not involve any material danger of the sale, forfeiture or loss (including
loss of use) of the Airframe, any Engine or any Part or any interest therein.
6.2.3.2 OBLIGATION TO DISCHARGE.
Lessee will promptly, at its own expense, take, or cause to be
taken, such actions as may be necessary to discharge any Lien not excepted under
this Section 6.2.3 that may at any time arise, exist or be levied upon the
Airframe, any Engine, any Part or in this Lease Agreement or any other Operative
Document, or in any right, title or interest in any of the foregoing.
6.2.3.3 PROTECTION.
Without limiting the foregoing or any other provision of this Lease
Agreement or any other Operative Document, Lessee will not do or permit to be
done anything which may expose the Aircraft or any part thereof to penalty,
forfeiture, seizure, arrest, impoundment, detention, confiscation, taking in
execution, attachment, appropriation or destruction, nor abandon the Aircraft or
any Part or which may expose Lessor to any criminal or civil liability.
6.2.4 SECTION 1110.
Lessee shall be a "citizen of the United States" as defined in the U.S.
Aviation Laws and shall be a U.S. Air Carrier and Lessee shall otherwise
continue to be certified, qualified and/or registered to the extent necessary to
fall within the purview of, and to provide to Lessor the benefits contemplated
by, 11 U.S.C. Section 1110 or any analogous section of the federal bankruptcy
laws, as amended from time to time.
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SECTION 7. TITLE; REGISTRATION AND FILINGS; ETC.
7.1 TITLE TO THE AIRCRAFT.
7.1.1 LESSOR AS OWNER.
Lessee acknowledges that title to the Aircraft shall at all times be
and remain solely and exclusively vested in Lessor and that this Lease Agreement
and the other Operative Documents constitute an agreement to lease the Aircraft
to Lessee and, accordingly, Lessee shall have no right, title or interest in the
Aircraft except the right to use the Aircraft as provided herein.
7.1.2 LESSEE NOT OWNER.
Lessee will not at any time 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 or, except as expressly provided
herein, attempt, or hold itself out as having any power, to sell, charge, lease
or otherwise dispose of or encumber the Aircraft, the Engines or any Part.
7.1.3 TITLE VIS A VIS THIRD PARTIES.
On all occasions when the ownership of the Aircraft or any part of it
is relevant, Lessee will make clear to third parties that title to the same is
held by Lessor.
7.2 REGISTRATION AND FILINGS; ETC.
7.2.1 REGISTER AIRCRAFT.
Prior to delivery of the Aircraft pursuant to Section 2, Lessor shall
procure that the Aircraft is duly registered with the Aviation Authority in the
name of Lessor, as owner, and thereafter shall maintain, or procure the
maintenance of, such registration throughout the Lease Term. At no time during
the Lease Term shall Lessee take any action to interfere with such registration.
7.2.2 RECORDATION OF LEASE.
Upon delivery of the Aircraft pursuant to Section 2, Lessee shall cause
the recordation of this Lease Agreement and Lease Supplement No. 1 with the
Aviation Authority. Lessee shall
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cause such recordation to be maintained in good standing at all times during the
Lease Term.
7.2.3 FURTHER ACTIONS.
Lessee shall take, or cause to be taken, such action with respect to
the recording, filing, rerecording and refiling of this Lease Agreement, Lease
Supplement No. 1 or other documents or instruments as necessary or advisable
under the Laws of the State of Registration, the Lessee Jurisdiction, or any
jurisdiction in which the Aircraft will be operated by Lessee (1) in order for
this Lease Agreement to constitute a valid and enforceable lease of record
relating to the Aircraft, (2) to authorize or permit Lessee to perform its
obligations hereunder and under each other Operative Document or (3) fully to
protect, establish, perfect and preserve Lessor's title to, and Lessor's rights
and interests in, the Aircraft hereunder and the other Operative Documents as
against Lessee and any other Person.
7.2.4 GENEVA CONVENTION.
Without limiting the effect of the foregoing, Lessee shall do or cause
to be done any and all acts and things which are required under the terms of the
Convention for the International Recognition of Rights in Aircraft, signed at
Geneva, Switzerland, on June 18, 1948, to protect, establish, perfect and
preserve Lessor's title to, and Lessor's rights and interests in, the Aircraft
within the jurisdiction of any signatory state that has ratified such
Convention, and Lessee shall also do or cause to be done at its own expense any
and all acts and things which may be required under the terms of any other
agreement, treaty, convention, pact or by any practice, custom or understanding
involving any jurisdiction in which Lessee may operate, and any and all acts and
things which Lessor may reasonably request, to protect, establish, perfect and
preserve Lessor's title to, and Lessor's rights and interests in, the Aircraft
and the Operative Documents.
Lessor shall execute and deliver such documents as Lessee may
reasonably request in order to permit Lessee to comply with its obligations
under this Section 7.
SECTION 8. POSSESSION.
Lessee will not, without the prior written consent of Lessor, in any manner
deliver, transfer or relinquish possession of the Aircraft, Airframe or an
Engine or any Part, or install an
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Engine, or permit any such Engine to be installed, on an airframe other than the
Airframe covered hereby, provided that so long as (1) no Default shall have
occurred and be continuing, (2) the action to be taken shall not adversely
affect, or be of a nature that could reasonably be expected to adversely affect,
Lessor's or any Financing Party's right, title and interest in and to the
Aircraft or Airframe, or any Engine or Part, or under this Lease Agreement or
any other Operative Document (including any impairment of title to or the
registration with the Aviation Authority of, the Aircraft), (3) all applicable
approvals, if any, of the Aviation Authority and any other Government Entity
having jurisdiction shall have been obtained, and (4) the insurance provisions
of Section 11 hereof shall have been complied with, then:
8.1 SUBLEASING.
NOTWITHSTANDING THE FOREGOING OR ANY OTHER PROVISION OF ANY OPERATIVE
DOCUMENT, LESSEE SHALL NOT SUBLEASE THE AIRCRAFT AT ANY TIME WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR, WHICH SHALL NOT BE UNREASONABLY WITHHELD BY LESSOR.
8.2 MAINTENANCE, ETC.
Without the prior consent of Lessor, Lessee may deliver possession of the
Airframe or an Engine or any Part to the manufacturer thereof or to any Approved
Maintenance Performer for testing, service, repair, maintenance or overhaul work
or for alterations, modifications or additions to the extent required or
permitted by the terms hereof.
8.3 INSTALLATION OF ENGINES ON OTHER AIRFRAMES.
Without the prior consent of Lessor, Lessee may install an Engine on any
Airframe Manufacturer model 737-300 airframe (other than the Airframe) owned or
leased by Lessee or subject to a conditional sales agreement where Lessee is the
conditional vendee if (1) such airframe is free and clear of all Liens except
the rights of the parties to any security agreement and Permitted Liens, lease
or conditional sale agreement covering such airframe and (2) Lessee shall have
obtained from any security interest holder, lessor or conditional seller of such
airframe a written agreement (which may be the security agreement, lease or
conditional sale agreement), whereby such security interest holder, lessor or
conditional seller expressly and effectively agrees that neither it nor its
successors or assigns will acquire or claim any right, title or interest in any
Engine by reason of
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such Engine's being installed on such airframe at any time while such Engine is
owned by Lessor.
8.4 WET LEASE.
Without the prior consent of Lessor, Lessee may enter into one or more
arrangements whereby Lessee agrees to furnish the Aircraft to a third party
pursuant to which the Aircraft (1) shall at all times be in the sole possession
and control of Lessee, and shall at all times maintain its registration in the
State of Registration, (2) shall be operated in all respects solely by regular
employees of Lessee, and (3) shall be maintained, insured and otherwise operated
by Lessee in accordance with the requirements of this Lease Agreement and each
other Operative Document, provided no such arrangement extends beyond 135 days
(including extensions and renewals) or past the last day of the Lease Term.
The rights of any Person who receives possession by reason of a transfer
permitted by this Section 8 shall be effectively and expressly subject and
subordinate to all the terms of this Lease Agreement and each other Operative
Document, including the covenants contained in this Section 8 and Section 11 and
the rights of Lessor to repossession pursuant to Section 13 and to avoid
transfer upon such possession. No sublease or other relinquishment or transfer
of possession of the Aircraft or Airframe, or any Engine or Part, shall in any
way release, discharge or otherwise limit or diminish any of Lessee's
obligations to Lessor or any Financing Party (it being agreed that
notwithstanding any such sublease or other transfer or relinquishment of
possession, Lessee shall continue to be primarily liable and responsible for
performance of all of its obligations under this Lease Agreement and each other
Operative Document), or constitute a waiver of Lessor's rights or remedies
hereunder or affect the registration of the Aircraft with the Aviation
Authority. Notwithstanding any other provision of this Lease Agreement or any
other Operative Document, any sublease or other relinquishment or transfer of
possession must not adversely affect applicable tax benefits available to
Lessor.
SECTION 9. INDEMNITIES.
9.1 GENERAL INDEMNITY.
Subject only to the exceptions set forth in Section 9.2, Lessee hereby
assumes liability for and hereby agrees to indemnify Lessor and each other
Indemnified Party and Airframe
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Manufacturer (but, in the case of Airframe Manufacturer, only to the extent
provided in Part E of Exhibit C to the Airframe Manufacturer Purchase Agreement)
against, and agrees to protect, save and keep harmless each thereof from, any
and all Expenses from time to time (whether before, during or after the Lease
Term) imposed on, incurred by or asserted against any Indemnified Party or
Airframe Manufacturer in any way relating to or arising out of:
9.1.1 The Aircraft, the Airframe, any Engine or engine installed on
the Aircraft, Part or Aircraft Documentation or any other thing delivered under
this Lease Agreement or any other Operative Document.
9.1.2 The acceptance, rejection, delivery, ownership, nondelivery,
lease, sublease, charter, transport, subcharter, registration, deregistration,
reregistration, possession, repossession, presence, operation, location,
condition, use or non-use, control, airworthiness, overhaul, replacement,
existence, storage, preparation, installation, testing, manufacture, design,
modification, alteration, maintenance, repair, re-lease, sale, return, transfer,
exportation, importation, abandonment or other disposition of, or the imposition
of any Lien (or the incurrence of any liability to refund or pay over any amount
as the result of any such Lien) on, the Aircraft, the Airframe, any Engine or
engine or Part or any other thing delivered under this Lease Agreement or any
other Operative Document or interest therein (or the incurrence of any liability
to refund or pay over any amount as the result of any such Lien) (including any
claim for patent, trademark or copyright infringement, any claim or penalty
arising out of violations of applicable Laws by Lessee, including environmental
control, noise and pollution regulations, any liability for any injury to or
death of any Person or loss of or damage to any property or to the environment,
latent or other defects, whether or not discoverable and whether or not any of
the foregoing shall arise as a result of the action or inaction, negligent or
otherwise, of Lessee, any Indemnified Party, Airframe Manufacturer or any other
Person).
9.1.3 This Agreement or any of the Operative Documents, any of the
transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof, including the enforcement of this Section 9.
9.1.4 Any breach or noncompliance by Lessee with any covenant, term,
agreement, condition, undertaking or obligation
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under this Lease Agreement or under any other Operative Document or agreement
entered into or furnished by Lessee in connection herewith or therewith, or the
falsity or inaccuracy of any representation or warranty of Lessee set forth
herein or therein, or the occurrence of any other Default, including any
Expenses incurred, assumed or suffered by Lessor or any other Person as a
consequence of Lessee's failure to accept delivery of the Aircraft or Return the
Aircraft in accordance with this Lease Agreement and each other Operative
Document on any date specified or required herein.
9.2 EXCEPTIONS TO GENERAL INDEMNITY.
The indemnity provided for in Section 9.1 will not extend to any of the
following Expenses of any Indemnified Party (but without limiting any rights of
Lessor under Section 13) or Airframe Manufacturer:
9.2.1 Expenses incurred as the result of the decline in the market
value of the Aircraft, except to the extent that such decline is due to any
Default by Lessee.
9.2.2 Expenses solely and directly caused by the gross negligence or
willful misconduct of such Indemnified Party or Airframe Manufacturer (other
than negligence imputed to such Indemnified Party or Airframe Manufacturer by
reason of its interest in the Aircraft).
9.2.3 Expenses solely and directly caused by a breach by such
Indemnified Party or Airframe Manufacturer of any covenant or inaccuracy or
falsity of a representation or warranty made by such Indemnified Party or
Airframe Manufacturer in this Lease Agreement or the documents and agreements
delivered by such party to Lessee.
9.2.4 Taxes or loss of Tax benefits, it being understood that Schedule
5 sets forth Lessee's entire obligation with respect to Taxes.
9.2.5 Expenses attributable solely to acts of such Indemnified Party
or Airframe Manufacturer or the Follow-On Operator, or events which occur, in
either case, after this Lease Agreement has terminated or expired and Lessee has
returned the Aircraft to Lessor in the condition and manner required by this
Lease Agreement.
9.2.6 Expenses attributable to any financing or
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refinancing of the Aircraft by Lessor or any other transfer by Lessor or any
Financing Party of any interest in the Aircraft (unless such Expenses were
incurred after an Event of Default).
9.2.7 Expenses that Lessor has expressly agreed to pay under this
Lease Agreement.
9.2.8 Expenses constituting ordinary and usual operating or overhead
expenses (unless such Expenses were incurred after an Event of Default).
9.3 TAXES.
Lessee's tax indemnity and other related agreements are contained in
Schedule 5, which schedule is hereby incorporated in this Section 9.3 by
reference.
9.4 CURRENCY INDEMNITY.
9.4.1 If any Indemnified Party or Airframe Manufacturer receives an
amount from Lessee or in respect of Lessee's liability under this Lease
Agreement or any other Operative Document, or if such a liability is converted
into a claim, proof, judgment or order in a currency other than the currency
(the "contractual currency") in which the amount is expressed to be payable
under this Lease Agreement or any other Operative Document:
9.4.1.1 Lessee will, on demand, indemnify such Indemnified Party or
Airframe Manufacturer as an independent obligation against any loss arising out
of or as a result of such conversion.
9.4.1.2 If the amount received by such Indemnified Party or
Airframe Manufacturer, when converted into the contractual currency (at the
market rate at which such Indemnified Party or Airframe Manufacturer is able on
the relevant date to purchase the contractual currency in Seattle or, at such
Indemnified Party's or Airframe Manufacturer's option, London with such other
currency), is less than the amount owed by Lessee in the contractual currency,
Lessee will, forthwith on demand, pay to such Indemnified Party or Airframe
Manufacturer an amount in the contractual currency equal to the deficit.
9.4.1.3 Lessee will pay to such Indemnified Party or Airframe
Manufacturer on demand any exchange costs and Taxes payable in connection with
the conversion.
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9.4.2 Lessee waives any right it may have in any jurisdiction to pay
any amount under this Lease Agreement or any other Operative Document in a
currency other than that in which it is expressed to be payable.
9.5 SCOPE, SURVIVAL, ETC.
9.5.1 Lessee shall be obligated under this Section 9 and Schedule 5 as
a primary obligor irrespective of whether an Indemnified Party or Airframe
Manufacturer shall also be indemnified, guaranteed or insured with respect to
the same matter under any of the Operative Documents or otherwise by any other
Person, and such Indemnified Party or Airframe Manufacturer may proceed directly
against Lessee under this Section 9 and/or Schedule 5 without first resorting to
any such other rights of indemnification, guarantee or insurance.
9.5.2 All indemnities, obligations, adjustments and payments provided
for in this Section 9 and Schedule 5 shall, to the extent herein provided,
survive and remain in full force and effect, notwithstanding the expiration or
termination of the Lease Term or of this Lease Agreement or any other Operative
Documents and the payment in full of all sums payable under the Operative
Documents. The obligations of Lessee in respect of all such indemnities,
obligations, adjustments and payments are expressly made for the benefit of, and
shall be enforceable by, the Indemnified Party or Airframe Manufacturer entitled
thereto, without declaring this Lease Agreement to be in default or taking other
action under this Lease Agreement or any other Operative Document.
9.5.3 Lessee acknowledges that the Indemnified Parties, or any of
them, may authorize Lessor, by notice in writing to Lessor and Lessee, to make
claims and demands under any indemnity hereunder or under any other Operative
Document on behalf of such Indemnified Parties, and Lessee shall be obligated to
make all payments pursuant to any such indemnity to Lessor, to the extent
claimed by Lessor on behalf of such Indemnified Parties (it being understood
that Lessee is entitled to, and shall, conclusively rely upon the instructions
of Lessor with respect to the payment of amounts owing to any Indemnified Party
or Airframe Manufacturer under the indemnities).
9.5.4 Each Indemnified Party or Airframe Manufacturer 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 Section 9.1, provided
that failure to
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give such notice will not prejudice or otherwise affect any of the rights of the
Indemnified Parties under Section 9.1.
9.6 INDEMNITIES PAYABLE ON AFTER-TAX BASIS.
Lessee agrees that, with respect to any payment or indemnity to an
Indemnified Party, Airframe Manufacturer or Tax Indemnitee under this Section 9
or Schedule 5, Lessee's indemnity obligations shall include an amount necessary
to hold such Indemnified Party, Airframe Manufacturer or Tax Indemnitee harmless
from all Taxes required to be paid by such Indemnified Party, Airframe
Manufacturer or Tax Indemnitee with respect to the receipt or accrual of such
payment or indemnity (including any payment by such Indemnified Party, Airframe
Manufacturer or Tax Indemnitee of any Taxes in respect to any indemnity payments
received or receivable under this Section 9 or Schedule 5).
SECTION 10. RISK OF LOSS, DESTRUCTION AND REQUISITION, ETC.
10.1 RISK OF LOSS.
Throughout the Lease Term and until the Return, Lessee shall bear all risk
of loss, damage, theft or destruction of, or any other Event of Loss with
respect to, the Aircraft, the Airframe, each Engine and each Part.
10.2 EVENT OF LOSS WITH RESPECT TO THE AIRCRAFT.
10.2.1 Upon the occurrence of an Event of Loss with respect to the
Airframe or the Airframe and Engines, Lessee shall forthwith (and, in any event,
within three days after such occurrence) give Lessor and Security Agent written
notice of such Event of Loss. By the earlier of (1) 60 days after the
occurrence of such Event of Loss or (2) the date on which the applicable
insurance or requisition proceeds are paid, Lessee shall pay or cause to be paid
to Lessor in immediately available funds the Stipulated Loss Value (but only to
the extent the full amount of the Stipulated Loss Value was not obtained and
applied by Lessor pursuant to Section 11.2.1 or received by Lessor from the
relevant Government Entity in connection with any requisition).
10.2.2 Until the date on which the Stipulated Loss Value is paid in
full, Lessee shall be obligated to pay all Basic Rent as scheduled and shall
continue to perform all of its other obligations hereunder and under the other
Operative Documents, except to the extent rendered impossible by the occurrence
of
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such Event of Loss or rendered, in the opinion of Lessor, unnecessary. If the
Stipulated Loss Value is paid on a date other than a Rent Payment Date, Lessor
shall refund or cause to be refunded to Lessee any paid but unaccrued Basic
Rent. Upon receipt of the full amount of the Stipulated Loss Value by Lessor
pursuant to this Section 10.2, and if Lessee has paid all other amounts then due
and payable by Lessee under this Lease Agreement and the other Operative
Documents, then (1) Lessor shall, upon the joint written request of Lessee and
each insurer which contributed to the payment of the Stipulated Loss Value,
transfer to the Person designated in such request title to the Aircraft
(including the Engines and all Parts) without recourse or warranty (except as to
absence of all rights of all Lessor Liens) and subject to the disclaimer set
forth in Section 5.1, (2) Lessor shall return to Lessee the Security Deposit or
Letter of Credit, as applicable, and any insurance, requisition, condemnation or
similar proceeds received after and related to such Event of Loss in excess of
the Stipulated Loss Value and all Reserves previously paid by Lessee in respect
of the Aircraft (in each case, to the extent not previously applied in
accordance with the terms hereof) and (3) Lessee shall be relieved of its
obligations under this Lease Agreement and the other Operative Documents except
those that are expressly stated to survive termination hereof and thereof.
10.3 EVENT OF LOSS WITH RESPECT TO AN ENGINE.
10.3.1 Upon the occurrence of an Event of Loss with respect to an
Engine under circumstances in which there has not occurred an Event of Loss with
respect to the Airframe, Lessee shall promptly (and, in any event, within three
days after such occurrence) give Lessor and Security Agent written notice
thereof and shall, promptly and, in any event, within 30 days after the
occurrence of such Event of Loss (or, if earlier the date of expiration or
termination of the Lease Term) and upon five days' prior written notice, convey
or cause to be conveyed to Lessor, as replacement for the Engine with respect to
which such Event of Loss occurred, title to a Replacement Engine, free and clear
of all Liens (other than Permitted Liens). For all purposes hereof, each such
Replacement Engine shall, after such conveyance, be deemed part of the property
leased hereunder, and shall be deemed an "Engine."
10.3.2 Prior to or at the time of any conveyance of a Replacement
Engine, Lessee shall, at its own expense, (1) furnish Lessor with a full
warranty bill of sale, in form and substance satisfactory to Lessor, conveying
to Lessor such Replacement
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Engine, (2) execute one or more Lease Supplements subjecting such Replacement
Engine to this Lease Agreement, (3) cause the filing of such instruments, in
form and substance satisfactory to Lessor, as are necessary or advisable to
establish and protect the interests of Lessor and the Security Agent in any such
Engine (including such Lease Supplements), (4) furnish Lessor with such evidence
of the transfer of title to such Replacement Engine to Lessor as Lessor may
reasonably request, including that such Replacement Engine is free and clear of
all Liens, except Permitted Liens, such evidence to include, without limitation,
an opinion of Lessee's counsel addressed to Lessor and opining that such title
has been so conveyed and that such Replacement Engine has been duly subjected to
this Lease Agreement, (5) furnish Lessor with such evidence of compliance with
the provisions of Sections 2.5 and 2.7 of Schedule 1 and Section 11 with respect
to such Replacement Engine as Lessor may reasonably request, (6) furnish Lessor
with a certificate signed by a duly authorized officer of Lessee certifying
that, upon consummation of such replacement, no Default will exist hereunder and
(7) furnish Lessor with an appraisal satisfactory to Lessor which shall
establish, and a certificate of an aircraft engineer (who may be an employee of
Lessee) certifying, that such Replacement Engine complies with the definition of
"Replacement Engine" for purposes of this Lease Agreement and each other
Operative Document.
10.3.3 Upon compliance by Lessee with the requirements of this Section
10.3, if no Default shall have occurred or be continuing, Lessor shall, upon the
joint written request of Lessee and each insurer which contributed to the
payment of any insurance proceeds with respect to the lost Engine, transfer to
the Person designated in such request title to such Engine without recourse or
warranty (except as to absence of all rights of Lessor and all Lessor Liens) and
subject to the disclaimer set forth in Section 5.1, and such Engine shall
thereupon cease to be an Engine leased hereunder.
10.3.4 No Event of Loss with respect to an Engine shall result in any
reduction in Basic Rent.
10.4 REQUISITION FOR USE OF THE AIRCRAFT BY ANY GOVERNMENT ENTITY.
In the event of the requisition for use of the Airframe and the Engines or
engines installed on the Airframe during the Lease Term by any Government Entity
not constituting an Event of Loss, Lessee shall promptly notify Lessor and the
Security Agent of such requisition, and all of Lessee's obligations under this
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Lease Agreement and each other Operative Document with respect to the Aircraft
shall continue to the same extent as if such requisition had not occurred. All
payments received by Lessor or Lessee from such Government Entity for the use of
such Airframe and Engines or engines during the Lease Term shall be paid over
to, or retained by, Lessee if no Default shall have occurred and be continuing
and all payments received by Lessor or Lessee from such Government Entity for
the use of such Airframe and Engines or engines after the end of the Lease Term
shall be paid over to, or retained by, Lessor.
10.5 APPLICATION OF PAYMENTS DURING EXISTENCE OF DEFAULT.
Any amount referred to in this Section 10 which is payable to or
retainable by Lessee shall not be paid to or retained by Lessee if at the time
of such payment or retention a Default shall have occurred and be continuing,
but shall be held by or paid over to Lessor, as security for the obligations of
Lessee under this Lease Agreement and the other Operative Documents to be held
and applied pursuant to Section 13 and applied against Lessee's obligations
hereunder as and when due. At such time as there shall not be continuing any
Default, such amount shall be paid to Lessee to the extent not applied in
accordance with the preceding sentence.
SECTION 11. INSURANCE.
11.1 SCOPE OF INSURANCES.
At all times during the Lease Term, and until the Aircraft is returned to
Lessor in the condition and manner required by this Lease Agreement and each
other Operative Document, Lessee shall maintain or cause to be maintained with
respect to the Aircraft, at its own expense:
11.1.1 LIABILITY COVERAGE.
Worldwide (subject to standard insurance market geographical limits)
aircraft liability and comprehensive general liability, bodily injury (including
passengers), property damage, non-owned aircraft liability, personal injury,
cargo, mail, baggage, hangarkeepers liability, comprehensive general liability
(including premises, products, and completed operations and contractual)
insurance (exclusive of Airframe Manufacturer's product liability insurance),
(1) in an amount not less than the greater of (a) the amounts of comprehensive
airline liability insurance from time to time applicable to aircraft owned or
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leased and operated by Lessee of the same type as the Aircraft and (b) the
Stipulated Liability Coverage, provided that if Lessor, on the basis of advice
received from an independent insurance advisor of international reputation,
believes that such limit should be revised upwards based on amounts then
customary in the industry generally, it shall be replaced by such higher limit,
if any, as such independent insurance advisor may consider appropriate, (2) of
the type and covering the same risks usually carried by first class United
States air carriers operating similar aircraft and engines on similar routes and
covering risks of the kind customarily insured against by such air carriers with
respect to such aircraft operating on such routes, (3) with insurers of
recognized reputation, responsibility and substantial financial capacity
reasonably acceptable to Lessor and (4) that names each Insured Party as an
additional insured and otherwise complies with the requirements set forth in,
and is consistent with the issuance of a valid Certificate of Insurance issued
in the form of, Exhibit B.
11.1.2 HULL COVERAGE.
Worldwide (subject to standard insurance market geographical limits)
all-risk ground and flight aircraft hull insurance covering the Aircraft, and
all-risk spares insurance covering Engines and Parts while temporarily removed
from the Aircraft (including while in transit) (1) for an agreed value not less
than the Stipulated Loss Value in respect of all-risk hull insurance, (2) for
the full replacement value, in respect of all-risk spares insurance, (3) of the
type and covering the same risks usually carried by first class United States
air carriers operating similar aircraft and engines on similar routes with
respect to such aircraft operating on such routes, (4) confirming that the
insurers shall not be entitled to replace the Aircraft or Airframe upon the
occurrence of an insured Event of Loss with respect thereto, (5) with insurers
and reinsurers of recognized reputation, responsibility and substantial
financial capacity reasonably acceptable to Lessor and (6) that names Lessor or
the Security Agent, as designated from time to time by Lessor, as the sole loss
payee for all amounts up to the Stipulated Loss Value, names each Insured Party
as an additional insured, provides that claims shall be adjusted and/or settled
only with the consent of Lessor (and the Security Agent if one is then
designated) and otherwise complies with the requirements set forth in, and is
consistent with the issuance of a valid Certificate of Insurance in the form of
Exhibit B hereto.
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11.1.3 WAR HULL AND LIABILITY COVERAGE.
Worldwide (subject to standard insurance market geographical limits)
coverage of war-risk, hijacking and related perils insurance of the type and
covering the same risks usually carried by first class United States air
carriers operating similar aircraft and engines on similar routes (1) in no
event in an amount less than (a) the Stipulated Liability Coverage with respect
to liability coverage and (b) the Stipulated Loss Value with respect to hull
coverage and (c) full replacement value with respect to spares coverage, (2)
covering the perils of (a) war, invasion, acts of foreign enemies, hostilities
(whether war be declared or not), civil war, rebellion, revolution,
insurrection, martial law, military or usurped power or attempts at usurpation
of power, (b) strikes, riots, civil commotions or labor disturbances, (c) any
act of one or more Persons, whether or not agents of a sovereign power, for
political or terrorist purposes and whether the loss or damage resulting
therefrom is accidental or intentional, (d) any malicious act or act of
sabotage, (e) confiscation, nationalization, seizure, restraint, detention,
appropriation, requisition for title or use by or under the order of any
government (whether civil, military or de facto) or public or local authority,
and (f) hijacking, or any unlawful seizure or wrongful exercise of control of
any aircraft or crew in flight (including any attempt at such seizure or
control) made by any Person or Persons on board any aircraft acting without the
consent of the insured (including if committed by Persons engaged in a program
of irregular warfare for terrorist purposes), (3) with insurers of recognized
reputation, responsibility and substantial financial capacity reasonably
acceptable to Lessor and (4) that names each Insured Party as an additional
insured and, for hull and spares coverage only, names Lessor or the Security
Agent, as designated from time to time by Lessor, as the sole loss payee for all
amounts up to the Stipulated Loss Value and provides that claims shall be
adjusted and/or settled only with the consent of Lessor (and the Security Agent
if one is then designated), and otherwise complies with the requirements set
forth in, and is consistent with the issuance of a valid Certificate of
Insurance in the form of Exhibit B.
11.2 APPLICATION OF PROCEEDS OF HULL INSURANCE.
11.2.1 EVENT OF LOSS.
All proceeds of hull insurance maintained in compliance with this
Section 11 and received as the result of the occurrence of an Event of Loss
shall be applied as follows:
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11.2.1.1 AIRCRAFT EVENT OF LOSS.
If such proceeds are received with respect to the Airframe (or the
Airframe and the Engines or engines installed thereon):
11.2.1.1.1 To pay all amounts owing by Lessee hereunder (other
than Stipulated Loss Value) and under the other Operative Documents.
11.2.1.1.2 In reduction of the Stipulated Loss Value payable by
Lessee to the extent not already paid by Lessee.
11.2.1.1.3 With the remaining amount, if any, of such proceeds
to be paid to, and retained by, Lessee.
11.2.1.2 ENGINE EVENT OF LOSS.
If such proceeds are received with respect to an Engine under the
circumstances contemplated by Section 10.3:
11.2.1.2.1 To pay all amounts owing by Lessee hereunder and
under the other Operative Documents.
11.2.1.2.2 With the remaining amount, if any, of such proceeds to
be paid to, and retained by, Lessee, provided that Lessee shall have provided
Lessor with a Replacement Engine pursuant to Section 10.3.
11.2.2 DAMAGE.
All proceeds of hull insurance maintained in compliance with this
Section 11 and received with respect to damage to or loss of any part of the
Aircraft not constituting an Event of Loss with respect to the Airframe or an
Engine shall be applied as follows:
11.2.2.1 To pay all amounts owing by Lessee hereunder and under the
other Operative Documents.
11.2.2.2 To reimburse Lessee for the cost of the related repair or
replacement, where such repair or replacement is performed in accordance with
the terms hereof.
11.2.2.3 With the remaining amount, if any, of such proceeds to be
paid to, and retained by, Lessee.
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11.3 APPLICATION OF PAYMENTS DURING EXISTENCE OF A DEFAULT.
Any amount referred to in this Section 11 that is payable to or retainable
by Lessee shall not be paid to or retained by Lessee if at the time of such
payment or retention a Default shall have occurred and be continuing, but shall
be held by or paid over to Lessor as security for the obligations of Lessee
under this Lease Agreement and each other Operative Document and, if a Default
shall have occurred and be continuing, may, at Lessor's option, be applied
against Lessee's obligations hereunder or under any other Operative Document as
and when due. At such time as there shall not be continuing any such Default,
such amount shall be paid to Lessee to the extent not applied in accordance with
the preceding sentence.
11.4 CONTINUATION OF LIABILITY INSURANCE.
For a period of two years after the last day of the Lease Term, and at
Lessee's cost, Lessee shall continue to name each Insured Party as an additional
insured under Lessee's comprehensive airline and war-risk liability insurance
described in Sections 11.1.1 and 11.1.3.
11.5 REPORTS, ETC.
Lessee shall furnish, or cause to be furnished, to Lessor and the Security
Agent, if one is then designated, on or before the Delivery Date and not later
than the renewal date of any insurance, and otherwise upon reasonable request,
(1) a letter from the Insurance Brokers, substantially in the form of Exhibit C,
and (2) a certificate of insurance issued by the Insurance Brokers substantially
in the form of Exhibit B.
11.6 SELF-INSURANCE.
Lessee may not self-insure the risks required to be insured against
pursuant to this Section 11, provided that Lessee may self-insure the risks
covered by the hull insurance maintained in compliance with this Section 11 by
way of deductible (except in connection with a total loss), in such amounts as
are customarily self-insured with respect to aircraft of the same type and used
in the same manner as the Aircraft by other similar air carriers, but in no
event in an amount greater than the Stipulated Deductible Amount per aircraft
per occurrence.
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11.7 CHANGE OF PRACTICE OR INSURERS.
In the event that there is a material change in the generally accepted
industry-wide practice with regard to the insurance of similar aircraft or any
material change with respect to the insurance of similar aircraft based or
operated in any jurisdiction in which the Aircraft may then be based or operated
(whether relating to all or any of the types of insurance required to be
effected under this Section 11), such that Lessor, on the basis of advice
received from an independent insurance advisor of international reputation,
shall be of the reasonable opinion that the insurance required pursuant to this
Section 11 is insufficient to protect the respective interests of Lessor and/or
any other Insured Parties, the insurance requirements set forth in this Section
11 shall be amended so as to include such additional or varied requirements as
Lessor (upon the advice of such independent insurance advisor) may reasonably
consider appropriate.
11.8 CHANGE OF CIRCUMSTANCE.
If at any time, Lessor reasonably considers that any change in
circumstances is likely to occur, or has occurred and is continuing, which would
materially affect or is materially affecting the insurance of the Aircraft or
Airframe, then Lessor shall be entitled (without prejudice to any other rights
which it may have or acquire under this Agreement or any other Operative
Document by reason of such change in circumstances) to require the Aircraft or
Airframe, as the case may be, to remain at any airport or to proceed to and
remain at any airport designated by Lessor on the routes flown by Lessee until
Lessee shall have supplemented or replaced, or implemented any necessary
amendments to the terms of, such insurance, and implemented any operational
changes, which Lessor reasonably considers are required as the result of such
change in circumstances.
11.9 NEGATIVE UNDERTAKINGS.
Lessee shall not act or fail to act, or cause, permit or suffer an act or
failure to act, whereby any insurance required by this Section 11 would or might
reasonably be expected to be limited or rendered in whole or in part invalid,
unenforceable or otherwise not in full force and effect (including any
limitation resulting from inaccuracy of any representation or warranty of
Lessee, or any illegal use of the Aircraft).
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11.10 FAILURE TO INSURE.
If at any time Lessee fails to maintain insurance in compliance with this
Section 11, each of Lessor and Security Agent shall be entitled but not bound to
do any of the following (without prejudice to any other rights which it may have
under this Lease Agreement or any other Operative Document by reason of such
failure):
11.10.1 To pay any premiums due or effect or maintain such insurance
or otherwise remedy such failure in such manner as Lessor or Security Agent, as
the case may be, considers appropriate (and Lessee shall upon demand reimburse
Lessor or Security Agent, as the case may be, in full for any amount so
expended) and/or
11.10.2 At any time while such failure is continuing, require the
Aircraft to remain at any airport or, as the case may be, upon provision by
Lessor or Security Agent, as the case may be, of insurance coverage satisfactory
to Lessee, proceed to and remain at any airport designated by Lessor or Security
Agent, as the case may be, until such failure is remedied to Lessor's and
Security Agent's satisfaction.
11.11 ADDITIONAL INSURANCE BY LESSOR.
Lessee acknowledges that Lessor has an insurable interest in the Aircraft.
Lessor shall have the right to obtain insurance in its own name with respect to
such insurable interest. Lessee will render Lessor all reasonable assistance
requested by Lessor in order that Lessor may adequately protect such insurable
interest. Lessee agrees that the maximum amounts payable to it or to others for
its account or to be applied in discharge of its obligations by any underwriter
or carrier of insurance maintained by Lessee upon the occurrence of an Event of
Loss with respect to the Aircraft shall be limited to the Stipulated Loss Value
unless the maintenance of any such insurance in an amount in excess of such
Stipulated Loss Value in respect of Lessee's insurable interest in the Aircraft
does not prejudice Lessor's interests under the insurances otherwise required by
this Section 11, or prevent Lessor from obtaining such insurances as it
requires, in which event nothing herein shall prevent Lessee from effecting such
additional insurance for its account. At Lessor's request, Lessee will have any
such additional insurance coverage for the Aircraft amended so as to cover, in
addition, Lessor's insurable interest therein, Lessor hereby agreeing, in such
case, to reimburse Lessee in the amount of the additional premium required
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to provide such coverage for such insurable interest of Lessor.
11.12 INSURANCE REQUIRED BY AIRFRAME MANUFACTURER.
Without limiting any other provision of this Section 11, Lessee shall
comply with the insurance requirements of Part E to Exhibit C of the Airframe
Manufacturer Purchase Agreement as if it were "Buyer" thereunder.
SECTION 12. EVENTS OF DEFAULT.
Lessor and Lessee agree that it is a fundamental term and condition of this
Agreement that none of the following events shall occur during the Lease Term
and that the occurrence of any of the following events shall constitute a
repudiatory breach of this Agreement and an "Event of Default" (whether any such
event shall be voluntary or involuntary or come about or be effected by
operation of Law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Government Entity):
12.1 FAILURE TO PAY SCHEDULED AMOUNTS.
Lessee shall have failed to make any payment in accordance with this Lease
Agreement or any other Operative Document (including any payment of Basic Rent
or Renewal Rent) within three Business Days after the later of demand and the
date the same shall have become due.
12.2 FAILURE TO PAY DEMAND AMOUNTS.
Lessee shall have failed to make any demand payment in accordance with
this Lease Agreement or the other Operative Documents when the same shall have
become due after demand and such failure shall continue for five Business Days.
12.3 INSURANCE.
12.3.1 Lessee shall have failed to carry and maintain, or cause to be
carried and maintained, on or with respect to the Aircraft, any insurance
required to be maintained in accordance with the provisions of Section 11.
12.3.2 The Aircraft shall be operated at a time in contravention of
any requirements or conditions of any insurance required under Section 11.
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12.4 RETURN.
Lessee shall have failed to return the Aircraft at the end of the Lease
Term as and in the condition required by Section 4 of Schedule 1.
12.5 CERTAIN COVENANTS.
Lessee shall have failed to comply with its obligations under Section 2.1,
3.5.1, 6.2.1, 6.2.3, 6.2.4, 7, 8 or 14.2 or Section 2.4, 2.6, 2.9.2 or 4.1 of
Schedule 1.
12.6 OTHER COVENANTS.
Lessee shall have failed to comply with, observe or perform, and shall
fail to cause to be complied with, observed and performed, any of its covenants,
agreements or obligations hereunder or under any other Operative Document,
except to the extent provided above in this Section 12, and such failure shall
continue for 20 days after the earlier of (1) the date of written notice thereof
to Lessee or (2) the date Lessee assuming exercise of reasonable diligence,
should have known of such failure.
12.7 REPRESENTATIONS AND WARRANTIES.
Any representation or warranty made by Lessee herein or in any other
Operative Document shall have proven to have been incorrect, inaccurate or
untrue in any material respect as of the time made.
12.8 VOLUNTARY BANKRUPTCY, ETC.
Lessee shall have (1) commenced any proceeding or filed any petition
seeking relief under any applicable bankruptcy, insolvency, liquidation,
administration, receivership or other similar Law, (2) consented to or
acquiesced in the institution of, or failed to contravene in a timely and
appropriate manner, any such proceeding or the filing of any such petition, (3)
applied for or consented to the appointment of a receiver, trustee, custodian,
sequestrator or similar official for itself or for a substantial part of its
property or assets, (4) filed an answer admitting the material allegations of a
petition filed against it in any such proceeding, (5) proposed or entered into
any composition or other arrangement, or made a general assignment, for the
benefit of creditors or declared a moratorium on the payment of indebtedness,
(6) become insolvent or suspended payments on, become unable to, admitted in
writing its inability
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to or failed generally to pay, any material portion of its debts as they become
due, (7) sought its own liquidation, reorganization, dissolution or winding up
or (8) taken any corporate action (including a petition, proposal or convening
of a meeting by the shareholders or directors of Lessee) for the purpose of
effecting any of the foregoing.
12.9 INVOLUNTARY BANKRUPTCY, ETC.
A proceeding shall have been commenced or a petition shall have been
filed, in either case, without the consent or application of Lessee, seeking (1)
relief in respect of Lessee or of a substantial part of its property or assets
under any applicable bankruptcy, insolvency, liquidation, administration,
receivership or similar Law, (2) the appointment of a receiver, trustee,
custodian, sequestrator or similar official for Lessee or for a substantial part
of its property or assets or (3) the liquidation, reorganization, dissolution or
winding up of Lessee; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing
shall be issued and shall not immediately be stayed.
12.10 ILLEGALITY.
It is or becomes unlawful for Lessee to perform any of its obligations
under this Lease Agreement or any other Operative Document or this Lease
Agreement or any other Operative Document is or becomes wholly or partly
illegal, invalid or unenforceable or the existence, validity, enforceability or
priority of the rights of Lessor as owner and as lessor in respect of the
Aircraft, or otherwise, are or become illegal, invalid or unenforceable or are
challenged by Lessee or any other Person claiming by or through Lessee.
12.11 INDEBTEDNESS OR LEASE DEFAULT.
(1) Lessee shall have failed to pay any amount in respect of any
Indebtedness, or any interest or premium thereon, when due (whether by a
scheduled maturity, required prepayment, acceleration, demand or otherwise), or
Lessee shall fail to perform or to comply with any other covenant, agreement or
condition contained in any agreement or instrument relating to such
Indebtedness, and such failure to pay or to perform or to comply shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness, if, as a result of any such failure,
the maturity of such Indebtedness is capable of being accelerated and if the
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aggregate outstanding amount of all such Indebtedness exceeds, in the aggregate
together with any other Indebtedness in respect of which Lessee has failed to
make any payment or in respect of which Lessee has otherwise failed to perform
or comply, US$1,000,000 (or the equivalent thereof), (2) Lessee shall breach or
otherwise fail to perform or comply with any representation, warranty or
covenant of any aircraft leases and such breach or failure to perform or to
comply shall continue after the applicable grace period, if any, specified in
such leases, if, as a result of such breach or failure, an aircraft lessor
shall have taken action to enforce the contractual or other legal right to
terminate the leasing of the relevant aircraft or repossess, or order the
redelivery of, such aircraft, or (3) any "Event of Default" shall occur and be
continuing under and as defined in any Other Lease.
12.12 GOVERNMENT ACTION.
Any Government Entity or any Person acting or purporting to act under
governmental authority shall have taken any action to condemn, seize or
appropriate, or to assume custody or control of, or to levy or sue out upon any
distress or other execution involving, all or a material part of the property of
Lessee.
12.13 JUDGMENTS.
One or more uninsured judgments are rendered against Lessee that either
(1) imposes or impose on Lessee an obligation or obligations for the payment of
money in excess of US$1,000,000 (or the equivalent thereof) in the aggregate or
(2) grants or grant to any Person equitable relief of any nature that could, if
enforced, be reasonably expected to have a Material Adverse Effect and, in the
case of any such judgment or judgments, the same shall remain undischarged for a
period of 30 days or more, during which time execution of such judgment or
judgments shall not be effectively stayed nor adequate bonding fully covering
such judgment or judgments exist.
12.14 MATERIAL ADVERSE EVENT.
Any other event (other than an Event of Loss with respect to the Aircraft
which is fully covered by insurance) occurs or state of affairs exists that has
or will have, in Lessor's reasonable judgment, a Material Adverse Effect.
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SECTION 13. REMEDIES.
Upon the occurrence of any Event of Default and so long as the same shall be
continuing, Lessor shall have the right, effective upon notice to Lessee, to
terminate this Lease Agreement and each other Operative Document and at any time
thereafter Lessor may do all or any of the following, at its option and in its
sole discretion (in addition to such other rights and remedies which Lessor may
have under applicable Law):
13.1 RETAKE POSSESSION.
Upon the written demand of Lessor and at Lessee's expense, cause Lessee to
return promptly, and Lessee shall return promptly, the Airframe and Engines or
such part of the Aircraft as Lessor may so demand to Lessor or its order in the
manner and condition required by, and otherwise in accordance with all the
provisions of, Section 4 of Schedule 1 as if such Airframe and Engines were
being returned at the expiration of the Lease Term, or Lessor at its option, may
enter upon the premises where the Airframe or an Engine, or such part of the
Aircraft is located and take immediate possession of and remove the same
(together with any engine which is not an Engine but which is installed on the
Airframe, subject to all the rights of the owner, lessor, lienor or secured
party of such engine, and such engine shall be held for the account of any such
owner, lessor, lienor or secured party or, if owned by Lessee, may, at the
option of Lessor, be exchanged with Lessee for an Engine as if the original
Engine had suffered an Event of Loss) by summary proceedings or otherwise, and
Lessee waives any right it may have under applicable Law to a hearing prior to
repossession of the Aircraft, Airframe or any Engine or Part (and/or, at
Lessor's option, store the same at Lessee's premises until disposal thereof by
Lessor), all without liability accruing to Lessor for or by reason of such entry
or taking of possession or removing whether for the restoration of damage to
property caused by such action or otherwise, and Lessor is hereby irrevocably by
way of security for Lessee's obligations under this Lease Agreement appointed
attorney for Lessee in causing the redelivery or in directing the pilots of
Lessee or other pilots to fly the Aircraft to the designated location and will
have all the powers and authorizations necessary for taking that action.
13.2 TERMINATION OR ENFORCEMENT.
Rescind this Lease Agreement and each other Operative Document, terminate
this Lease Agreement and each other Operative
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Document and/or exercise any other right or remedy which may be available to it
under applicable Law or proceed by appropriate court action to enforce the terms
hereof and/or exercise any other power, right or remedy which may be available
to Lessor hereunder or under applicable Law. Without limiting the generality of
the foregoing Lessor shall have the right, without need of any consent,
authorization or action of Lessee, to cause the Aircraft to be deregistered by
the Aviation Authority, and to be made ready for export and to be exported out
of the Lessee Jurisdiction, and to cause all rights of Lessee in respect of the
Aircraft and this Lease Agreement and each other Operative Document under or in
connection with or resulting from the registration of the Aircraft or the
recordation of the Operative Documents with the Aviation Authority or otherwise
under or in connection with or resulting from any Law in the Lessee
Jurisdiction, to be terminated and extinguished. In furtherance of the
foregoing, Lessor shall be entitled and empowered to act in the name and in the
place of Lessee as may be necessary or desirable, in Lessor's sole discretion,
including with respect to the execution of documents and instruments, to effect
such deregistration, derecordation, exportation, termination and extinguishment.
Lessee hereby irrevocably and by way of security for its obligations under this
Lease Agreement appoints Lessor as its attorney to execute and deliver any
documentation and to do any act or thing required in connection with the
foregoing.
13.3 APPLICATION OF FUNDS.
Without limiting any other provision of this Lease Agreement or of any
other Operative Document, Lessor shall have the right to continue to hold the
Security Deposit and/or Letter of Credit, as the case may be, and any other
amounts received or held as security for Lessee's obligations hereunder and
under any other Operative Document, and to withhold or set off against all
amounts otherwise payable to Lessee hereunder or under any other Operative
Document (all as security for Lessee's obligations and liabilities under this
Lease Agreement and the other Operative Documents) and to use and apply in whole
or in part any or all of such amounts, withholdings and setoffs to and against
such obligations and liabilities of Lessee (in whatever order and according to
whatever priority Lessor may choose), and any such use, application or setoff
shall be absolute, final and irrevocable.
13.4 DAMAGES.
In addition to Lessor's rights under Section 9.1, recover
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from Lessee, and Lessee shall on demand pay damages to equal the sum of:
13.4.1 All accrued and unpaid Rent payable hereunder in respect of any
period prior to Return of the Aircraft to Lessor in the condition and otherwise
in the manner required under Section 4 of Schedule 1.
13.4.2 All Expenses incurred by Lessor in connection with such Event
of Default or the exercise of Lessor's remedies with respect thereto, including
(1) all costs and expenses incurred in connection with recovering possession of
the Airframe or any Engine or in placing such Airframe or Engine in the
configuration, condition and repair required by Section 4 of Schedule 1 and all
lost Rent payments during such recovery and reconditioning and (2) all damages
(including incidental and consequential damages) incurred by Lessor in
connection with such Event of Default, including all losses (including
reasonable lost profits) suffered by Lessor because of Lessor's inability to
place the Aircraft on lease with another lessee on terms as favorable to Lessor
as this Lease Agreement or because whatever use, if any, to which Lessor is able
to put the Aircraft upon its return to Lessor, or the amount received by Lessor
upon a sale or other disposal of the Aircraft, is not as profitable to Lessor as
leasing the Aircraft in accordance with the terms of this Lease Agreement would
have been, including in each case, lost Rent payments during any remarketing
period.
SECTION 14. ASSIGNMENT OF LEASE.
14.1 ASSIGNMENT BY LESSOR.
14.1.1 RIGHT TO ASSIGN.
Lessor (and any subsequent permitted assignee or transferee) shall have
the right at any time to transfer, assign (including assign as security),
mortgage, grant participations in, or otherwise dispose of, all or any portion
of its right, title and interest in and to this Lease Agreement and any other
Operative Document and the Aircraft to any Person (including in connection with
any conversion of the lease transaction contemplated by this Lease Agreement to
a "leveraged lease" structure or a "headlease-sublease" structure with a new
headlease which may be either a "leveraged lease" or a "single-investor lease").
The foregoing right of Lessor is subject, in the case of an Absolute Transfer
(as defined below), to Lessor's compliance with the requirements of Section
14.1.3 or absent such
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compliance, to receipt of Lessee's consent (such consent not to be unreasonably
withheld).
14.1.2 COOPERATION AND LIMITATIONS.
Lessee shall comply, at Lessor's expense, with all reasonable requests
of Lessor in connection with any such transfer, assignment, mortgage, grant or
other disposition (including in connection with any such conversion), including
the execution of all consents and amendments in connection therewith and the
reissuance of any insurance certificate, broker's letter and broker's
acknowledgment required in connection therewith.
14.1.3 ABSOLUTE TRANSFER.
In connection with the transfer of Lessor's entire interest in this
Lease Agreement (other than with respect to indemnities and third-party
liability insurance, as provided herein) (an "Absolute Transfer"):
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14.1.3.1 Lessor's obligations under this Lease Agreement and the
other Operative Documents shall be assumed by the transferee or assignee (and
thereupon the assigning Lessor shall be released from all of its obligations
hereunder).
14.1.3.2 Lessor shall transfer (1) any cash constituting the
Security Deposit or (2) the Letter of Credit to such transferee or assignee.
14.1.3.3 Lessee shall, immediately following such Absolute Transfer,
incur no additional material obligations or additional material (over $1,000 in
the aggregate) costs (financial or otherwise) hereunder or under any other
Operative Document (unless Lessor agrees to indemnify Lessee therefor), provided
that neither a change in the Person or Persons to whom, or for whose benefit,
Lessee performs its obligations under the Operative Documents, nor an increase
in the number of, or change in the nature of, beneficiaries under any
indemnification, insurance or other obligation shall, in each case, constitute
by itself or in the aggregate a material increase in the obligations of Lessee
under the Operative Documents.
14.1.3.4 Such transferee or assignee shall make for the benefit of
Lessee all of the Lessor's representations set forth herein.
For a period of two years after such Absolute Transfer and at
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Lessee's cost, if any, Lessee will, upon Lessor's request, continue to name
Lessor (and each other Indemnified Party and Airframe Manufacturer) as an
additional insured under Lessee's airline and war-risk liability insurance
described in Sections 11.1.1 and 11.1.3, provided that Lessee's obligations
hereunder shall not exceed its obligation under Section 11.4 (as if the
effective date of such sale or assignment were the last day of the Lease Term).
14.1.4 TRANSFER AS SECURITY.
Without limiting the generality of Section 14.1.2, in connection with
any transfer, assignment, mortgage, grant or other disposition as security (a
"Security Transaction") by Lessor of its interests hereunder, under the other
Operative Documents or in the Aircraft, to a lender or a financier (the
"Security Assignee"), Lessee shall, at Lessor's expense:
14.1.4.1 Enter into documentation customary for Security
Transactions of the type so contemplated, and shall make such filings, and take
such actions, as may be requested by Lessor in connection therewith.
14.1.4.2 Lessee and Lessor shall amend this Lease Agreement to
reflect the Security Transaction, including (1) an amendment to the definition
of Operative Documents to include the documents and instruments to be entered
into and/or delivered in connection with the Security Transaction, and, in the
case where the Security Transaction is consummated on the Scheduled Delivery
Date, the inclusion of such documents and instruments in Section 4.1 hereof, and
(2) amendments to the insurance and indemnity provisions and definitions, in
each case, in order to provide the Security Assignee with customary rights and
protections.
14.2 ASSIGNMENT BY LESSEE.
Except as otherwise expressly provided herein, Lessee may not, without
the prior written consent of Lessor, which consent may be withheld in Lessor's
sole discretion, assign (by express assignment, merger, consolidation or
otherwise) any of its rights or delegate any of its obligations hereunder or
under any other Operative Document.
14.3 SUCCESSORS AND ASSIGNS.
Subject to the foregoing, the terms and provisions of this Lease
Agreement and each other Operative Document shall be
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binding upon and inure to the benefit of Lessor and Lessee and their respective
permitted successors and assigns.
SECTION 15. NO SETOFF, COUNTERCLAIM, ETC.
This Lease Agreement is a net lease and Lessee's obligation to pay Rent is
and shall be absolute and unconditional and shall not be abated, suspended,
diminished, reduced, delayed, discontinued or otherwise affected by any
condition, circumstance, act or event of any kind whatsoever, including any of
the following: (1) any right of setoff, deduction, counterclaim, recoupment,
defense, suspension, deferment or other right (including any right of
reimbursement) which Lessee may have against Lessor, Airframe Manufacturer,
Engine Manufacturer, any Insured Party, any Inspecting Party, any Indemnified
Party or any other Person for any reason whatsoever, including any claim Lessee
may have for the foregoing, any present or future Law to the contrary
notwithstanding, (2) the unavailability, interruption or cessation in use of the
Aircraft for any reason, including (a) any requisition thereof or any
restriction, prohibition or curtailment of, interference with, or other
restriction against, Lessee's use, operation or possession of the Aircraft
(whether by Law, any Government Entity or other Person (other than Lessor,
except as permitted by this Lease Agreement or any other Operative Document or
by law) or otherwise) and (b) any damage to or loss or destruction (including an
Event of Loss) of or to the Aircraft and (c) the removal of the Aircraft from
service to permit the Final Inspection, Final Maintenance or Return of the
Aircraft, (3) any defect in the title, airworthiness, merchantability, fitness
for any purpose, condition, design, specification or operation of any kind or
nature of the Aircraft, or the ineligibility of the Aircraft for any particular
use or trade or for registration or certification, (4) any amendment or
modification of or supplement to any of the Operative Documents, any agreements
relating to any thereof or any other instrument or agreement applicable to the
Aircraft, the Airframe or any Engine, or any assignment or transfer of any
thereof, or any furnishing or acceptance of any additional security, or any
failure or inability to perfect any security, (5) any insolvency, bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution, liquidation,
receivership, administration or similar proceedings by or against Lessee,
Lessor, any Indemnified Party or any other Person, (6) the invalidity,
unenforceability or impossibility of performance of this Lease Agreement, any
other Operative Document or any of the terms hereof or thereof, the lack of
power or authority of Lessee to enter into this Lease Agreement or any other
Operative Document, or any other defect in
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this Lease Agreement or any other Operative Document, (7) any breach by Lessor,
any Indemnified Party or any other Person of any representation, warranty or
covenant, express or implied, made or alleged to be made to Lessee, or any
right, claim, bill, action or suit whatsoever by or against or on the part of
Lessee, including whether arising out of legal action or otherwise, at law or in
equity, whether affirmative, negative or defensive in nature for or on account
of the legality, validity, enforceability or otherwise arising as a result of
(a) this Lease Agreement or any other Operative Document or any of the terms or
conditions hereof or thereof, (b) any express or implied warranty or (c) any
contract, agreement or transaction between Lessee and Lessor or any other
Person, whether direct or indirect, written or oral, (8) any waiver, consent,
change, extension, indulgence or any action or inaction under or in respect of
any such instrument or agreement or any exercise or nonexercise of any right,
remedy, power or privilege in respect of any such instrument or agreement or
this Lease Agreement or any other Operative Document, (9) any transfer of any
interest in this Lease Agreement or any other Operative Document or in the
Aircraft by Lessor or any change of ownership of Lessor, or (10) any other
circumstance, happening or event whatsoever, whether or not similar to the
foregoing, which but for this provision would or might have the effect of
terminating or in any other way affecting any obligation of Lessee hereunder, it
being the express intention of Lessor and Lessee that all Rent and other amounts
payable by Lessee hereunder or under any other Operative Document shall be
payable in all events, unless the obligation to pay the same shall be terminated
pursuant to the express provisions of this Lease Agreement.
Lessee hereby waives, to the extent permitted by applicable Law, any and all
rights which it may have or which at any time hereafter may be conferred upon
Lessee, by Law or otherwise, to terminate, cancel, quit or surrender this Lease
Agreement or any other Operative Document, or to abate, suspend, defer, reduce
or otherwise fail to comply in full with any obligation imposed upon Lessee
hereunder or thereunder or in relation hereto, except termination of this Lease
Agreement in accordance with the express provisions hereof. If for any reason
whatsoever this Lease Agreement is terminated in whole or in part by operation
of Law or otherwise, except as specifically provided herein, Lessee nonetheless
agrees to pay Lessor an amount equal to each Rent payment at the time such
payment would have become due in accordance with this Lease Agreement and each
other Operative Document had this Lease Agreement not been terminated in whole
or in part until Return of the Aircraft to Lessor. Each Rent
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payment made by Lessee shall be final, and Lessee shall not seek to recover all
or any part of any such payment for any reason whatsoever.
Nothing in this Section 15 shall be construed to limit any right Lessee may
have to pursue any claim it may have against Lessor or any Indemnified Party or
Airframe Manufacturer under this Lease Agreement, applicable Law or otherwise.
SECTION 16. FURTHER ASSURANCES, ETC.
16.1 FURTHER ASSURANCES.
Without limiting the other obligations and liabilities of Lessee under
this Lease Agreement and the other Operative Documents, Lessee agrees to
promptly and duly execute and deliver to Lessor such further documents and
assurances and take such further action as Lessor may from time to time
reasonably request in order to effectively carry out the intent and purpose of
this Lease Agreement and the other Operative Documents and to establish, perfect
and protect the rights and remedies created or intended to be created in favor
of Lessor hereunder and thereunder and if applicable, any Security Assignee
under any Security Transaction.
16.2 LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS.
If Lessee fails to make any payment of Rent or fails to perform or comply
with any agreement, covenant or obligation contained herein or in any other
Operative Document, Lessor or Security Agent shall have the right, but not the
obligation, at its election and without waiver of any of its rights or remedies
against Lessee, to perform or comply with such covenant, agreement or obligation
and/or pay such amount, and the amount of such payment and any Expenses incurred
by Lessor or Security Agent, as the case may be, in connection with such payment
or the performance of or compliance with such agreement, covenant or obligation,
as the case may be, together with interest at the Past Due Rate, shall be
payable by Lessee to Lessor upon demand as Supplemental Rent. The taking of any
action by Lessor or Security Agent, as the case may be, pursuant to this Section
16.2 shall not constitute a waiver or release of any obligation of Lessee
hereunder nor a waiver of any Default which may arise out of Lessee's
nonperformance of such obligation, nor an election or waiver by Lessor of any
right or remedy available to Lessor under or in relation to this Lease Agreement
or any other Operative Document.
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16.3 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE.
16.3.1 No failure on the part of Lessor or any other Person to
exercise and no delay in exercising any right, power, remedy or privilege under
any Operative Document or provided by statute or at Law or in equity or
otherwise shall impair, prejudice or constitute a waiver of any such right,
power, remedy or privilege or be construed as a waiver of any Event of Default
or as an acquiescence thereto, nor shall any single or partial exercise of any
such right, power, remedy or privilege impair, prejudice or preclude any other
or further exercise thereof or the exercise of any other right, power, remedy or
privilege. No acceptance of partial payment or performance shall, whether or
not expressly stated, be or be deemed to be a waiver of any Event of Default
then existing or a waiver or release of full payment and performance. No notice
to or demand on Lessee shall in any case entitle Lessee to any other or further
notice or demand in other or similar circumstances or constitute a waiver of the
right of Lessor or any other Person to any other or further action in any
circumstances without notice or demand.
16.3.2 Nothing contained in any Operative Document shall be construed
to limit in any way any right, power, remedy or privilege of Lessor or other
Person hereunder or under any Operative Document or now or hereafter existing at
Law or in equity. Each and every right, power, remedy and privilege of Lessor
under the Operative Documents (1) shall be in addition to and not in limitation
of, or in substitution for, any other right, power, remedy or privilege under
any Operative Document or at law or in equity, (2) may be exercised from time to
time or simultaneously and as often and in such order as may be deemed expedient
by Lessor and (3) shall be cumulative and not mutually exclusive, and the
exercise of one shall not be deemed a waiver of the right to exercise any other.
SECTION 17. CONFIDENTIALITY.
Each of Lessee and Lessor shall keep this Lease Agreement and each other
Operative Document (and all terms and provisions hereof and thereof)
confidential and shall not disclose, or cause to be disclosed, the same to any
Person, without the prior written consent of the other, except (1) to
prospective and permitted transferees of Lessor or to any Person considering the
provision of financing to Lessor or to such prospective transferee and their
respective counsel, accountants, insurance brokers and advisers or other agents,
(2) in connection with any enforcement of any provisions of this Lease Agreement
or any
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other Operative Document by Lessor or any provider of financing to Lessor, (3)
to its Affiliates or the Affiliates of any Person providing financing to Lessor
or (4) as may be required by Law, provided that any and all disclosures of all
or any part of such documents and/or information which are permitted by this
Section 17 shall be made only to the extent necessary to meet the specific
requirements or needs of the Persons to whom such disclosures are hereby
permitted and the disclosing party shall inform such Persons of the confidential
nature of such documents and/or information.
SECTION 18. GOVERNING LAW AND JURISDICTION.
18.1 NEW YORK LAW.
THIS LEASE AGREEMENT AND EACH OTHER OPERATIVE DOCUMENT, UNLESS OTHERWISE
EXPRESSLY PROVIDED THEREIN, SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS ENTERED INTO IN THAT STATE BETWEEN CITIZENS OF THAT
STATE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REFERENCE TO ANY
RULES GOVERNING CONFLICTS OF LAWS.
18.2 NONEXCLUSIVE JURISDICTION IN NEW YORK.
Lessee and Lessor each hereby irrevocably consents that any legal action
or proceeding against it or any of its assets arising out of or relating to this
Lease Agreement or any other Operative Document may be brought in any
jurisdiction where it or any of its assets may be found, in the courts of the
United States of America for the Southern District of New York or in the courts
of the State of New York located in Manhattan, as the party bringing such action
or proceeding may elect, and by execution and delivery of this Lease Agreement
each of Lessor and Lessee hereby irrevocably submits to and accepts with regard
to any such action or proceeding, for itself and in respect of its assets,
generally and unconditionally, the jurisdiction of the aforesaid courts and
irrevocably agrees to be bound by any judgment rendered thereby. Nothing herein
shall limit the right of Lessor from bringing any legal action or proceeding or
obtaining execution of judgment against Lessee in any other appropriate
jurisdiction or concurrently in more than one jurisdiction. Lessee and Lessor
further agree that a final judgment in any action or proceeding arising out of
or relating to this Lease Agreement or any other Operative Document shall be
conclusive and may be enforced in any other jurisdiction within
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or outside the United States of America by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and the
amount of the indebtedness or liability therein described, or in any other
manner provided by Law. Each of Lessee and Lessor hereby irrevocably waives, to
the fullest extent permitted by Law, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Lease Agreement or any other Operative Document brought in any
court in or of the State of New York, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any court in or of the
State of New York has been brought in an inconvenient forum.
Lessee shall maintain the process agent specified for it in Section 18.3,
or such other Person located within the State of New York as may be acceptable
to Lessor, as its agent for service of process in the State of New York during
the Lease Term and six months thereafter, at Lessee's sole cost and expense.
Lessee irrevocably and unconditionally agrees that if Lessor brings legal
proceedings against it or its assets in relation to this Lease Agreement no
immunity from such legal proceedings (which will be deemed to include 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. Lessee further irrevocably and unconditionally (1)
waives any such right of immunity which it or its assets now have or may in the
future acquire and (2) 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 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.
LESSEE AND LESSOR HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT.
18.3 SERVICE OF PROCESS.
Lessee hereby irrevocably designates, appoints and empowers National
Corporate Research, Ltd., 225 West 34th Street, Suite 2110, New York, New York
10122, as its authorized agent to receive on its behalf and on behalf of its
property service of copies of the summons and complaint and any other process
which
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may be served in any action or proceeding arising out of or relating to this
Lease Agreement or any other Operative Document. Such service may be made by
mailing or delivering a copy of such process in care of the appropriate process
agent set forth above and Lessee hereby irrevocably authorizes and directs its
designated process agent to accept such service on its behalf. Lessee further
agrees that failure by a process agent appointed in accordance with the
foregoing terms to notify Lessee of the process shall not invalidate the
proceeding concerned. Notwithstanding the foregoing, nothing herein shall affect
the rights of either party to serve process in any other manner permitted by
Law.
SECTION 19. MISCELLANEOUS.
19.1 AMENDMENTS.
No provision of this Lease Agreement or any other Operative Document may
be amended, changed, waived or discharged orally, but only by an instrument in
writing specifying the provision intended to be amended, changed, waived or
discharged and signed by each party hereto or thereto; and no provision of this
Lease Agreement or any other Operative Document shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or other
matter not specifically set forth in an agreement in writing and signed by each
party hereto or thereto.
19.2 SEVERABILITY.
If any provision hereof or of any Operative Document should be held
invalid, illegal or unenforceable in any respect in any jurisdiction, then, to
the extent permitted by Law (1) all other provisions hereof or thereof shall
remain in full force and effect in such jurisdiction and (2) such invalidity,
illegality or unenforceability shall not affect the validity, legality or
enforceability of such provision in any other jurisdiction.
19.3 COUNTERPARTS.
This Lease Agreement, any Operative Document and any amendments, waivers,
consents or supplements hereto or thereto may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of which counterparts, taken together, shall constitute one and the same
instrument.
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19.4 CHATTEL PAPER.
To the extent, if any, that this Lease Agreement constitutes chattel paper
(as defined in the Uniform Commercial Code in effect from time to time in any
applicable jurisdiction) no security interest in this Lease Agreement may be
created through the transfer or possession of any counterpart other than the
original executed counterpart, which shall be identified as the counterpart
containing the receipt therefor executed by Lessor on the signature page
thereof.
19.5 TIME OF THE ESSENCE.
Subject to the periods of grace referred to in Section 12, time shall be
of the essence as regards the performance by Lessee of its obligations under
this Lease Agreement and each other Operative Document.
19.6 NOTICES.
All notices, requests and other communications to Lessee, Lessor or any
other Person hereunder or under any other Operative Document shall be in writing
(for this purpose, "writing" includes telecopy or similar electronic
transmissions), shall refer specifically to this Lease Agreement or such other
Operative Document, as the case may be, and shall be personally delivered or
sent by telecopy or other similar electronic facsimile transmission, or sent by
overnight courier service (e.g., Federal Express), in each case to the
respective address and telecopy number specified in Schedule 4 or such other
address or telecopy number as such Person may hereafter specify by notice to the
other party or to the parties hereto. Each such notice, request or other
communication shall be effective when received or, if by telecopier or other
similar electronic transmission, when "confirmed" by the sending telecopy or
similar machine and written evidence of such confirmation is produced by such
machine, provided that any such notice by telecopy so "confirmed" after 6:00
p.m., for the recipient, shall be effective on the next succeeding local
Business Day.
19.7 ENTIRE AGREEMENT.
This Lease Agreement and the other Operative Documents in effect on the
date hereof constitute the entire agreement between the parties concerning the
subject matter hereof and thereof, and supersede all previous proposals,
agreements, understandings, negotiations and other written and oral
communications in
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relation hereto and thereto. The parties acknowledge that there have been no
representations, warranties, promises, guarantees or agreements, express or
implied, except as set forth herein and therein.
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Lessee and Lessor have caused this Lease Agreement to be executed by their
respective officers as of the day and year first above written.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
[THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART]
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Lessee and Lessor have caused this Lease Agreement to be executed by their
respective officers as of the day and year first above written.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING AIRCRAFT LEASE AGREEMENT
IS HEREBY ACKNOWLEDGED ON THIS ____ DAY OF ______________, 1996.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
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Schedule 1
Operational Matters
Lease Agreement
(MSN 28760)
SCHEDULE 1
OPERATIONAL MATTERS
(MSN 28760)
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28760), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company and
Frontier Airlines, Inc., to which this document is a schedule.
SECTION 1. GENERAL DEFINITIONS.
The following terms shall have the following meanings for all purposes of the
Lease Agreement and this Schedule 1:
"AD" shall mean any airworthiness directive or other requirement of the
Aviation Authority applicable to the Airframe, either Engine, any Part or the
Aircraft Documentation.
"Aircraft Documentation" shall mean the documentation described in Section
2.5 of this Schedule 1.
"Airframe" shall mean, collectively, (1) Airframe Manufacturer Model 737-36Q
airframe (except only Engines or engines from time to time installed thereon),
bearing Airframe Manufacturer's serial number 28760 and (2) any and all Parts so
long as the same shall be incorporated or installed in or attached to such
airframe, and any and all Parts removed therefrom so long as title to such
removed Parts shall remain vested in Lessor in accordance with the terms of
Section 2.3 of this Schedule 1.
"Airframe Cycle" shall mean one takeoff and landing of the Airframe.
"Airframe Flight Hour" shall mean each hour or part thereof elapsing from the
moment the wheels of the Airframe leave the ground on takeoff until the wheels
of the Airframe touch the ground on landing following such flight. For purposes
of all calculations under the Operative Documents measured in Airframe
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Flight Hours, such Airframe Flight Hours (or parts thereof) shall be rounded up
to the nearest minute.
"Airworthiness Certificate" shall mean a valid, current transport category
airworthiness certificate issued in respect of the Aircraft by the Aviation
Authority.
"Approved Maintenance Performer" shall mean Lessee or any other maintenance
performer having a valid repair station license and otherwise approved by the
Aviation Authority in the operation specifications with regard to major
maintenance, including airframe, engine, landing gear and APU overhaul, and
otherwise approved by the Aviation Authority.
"Approved Maintenance Program" shall mean the Lessee's Aviation Authority
approved written block maintenance, inspection and repair program and schedule
for Airframe Manufacturer 737-300 aircraft, designed in accordance with Airframe
Manufacturer's maintenance planning document and in accordance with Engine
Manufacturer's and Parts manufacturers' respective maintenance manuals,
including Lessee's current approved maintenance schedule and the CPCP, as such
maintenance, inspection and repair program is approved by Lessor pursuant to
Section 4.2 of the Lease Agreement and as amended from time to time in
accordance with the Lease Agreement, or such other written maintenance,
inspection and repair program, if any, as Lessor and Lessee shall agree in
writing (if required by this Lease Agreement or any other Operative Document),
in either case, as in effect from time to time. In all cases, such Approved
Maintenance Program shall be consistent with the latest revision of Airframe
Manufacturer's Maintenance Planning Document and the CPCP.
"APU" shall mean (1) the auxiliary power unit identified by manufacturer's
serial number in Lease Supplement No. 1 and (2) any auxiliary power unit
substituted for such auxiliary power unit in accordance with the Lease
Agreement.
"Basic Shop Visit" shall mean, (1) with respect to any Engine, any shop
visit, as defined by Engine Manufacturer that is based on an approved program of
condition monitoring and trend monitoring of performance deterioration requiring
complete disassembly, inspection and repair of any module of an Engine or a
whole Engine that results in a minimum of 5,000 cycles of operation remaining on
each of the life limited Parts in such Engine and with an attempt to restore
performance to a level consistent with Engine Manufacturer's specification
applicable to
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such Parts upon the completion of a shop visit of the kind contemplated by this
clause (1) and (2) with respect to the APU, a restoration of the nucleus or hot
section as defined by the APU manufacturer.
"Cabin" shall mean the passenger compartment and all doors (interior only),
windows, interior panels, storage bins, lights, seats, seat covers, carpets,
lavatories, galleys, galley equipment, closets, flight attendant seats,
passenger communications and entertainment systems (with respect to which Lessor
has or should, in accordance with the Lease Agreement, have title), emergency
and miscellaneous equipment, seat tracks and floor areas.
"CPCP" shall mean a Corrosion Prevention and Control Program that establishes
minimum requirements for the Aircraft, incorporating, among other things, the
recommendations of Airframe Manufacturer and the mandatory requirements
established by FAA AD 90-25-01 and Boeing document D6-38528.
"Delivery Documentation" shall mean, collectively, any and all log books,
records, manuals and other data or documents described in Annex 1 to Schedule 3.
"Engine" shall mean (1)(a) either of Engine Manufacturer Model CFM56-3C-1
engines listed by Engine Manufacturer's serial numbers in the Lease Supplement
No. 1 and originally installed on the Airframe at the time of delivery to Lessee
hereunder whether or not from time to time thereafter installed on the Airframe
or installed on any other airframe and (b) any Replacement Engine which may from
time to time be substituted, pursuant to the terms hereof, for either of such
Engines, and (2) in each case, any and all Parts incorporated or installed in or
attached thereto or any and all Parts removed therefrom so long as title thereto
shall remain vested in Lessor in accordance with the terms of Section 2.3 of
this Schedule 1 after removal from such Engine, provided that at such time as an
engine shall be deemed part of the property leased hereunder in substitution for
an "Engine," pursuant to the applicable provisions hereof, the replaced Engine
shall cease to be an "Engine" hereunder. The term "Engines" shall mean, as of
any date of determination, all Engines then leased hereunder. Each Engine has
750 or more rated takeoff power or its equivalent.
"Engine Cycle" shall mean, with respect to any Engine, one takeoff and
landing of the airframe (including the Airframe) on
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which such Engine is from time to time installed.
"Engine Flight Hour" shall mean each hour or part thereof elapsing from the
moment the wheels of the airframe (including the Airframe) on which such Engine
is from time to time installed leave the ground on takeoff until the wheels of
such airframe touch the ground on landing following such flight. For purposes
of all calculations under the Operative Documents measured in Engine Flight
Hours, such Engine Flight Hours (and parts thereof) shall be rounded up to the
nearest minute.
"External Repair" shall mean any repair to a penetration, scratch or dent of
the exterior surface of the Airframe, but where a "scab patch" to the Airframe
is permitted, it shall be a repair accomplished in conformity with the
Structural Repair Manual or approved by Airframe Manufacturer or the Aviation
Authority.
"Final Inspection" shall mean the inspection of the Aircraft by Lessor and
any other Inspecting Parties during any part of the inspections, checks, and
test flights required pursuant to Sections 4.3, 4.4 and 4.5 of this Schedule 1
or otherwise performed in connection with the Return, which, in each case, shall
be at Lessee's risk, cost and expense (subject to Section 4.9 of this Schedule
1).
"Final Maintenance" shall mean the work to be performed by Lessee in order to
cause the Aircraft to meet the requirements of this Schedule 1, including Annex
1 hereto.
"Flight Charges" shall mean all flight charges, route navigation charges,
navigation service charges and all other fees, charges or Taxes payable for the
use of or for services provided at any airport or otherwise payable to any
airport, airport authority, navigation or flight authority or other similar
entity or for any services provided in connection with the operation, landing or
navigation of aircraft.
"Follow-On Operator" shall mean any Person acquiring title to or the right to
use the Aircraft after the end of the Lease Term (whether or not such Person is
an airline or other operator).
"Inspecting Party" has the meaning set forth in Section 4.3.1 of this
Schedule 1.
"Landing Gear" shall mean (1) each landing gear assembly of
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the Aircraft identified by serial number in Lease Supplement No. 1 and (2) any
landing gear assembly substituted for any such identified landing gear assembly
in accordance with the Lease Agreement.
"Landing Gear Overhaul" shall mean any full overhaul of any Landing Gear to
essentially full manufacturer specification and operating condition, and, for
the avoidance of doubt, "full overhaul" does not mean only the replacement,
repair or overhaul of any rotable components, any cleaning or replacement of
seals, any repair of brakes, wheels or tires, brake rods, struts or braces, in
each case, that occurs any more frequently than a full overhaul.
"Major Checks" shall mean any "C" check, multiple "C" check, "7C/SI" check
(or equivalent) or annual heavy maintenance visit or segment thereof suggested
for commercial aircraft of the same model as the Aircraft by Airframe
Manufacturer or as set out in the Approved Maintenance Program.
"Major Modifications" shall include, but shall not be limited to (1) changes
that alter the fundamental nature of the Aircraft as a passenger and cargo
carrying aircraft or Cabin modifications that materially change the interior
layout of the Aircraft, (2) changes to the Aircraft structure or performance of
the Aircraft, (3) changes that adversely affect interchangeability or
replaceability of Parts, (4) changes that invalidate or impair any warranty with
respect to the Aircraft or any Engine or Part, (5) changes that adversely affect
the eligibility of the Aircraft to obtain an airworthiness certificate from the
Aviation Authority or (6) any changes that result in a variation from the
original type certificate for the Aircraft, but shall exclude changes pursuant
to ADs and SBs provided by Airframe Manufacturer which have Aviation Authority
approval and all Required Modifications.
"Modification" shall mean any modification, addition, alteration, removal or
other change (including performance of ADs and SBs and the removal of Obsolete
Parts) to the Airframe, any Engine or any Part.
"Modification Parts" shall mean those Parts installed on the Aircraft in
connection with a Modification.
"Obsolete Parts" shall mean Parts that Lessee has determined in its
reasonable judgment to be no longer suitable or
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appropriate for use on the Airframe or such Engine.
"Parts" shall mean any and all appliances, parts, components, modules,
navigation, avionics and communications equipment, computers, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(including the APU and the Landing Gear but excluding complete Engines or
engines) which may from time to time be incorporated or installed in or attached
to the Airframe or any Engine, so long as title thereto shall remain vested in
Lessor, in accordance with the terms of Section 2.3 of this Schedule 1.
"Replacement Engine" shall mean an Engine Manufacturer Model CFM56-3C-1
engine (or an improved model having a modification status, value and utility at
least equal to such an Engine Manufacturer Model CFM56-3C-1 engine) (including
all warranty rights with respect to such engine) suitable for installation and
use on the Airframe without impairing the value or utility of the Aircraft, and
which has a modification status, value, condition and utility (in each case,
taking into account the age of the Engine and the accumulated Engine Flight
Hours and Engine Cycles) at least equal to the Engine it is replacing (assuming
such Engine was at least in the modification status, condition and repair
required by the terms hereof immediately prior to being replaced).
"Required Modifications" has the meaning set forth in Section 2.2.1 of this
Schedule 1.
"Reserves" shall mean all amounts payable by Lessee pursuant to Section 3 of
this Schedule 1.
"Return" shall mean the return of the Aircraft by Lessee to Lessor at the
Return Location (or such other location as may be agreed by Lessor and Lessee)
in the condition and manner required by Section 4 of this Schedule 1 and the
other provisions of the Lease Agreement and the other Operative Documents, as
evidenced by the execution by Lessor, and the delivery to Lessee, of the Return
Acceptance Certificate.
"Return Acceptance Certificate" shall mean the acceptance certificate to be
delivered by Lessor to Lessee pursuant to Section 4.6 of this Schedule 1 in the
form of Attachment 2 to Annex 1 to this Schedule 1.
"SB" shall mean any optional, recommended or alert service
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bulletin or service letter as, where not expressly specified herein or in any
other Operative Document, issued by Airframe Manufacturer, Engine Manufacturer
or the manufacturer of the appliances or Parts.
SECTION 2. MAINTENANCE; OPERATION; ETC.
2.1 GENERAL MAINTENANCE.
Lessee, at its own expense, shall, at all times during the Lease Term and
until the Aircraft is returned in the condition and manner required by this
Schedule 1 and the Lease Agreement maintain, service, repair, test, inspect and
overhaul, or cause (subject to Section 8 of the Lease Agreement) to be
maintained, serviced, repaired, tested, inspected and overhauled, the Aircraft:
2.1.1 In accordance with:
2.1.1.1 The Approved Maintenance Program (which shall not be
amended in any way adverse to Lessor's reasonable interests (for example,
increasing the maintenance intervals for the airframe, engines, landing gear,
APU or other material items, or changing such intervals beyond those prescribed
in the approved maintenance manuals) except as may be required by Law or by the
applicable rules and regulations of the Aviation Authority).
2.1.1.2 The structural repair manual of Airframe Manufacturer and
the maintenance and repair manuals of Engine Manufacturer and the manufacturers
of the Parts.
2.1.1.3 The rules and regulations of the Aviation Authority.
2.1.1.4 Good commercial airline practice.
2.1.2 So as to keep the Aircraft in as good condition (operating and
otherwise) as when delivered on the Delivery Date, ordinary wear and tear
excepted, and in the same manner and with the same care and diligence as other
aircraft owned or operated by Lessee.
2.1.3 So as to keep the Aircraft in such condition as may be necessary
to enable an Airworthiness Certificate for the Aircraft to be maintained in good
standing at all times under
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applicable Law.
2.2 MODIFICATIONS AND OTHER MAINTENANCE.
Without limiting Lessee's obligations under Section 2.1 of this Schedule
1, Lessee shall, at its own expense:
2.2.1 REQUIRED MODIFICATIONS.
Comply on a terminating basis with (1) all applicable ADs issued by the
Aviation Authority and all alert SBs issued by Airframe Manufacturer, Engine
Manufacturer or the manufacturer of any Part and (2) and all Modifications
required to meet the standards of the Aviation Authority ("Required
--------
Modifications"), (y) in the case of ADs and other Aviation Authority-required
- -------------
Modifications, the mandatory compliance date for which action on such basis
falls during the Lease Term and (z) in the case of alert SBs, the issuance date
thereof is at least six months prior to the scheduled expiration of the Lease
Term, provided that Lessee may, in good faith, contest the validity or
application of any such Required Modification in any manner which does not
involve any danger of the sale, forfeiture or loss of the Aircraft or, in the
reasonable judgment of Lessor, otherwise materially adversely affect Lessor.
*
2.2.2 CPCP.
Carry out such work as may be required to comply with the CPCP, but
which shall in any case include periodic inspection, testing and corrosion
inhibiting treatment to or of fuel tanks, periodic inspection, cleanup and
resealing under galleys and lavatories, the cleaning and treating of all mild
and moderate corrosion and the correcting of all severe and exfoliated
corrosion, and the application of corrosion inhibition compounds to exposed
landing gear and critical surface areas and all hidden areas of the Aircraft as
recommended by Airframe Manufacturer.
2.2.3 REPAIRS.
Effect any required repair to the Airframe or any Engine, and any Parts
installed therein or thereon, only (1) by an Approved Maintenance Performer, (2)
by Aviation Authority-licensed mechanics, (3) in accordance with the Approved
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Maintenance Program, Airframe Manufacturer's structural repair manual, Airframe
Manufacturer's component repair manual, Engine Manufacturer's repair manuals and
the other repair and overhaul manuals related to the Aircraft or any Part
thereof, in each case, as approved by the Aviation Authority and (4) the
relevant, if any, engineering change orders (which shall first be approved by
the Aviation Authority).
2.2.4 AVIATION AUTHORITY COMMUNICATIONS.
Make available for review by Lessor copies of any written
communications with the Aviation Authority, Airframe Manufacturer, Engine
Manufacturer or other vendors with respect to incidents, defects or malfunctions
of the Aircraft.
2.2.5 CORRECTION OF DISCREPANCIES.
Diligently correct any and all discrepancies from the requirements
hereof identified by Lessor.
2.2.6 APPROVED MAINTENANCE PERFORMER.
Ensure that only an Approved Maintenance Performer services, maintains,
overhauls, repairs or performs any Modifications on or to the Aircraft or any
installed engine or part.
2.2.7 AVIATION AUTHORITY APPROVED PARTS.
Ensure that only Aviation Authority-approved parts and materials are
installed or used on the Aircraft.
2.2.8 MAINTENANCE OF NON-"ENGINE."
Notwithstanding anything to the contrary contained herein, maintain any
engine which is not an Engine but which is installed on the Airframe as if it
were an Engine.
2.3 REPLACEMENT OF PARTS.
2.3.1 REPLACEMENT OF PARTS REQUIRED.
Except as otherwise provided in Section 2.4 with respect to
Modification Parts which may be removed pursuant to Section 2.4.6 of this
Schedule 1 and Obsolete Parts, Lessee shall
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replace, at its own expense, all Parts which may from time to time become worn
out, obsolete, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever with
replacement parts as set forth in this Section 2.3. Each such replacement part
incorporated or installed in or attached or added to the Airframe or any Engine
shall:
2.3.1.1 FREE OF LIENS.
Be free and clear of all Liens (except for Permitted Liens).
2.3.1.2 GOOD OPERATING CONDITION, ETC.
(1) Be in as good operating condition as, (2) have no more hours,
cycles or calendar time than, have the same interchangeable modification status
as, and have a value and utility at least equal to, the Part replaced, assuming
such replaced Part was in the condition and repair required to be maintained by
the terms hereof, and (3) with respect to avionics, navigation, communications
equipment, be of the same make and the same or more advanced model.
2.3.1.3 AVIATION AUTHORITY TAG.
Have a current valid Aviation Authority "serviceable tag" of the
manufacturer or maintenance facility providing such parts to Lessee, which tag
shall identify the manufacturer, vendor, part number, make, model and serial
number, date and hours and/or cycles and, where applicable, indicating that such
parts are new, serviceable or overhauled.
Lessee may use a replacement part that does not comply with the requirements of
the foregoing sentence if a complying part cannot be procured or installed
within the available ground time of the Aircraft, provided that the original
Part is reinstalled or the noncomplying part is removed and replaced by a
complying part, in each case as promptly as practicable (and in any event within
60 days of removal or, if earlier, on or before the last day of the Lease Term).
2.3.2 OWNERSHIP OF PARTS.
Immediately upon any part's (including Modification Parts) becoming
incorporated in, installed on or attached to the
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Airframe or any Engine, without further act (1) title to such part shall
thereupon vest in Lessor, free and clear of all Liens (other than Permitted
Liens), (2) such part shall become subject to the Lease Agreement and be deemed
a "Part" of such Airframe or such Engine for all purposes hereof and (3) title
to any replaced Part shall thereupon vest in Lessee, free and clear of all
rights of Lessor and all Lessor Liens and shall no longer be deemed a Part
hereunder, except that with respect to non-complying parts described in the last
sentence of Section 2.3.1 of this Schedule 1 where such non-compliance is due to
the failure to meet the requirements of Section 2.2.1.1 or 2.3.1.2 of this
Schedule 1 and the parts described in Section 2.4.5 of this Schedule 1, title
thereto shall not vest in Lessor. Lessee will at its own expense take all such
steps and execute, and procure the execution of, all such instruments as Lessor
may reasonably 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 reasonable satisfaction (including the
provision, if required, to Lessor of a legal opinion) that title has so passed
to Lessor. All Parts (other than Modification Parts) at any time removed from
the Airframe or any Engine shall remain the property of Lessor, no matter where
located, until such time as such Parts shall be replaced by Parts which have
been incorporated or installed in or attached to the Airframe or any Engine and
which meet the requirements set forth in Section 2.3.1 of this Schedule 1. Upon
any removal of Modification Parts pursuant hereto, title thereto shall, without
further act, vest in Lessee free and clear of all rights of Lessor and all
Lessor Liens, and such Modification Part shall no longer be deemed a Part
hereunder.
2.4 MODIFICATIONS.
2.4.1 ABILITY TO MODIFY.
Lessee, at its own expense, may from time to time add further parts or
accessories and make such Modifications to the Airframe or any Engine as Lessee
may deem desirable in the proper conduct of its business (so long as title to
any Obsolete Parts shall remain in Lessor), provided that:
2.4.1.1 NO MAJOR MODIFICATIONS.
Lessee shall not, without Lessor's prior written consent, make any
Major Modifications to the Aircraft, and in connection with obtaining such
consent Lessee shall (1) provide
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Lessor with advance copies of all designs, plans, diagrams, drawings and data to
be used by Lessee in accomplishing such Major Modifications and (2) obtain the
approval of the Aviation Authority (as evidenced by the issuance of a
supplemental type certificate or similar certification issued by the Aviation
Authority).
2.4.1.2 MAY NOT DIMINISH VALUE, ETC.
No such Modification shall diminish the value or utility of the
Airframe or such Engine, or impair the condition or airworthiness thereof, below
the value, utility, condition or airworthiness thereof immediately prior to such
Modification, assuming the Airframe or such Engine were then of the value and
utility and in the condition and repair required to be maintained by the terms
of the Lease Agreement and each other Operative Document.
2.4.2 NO OBLIGATION OF LESSOR TO PAY.
Lessor shall not be required under any circumstances to pay directly or
indirectly for any Modifications, except as provided in Section 2.2.1 of this
Schedule 1.
2.4.3 REMOVAL OF MODIFICATION PART.
Notwithstanding the foregoing, Lessee may, at any time during the Lease
Term, so long as no Default shall have occurred and be continuing, remove or
suffer to be removed any such Modification Part, provided that such Modification
Part (1) is in addition to, and not in replacement of or substitution for, any
Part originally incorporated or installed in or attached to the Airframe or any
Engine at the time of delivery thereof or any Part in replacement of or
substitution for any such Part, (2) is not required to be incorporated or
installed in or attached or added to the Airframe or any Engine pursuant to the
terms hereof and (3) can be removed from the Airframe or such Engine without
damaging the Airframe or such Engine or diminishing or impairing the value,
utility, condition or airworthiness which the Airframe or such Engine would have
had at such time had such Modification not been made, assuming the Airframe or
such Engine was then of the value and utility and in the condition and repair
required to be maintained by the terms of the Lease Agreement and the other
Operative Documents.
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2.4.4 REVERSAL OF MODIFICATION.
Upon the written request of Lessor, to be given at least 30 Business
Days prior to the scheduled expiration of the Lease Term, Lessee shall, on or
before the last day of the Lease Term and at its own expense, reverse any
Modification and restore the Aircraft to its required condition as if such
Modification had not been made.
2.4.5 TITLE TO REMOVED MODIFICATION PART.
Upon the removal by Lessee of any Modification Part as provided in
Sections 2.4.3 and 2.4.4, title thereto shall, without further act, vest in
Lessee free and clear of Lessor and all Lessor Liens, and such Modification Part
shall no longer be deemed a Part of the Airframe or Engine from which it was
removed. Any Modification Part not removed by Lessee as above provided prior to
the return of the Airframe or Engine to Lessor hereunder shall remain the
property of Lessor.
2.4.6 PASSENGER COMMUNICATION EQUIPMENT.
Notwithstanding Section 2.3.1.1 of this Schedule 1, Lessee may from
time to time install on the Aircraft equipment that is leased or conditionally
sold to Lessee (and title to such equipment shall remain vested in the lessor or
conditional vendor thereof) if (1) such equipment is audio-visual equipment,
personal computers, telephones, fax machines and other passenger communications
equipment and (2) it can be removed without causing material damage to the
Aircraft and any damage caused by such removal is, prior to Return, repaired so
that the Aircraft is restored to a condition at least as good as prior to such
installation.
2.4.7 SERVICE BULLETIN KITS.
During the Lease Term, Lessee shall from time-to-time request, and
shall retain, all SB kits relating to the Aircraft, any Engine or any Part which
are available to Lessee at no cost other than postage and handling costs. If
any "no cost" period lapses without Lessee acquiring such kit, Lessee shall be
obligated to acquire such kit at the manufacturer's then cost for such kit.
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2.5 DOCUMENTATION.
2.5.1 During the Lease Term, Lessee shall maintain:
2.5.1.1 The Delivery Documentation and all other documentation
delivered to Lessee on or about the Delivery Date with respect to the Aircraft,
either Engine or any Part.
2.5.1.2 All other logbooks, records (including, without limitation,
records relating to the service, inspection, maintenance, modification, testing,
overhaul and repair of the Aircraft and all Parts installed therein or thereon),
manuals (including, without limitation, operations, maintenance, repair,
overhaul or parts manuals), data, drawings or other documents that are required
to be maintained during the Lease Term under the terms of the Lease Agreement,
by the Aviation Authority, the Approved Maintenance Program, Airframe
Manufacturer, Engine Manufacturer or the manufacturer of any Part and those that
are provided to Lessee or otherwise maintained during the Lease Term with
respect to the Aircraft (including, without limitation, the Airframe, any
Engine, the APU and Parts).
2.5.1.3 Updates or additions to any of the foregoing and renewals,
revisions and replacements to any of the foregoing from time to time created or
obtained in accordance with the Lease Agreement, applicable Law or otherwise.
2.5.1.3.1 In the English language.
2.5.1.3.2 Current and up-to-date (through subscription to
Airframe Manufacturer and Engine Manufacturer update services and with all
documents and records unique to the Aircraft to be maintained unique to the
Aircraft).
2.5.1.3.3 In conformity with the rules of the Aviation Authority
and with normal practices of first class commercial air carriers.
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2.5.1.3.4 So that such documentation:
2.5.1.3.4.1 Accurately discloses the location of each Engine
and Part not installed on the Airframe.
2.5.1.3.4.2 Accurately records the amount of time consumed
and/or the cycles of use (as appropriate) of the Airframe, each Engine and all
Parts (including the APU) and all work performed thereon.
2.5.1.3.4.3 Contains accurate back-to-birth records of (1) all
life-limited Parts installed on the Aircraft and (2) all life-limited Parts
installed on the Aircraft by Lessee.
2.5.2 Any Aircraft Documentation not already owned by Lessor, when and
as created or obtained by Lessee, shall thereupon become the property of Lessor.
2.6 OPERATION.
2.6.1 Lessee shall not operate the Aircraft (or permit the operation
of the Aircraft) in violation of any Law of any Government Entity having
jurisdiction, in violation of the Approved Maintenance Program, any
manufacturer's operating manuals, recommendations or instructions or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such Government Entity.
2.6.2 Lessee shall not operate or locate the Aircraft or permit the
Aircraft to be operated or located (1) outside of the Permitted Jurisdictions,
(2) on routes other than those approved by the government of the State of
Registration between destinations in the Permitted Jurisdictions, (3) in any
area excluded from coverage by any insurance policy in effect or required by the
terms of the Lease Agreement or in any war zone or in any recognized or
threatened area of hostilities (without Lessor's consent) and unless fully
covered to the satisfaction of Lessor by war-risk and allied perils insurance or
(4) outside the U.S. for periods which, in the aggregate, would result in the
Aircraft being physically located outside the U.S. more than 50% of the time
during any year.
2.6.3 Lessee shall not used, suffer or cause the Aircraft to be used
for the carriage of (1) whole animals living or dead (other than living humans)
except in the cargo
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compartments according to I.A.T.A. regulations and except domestic pet animals
carried in suitable containers to prevent the escape of any liquid and as to
ensure the welfare of the animal, (2) explosives, acids, toxic chemicals or
other corrosive materials, unless the same are appropriately packaged in
compliance with applicable Law, (3) nuclear fuels or wastes, (4) illegal drugs,
controlled substances or the like or (5) any other goods, materials or items of
cargo which are prohibited by Law or which could reasonably be expected or
anticipated to cause damage to or forfeiture or seizure of the Aircraft.
2.6.4 Lessee shall not use, or permit the use of, the Aircraft for
testing or for training, qualifying or reconfirming the status of flight crew
members other than employees of Lessee, and then only if the use of the Aircraft
for such purpose is not disproportionate to the use for such purpose of other
Airframe Manufacturer Model 737-300 aircraft owned or operated by Lessee.
2.6.5 Notwithstanding anything herein to the contrary, Lessee shall
not install, and shall not permit the installation of, any Engine on any
airframe that is not an Airframe Manufacturer Model 737-300 airframe.
2.7 INSIGNIA.
Lessee shall affix and at all times maintain in respect of the Airframe
and each Engine and the APU a fireproof and legible identification plate of a
reasonable size, in the location specified below, that contains the following
legends or any other legend requested from time to time by Lessor in writing:
2.7.1 In the case of the Airframe, in the upper sill of the left-hand
forward entry door, adjacent to Airframe Manufacturer's plate, "THIS AIRCRAFT IS
OWNED BY BOULLIOUN AIRCRAFT HOLDING COMPANY, INC. AND IS HELD UNDER LEASE BY
FRONTIER AIRLINES, INC."
2.7.2 In the case of each Engine, in a clearly visible place in close
proximity to the manufacturer's plate, "THIS ENGINE IS OWNED BY BOULLIOUN
AIRCRAFT HOLDING COMPANY, INC. AND IS HELD UNDER LEASE BY FRONTIER AIRLINES,
INC."
2.7.3 In the case of the APU, in a clearly visible place in close
proximity to the manufacturer's plate, "THIS APU IS OWNED BY BOULLIOUN AIRCRAFT
HOLDING COMPANY, INC. AND IS HELD UNDER LEASE BY FRONTIER AIRLINES, INC.".
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2.8 COSTS OF MAINTENANCE, OPERATION, ETC.
2.8.1 IN GENERAL.
Lessee shall pay all costs incurred in the operation of the Aircraft
for profit or otherwise during the Lease Term, including the costs and expenses
of flight crews, cabin personnel, fuel, oil, lubricants, maintenance, insurance,
landing fees, navigation fees, airport charges, passenger service and any and
all other expenses or claims of any kind or nature, directly or indirectly
incurred or imposed in connection with or related to the acceptance, delivery,
nondelivery, lease, sublease, charter, subcharter, deregistration,
reregistration, possession, use, presence, existence, operation, condition,
storage, preparation, installation, testing, manufacture, design, modification,
alteration, maintenance, repair, re-lease, sale, return, transportation,
transfer, exportation, importation, abandonment or other disposition of the
Aircraft, the Airframe, any Engine or engine or Part or any other thing
delivered under the Lease Agreement during the Lease Term.
2.8.2 PAYMENT OF FLIGHT CHARGES.
Without limiting the effect of Section 6.2.3 of the Lease Agreement,
Lessee shall pay promptly upon the same becoming due and payable all Flight
Charges incurred by Lessee whether in respect of the Aircraft or any other
aircraft of Lessee, except to the extent being contested in good faith by
appropriate proceedings (and for the payment of which adequate reserves have
been provided) so long as such contest does not involve any material danger of
the sale, forfeiture or loss of the Airframe, any Engine or any Part or any
interest therein. Upon Lessor's written request, Lessee shall provide to Lessor
a list of the airports to which Lessee operates the Aircraft and, if also
reasonably so requested by Lessor, any other aircraft operated by Lessee. Upon
Lessor's written request, Lessee shall authorize Lessor (or its designee) to
confirm the status of Lessee's payment of Flight Charges at such airports or
with any other Government Entity specified by Lessor.
2.9 INSPECTION.
2.9.1 MAINTENANCE SCHEDULE.
During the Lease Term, Lessee shall furnish Lessor such information
concerning the location, condition, maintenance, use
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and operation of the Aircraft as Lessor may reasonably request. Lessee shall
provide Lessor with maintenance schedules relating to the Aircraft from time to
time as such schedules are adjusted or updated. Lessee shall give Lessor
reasonable prior notice of the date of, and any change in the date of, any Major
Checks, in order to enable Lessor, or its agents, representatives or designees,
to inspect the Aircraft at the time and place any such Major Checks occur.
2.9.2 REASONABLE INSPECTIONS.
At all reasonable times (including during Major Checks), Lessor's
personnel and/or its authorized representatives (including the personnel and/or
authorized representatives of a potential Follow-On Operator) may (at Lessor's
expense, or if such inspection is made in connection with or following a
Default, at Lessee's expense) inspect the Airframe and Engines and inspect and
make copies of the books and records of Lessee relating to the Airframe and
Engines and the maintenance of the Airframe and Engines (including any Aircraft
Documentation, the Approved Maintenance Program, and also including, for the
avoidance of doubt, any airworthiness directive and service bulletin compliance
records, component life status reports, and the then-current aircraft
configuration), and if such inspection is made at the time of any maintenance
operation, such Persons may inspect behind any panels, bays or other apertures
that have already been opened in the course of such maintenance operation,
provided that, so long as no Event of Default shall have occurred and be
continuing, no exercise of such inspection right shall unreasonably interfere
with the normal operation or maintenance of the Aircraft by Lessee and provided
that if during any Major Check Lessor detects or observes any corrosion or other
condition requiring repair under the Approved Maintenance Program, and such
corrosion or other condition is not limited to the then-open panels, bays or
other components of the Aircraft, Airframe or Engine, then Lessor shall be
entitled to require Lessee to open, or cause to be opened, such additional
panels as may be necessary to identify, correct, repair or defer such corrosion
or condition in accordance with the Approved Maintenance Program, the 737
Structural Repair Manual and the Corrosion Prevention Manual.
2.9.3 NO DUTY TO INSPECT.
Lessor shall not have a duty to make any such inspection nor shall it
incur any liability or obligation by reason of making or not making any such
inspection.
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SECTION 3. MAINTENANCE RESERVE PAYMENTS.
3.1 MAINTENANCE RESERVE AMOUNTS.
3.1.1 MAINTENANCE RESERVE AMOUNTS.
Lessee shall pay to Lessor on the tenth day of each calendar month,
commencing on the tenth day of the calendar month following the Delivery Date,
and ending on the tenth day of the calendar month following the last day of the
Lease Term, the amounts set forth below:
3.1.1.1 AIRFRAME RESERVE AMOUNT.
In respect of the Airframe, the Airframe Reserve Amount for each
Airframe Flight Hour that the Airframe is operated during the preceding calendar
month.
3.1.1.2 ENGINE RESERVE AMOUNT.
In respect of each Engine, the Engine Overhaul Reserve Amount for
each Engine Flight Hour that each Engine is operated during the preceding
calendar month.
3.1.1.3 ENGINE LIFE-LIMITED PARTS RESERVE AMOUNT.
In respect of life-limited Parts installed in each Engine, the
Engine Life Limited Part Reserve Amount for each Engine Flight Hour completed by
such Engine during the preceding calendar month.
3.1.1.4 LANDING GEAR RESERVE AMOUNT.
In respect of the Landing Gear, the Landing Gear Reserve Amount for
each Airframe Flight Hour that the Airframe is operated during the preceding
calendar month.
3.1.1.5 APU RESERVE AMOUNT.
In respect of the APU, the APU Reserve Amount for each Airframe Hour
that the Airframe is operated during the preceding calendar month, provided that
the APU Reserve Amount shall not accrue or be payable if Lessee enters into an
APU maintenance agreement acceptable to Lessor on or prior to June 30, 1997.
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3.1.2 ASSUMED HOUR-TO-CYCLE RATIO AMOUNT.
The Dollar amounts referred to in this Section 3.1 are based upon the
Assumed Hour-to-Cycle Ratio. If, from time to time during the Lease Term, the
actual ratio falls below or rises above this assumed level by more than 0.1
during any twelve month period, the relevant Dollar amounts shall be adjusted
upwards or downwards to reflect such actual ratio, the amount of such adjustment
to be determined by mutual agreement of Lessor and Lessee after prompt, good
faith negotiation.
3.1.3 RESERVE INFLATION FACTOR.
Each of the Dollar amounts set forth in this Section 3.1.1 (as may have
been previously adjusted pursuant to the preceding paragraph, and as adjusted
pursuant to this paragraph shall be adjusted on the anniversary of the Delivery
Date each year during the Lease Term by multiplying (1) such Dollar amount by
(2) the Reserve Inflation Factor.
3.2 REIMBURSEMENT.
3.2.1 AIRFRAME REIMBURSEMENT.
Lessor shall, subject to Section 3.4 of this Schedule 1 and if no
Default has occurred and is then continuing, reimburse Lessee from the Airframe
account for the actual costs incurred by Lessee in respect of labor and
materials consumed during the Airframe (excluding APU and Landing Gear) "7C/SI"
or equivalent) including the cost of defect rectification (but excluding
components, (unless they are scheduled to be overhauled at that check and their
lives are fully restored) and any maintenance resulting from design faults or
damage covered by warranty or caused by accidental damage, foreign objects,
faulty maintenance or operational mishandling).
3.2.2 ENGINE REIMBURSEMENT.
Lessor shall, subject to Section 3.4 of this Schedule 1 and if no
Default has occurred and is then continuing, reimburse Lessee for the cost of a
scheduled Basic Shop Visit pursuant to the Approved Maintenance Program, from
the appropriate Engine account and for such amounts as are equal to the costs
incurred by Lessee for such Basic Shop Visit, including replacement of life-
limited parts and components that are scheduled for overhaul or replacement at
that Basic Shop Visit and for the portion of
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unscheduled overhauls that replace work which would have been carried out at the
time of a scheduled removal or overhaul (but excluding any maintenance resulting
from design faults or damage covered by warranty or caused by accidental damage,
foreign objects, faulty maintenance or operational mishandling).
3.2.3 APU REIMBURSEMENT.
Lessor shall, subject to Section 3.4 of this Schedule 1 and if no
Default has occurred and is then continuing, reimburse Lessee from the APU
account, if any, the actual costs incurred by Lessee in respect of labor and
materials consumed during a scheduled Basic Shop Visit for the APU, including
the cost of defect rectification (but excluding any maintenance resulting from
design faults or damage covered by warranty or caused by accidental damage,
foreign objects, faulty maintenance or operational mishandling).
3.2.4 LANDING GEAR REIMBURSEMENT.
Lessor shall, subject to Section 3.4 of this Schedule 1 and if no
Default has occurred and is then continuing, reimburse Lessee from the Landing
Gear account the actual costs incurred by Lessee in respect of labor and
materials consumed during any scheduled Landing Gear Overhaul, including the
cost of defect rectification (but excluding any maintenance resulting from
design faults or damage covered by warranty or caused by accidental damage,
foreign objects, faulty maintenance or operational mishandling).
3.3 ACCOUNT BALANCES.
Lessor shall keep a notional running account in respect of the Airframe,
each Engine (with overhaul and life limited parts sub-accounts), the APU and the
Landing Gear to which shall be credited all amounts in respect thereof received
under Section 3.1 hereof and debited all sums paid in respect thereof by Lessor
to, or on behalf of, Lessee under Sections 3.2.
3.4 NO NEGATIVE BALANCES.
Lessor shall not be obliged to pay any sum under Sections 3.2 of this
Schedule 1 to the extent the amount requested would exceed the lesser of (1) the
balance in the relevant notional account at and as of the time the relevant
check, Basic Shop Visit or Landing Gear Overhaul was completed and (2) the
balance
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of such notional account at the time Lessor is required pursuant to this Section
3 to make a payment to Lessee in respect of such request. In any case in which
the amount paid to Lessee is not sufficient to pay the cost of such check, Basic
Shop Visit or Landing Gear Overhaul, to such extent Lessee shall be obligated to
meet such costs from its own resources. No shortfall may be carried forward or
made the subject of any further claim for reimbursement.
3.5 RIGHTS IN RESERVES.
For the avoidance of doubt, it is agreed and acknowledged that the
amounts in the accounts referred to in Section 3.3 of this Schedule 1 are the
sole and exclusive property of Lessor and Lessor shall be entitled to retain
absolutely any credit balance, including any interest thereon, on the accounts
referred to in Section 3.3 of this Schedule 1 remaining after any expiration or
termination of the Lease Term, except as set forth in Section 10.2 of the Lease
Agreement.
3.6 PAYMENTS.
Lessee shall promptly submit to Lessor detailed and substantiated labor
and material invoices for all maintenance for which reimbursement is sought
under this Section 3 and in any event, not later than the 30th day following
receipt by Lessee of such invoices from the Approved Maintenance Provider and
any parts supplier (or, if such maintenance is performed by Lessee, not later
than the 30th day following completion of such maintenance). Lessor shall pay
to Lessee all amounts reimbursable hereunder promptly upon its receipt of such
invoices. In the event that any payment otherwise due to Lessee is not paid to
Lessee as the result of any Default then continuing, Lessor shall pay such
amount to Lessee promptly upon Lessee's having cured such Default, but only if
no other Default shall be then continuing.
SECTION 4. RETURN OF THE AIRCRAFT.
4.1 DATE AND LOCATION OF RETURN.
Not later than the end of the Lease Term, subject only to Section 10.2 of
the Lease Agreement, Lessee, at its own risk, cost and expense, shall return the
Aircraft, including the Airframe, the Engines, all Parts thereof and the
Aircraft Documentation to Lessor at the Return Location in accordance with
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the provisions of the Lease Agreement, including this Schedule 1, and the other
Operative Documents.
4.2 CONDITION OF AIRCRAFT.
At Return, Lessee shall, at its sole risk, cost and expense, procure that
the Aircraft is free and clear of all Liens (other than Lessor Liens) and that
the Aircraft complies in all respects with the conditions and requirements set
forth in the Lease Agreement, including Annex 1 to this Schedule 1, and the
other Operative Documents.
4.3 FINAL INSPECTION.
4.3.1 No less than 120 days prior to commencement of the Return,
Lessee shall provide Lessor with written notice of the date of, and a reasonably
complete plan for the content of, the Final Maintenance and shall give Lessor
further written notice of the date of, and any changes to the plan for, the
Final Maintenance. During such Final Maintenance, the Aircraft, including the
Aircraft Documentation, shall be made available to Lessor and/or Lessor's
agents, representatives and designees (each, an "Inspecting Party") for ground
inspection by the Inspecting Parties at Lessee's facilities or such other
location as may be agreed by Lessor and Lessee. No less than 60 days prior to
the end of the Lease Term, Lessee shall make available to the Inspecting Parties
such documentation regarding the condition, use, maintenance, operation and
history of the Aircraft during the Lease Term as Lessor may reasonably request.
The Final Inspection shall include the procedures set forth in Annex 1 to this
Schedule 1. During the Final Inspection, Lessor's personnel shall have the
right to reasonably request that additional panels or areas be opened in order
to allow further inspection by any Inspecting Party. Lessee shall remove the
Aircraft from scheduled service and open the areas of the Aircraft as required
to perform the Final Maintenance and the other inspections and checks as
contemplated in this Section 4 and Annex 1 to this Schedule 1 and otherwise
permit Lessor to determine that the Aircraft, including the Aircraft
Documentation, is in the condition required under the Operative Documents.
4.3.2 Promptly after such inspections, except as otherwise agreed in
writing by Lessor and Lessee, any discrepancies from the Aircraft return
condition requirements set forth in this Section 4, and any discrepancies that
must be
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corrected in order to comply with the Approved Maintenance Program, which shall
include clearing of all deferred maintenance items, shall be corrected by Lessee
at its cost prior to the operational ground check described in Section 4.4 of
this Schedule 1.
4.4 OPERATIONAL GROUND CHECK.
4.4.1 Promptly after the correction of any discrepancies pursuant to
Section 4.3 of this Schedule 1, Lessee shall conduct an operational ground check
of the Aircraft in accordance with the procedures set forth in the Approved
Maintenance Program and Airframe Manufacturer's maintenance manual criteria for
the purpose of demonstrating to the reasonable satisfaction of Lessor the
operation of the systems, including, if required and at Lessee's cost, a full
fuel tank leak check, audible ignition check (both systems), pitot and static
systems check and hydraulic system internal leak check.
4.4.2 Promptly after the operational ground check, except as otherwise
agreed in writing by Lessor and Lessee, any discrepancies from the Aircraft
return condition requirements set forth in this Section 4, and any discrepancies
that must be corrected in order to comply with the Approved Maintenance Program
and Airframe Manufacturer's maintenance manual criteria, shall be corrected by
Lessee at its cost prior to the demonstration flight described in Section 4.5 of
this Schedule 1.
4.5 DEMONSTRATION FLIGHT.
4.5.1 Immediately following the operational ground check pursuant to
Section 4.4 of this Schedule 1, but prior to Lessor's technical acceptance of
the Aircraft, Lessee shall, using its own pilots, carry out for the Inspecting
Parties a demonstration flight in the Aircraft in accordance with such
procedures as may be mutually agreed between Lessor and Lessee, which shall be
no less stringent than the procedures used in Airframe Manufacturer's
predelivery flight test, to demonstrate the proper functioning of the Aircraft
systems and components within limits and/or guidelines established by the
relevant manufacturers and the Aviation Authority. Such flight shall continue
for the duration necessary to perform such check flight procedures, but for a
period not exceeding two hours of flying time.
4.5.2 Except as otherwise agreed in writing by the
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Lessor or Lessee, promptly following such demonstration flight, any deficiencies
from the Aircraft return condition requirements set forth in this Section 4, and
any discrepancies that must be corrected in order to comply with the Approved
Maintenance Program and Airframe Manufacturer's maintenance manual and to
achieve the proper functioning of the Aircraft systems and components, shall be
corrected by Lessee at its cost prior to Return.
4.6 TECHNICAL ACCEPTANCE.
Upon completion of the Final Inspection and, unless otherwise agreed in
writing by Lessor and Lessee, correction of any discrepancies or deficiencies
required to be corrected by Lessee prior to Return, Lessor shall execute and
deliver to Lessee, a Return Acceptance Certificate which shall, for all purposes
hereof, constitute complete, irrevocable and absolute evidence of Lessor's
acceptance of the Aircraft, except as validly noted in the Return Acceptance
Certificate. Notwithstanding such technical acceptance, Lessee shall remain
liable for the performance of all of its payments and other obligations
hereunder.
4.7 FAILURE TO RETURN AIRCRAFT.
If Lessee shall, for any reason whatsoever, fail to return the Aircraft
at the time or in the condition specified herein or return of the Aircraft is
not accepted by Lessor (in its sole discretion) because of Lessee's failure to
meet the requirements of this Section 4, the obligations of Lessee provided in
the Lease Agreement and each other Operative Document to which Lessee is a party
(including the obligation to pay Rent) shall continue in effect with respect to
the Aircraft, and the Lease Term shall, unless earlier terminated in accordance
with the Lease Agreement, be deemed to be extended until Return of the Aircraft
to Lessor, provided that this Section 4.7 shall not be construed as permitting
or authorizing Lessee to fail to meet, or consenting to or waiving any failure
by Lessee to perform, Lessee's obligation to return the Aircraft in accordance
with the requirements of the Lease Agreement.
4.8 TRANSITION.
Lessor intends to lease or sell the Aircraft to another Person at the end
of the Lease Term and in order to facilitate such lease or sale of the Aircraft,
Lessee agrees to cooperate
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with Lessor and to otherwise assist Lessor by, upon Lessor's request:
4.8.1 Allowing inspections of the Aircraft by the Follow-On Operator
(without interrupting any scheduled flight or the Final Maintenance) and,
specifically, inspections necessary to determine compliance with the return
requirements set forth in this Section 4.
4.8.2 Scheduling the Return of the Aircraft and the Final Inspection
in a manner that will allow for a simultaneous delivery of the Aircraft to the
Follow-On Operator.
4.8.3 Providing Aircraft Documentation and the Aircraft Maintenance
Program (including work cards) so that the Follow-On Operator can effect the
transition of the Aircraft from the Approved Maintenance Program to the
maintenance program of the Follow-On Operator.
4.8.4 Performing maintenance or modifications to the Aircraft as
reasonably requested by Lessor (subject to agreeing compensation and scheduling
with Lessee).
4.9 INDEMNITY.
Lessor hereby assumes liability for and shall fully indemnify and hold
harmless Lessee and its Affiliates on demand and shall keep Lessee and its
Affiliates fully indemnified at all times and on an after-tax basis from and
against all Expenses arising directly or indirectly from any injuries to or
deaths of Lessor's representatives or loss of or damage to property of Lessor or
its representatives or designees during the inspections described in this
Section 4. Lessor shall obtain from any Follow-On Operator or any other
Inspecting Party for the benefit of Lessee a similar undertaking prior to
participation by such Follow-On Operator in any such inspections.
4.10 STORAGE UPON RETURN.
Upon written request of Lessor received at least 15 days prior to the end
of the Lease Term, or upon demand of Lessor pursuant to Section 13.1 of the
Lease Agreement, Lessee shall extend the Lease Term for a period of up to 60
days and, during such period, continue to maintain and insure the Aircraft,
maintain the registration of the Aircraft and otherwise comply with Lessee's
obligations hereunder, provided that no Basic Rent
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shall be payable with respect to such period and Lessee shall not operate the
Aircraft during such period. Upon five days' written notice given during such
period, Lessee shall return the Aircraft pursuant hereto. Lessor and Lessee
shall agree an appropriate fee to be paid to Lessee for such extension, such fee
to be a reasonable estimate of Lessee's incremental cost in continuing to lease
the Aircraft during such period.
4.11 DEFERRED DISCREPANCY CORRECTION.
Lessor may, at its sole option, accept delivery of the Aircraft and any
discrepancies found during the ground inspection, operational ground check and
operational test flight set forth in this Section 4 that were not corrected by
Lessee prior to return of the Aircraft to Lessor may be corrected by Lessor or
its designee after return of the Aircraft, at Lessee's cost and expense,
provided that this Section 4.11 shall not be construed as permitting or
authorizing Lessee to fail to meet, or consenting to or waiving any failure by
Lessee to perform, Lessee's obligation to return the Aircraft in accordance with
the requirements of the Lease Agreement. Lessor shall consult with Lessee
regarding the identity of its designee for accomplishing such discrepancy
corrections. Lessee shall reimburse Lessor for the expenses incurred by Lessor
in accomplishing such discrepancy corrections within 30 days of the date of
Lessor's invoice therefor.
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Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28760)
ANNEX 1 TO
SCHEDULE 1
RETURN CONDITIONS
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28760), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc.
and Frontier Airlines, Inc., to which this document is an annex to a schedule.
SECTION 1. CONDITION OF AIRFRAME AND ENGINES.
On the last day of the Lease Term, the Aircraft shall conform to Boeing
Detail Specification D6-38604-26-V-II, except as changed as required or
permitted pursuant to the Lease Agreement or any other Operative Document, and
shall:
1.1 GENERAL REQUIREMENTS.
Have been operated, maintained and repaired in accordance with the Lease
Agreement, have all of its components and systems functioning in accordance with
relevant manufacturer's specifications and comply with the requirements of
Attachment 1 to this Annex 1.
1.2 CONDITION PERMITTING COMMERCIAL OPERATION.
Be in a condition permitting immediate commercial passenger and cargo
revenue service by Lessee under the applicable operating regulations of the
Aviation Authority.
1.3 EXPORT MATTERS.
(1) Have, and be in compliance with, at Lessor's option, (a) a valid
export certificate of airworthiness (or its equivalent) or (b) a valid
certificate of airworthiness (or its equivalent), in either case, issued by the
Aviation Authority and (2) have and be in compliance with all necessary export
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certificate and other documents allowing for immediate export of the Aircraft
from the Lessee Jurisdiction.
1.4 FINAL AIRFRAME CHECK.
With respect to the Airframe, have accomplished immediately after removal
from service and immediately prior to delivery to Lessor the completion of the
next numbered "C" check in accordance with Airframe Manufacturer's Maintenance
Planning Document in respect of the Aircraft under the Approved Maintenance
Program (which check shall incorporate all lower-level checks and any special
repair items or special inspections (including CPCP items) as well as
inspections that have a frequency less than such "C" check) and the Airframe
shall not have been operated more than 30 months since the last "7C/SI" check or
its equivalent (including CPCP items) (with the effect that no Major Check for
the Airframe shall be required under the Approved Maintenance Program for either
18 months or 3,600 Airframe Flight Hours) and the Airframe shall have no less
than 12,000 Airframe Flight Hours until the next heavy structural inspection.
For the avoidance of doubt, Lessee is required to perform a "7C/SI" ("D" check)
check during the Lease Term. The final "C" check shall include removal and
overhaul of all seats, replacement of damaged, discolored or severely worn seat
suits and cushions and other work to insure that such seats are in good
operating condition. If reasonably requested by Lessor, the Aircraft carpeting
shall be replaced at the Final Maintenance. If not accomplished at the
preceding "7C/SI" check, the forward and aft galley and lavatories shall, at the
Final Maintenance, be removed and a full corrosion inspection shall be
accomplished of the floor beams, and the other structure in these and the door
areas of the Aircraft. The structure of the door surround and floor area of the
entry and to the centerline of the Aircraft in each cargo hold shall be removed
for inspection of the structure.
1.5 ADS, SERVICE BULLETINS, ETC.
(1) Be in compliance on a terminating basis with all Required
Modifications where (a) in the case of ADs and other Aviation Authority-required
Modifications, the mandatory compliance date for which action on such basis
falls during the Lease Term or 12 months after the Return and (b) in the case of
alert SBs, the issuance date thereof is during the Lease Term, and (2) have no
required inspection under any such outstanding
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AD, alert SB or instruction due within either (a) as applicable, 3,000 hours,
2,000 cycles or 12 months or (b) a full inspection period whichever is less,
provided that, in the case of both clauses (1) and (2), in the event that Lessee
has obtained a waiver or deviation from the Aviation Authority, Airframe
Manufacturer or from any such manufacturer from having to comply with any such
Required Modification or inspection, Lessee shall, irrespective of such waiver
or deviation, comply with all such Required Modifications and inspections prior
to the Return. In the case of each such Required Modification, Lessor shall
reimburse Lessee for the cost of such modification pursuant to Section 2.2.1 of
Schedule 1 to the Lease Agreement as if such modification fell within the scope
of such section, provided further that if Lessor shall be so required to
reimburse Lessee, Lessee shall, prior to performing such modification, provide
Lessor with at least 20 Business Days written notice of Lessee's intent to
perform such modification together with a detailed cost estimate, and Lessor
may, within such 20 Business Day period, elect to have Lessee not perform such
modification.
1.6 ENGINE CONDITION.
Have neither Engine on watch for any reason whatsoever and all performance
and operating parameters of each Engine including EGT margin and oil
consumption, shall be sufficiently within the limits specified by the Engine
Manufacturer so a to ensure that each Engine is fully capable of uninterrupted
on-wing operation for a period of at least one year, 4,000 Engine Flight Hours
and 3,000 Engine Cycles, until removal is requested for performance restoration,
maintenance, inspection, repair or for any other reason which would cause the
Engine to be removed. If Lessor and Lessee are unable to mutually agree the
parameters or whether one year of operation remains, Lessor and Lessee shall
consult a qualified CFMI engineer and agree to be bound by the determination of
such engineer (the cost of such engineer to be shared equally by Lessor and
Lessee).
1.6.1 ENGINE BORESCOPE.
Each Engine shall have had a complete (100% of all stages) video
borescope inspection performed by Lessee during Final Inspection, and in the
presence of the Inspecting Parties, and satisfactory evidence shall be provided
to Lessor reflecting the correction of any discrepancies from manufacturer or
regulatory limitations, recommendations and/or tolerances found
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during such inspection.
1.6.2 FULL-RATED PERFORMANCE.
The Aircraft shall be capable of certificated, full-rated performance
without limitations throughout the operating envelope as defined in the airplane
flight manual; performance compliance will be demonstrated by one or two of the
following, at Lessor's option: (1) at the time of the acceptance flight test,
(2) by on-wing static inspection and testing of the powerplants in accordance
with the engine maintenance manual, (3) by test cell data (in the event an
Engine is just out of test cell) or (4) by a power assurance check in accordance
with the Approved Maintenance Program and Engine Manufacturer's recommendations.
1.7 APU CONDITION.
With respect to the APU, have no more than 3,000 APU hours since last
removal and the most recent Basic Shop Visit, and shall have a video borescope
inspection performed by Lessee during Final Inspection, and in the presence of
the Inspecting Parties, and satisfactory evidence shall be provided to Lessor
reflecting the correction of any discrepancies from manufacturer or regulatory
limitations, recommendations and/or tolerances found during such inspection.
1.8 LANDING GEAR CONDITION.
With respect to each Landing Gear, have at least 10,000 Airframe Cycles
remaining until the next Landing Gear Overhaul.
1.9 LIFE LIMITED PARTS.
With respect to (1) all Airframe life and calendar controlled components,
have a minimum of one year, and 3,000 Airframe Flight Hours and 2,000 Airframe
Cycles remaining to next scheduled removal or inspection (in accordance with the
Approved Maintenance Program), but (a) if a component has a life, overhaul or
check interval limit that is less than the above-stated hours, cycles or
calendar time requirement (in accordance with the Approved Maintenance Program),
then such component shall have a full check interval remaining and (b) "on-
condition" and "condition-monitored" components shall be serviceable and shall
have no indication of incipient faults and (2) no Engine life-
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limited parts shall have less than 2,000 Engine Cycles remaining until the next
scheduled removal or replacement.
1.10 TIRES AND BRAKES.
Have full treads on each of the tires (with not more than three re-caps)
and have remaining not less than 50 percent service wear life on each brake.
1.11 PAINT.
Have all Lessee's markings and logos removed and be properly stripped and
painted all white, and after such painting Lessee shall balance the rudder in
accordance with Airframe Manufacturer procedures.
1.12 SERVICE BULLETIN KITS.
Have all service bulletins for which kits have been received or
manufactured by Lessee for the Aircraft, in each case, at least 120 days prior
to the Return installed on the Aircraft prior to Return (with all other such
kits received or manufactured by Lessee after such time to be shipped by
commercial carrier to a location specified by Lessor).
1.13 FUEL AND OIL.
With each fuel tank and oil tank containing the same quantity of fuel or
oil as was contained in such fuel and oil tanks when the Airframe was delivered
to Lessee or, in the case of differences in any such quantities, an appropriate
adjustment will be made by payment to Lessor or Lessee, as appropriate, at the
then-current market price at the Return Location of fuel or oil, as the case may
be.
1.14 LESSEE CERTIFICATE.
Be accompanied by a certificate from a senior technical officer of Lessee
stating and certifying that:
1.14.1 The Aircraft has not been involved in any accidents (other than
those disclosed on an annex to such certificate) during the Lease Term.
1.14.2 All Aircraft Documentation for the Aircraft has
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been delivered with the Aircraft.
1.14.3 The Aircraft is free of corrosion to the extent required by the
Approved Maintenance Program.
1.14.4 The Engines and APU have been completely borescoped and that
either no defects exceeding the relevant manufacturer's tolerances were found or
such defects have been repaired.
1.14.5 All Required Modifications which are required by the Lease
Agreement and the other Operative Documents to be incorporated in the Aircraft
prior to the last day of the Lease Term have been so incorporated on the date
and in the manner of described in such certificate.
1.14.6 The completeness and accuracy of the list of engineering orders
attached to such certificate reflecting any Modification to the Aircraft.
1.14.7 The completeness and accuracy of the record of status of life-
limited Parts in each Engine and, if any such Part is a replacement for a
previous Part and is not a new Part, the full back-to-birth history of such
replacement Part (to the extent required by the Lease Agreement).
SECTION 2. AIRCRAFT DOCUMENTATION.
At Return, Lessee shall deliver to Lessor at the Return Location the Aircraft
Documentation. All Aircraft Documentation provided to Lessor at time of
redelivery of the Aircraft shall be listed and included as an attachment to the
Return Acceptance Certificate. Lessee shall ensure that all Aircraft
Documentation provided to Lessor shall be in good condition, readable and
capable of being reproduced using standard reproduction processes and otherwise
shall have been maintained in accordance with the Lease Agreement and the other
Operative Documents. All Aircraft Documentation shall be in printed form
(except only those documents which Lessee has received only in non-printed
form).
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Attachment 1 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28760)
GENERAL CONDITION RETURN REQUIREMENTS
General
- -------
1. The Aircraft shall (a) be clean and in good operational and physical
condition by good international standards for commercial passenger service
commensurate with a deep cleaning of the Aircraft, (b) be free of temporary
repairs, (c) have no excessive, multiple or overlaid External Repairs, (d) have
no repairs not in accordance with Airframe Manufacturer structural repair manual
or approved by Airframe Manufacturer, (e) be free of damage and loose, missing
or pulled fasteners, (f) be free of scratches, buckles and damage exceeding
manufacturer tolerances and (g) have no deferred or hold over maintenance.
2. The Aircraft shall be free of fuel leaks, and the fuel, hydraulic and oil
systems of the Aircraft, including the Engines, shall have been tested and free
of any contaminants and Lessee shall provide to Lessor the results of laboratory
tests of all such systems.
Fuselage, Windows and Doors
- ---------------------------
3. Windows shall be free of delamination, blemishes, crazing, and shall be
properly sealed and free of any air leaks.
4. Doors shall be free moving, correctly rigged and be fitted with serviceable
seals, and free of any air noise or leaks.
Wings and Empennage
- -------------------
5. All leading edges shall be free from significant damage.
6. All control surfaces shall be waxed and polished.
7. All unpainted cowlings and fairings shall be polished.
8. Wings shall be free of fuel leaks.
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9. With respect to the wings and horizontal stabilizer and all control
surfaces, be clean, in good condition, free of dents, cracks, abrasions, stain
and discoloration outside of manufacturer tolerances.
Interior
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10. Ceilings, sidewalls and bulkhead panels shall be clean and free of cracks
and stains.
11. All carpets and seat covers shall be in good condition, clean and stain
free and meet applicable fire resistance regulations as required for continued
commercial operation by Lessee.
12. All seats shall be serviceable, in good condition and repainted as
necessary.
13. All signs and decals shall be clean and legible.
14. All emergency equipment having a calendar life shall have a minimum
remaining life of one year or one hundred percent (100%) of its total approved
life, whichever is less.
15. All passenger communication systems and entertainment systems shall be
functional and in good condition.
Galleys and Galley Equipment
- ----------------------------
16. All galley areas shall be clean, free from food contamination and free of
cracks and corrosion, and meet safety and health standards.
17. All galley areas and equipment shall be in good condition, clean, sealed,
stain free and meet safety and health standards.
18. All galley structure, galley inserts and galley carts installed on the
Delivery Date shall be clean, free of defects and serviceable.
Flight Deck
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19. Flight deck shall be clean, free of stains and cracks, and all features
shall be functional.
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20. All decals shall be clean, secure and legible.
21. All fairing panels shall be free of stains and cracks, shall be clean,
secure and repainted, as necessary.
22. Floor coverings shall be clean and effectively sealed.
23. Seat covers shall be in good condition, clean and shall conform to
applicable fire resistance regulations.
24. Seats shall be fully serviceable and shall be repainted, as necessary.
Cargo Compartments
- ------------------
25. All panels shall be in good condition, properly installed, free of cracks
and stains and properly sealed.
26. All nets shall be in good condition.
27. All decals and required notices shall be installed.
28. All doors shall be in good repair, properly functional, sealed and properly
rigged.
Landing Gear and Wheel Wells
- ----------------------------
29. Landing gear and doors shall be clean, free of leaks and damage, properly
rigged and repaired, as necessary.
30. Wheel wells should be clean, free of leaks and damage, and properly treated
for corrosion prevention.
31. All decals shall be clean, secure and legible.
32. Wheels shall be clean and free of corrosion.
Corrosion
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33. The entire fuselage shall be substantially free from corrosion and shall be
adequately treated and an approved corrosion prevention program shall be in
operation.
34. After stripping and prior to painting as required in Annex 1 to Schedule 1
to the Lease Agreement, the exterior of the
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Aircraft shall be inspected and any corrosion, structure damage, or other
defects shall be corrected in accordance with the corrosion treatment and
correction criteria set forth in the 737 Structural Repair Manual and the
Corrosion Prevention Manual and as recommended by Airframe Manufacturer.
35. Fuel tanks shall be free from contamination and corrosion and a tank
treatment program shall be in operation.
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Attachment 2 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28760)
AIRCRAFT AND AIRCRAFT DOCUMENTATION
RETURN ACCEPTANCE CERTIFICATE
Lessor hereby accepts and acknowledges receipt from Lessee, in accordance with
the terms and conditions of the Lease Agreement (MSN 28760), dated as of
December 12, 1996 (the "Lease Agreement"), between Lessor and Lessee, of:
Aircraft: [______]
Airframe Manufacturer's Serial Number: 28760
APU Serial Number: [______]
with two installed CFM56-3C-1 engines, Engine Manufacturer's Serial Numbers:
Position (1) [_________]
Position (2) [_________]
together with the aircraft documentation described in Supplement 1 hereto and
with the operating times and cycles as accumulated on the Aircraft up to the
time of redelivery as described in Supplement 2 hereto, and the loose equipment
described in Supplement 3 hereto, in [return location] on [date], at
________/a.m.//p.m./
- --------
Lessor and Lessee have each caused this receipt to be duly executed on the above
date.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
Frontier Lease Agreement (MSN 28760)
Annex 1 to Schedule 1
Execution Copy -11-
<PAGE>
FRONTIER AIRLINES, INC.
By:
Title:
Frontier Lease Agreement (MSN 28760)
Annex 1 to Schedule 1
Execution Copy -12-
<PAGE>
Supplement 1 to
Attachment 2 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28760)
AIRCRAFT DOCUMENTATION
Identification
Title/Description Number Quantity
Frontier Lease Agreement (MSN 28760)
Annex 1 to Schedule 1
Execution Copy -13-
<PAGE>
Supplement 2 to
Attachment 2 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28760)
AIRCRAFT STATUS AS OF ________, 19____
AIRFRAME __________
Serial Number: . . . . .
Registration Number: . . . . .
Airframe Flight Hours Since New: . . . . .
Airframe Cycles Since New: . . . . .
Last C-Check Performed: . . . . .
Flight Hours at Last C-Check: . . . . .
Cycles at Last C-Check: . . . . .
Last D-Check Performed: . . . . .
Flight Hours at Last D-Check: . . . . .
Cycles at Last D-Check: . . . . .
Fuel Aboard: . . . . .
Oil Aboard: . . . . .
ENGINES POSITION 1 POSITION 2
Serial Number of Original Engine*: . . . . . . . .
Flight Hours Since New: . . . . . . . .
Cycles Since New: . . . . . . . .
Last Basic Shop Visit Performed (type): . . . . . . . .
Flight Hours at Last Basic Shop Visit: . . . . . . . .
Cycles at Last Basic Shop Visit: . . . . . . . .
*or Replacement Engine, if applicable
AUXILIARY POWER UNIT
Serial Number . .
APU Hours Since New: . .
APU Cycles Since New: . .
Last Maintenance Visit (type): . .
APU Hours at Last Basic Shop Visit: . .
APU Cycles at Last Basic Shop Visit: . .
Frontier Lease Agreement (MSN 28760)
Annex 1 to Schedule 1
Execution Copy -14-
<PAGE>
LANDING GEAR NOSE LMG RMG
Serial Number: . . . . . . .
Flight Hours Since New: . . . . . . .
Cycles Since New: . . . . . . .
Flight Hours Since OH: . . . . . . .
Cycles Since OH: . . . . . . .
Cycles Last Shop Visit: . . . . . . .
TIRES AND BRAKES
% Wear Life Remaining
---------------------
<TABLE>
<CAPTION>
Nose Tires Brakes
- ---- ----- ------
<S> <C> <C>
Left . . . .
Right . . . .
RH Main:
- -------
Left . . . . . . . .
Right . . . . . . . .
LH Main:
- -------
Left . . . . . . . .
Right . . . . . . . .
</TABLE>
Frontier Lease Agreement (MSN 28760)
Annex 1 to Schedule 1
Execution Copy -15-
<PAGE>
Supplement 3 to
Attachment 2 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28760)
LOOSE EQUIPMENT
Frontier Lease Agreement (MSN 28760)
Annex 1 to Schedule 1
Execution Copy -16-
<PAGE>
Schedule 2
Certain Transaction
Specific Defined Terms
Lease Agreement
(MSN 28760)
SCHEDULE 2
CERTAIN TRANSACTION SPECIFIC DEFINED TERMS
(MSN 28760)
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28760), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc.
and Frontier Airlines, Inc., to which this document is a schedule.
SECTION 1. GENERAL DEFINITIONS.
The following terms shall have the following meanings for all purposes of
this Schedule 2:
"Airframe Manufacturer" shall mean The Boeing Company.
"Airframe Manufacturer Purchase Agreement" shall mean Purchase Agreement No.
1922, dated as of May 1, 1996, between Airframe Manufacturer and Boullioun
Aviation Services, Inc., as from time to time amended and supplemented.
"Airframe Reserve Amount" shall mean * .
"APU Reserve Amount" shall mean * .
"Assumed Hour-to-Cycle Ratio" shall mean 1.5:1
"Aviation Authority" shall mean the United States Federal Aviation
Administration and any person, governmental department, bureau, commission or
agency succeeding to all or any of its functions.
"Basic Lease Term Termination Date" shall mean the seventh anniversary of the
Delivery Date.
"Business Day" shall mean a day (other than a Saturday or Sunday) on which
banks are not required or authorized to close in
Frontier Lease Agreement (MSN 28760)
Schedule 2
Execution Copy -1-
<PAGE>
Denver or Seattle or one other jurisdiction, if any, designated to Lessee by
Lessor in writing from time to time.
"Commitment Termination Date" shall mean January 31, 1999.
"Damage Notice Threshold" shall mean US$200,000.
"Delivery Location" shall mean a Boeing facility in the State of Washington
or such other location, if any, as Lessor and Lessee shall agree in writing.
"Engine Life Limited Part Reserve Amount" shall mean * .
"Engine Manufacturer" shall mean CFM International, Inc.
"Engine Overhaul Reserve Amount" shall mean * .
"Insurance Brokers" shall mean Aon Risk Services, Inc. or any other
independent firm of internationally recognized insurance brokers reasonably
acceptable to Lessor.
"Landing Gear Reserve Amount" shall mean * .
"Lessee Jurisdiction" shall mean the United States.
"Past Due Rate" shall mean a rate equal to a fluctuating rate per annum equal
to 300 basis points above the Dollar prime rate in effect from time to time at
the main office of Seattle First National Bank in Seattle, Washington, but, in
any case, at least 9%, provided that such rate as determined from time to time
shall not in any event be higher than the highest rate per annum permitted from
time to time under any applicable Law.
"Permitted Jurisdiction" shall mean any country listed in Annex 1 to this
Schedule 2.
"Renewal Lease Term Termination Date" shall mean * .
"Reserve Inflation Factor" shall mean 1.05%.
"Return Location" shall mean an airport located in the United States
designated by Lessor in writing at least 30 days prior to the last day of the
Lease Term.
"Scheduled Delivery Date" shall mean a date notified by Airframe Manufacturer
as the delivery date for the Aircraft
Frontier Lease Agreement (MSN 28760)
Schedule 2
Execution Copy -2-
<PAGE>
(local time at the Delivery Location), which delivery date is scheduled, as of
the date hereof, to occur in January 1998.
"State of Registration" shall mean the United States.
"Stipulated Loss Value" shall mean * .
"Stipulated Deductible Amount" shall mean * .
"Stipulated Liability Coverage" shall mean * .
SECTION 2. BASIC RENT AND RENEWAL RENT.
2.1 RENT AMOUNT.
The amount referred to in Section 3.3 of the Lease Agreement is * ,
provided that during each of the first year and, if any, second year of any
Renewal Lease Term, the amount for such year referred to in Section 3.3 of the
Lease Agreement shall be the higher of * .
2.2 FAIR MARKET RENTAL.
For purposes of this Section 2, "Fair Market Rental" shall mean the fixed
monthly cash rental reasonably achievable by Lessor in the worldwide operating
lease market (1) the date (the "Renewal Rent Determination Date") 13 months
prior to any one year renewal period, (2) for the Aircraft, (3) from a lessee in
a similar financial condition to Lessee's then current financial condition, (4)
for such one year renewal period and (5) in an arms-length transaction between
an informed lessee under no compulsion to lease and an informed lessor under no
compulsion to lease, and shall be determined assuming that the Aircraft has been
maintained in compliance with the requirements of the Lease Agreement and the
other Operative Documents and complies with all Return requirements of the Lease
Agreement, including the requirements of Annex 1 to Schedule 1 to the Lease
Agreement.
2.3 RENEWAL RENT DETERMINATION.
Upon written request from Lessee at least 30 days prior to the Renewal
Rent Determination Date (a "Rent Determination Request"), Lessor and Lessee
shall in good faith and acting reasonably determine the Fair Market Rental. If
15 days prior to the Renewal Rent Determination Date, Lessor and Lessee cannot
determine the Fair Market Rental, then the Fair Market Rental
Frontier Lease Agreement (MSN 28760)
Schedule 2
Execution Copy -3-
<PAGE>
shall be determined by two recognized independent aircraft appraisers, one of
which shall be selected by Lessee (at its expense) and one of which shall be
selected by the Lessor (at its expense), or if such appraisers cannot agree, by
a third independent appraiser chosen by the mutual assent of the first two
appraisers (with the cost of such third appraiser to be shared equally by Lessor
and Lessee). If either party shall fail to appoint an appraiser at least 11 days
prior to the Renewal Rent Determination Date, or if such two appraisers cannot
agree on the amount of the Fair Market Rental and fail to appoint a third
appraiser at least eight days prior to the Renewal Rent Determination Date, then
Lessor and Lessee shall jointly request the American Association of Equipment
Lessors (or any successor organization) to appoint the relevant appraiser.
SECTION 3. AMOUNT OF SECURITY DEPOSIT.
Lessor acknowledges that it has received * from Lessee in accordance with
that certain letter agreement, dated August 15, 1996, between its affiliate and
Lessee. Lessee shall pay to Lessor, by wire transfer of immediately available
Dollars to the account of Lessor specified in Schedule 4 to the Lease Agreement:
3.1 Within five days after the date of the execution and delivery of this
Agreement by both Lessor and Lessor, the additional amount of * .
3.2 Unless Lessee shall have exercised its option to provide Lessor a
Letter of Credit pursuant to Section 3.5.3 of the Lease Agreement, at least five
days prior to the Scheduled Delivery Date, the additional amount of * .
3.3 Unless Lessee shall have exercised its option to provide Lessor a
Letter of Credit pursuant to Section 3.5.3 of the Lease Agreement, on each of
the second, third and fourth Basic Rent Payment Dates, the additional amount of
* .
All such amounts, as held by Lessor from time to time, are referred to in the
Lease Agreement and the other Operative Documents as the "Security Deposit."
SECTION 4. TERMINATION OF LEASE PRIOR TO DELIVERY.
4.1 TERMINATION TRIGGERS.
If any one or more of the following is true, then Lessor
Frontier Lease Agreement (MSN 28760)
Schedule 2
Execution Copy -4-
<PAGE>
may, at its sole option, terminate the Lease Agreement and the other Operative
Documents by notice to Lessee:
4.1.1 A Default shall have occurred at any time (even if not then
continuing).
4.1.2 Lessee shall not have an unrestricted cash
balance as of December 31, 1996 of at least * .
4.1.3 Lessee shall not have an unrestricted cash balance as of March
31, 1997 of at least * .
4.1.4 Lessee shall not have a tangible net worth as of December 31,
1996 in excess of * .
4.1.5 Lessee shall not have a tangible net worth as of March 31, 1997
in excess of * .
4.1.6 Lessee shall not have had, for the 12-month period ending
December 31, 1996, total revenues in excess of * .
4.1.7 Lessee shall not have had, for the 3-month period ending March
31, 1997, net income in excess of * .
The accounting terms used in this Section 4.1 shall be interpreted with
reference to generally accepted accounting principles, as set forth in the
statements of financial accounting standards issued by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants, and
as applied on a basis consistent with prior periods.
4.2 EFFECT OF TERMINATION.
If Lessor does so terminate the Lease Agreement and the other Operative
Documents, neither Lessor nor Lessee shall have any further rights or
obligations thereunder and Lessor shall return all but * of the Security
Deposit then held by Lessor (and Lessor shall retain such * for its own
benefit and without any claim thereon by Lessee).
4.3 COOPERATION.
Lessee shall cooperate with Lessor, and will provide to Lessor such
information (including unaudited financial statements and/or confirmation of
cash balances) as may be requested by Lessor, to allow Lessor to determine as
soon as practicable
Frontier Lease Agreement (MSN 28760)
Schedule 2
Execution Copy -5-
<PAGE>
whether any of the circumstances set forth in Section 4.1 of this Schedule 2 has
occurred. Lessee acknowledges and agrees that Lessor may make such determination
on the basis of the information available to it from time to time and, for the
avoidance of doubt, that it will not be necessary for Lessor to base any such
determination on audited financial statements.
Frontier Lease Agreement (MSN 28760)
Schedule 2
Execution Copy -6-
<PAGE>
Annex 1 to
Schedule 2
Permitted
Jurisdictions
Lease Agreement
(MSN 28760)
ANNEX 1 TO SCHEDULE 2
PERMITTED JURISDICTIONS
United States
Canada
Mexico
Frontier Lease Agreement (MSN 28760)
Schedule 2
Execution Copy -7-
<PAGE>
Schedule 3
Delivery Conditions
Lease Agreement
(MSN 28760)
SCHEDULE 3
DELIVERY CONDITIONS
(MSN 28760)
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28760), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc.
and Frontier Airlines, Inc., to which this document is a schedule.
On the Delivery Date, the Aircraft shall comply with Boeing Detail Specification
D6-38604-26-V-II, except that the Aircraft shall (1) have an additional galley
installed in the G2 position, (2) be configured in a 136 or 138 all coach
configuration at a minimum 31 inch pitch and (3) include operational provisions
for engine operation at 20,000 or 22,000 pounds thrust with -B1 or -B2 intermix
authority.
Frontier Lease Agreement (MSN 28760)
Schedule 3
Execution Copy -1-
<PAGE>
Schedule 4
Notice and Account
Information
Lease Agreement
(MSN 28760)
SCHEDULE 4
NOTICE AND ACCOUNT INFORMATION
(MSN 28760)
LESSOR ADDRESS:
Boullioun Aircraft Holding Company, Inc.
500 - 108th Avenue N.E., 25th Floor
Bellevue, Washington 98004
Attention: Secretary
Facsimile: 206-450-1581
Telephone: 206-454-3106
LESSOR ACCOUNT:
Bank: Seattle First National Bank
701 Fifth Avenue
Seattle, Washington 98104
ABA Number: 125000024
Account Name: Boullioun Aircraft Holding Company, Inc.
Account Number: 63506513
Contact: Karol Bankston or Betty Batayola
Telephone: (206) 358-2919
Facsimile: (206) 358-7134
Reference: Frontier Airlines
LESSEE ADDRESS:
Frontier Airlines, Inc.
12039 E. 46th Avenue, Suite 200
Denver, Colorado 80239
Attention: Arthur T. Voss
Facsimile: 303-371-7007
Telephone: 303-371-7400
Frontier Lease Agreement (MSN 28760)
Schedule 4
Execution Copy -1-
<PAGE>
LESSEE ACCOUNT:
Bank: Colorado National Bank
8401 E. Belleview
Denver, Colorado 80237
ABA Number: 102000021
Account Name: Frontier Airlines, Inc.
Account Number: 194310671392
Contact: James K. Edwards
Telephone: 303-773-0715
Facsimile: 303-290-8671
Frontier Lease Agreement (MSN 28760)
Schedule 4
Execution Copy -2-
<PAGE>
Schedule 5
Tax Matters
Lease Agreement
(MSN 28760)
SCHEDULE 5
TAX MATTERS
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28760), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc.
and Frontier Airlines, Inc., to which this document is a schedule.
SECTION 1. LESSEE LIABILITY.
Lessee shall pay or cause to be paid, and on written demand shall indemnify
and hold harmless each Tax Indemnitee from and against, any and all Taxes
howsoever imposed or levied on or asserted against, from time to time, any Tax
Indemnitee, Lessee, the Aircraft, Airframe or any Engine or any Parts or any
interest therein by any Government Entity on, with respect to, based on or
measured by:
1.1 The acceptance, rejection, delivery, ownership, nondelivery, lease,
sublease, charter, transport, subcharter, registration, deregistration,
reregistration, possession, repossession, presence, operation, location,
condition, use or non-use, control, airworthiness, overhaul, replacement,
existence, storage, preparation, installation, testing, manufacture, design,
modification, alteration, maintenance, repair, re-lease, sale, return, transfer,
exportation, importation, abandonment or other disposition of, or the imposition
of any Lien on, the Aircraft, the Airframe, any Engine or engine or Part or any
other thing delivered under the Lease Agreement or any other Operative Document
or interest therein (or the incurrence of any liability to refund or pay over
any amount as the result of any such Lien);
1.2 The rentals, receipts or earnings from, or other amounts payable by
Lessee in connection with, the Aircraft, Airframe or any Engine or Parts thereof
or interest therein.
Frontier Lease Agreement (MSN 28760)
Schedule 5
Execution Copy -1-
<PAGE>
1.3 The Aircraft, Airframe or any Engine or any Parts thereof or
interest therein (including, without limitation, title or a security interest
therein) or any data or any other thing delivered or to be delivered under the
Operative Documents.
1.4 Otherwise with respect to or in connection with the execution,
delivery, enforcement, amendment or supplement to the Operative Documents or the
transactions contemplated by the Operative Documents.
SECTION 2. EXCLUSIONS FROM LESSEE'S LIABILITY.
The provisions of Section 1 of this Schedule 5 shall not apply to:
2.1 Taxes that are imposed on a Tax Indemnitee by any Government Entity
(other than a Government Entity in the Lessee Jurisdiction, in the State of
Registration (if different) or in the jurisdiction of Lessee's principal place
of business (if different)) and that are based on, or measured by, net income of
any Tax Indemnitee (notwithstanding the foregoing, Section 1 of this Schedule 5
shall apply to, and the Tax Indemnitees shall be indemnified against, any such
Taxes (1) which are in the nature of sales, use, rental, ad valorem, license,
property or value-added Taxes, (2) which are imposed by the U.S. federal
government as a result of any improvement, alteration, repair, replacement or
modification of the Aircraft or (3) to the extent such Taxes would not have been
imposed by such Government Entity upon such Tax Indemnitee but for (a) the
occurrence of any of the transactions contemplated by the Operative Documents in
such jurisdiction, (b) the registration use, operation or location of the
Aircraft in such jurisdiction or (c) the activities of Lessee or any successor,
assign or Affiliate of Lessee or any user of the Aircraft in such jurisdiction.
2.2 Sales, use or similar transfer Taxes imposed on a Tax Indemnitee
upon any voluntary or involuntary transfer or disposition (other than any
transfer pursuant to any exercise of remedies in connection with an Event of
Default, pooling arrangement, Event of Loss or any deemed transfer caused by
Lessee or any user of the Aircraft) by such Tax Indemnitee of any equitable or
legal interest in the Aircraft, Airframe, any Engine or any Part to any Person
other than Lessee or any Affiliate of Lessee.
2.3 So long as no Default has occurred and is continuing,
Frontier Lease Agreement (MSN 28760)
Schedule 5
Execution Copy -2-
<PAGE>
Taxes to the extent incurred with respect to any act occurring after the later
of (1) expiration or earlier termination of the Lease Agreement and (2) the (a)
return of possession of the Aircraft in accordance with Section 4 of Schedule 1
or (b) sale or other transfer of the Aircraft following an Event of Loss with
respect to the Aircraft in accordance with Section 10 of the Lease Agreement;
provided, however, that the exclusion set forth in this Section 2.3 shall not
apply to the extent such Taxes relate to periods prior to, or events occurring
or matters arising prior to or in connection with, such expiration, termination
or sale.
2.4 Taxes caused solely by activities of such Tax Indemnitee unrelated
to the transaction contemplated by the Operative Documents.
2.5 Taxes attributable to Lessor's Liens.
Each of the Lessor and Lessee shall cooperate and use reasonable best
efforts to avoid or minimize any Taxes imposed by any taxing authority
worldwide.
SECTION 3. NO REDUCTION FOR WITHHOLDING, ETC.
All payments by Lessee to Lessor under this Agreement or any other Operative
Document, whether in respect of Rent, interest, fees or any other item, shall be
made in full without any deduction or withholding (whether in respect of setoff,
counterclaim, duties, Taxes, charges, wages or otherwise whatsoever), unless the
withholding or deduction is required by Law, in which event Lessee shall:
3.1 Forthwith pay to Lessor such additional amount so that the net
amount received by Lessor after the deduction or withholding will equal the full
amount which would have been received by it had no such deduction or withholding
been made.
3.2 Pay to the relevant Taxing Authorities within the period for payment
permitted by applicable Law the full amount of the deduction or withholding
(including, but without prejudice to the generality of the foregoing, the full
amount of any deduction or withholding from any additional amount paid pursuant
to this Section 3.
3.3 Furnish to Lessor, within the period for payment permitted by
applicable Law, an official receipt of the relevant
Frontier Lease Agreement (MSN 28760)
Schedule 5
Execution Copy -3-
<PAGE>
taxation or other authorities involved for all amounts deducted or withheld as
aforesaid or, if no such receipt is issued, a certificate of deduction or
equivalent evidence thereof.
The parties shall cooperate to find a solution eliminating any withholding or
deduction on account of Taxes which could be required after the date hereof in
respect of any amounts due under the Lease Agreement or any other Operative
Documents provided that Lessor is not thereby required to incur any material
cost or liability that is not covered by an indemnity.
SECTION 4. REPORTS.
Lessee will provide promptly upon request such information as may be
reasonably requested by a Tax Indemnitee or required to enable a Tax Indemnitee
to timely and properly fulfill its tax filing requirements with respect to the
transactions contemplated by the Operative Documents, including, without
limitation, those requirements that relate to Taxes based on or measured by the
total time the Aircraft is located in a particular place irrespective of whether
the Aircraft is there for revenue, maintenance or storage purposes. If any
report, return or statement is required to be filed with respect to any Tax
which is subject to indemnification under this Schedule 5, Lessee shall timely
file the same (except for any such report, return or statement which such Tax
Indemnitee intends to file or for income tax returns or any other return, report
or statement which the Tax Indemnitee is required by Law to file in its own
name). Lessee shall either file such report, return or statement and send a copy
of such report, return or statement to the Tax Indemnitee or, where Lessee is
not permitted to file such report, return or statement, it shall notify such Tax
Indemnitee of such requirement and prepare and deliver such report, return or
statement to such Tax Indemnitee in a manner satisfactory to such Tax Indemnitee
no later than 30 Business Days prior to the time such report, return or
statement is to be filed. Lessee shall hold each Tax Indemnitee harmless from
and against any liabilities, including, without limitation, penalties, late
payment charges, notary charges, additions to tax, fines and interest arising
out of any failure to timely file or inaccuracy in any such return, statement,
report or information if such failure to timely file or inaccuracy is
attributable in whole or in part to Lessee's failure to fulfill its obligations
hereunder. Lessee shall not have any right to examine the tax returns of any Tax
Indemnitee. Lessee agrees to use its best efforts to obtain official receipts
indicating the payment by it of all foreign
Frontier Lease Agreement (MSN 28760)
Schedule 5
Execution Copy -4-
<PAGE>
income and withholding Taxes that are subject to indemnification under this
Schedule 5 and shall promptly deliver to the relevant Tax Indemnitee each such
receipt obtained by Lessee. Each Tax Indemnitee will give prompt notice to
Lessee of any liability of which such Tax Indemnitee has knowledge for which
Lessee is, or may be, liable under this Schedule 5, provided that failure to
give such notice will not prejudice or otherwise affect any of the rights of
such Tax Indemnitee under this Schedule 5 except to the extent Lessee's
successful defense of any such liability is prejudiced or otherwise affected
thereby.
SECTION 5. PAYMENT.
Upon written demand of the Tax Indemnitee, Lessee shall pay any Tax for
which it is liable pursuant to this Schedule 5 in immediately available funds
directly to the appropriate Government Entity or to such Tax Indemnitee, but in
no event shall such payment be required more than five Business Days prior to
the date such Tax is due. Any such demand for payment from a Tax Indemnitee
shall specify, in reasonable detail, the calculation of the amount of the
payment and the facts upon which the right to payment is based and shall be
verified upon the request and at the expense of Lessee by the independent
accountants for Lessor. The verification by the independent accountants for
Lessor should be conducted at Lessor's cost if the calculation was incorrect by
more than 10%. Each Tax Indemnitee shall promptly forward to Lessee any notice,
bill or advice in the nature of a notice or bill received by it concerning any
Tax. As soon as practical after each payment of any Tax by Lessee directly to
any Government Entity, Lessee shall furnish the appropriate Tax Indemnitee with
the original or a certified copy of a receipt for Lessee's payment of such Tax
or such other evidence of payment of such Tax as is reasonably acceptable to
such Tax Indemnitee. Lessee shall also furnish promptly upon request such data
as any Tax Indemnitee may require to enable such Tax Indemnitee to comply with
the requirements of any taxing jurisdiction.
Frontier Lease Agreement (MSN 28760)
Schedule 5
Execution Copy -5-
<PAGE>
Exhibit A
Lease Supplement
Lease Agreement
(MSN 28760)
EXHIBIT A
LEASE SUPPLEMENT
(MSN 28760)
LEASE SUPPLEMENT (MSN 28760) NO. [___], dated as of [_______], 199[__] (this
"Lease Supplement"), between Boullioun Aircraft Holding Company, Inc. ("Lessor")
and Frontier Airlines, Inc. ("Lessee").
RECITAL:
Lessor and Lessee have entered into Lease Agreement (MSN 28760), dated as of
December 12, 1996 (the "Lease Agreement"), which provides for the execution and
delivery from time to time of Lease Supplements (this and all other capitalized
terms used but not defined herein shall have the respective meanings ascribed
thereto in the Lease Agreement) substantially in the form hereof in accordance
with the terms thereof.
AGREEMENT:
In consideration of the foregoing premises, and for other good and valuable
consideration the adequacy of receipt of which is hereby acknowledged, and
pursuant to Section [2], [10.3] [__] of the Lease Agreement, Lessor and Lessee
hereby agree as follows:
[Section 1. Lessor hereby delivers and leases to Lessee, and Lessee hereby
accepts and leases from Lessor, under the Lease Agreement as hereby
supplemented, the following described aircraft (the "Aircraft"):
_______________________
This Lease Supplement has been executed in several counterparts. To the extent,
if any, that this Lease Supplement constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction), no security
Frontier Lease Agreement (MSN 28760)
Exhibit A
Execution Copy -1-
<PAGE>
interest in this Lease Supplement may be created through the transfer or
possession of any counterpart other than the original executed counterpart
containing the receipt therefor executed by Lessor or, if Lessor has assigned
its rights to any Person in accordance with the Lease Agreement, such Person on
the signature page thereof.
Frontier Lease Agreement (MSN 28760)
Exhibit A
Execution Copy -2-
<PAGE>
One Boeing Model 737-36Q airframe bearing manufacturer's serial number 28760,
together with (a) two CFM International, Inc. CFM56-3C-1 engines bearing
manufacturer's serial numbers [_______] and [_______], respectively, (b) APU
bearing manufacturer's serial number [______] and (c) the Aircraft
Documentation. Each such engine has 750 or more rated takeoff power or its
equivalent.
Section 2. The "Delivery Date" for all purposes of the Lease Agreement is the
date set forth in the opening paragraph of this Lease Supplement.
Section 3. The Lease Term shall commence on the Delivery Date.
Section 4. Lessee hereby confirms its agreement to pay Rent throughout the
Lease Term in the amounts, to the Persons and otherwise in accordance with the
provisions of Section 3 of the Lease Agreement and in accordance with the other
provisions of the Lease Agreement and the other Operative Documents.
Section 5. Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof, of the Lease Agreement and the other Operative
Documents.]
[Section 1. The following-described property has been installed on and made a
part of the Aircraft and is the property of Lessor and is hereby made subject to
the Lease Agreement:
[Describe property]]
Section [6.][2.] This Lease Supplement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of which counterparts, taken together, shall constitute one and the same
instrument.
Section [7.][3.] THIS LEASE SUPPLEMENT SHALL IN ALL RESPECTS, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS ENTERED INTO IN THAT STATE BETWEEN CITIZENS OF THAT
STATE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REFERENCE TO ANY
RULES GOVERNING CONFLICTS OF LAWS.
Frontier Lease Agreement (MSN 28760)
Exhibit A
Execution Copy -3-
<PAGE>
Lessee and Lessor have caused this Lease Supplement to be executed by their
respective officers as of the day and year first above written.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
[THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.]
[RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING LEASE SUPPLEMENT IS
HEREBY ACKNOWLEDGED ON THIS ____ DAY OF ______________, 1996.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
Frontier Lease Agreement (MSN 28760)
Exhibit A
Execution Copy -4-
<PAGE>
Exhibit B
Certificate of
Insurance
Lease Agreement
(MSN 28760)
EXHIBIT B
FORM OF CERTIFICATE OF INSURANCE
CERTIFICATE OF INSURANCE
Issued by
AON RISK SERVICES
123 N. Wacker Drive
Chicago, IL 60606
(312) 701-4249
THIS IS TO CERTIFY TO: Boullioun Aircraft Holding Company, Inc.
("Lessor")
[Lender] ("Lender")
______________________________________________________
that insurers, each for his own part and not one for the other, have issued the
policies described below to:
NAME OF INSURED: Frontier Airlines, Inc.
12015 East 46th Street
Denver, CO 80239
_____________________________________________________________
Effective 12:01 a.m., June 7, 1996 and to expire 12:01 a.m., June 7, 1997,
Standard Time at Place of Issue
DESCRIPTIVE SCHEDULE
GEOGRAPHICAL LIMITS: Worldwide*
INSURANCE COVERAGES A) All Risks (Ground and Flight) Aircraft Hull Insurance
B) Aircraft Hull War Risks Insurance, including Spares
in Transit
C) Aircraft Liability and
Comprehensive General Liability Bodily
Frontier Lease Agreement (MSN 28760)
Exhibit B
Execution Copy -1-
<PAGE>
Injury (Including Passengers), Including
War Liability in accordance with AVN
52C, Property Damage, Non-Owned Aircraft
Liability, Personal Injury, Baggage,
Hangarkeepers Liability, Comprehensive
General Liability (including Premises,
Products, and Completed Operations and
Contractual)
LIMITS OF LIABILITY: A) Maximum Agreed Value: *
Subject to deductible of $250,000 (not
applicable in the event of Total
Loss/Constructive Total Loss)
B) Maximum Agreed Value: *
C) Combined Single Limit for Bodily Injury
(including passengers and non-passengers),
Property Damage and Personal Injury other
than Bodily Injury (with respect to
Passengers only); $500,000,000 any one
occurrence. As respects Personal Injury
(other than Bodily Injury) to Third Parties
other than passengers; $25,000,000 any
one occurrence, any one offense, in the
aggregate annually.
QUOTA SHARE INSURERS: EXHIBIT A
AIRCRAFT DESCRIPTIONS: Boeing 737-300, Mfg. Serial No. TBD,. Valued: *
* As respects Coverage B-Hull War Risks insurance, the geographical limits of
the policy are: U.S.A., Canada, Mexico, and Caribbean excluding Cuba,
Columbia, and Haiti.
To the extent required, but only in connection with the Aircraft Lease Agreement
dated as of December 12, 1996, The "Lease Agreement") between Frontier Airlines,
Inc. and Lessor such insurance is as afforded shall apply as follows:
1. Lessor and Lender and their respective directors, officers, agents and
employees are included as Additional Insureds under all liability policies
with respect to the Aircraft Lease, as their respective interests may
appear, but without
Frontier Lease Agreement (MSN 28760)
Exhibit B
Execution Copy -2-
<PAGE>
liability imposed on the Additional Insureds to pay premiums. Lessor and
Lender are included as Additional Insured under all hull policies and
either Lessor or Lender, as determined pursuant to the Lease Agreement,
will be sole loss payee.
2. Provision has been made for prior written notice to the Additional Insureds
shown above in the event of cancellation, lapse or material change
affecting the interest of any Additional Insureds and shall not be
effective as to any Additional Insureds until thirty (30) days after
receipt by such Additional Insureds of such notice (seven (7) days in the
case of war risk and allied perils coverage).
3. As to the respective interests of each Additional Insured designated
herein, the insurance afforded by the policies shall not be invalidated or
impaired by any action or inaction of Frontier Airlines, Inc. or any other
person, or any breach or violation of any warranties, declarations or
conditions in the policy.
4. Such insurance as is afforded by such policies shall be primary without
right of contribution by any insurance carried by any Additional Insured.
5. The Insurers waive any right of set-off (including without limitation or
unpaid premiums) recoupment or counterclaim or any other deduction, whether
by attachment or otherwise, in respect of any liability of any Additional
Insured.
6. The policies contain a standard cross liability and severability of
interest clause which protects each insured as though a separate policy
were issued to each insured containing all the coverages described in this
certificate except with respect to limits of liability.
7. The insurers waive their rights of subrogation with respect to this lease
against Lessor and each other additional insured.
8. Spares All Risk coverage is included as follows:
$20,000,000 any one location and one occurrence
$10,000,000 any one transit
$20,000,000 any one engine
A deductible of $10,000 applies to each and every loss.
Frontier Lease Agreement (MSN 28760)
Exhibit B
Execution Copy -3-
<PAGE>
9. The Hull All Risks Insurers and the Hull War Risks and Allied Perils
Insurers have agreed to a "50/50" settlement clause pursuant to the terms
of AVS103.
10. A hull loss will be settled and paid in accordance with the Lease Agreement
If prior Certificates have been issued, the Certificate cancels and supersedes
all such Certificates.
Frontier Lease Agreement (MSN 28760)
Exhibit B
Execution Copy -4-
<PAGE>
The above insurers have authorized AON RISK SERVICES, INC. OF ILLINOIS as
insurance brokers, to issue this certificate on their behalf. AON RISK SERVICES,
INC. OF ILLINOIS has no obligation or liability of any kind in respect of the
above policies. The coverage evidenced in this certificate of insurance is
subject to all policy exclusions, conditions and terms.
AON RISK SERVICES, INC.
OF ILLINOIS
________________, 1996 _________________________
DATE AUTHORIZED SIGNATURE
Frontier Lease Agreement (MSN 28760)
Exhibit B
Execution Copy -5-
<PAGE>
EXHIBIT A
FRONTIER AIRLINES, INC.
INSURER/ADDRESS POLICY NUMBER
As respects Hull & Liability:
AIG HL0532550-02
1175 Peachtree Street, NE
Atlanta, GA 30361
Underwriters at Lloyd's of London A00324A96
Nicholson Leslie Aviation
P.O. Box 615, Beaufort House
15 St. Botolph Street
London, England EC3A 7QQ
CIGNA ATA-015411
127 John Street, 8th Floor
New York, NY 10272
Assurance France Aviation 96-0577
46 rue Notre Dame Des Victoiores
75002 Paris France
Somerset Aviation, Inc. A0944/01/96
3102 Oaklawn Avenue, Suite #880
Dallas, TX 75219
Mutual Marine Office MMO-15186AV596
330 Madison Avenue, 7th Floor
New York, NY 10016
AS RESPECTS HULL DEDUCTIBLE
(B737-300'S ONLY)
CIGNA ATD-015362
127 John Street, 8th Floor
New York, NY 10272
The subscribing Insurer's obligations under contracts of insurance to which they
subscribe are several and not joint and are limited solely to the extent of
their individual
Frontier Lease Agreement (MSN 28760)
Exhibit B
Execution Copy -6-
<PAGE>
subscriptions. The subscribing insurers are not responsible for the subscription
of an co-subscribing insurer who for any reason does not satisfy all or part of
its obligations.
Frontier Lease Agreement (MSN 28760)
Exhibit B
Execution Copy -7-
<PAGE>
Exhibit C
Broker's Letter
Lease Agreement
(MSN 28760)
EXHIBIT C
FORM OF BROKER'S LETTER
______________, 1996
Boullioun Aircraft Holding Company, Inc.
500 108th Avenue NE
Twenty-Fifth Floor
Bellevue, Washington 98004
[Lender]
RE: Aircraft Lease Agreement, dated as of December 12, 1996, between Boullioun
Aircraft Holding Company, Inc., as Lessor, and Frontier Airlines, Inc., as
Lessee
Dear Sirs:
This report is furnished pursuant to Section 11 of the captioned Aircraft Lease
Agreement. We are independent insurance brokers and in that capacity have
placed certain aviation insurance coverages for Frontier Airlines, Inc. We
hereby certify that all coverage afforded by the policies listed in the
Descriptive Schedule of the Certificate of Insurance dated as of [_________],
are in effect at the date hereof and that all premiums due as of the date hereof
have been paid. We have reviewed Section 11 of the captioned Lease Agreement,
and it is our opinion that the coverages required by Section 11 of the Lease
Agreement, are included in the coverages afforded by the policies listed in the
Descriptive Schedule of the:
CERTIFICATE OF INSURANCE DATED AS OF _______, 1996 ISSUED BY AON RISK
SERVICES OF ILLINOIS, INC., ON BEHALF OF UNDERWRITERS.
It is further our opinion that the coverages afforded by these policies are the
risks that are customarily insured against by U.S. air carriers and said
coverages are in substantially similar
Frontier Lease Agreement (MSN 28760)
Exhibit C
Execution Copy -1-
<PAGE>
forms, customarily carried by U.S. air carriers and comply with Section 11 of
the Lease Agreement.
We agree to provide prompt written notice to the parties noted above in the case
of any lapse or material change in the amount or type of coverage, any default
in the payment of any premium or of any other act or omission on the part of
Frontier Airlines, Inc. of which we have knowledge and which might invalidate or
render unenforceable, in whole or in part, any insurance set forth herein and,
in the event of non-renewal, reduction, lapse or termination or any adverse
material change in the amount or type of coverage, in writing at least thirty
(30) days prior to the expiration date or termination of any such coverage, or
as respects the coverages provided under the War Risk Insurance, seven (7) days
prior written notice.
If there are any question in this regard, please contact me immediately.
Sincerely,
Michael H. McCray
Frontier Lease Agreement (MSN 28760)
Exhibit C
Execution Copy -2-
<PAGE>
Exhibit D
Legal Opinion
Lease Agreement
(MSN 28760)
EXHIBIT D
[Intentionally Left Blank]
Frontier Lease Agreement (MSN 28760)
Exhibit D
Execution Copy -1-
<PAGE>
Exhibit E
Assignment
Lease Agreement
(MSN 28760)
EXHIBIT E
FORM OF ASSIGNMENT
ASSIGNMENT, dated as of [__________], 199[__] (this "Assignment"), between
Boullioun Aircraft Holding Company, Inc. ("Lessor") and Frontier Airlines, Inc.
("Lessee").
RECITALS:
1. Lessor and Lessee have entered into that certain Lease Agreement (MSN
28760), dated as of December 12, 1996 (the "Lease Agreement"), pursuant to which
Lessor shall lease to Lessee the Aircraft (capitalized terms used but not
defined herein shall have the respective meanings ascribed thereto in the Lease
Agreement).
2. As a condition precedent to Lessor's obligation to lease the Aircraft to
Lessee, Lessor requires that certain rights of Lessee with regard to insurances
be assigned to Lessor as continuing security for Lessee's obligations under the
Lease Agreement and under each other Operative Document.
AGREEMENT:
In consideration of the foregoing premises and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION 1. ASSIGNMENT.
To secure the payment and performance of the obligations of Lessee under the
Lease Agreement and under each other Operative Document ("Lessee's
Obligations"), Lessee hereby grants Lessor a first priority security interest in
the following property:
1.1 All of Lessee's rights and benefits under the policies and contracts
of insurance required to be effected and maintained under the Lease Agreement
(other than liability insurance) as such are from time to time so effected and
maintained (the "Insurances").
Frontier Lease Agreement (MSN 28760)
Exhibit E
Execution Copy
<PAGE>
This Assignment has been executed in several counterparts. To the extent,
if any, that this Assignment 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 Assignment may be created through the transfer or
possession of any counterpart other than the original executed counterpart
containing the receipt therefor executed by Lessor or, if Lessor has assigned
its rights to any Person in accordance with the Lease Agreement, such Person on
the signature page thereof.
1.2 All monies or other compensation from time to time receivable by
Lessee or any other person (other than by Lessor) in respect of the requisition
for hire, requisition of title, acquisition, capture, deprivation, detention,
condemnation, confiscation or other use or seizure of the Aircraft ("Requisition
Compensation").
1.3 All proceeds from the foregoing.
SECTION 2. NOTICE TO INSURERS.
On the Delivery Date and from time to time thereafter upon the written
request of Lessor, Lessee shall cause the Insurance Broker, on behalf of the
insurers issuing the Insurances, to acknowledge and return to Lessor any notice
of assignment issued to the Insurance Broker by Lessor in the form of Annex A
hereto.
SECTION 3. RIGHTS OF LESSOR.
Upon the occurrence and during the continuance of a Default, Lessor shall
have all the rights, powers and remedies conferred upon similar secured parties
by any relevant law and/or conferred on Lessor by this Assignment, including the
power to initiate and settle any insurance claim or any claim for Requisition
Compensation and to direct the payor of such claim to pay Lessor directly.
Lessee agrees that Lessor's statement in writing that a Default has occurred
shall constitute conclusive evidence as between Lessor and the Insurance Broker
and the insurers that a Default has in fact occurred and is continuing. All
proceeds received by Lessor pursuant to this Assignment shall be held and
applied pursuant to the Lease Agreement and thereafter applied against Lessee's
Obligations as and when due. At such time as there shall not be continuing any
Default, such proceeds shall be paid to Lessee to the extent not applied in
accordance with the preceding sentence. In furtherance of Lessor's rights
hereunder,
Frontier Lease Agreement (MSN 28760)
Exhibit E
Execution Copy -2-
<PAGE>
Lessee shall deliver to Lessor on the Delivery Date an irrevocable power of
attorney in the form of Annex B hereto, which power of attorney Lessor shall not
use except after the occurrence and during the continuance of an Event of
Default.
SECTION 4. COUNTERPARTS.
This Assignment may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original, and all of which
counterparts, taken together, shall constitute one and the same instrument.
SECTION 5. GOVERNING LAW.
THIS ASSIGNMENT SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS ENTERED INTO IN THAT STATE BETWEEN CITIZENS OF THAT STATE AND TO BE
PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REFERENCE TO ANY RULES GOVERNING
CONFLICTS OF LAWS.
Lessee and Lessor have caused this Assignment to be executed by their
respective officers as of the day and year first above written.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
[THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.]
[RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING ASSIGNMENT IS HEREBY
ACKNOWLEDGED ON THIS ____ DAY OF ______________, 1996.
Frontier Lease Agreement (MSN 28760)
Exhibit E
Execution Copy
-3-
<PAGE>
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
Frontier Lease Agreement (MSN 28760)
Exhibit E
Execution Copy
-4-
<PAGE>
Annex A to
Exhibit E to
Lease Agreement
(MSN 28760)
ANNEX A TO EXHIBIT E
NOTICE OF ASSIGNMENT
By an Assignment, dated as of [_____________], 19[__] (the "Assignment"),
between Boullioun Aircraft Holding Company, Inc. ("Lessor") and Frontier
Airlines, Inc. ("Lessee") (a copy of the Assignment being attached hereto),
Lessee assigned to Lessor all of Lessee's rights and benefits under the
Insurances (which do not include any liability policies) and the proceeds
therefrom as continuing security for Lessee's Obligations. Your attention is
directed to Section 3 and the requirement that a Default have occurred and be
continuing prior to the exercise by the Lessor of certain of its rights under
the Assignment. Capitalized terms used but not defined herein having the
respective meanings ascribed thereto or incorporated by reference in the
Assignment.
Date: [__________], 199[__]
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
Acknowledged:
[BROKER], on behalf of the
insurers issuing the Insurances
By:
Title:
[appropriate formalities]
Frontier Lease Agreement (MSN 28760)
Exhibit E
Execution Copy -5-
<PAGE>
Annex B to
Exhibit E to
Lease Agreement
(MSN 28760)
[LETTERHEAD OF LESSEE]
ANNEX B TO EXHIBIT E
IRREVOCABLE POWER OF ATTORNEY
Frontier Airlines, Inc. ("Grantor") hereby irrevocably makes, constitutes, and
appoints Boullioun Aircraft Holding Company, Inc. ("Attorney") Grantor's true
and lawful attorney from time to time to act in its name, place and stead:
1. To initiate, process, prosecute, settle and/or collect any insurance claims
arising under any insurances maintained with respect to the one Boeing Model
737-36Q airframe bearing manufacturer's serial number 28760, together with two
CFM56-3C-1 engines bearing manufacturer's serial numbers [_______] and [_______]
(the "Aircraft").
2. To negotiate, execute (under seal or hand, as appropriate) and deliver any
agreements, documents, instruments or certificates (with such amendments thereto
(if any) as Attorney determines may be required), and take such actions which
may be necessary or appropriate, to initiate, process, prosecute, settle and/or
collect any and all claims arising under any insurances maintained with respect
to the Aircraft.
3. Otherwise to negotiate, execute (under seal or hand, as appropriate) and
deliver any agreements, documents, instruments or certificates, take any and all
actions, incur any obligations and do any and all things which Attorney may deem
necessary or advisable, in its sole discretion, in order to effectuate the
purposes of this power of attorney, as determined by Attorney in its sole
discretion.
Grantor undertakes to indemnify Attorney against all costs, claims, expenses and
liabilities howsoever incurred by Attorney from time to time in connection
herewith and further undertakes to ratify and confirm from time to time
whatsoever Attorney shall do or cause to be done in or by virtue of this Power
of Attorney.
Grantor hereby further grants unto Attorney full power and
Frontier Lease Agreement (MSN 28760)
Exhibit E
Execution Copy -6-
<PAGE>
authority to substitute and appoint in its place one or more attorney or
attorneys to exercise for it as attorney or attorneys of Grantor any or all of
the powers and authorities hereby conferred and to revoke any such appointment
from time to time and substitute or appoint any other or others in the place of
such attorney or attorneys as Attorney shall from time to time think fit (and
any such other shall be an "Attorney" for all purposes hereof).
This Irrevocable Power of Attorney cannot be revoked by Grantor and any
recipient of a photocopy of this Irrevocable Power of Attorney may act in
reliance hereon without question or inquiry as to the currency or validity
hereof or otherwise.
THIS IRREVOCABLE POWER OF ATTORNEY SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS
OF CONSTRUCTION AND VALIDITY, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO POWERS OF ATTORNEY
GRANTED IN THAT STATE BY A CITIZEN OF THAT STATE AND USED WHOLLY WITHIN THAT
STATE WITHOUT REFERENCE TO ANY RULES GOVERNING CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Lessee has caused this Irrevocable Power of Attorney to
be duly executed on _______________, 19[__].
FRONTIER AIRLINES, INC.
By:
Title:
[Formalities]
Frontier Lease Agreement (MSN 28760)
Exhibit E
Execution Copy -7-
<PAGE>
Exhibit F
Aircraft Status Report
Lease Agreement
(MSN 28760)
EXHIBIT F
AIRCRAFT STATUS REPORT
- ----------------------------------
MONTH ENDING:
- ----------------------------------
AIRFRAME
------------ ------------ -------------
AIRCRAFT S/N TYPE REG.
------------ ------------ -------------
------------- ------------
TOTAL FLIGHT HOURS TOTAL CYCLES
------------- ------------
FLT. HOURS FOR CYCLES FOR MONTH
MONTH
------------- ------------
------------- ------------
DATE AND TIME APPROX. DATE AND
LAST "C" CHECK TIME NEXT "C"
CHECK
------------- ------------
ENGINES ENGINE 1 ENGINE 2
S/N ______________________________________________________
TOTAL FLIGHT HRS ______________________________________________________
TOTAL CYCLES ______________________________________________________
FLIGHT HRS FOR MONTH ______________________________________________________
CYCLES FOR MONTH ______________________________________________________
TIME/CYCLES SLSV ______________________________________________________
CURRENT LOCATION ______________________________________________________
TECHNICAL ACTIVITY DURING RELEVANT PERIOD
1. Major Maintenance (including C-Check or Structural check)
2. ADs complied with
3. Other significant Damages, Repairs or Modifications - indicate cause or
reason
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Frontier Lease Agreement (MSN 28760)
Exhibit F
Execution Copy -1-
<PAGE>
Frontier Lease Agreement (MSN 28760)
Exhibit F
Execution Copy -2-
<PAGE>
Exhibit G
Letter of Credit
Lease Agreement
(MSN 26962)
EXHIBIT G
LETTER OF CREDIT
______________, 1996
Letter of Credit No. _______
[Lessor]
[Address]
Attention: [______]
Dear Sir or Madam:
We hereby establish in your favor, at the request and for the account of
Frontier Airlines, Inc. (the "Company"), our irrevocable letter of credit in the
amount of US$[________] (the "Stated Amount") available against presentation of
(a) a sight draft drawn on us dated on or before the date of such presentation
and in the form of the Exhibit A hereto and (b) a certificate dated the date of
such draft in the form of Exhibit B hereto, in each case, signed by an
individual being or purporting to be your authorized representative.
Such presentation must be made on a Business Day to our Letter of Credit
Department in [New York] at [Bank's address] (Facsimile Number: [__________];
Confirmation Number: [______________])) on or before [___________] or if such
date is not a Business Day, then on or before the following Business Day.
"Business Day" means a day other than a Saturday, a Sunday or a day on which
banks are required or authorized to be closed in New York, New York. Any such
presentation may be made by means of telefacsimile and we shall be entitled to
rely thereon as if such draft and certificate were presented in person, provided
such draft and certificate are in conformity with the requirements for the same
as set forth herein, but for the requirement of an original signature. In
addition, any draft and certificate
Frontier Lease Agreement (MSN 28760)
Exhibit G
Execution Copy -1-
<PAGE>
hereunder may be presented by mail, express courier (e.g., DHL) or in person.
A draft presented hereunder may be in an amount of up to the Stated Amount.
More than one draft may be presented hereunder, subject to the aggregate amount
of such drafts not exceeding the Stated Amount.
We hereby agree with you that each draft presented hereunder in compliance with
the terms hereof will be duly honored by our payment to you (or in accordance
with your instruction) of the amount of such draft in immediately available
funds:
(a) not later than 3:00 p.m., [New York] time, on the day such draft is
presented to us as aforesaid, if such presentation is made to us at or before
12:00 noon, [New York] time, or
(b) not later than 3:00 p.m., [New York] time, on the Business Day following
the day such draft is presented to us as aforesaid, if such presentation is made
to us after 12:00 noon, [New York] time.
Upon the earlier of (a) [__________], and (b) irrevocable payment by us of the
entire Stated Amount (in one or more drawings), this Letter of Credit shall
automatically terminate.
Except as otherwise provided herein, this Letter of Credit shall be governed by
and construed in accordance with the Uniform Customs and Practice for
Documentary Credits (1993 Revision), ICC Publication No. 500 (the "UCP").
Notwithstanding Article 17 of the UCP, if this Letter of Credit expires during
an interruption of business as described in said Article 17, we agree to effect
payment if a drawing is made against this Letter of Credit within thirty (30)
days after the resumption of business.
Notwithstanding Article 48 of the UCP, this Letter of Credit may be transferred
and assigned in its entirety more than once.
Upon request, but no more than once in any thirty day period, we will confirm to
you in writing that this Letter of Credit is in full force and effect and is
enforceable against us in accordance with its terms.
This Letter of Credit sets forth in full the terms of our undertaking and shall
not in any way be modified, amended or amplified by reference to any documents
instruments or agreements
Frontier Lease Agreement (MSN 28760)
Exhibit G
Execution Copy -2-
<PAGE>
referred to herein, or in which this Letter of Credit is referred to or to which
this Letter of Credit relates and any such
Frontier Lease Agreement (MSN 28760)
Exhibit G
Execution Copy -3-
<PAGE>
reference shall not be deemed to incorporate herein by reference any such
documents, instruments and agreements.
Very truly yours,
[BANK]
By
Name:
Title:
Frontier Lease Agreement (MSN 28760)
Exhibit G
Execution Copy -4-
<PAGE>
Exhibit A to
Letter of Credit
No. _______________
SIGHT DRAFT
Irrevocable Letter of Credit No: ____ Date of Draft: _______, 19__
To the Order of [Lessor]
Pay [_____________] DOLLARS
At SIGHT by wire transfer of such amount to the account of [_________] at [Bank,
Address] (ABA number: [___________]; account number: [__________])
DRAWN UNDER [ISSUING BANK] LETTER OF CREDIT NO. __________
TO: [ISSUING BANK]
[Presentment Address]
[LESSOR]
By:
Name:
Title:
[Endorse on back]
Frontier Lease Agreement (MSN 28760)
Exhibit G
Execution Copy -5-
<PAGE>
Exhibit B to
Letter of Credit
No. _______________
DRAWING CERTIFICATE
Irrevocable Letter of Credit No.____
- ------------------------------------
The undersigned, a duly authorized representative of [Lessor]
("Beneficiary"), hereby certifies to [ISSUING BANK] (the "Bank") with reference
to Irrevocable Letter of Credit No. [__________] (the "Letter of Credit"),
issued by the Bank in favor of Beneficiary, as follows:
1. Beneficiary is presenting a sight draft herewith to draw funds under
the Letter of Credit in the amount of US$[__________].
2. Demand for payment under the Letter of Credit is being made prior to
the expiration thereof.
3. An Event of Default has occurred and is continuing under that certain
Lease Agreement (MSN 28760), dated as of December 12, 1996, between Boullioun
Aircraft Holding Company, Inc. and Frontier Airlines, Inc.
IN WITNESS WHEREOF, Beneficiary has caused this certificate and the
accompanying draft to be executed as of the [__________] day of [__________],
199__.
[LESSOR]
By:
Name:
Title:
Frontier Lease Agreement (MSN 28760)
Exhibit G
Execution Copy -6-
<PAGE>
EXHIBIT 10.3
AIRCRAFT LEASE AGREEMENT
(MSN 28662)
between
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC., as Lessor
and
FRONTIER AIRLINES, INC., as Lessee
Dated as of December 12, 1996
Relating to One B737-36Q Aircraft
Bearing Manufacturer's Serial Number 28662
Together with Two CFM56-3C-1 Engines
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT AND IS BEING
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
AIRCRAFT LEASE AGREEMENT
(MSN 28662)
TABLE OF CONTENTS
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SECTION 1. SCHEDULES 1 AND 2; GENERAL DEFINITIONS; CONSTRUCTION OF
TERMS.......................................................... 1
1.1 Schedule 1............................................. 1
1.2 Certain Transaction Specific Definitions............... 1
1.3 General Definitions.................................... 1
1.4 Construction........................................... 1
SECTION 2. LEASE OF AIRCRAFT.................................. 1
2.1 Agreement to Lease..................................... 1
2.2 Inspections............................................ 1
2.2.1 Delivery Inspection........................... 1
2.2.2 Delivery Discrepancies........................ 1
2.2.3 Delivery Indemnity............................ 1
2.3 Changes in Delivery Date; Limitation of Lessor's
Obligation to Deliver Aircraft......................... 1
SECTION 3. LEASE TERM; RENT; SECURITY DEPOSIT; PAYMENTS....... 1
3.1 Basic Lease Term....................................... 1
3.2 Renewal Lease Term..................................... 1
3.3 Basic Rent and Renewal Rent............................ 1
3.4 Supplemental Rent...................................... 1
3.5 Security Deposit....................................... 1
3.5.1 Lessor's Interest in Security Deposit......... 1
3.5.2 Return of Security Deposit.................... 1
3.5.3 Substitution of Letter of Credit.............. 1
3.5.4 Return of Letter of Credit.................... 1
3.6 Payments in General.................................... 1
3.6.1 Timing and Place of Payment................... 1
3.6.2 Business Day Convention....................... 1
3.6.3 Calculation of Interest....................... 1
SECTION 4. CONDITIONS PRECEDENT............................... 1
4.1 Agreements and Documents............................... 1
4.1.1 Lease Agreement............................... 1
4.1.2 Lease Supplement No. 1........................ 1
4.1.3 Insurance Documents........................... 1
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4.1.4 Legal Opinion................................. 1
4.1.5 Process Agent Letter.......................... 1
4.1.6 Assignment of Insurances...................... 1
4.1.7 Officer Certificate........................... 1
4.2 Approved Maintenance Program........................... 1
4.3 Truth and Performance.................................. 1
4.3.1 First Rent Payment Made....................... 1
4.3.2 Security Deposit Paid or Letter of
Credit Delivered.............................. 1
4.3.3 Representations True.......................... 1
4.3.4 No Default.................................... 1
4.4 Section 1110........................................... 1
4.5 Filing................................................. 1
4.6 Delivery from Airframe Manufacturer.................... 1
4.7 Other Matters.......................................... 1
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS........... 1
5.1 Lessor's Disclaimer; Representations and Warranties.... 1
5.1.1 Lessor's Disclaimer........................... 1
5.1.2 Lessor's Representations and Warranties....... 1
5.2 Lessee's Representations and Warranties................ 1
5.2.1 Continuing Representations and Warranties..... 1
5.2.2 Initial Representations and Warranties........ 1
5.2.3 No Prejudice.................................. 1
SECTION 6. GENERAL COVENANTS.................................. 1
6.1 Lessor's Covenants..................................... 1
6.1.1 Quiet Enjoyment............................... 1
6.1.2 No Claims by Lessee........................... 1
6.2 Lessee's Covenants..................................... 1
6.2.1 Continuing Business; Merger,
Consolidation, Etc............................ 1
6.2.2 Reporting Requirements........................ 1
6.2.3 Liens......................................... 1
6.2.4 Section 1110.................................. 1
SECTION 7. TITLE; REGISTRATION AND FILINGS; ETC............... 1
7.1 Title to the Aircraft.................................. 1
7.1.1 Lessor as Owner............................... 1
7.1.2 Lessee Not Owner.............................. 1
7.1.3 Title Vis a Vis Third Parties................. 1
7.2 Registration and Filings; Etc.......................... 1
7.2.1 Register Aircraft............................. 1
7.2.2 Recordation of Lease.......................... 1
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7.2.3 Further Actions............................... 1
7.2.4 Geneva Convention............................. 1
SECTION 8. POSSESSION......................................... 1
8.1 Subleasing............................................. 1
8.2 Maintenance, Etc....................................... 1
8.3 Installation of Engines on Other Airframes............. 1
8.4 Wet Lease.............................................. 1
SECTION 9. INDEMNITIES........................................ 1
9.1 General Indemnity...................................... 1
9.2 Exceptions to General Indemnity........................ 1
9.3 Taxes.................................................. 1
9.4 Currency Indemnity..................................... 1
9.5 Scope, Survival, Etc................................... 1
9.6 Indemnities Payable on After-Tax Basis................. 1
SECTION 10. RISK OF LOSS, DESTRUCTION AND REQUISITION, ETC.... 1
10.1 Risk of Loss.......................................... 1
10.2 Event of Loss With Respect to the Aircraft............ 1
10.3 Event of Loss With Respect to an Engine............... 1
10.4 Requisition for Use of the Aircraft by
any Government Entity................................. 1
10.5 Application of Payments During
Existence of Default.................................. 41
SECTION 11. INSURANCE......................................... 1
11.1 Scope of Insurances................................... 1
11.1.1 Liability Coverage........................... 1
11.1.2 Hull Coverage................................ 1
11.1.3 War Hull and Liability Coverage.............. 1
11.2 Application of Proceeds of Hull Insurance............. 1
11.2.1 Event of Loss................................ 1
11.2.2 Damage....................................... 1
11.3 Application of Payments During Existence of a Default. 1
11.4 Continuation of Liability Insurance................... 1
11.5 Reports, Etc.......................................... 1
11.6 Self-Insurance........................................ 1
11.7 Change of Practice or Insurers........................ 1
11.8 Change of Circumstance................................ 1
11.9 Negative Undertakings................................. 1
11.10 Failure to Insure..................................... 1
11.11 Additional Insurance by Lessor........................ 1
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11.12 Insurance Required by Airframe Manufacturer........... 47
SECTION 12. EVENTS OF DEFAULT................................. 1
12.1 Failure to Pay Scheduled Amounts...................... 1
12.2 Failure to Pay Demand Amounts......................... 1
12.3 Insurance............................................. 1
12.4 Return................................................ 1
12.5 Certain Covenants..................................... 1
12.6 Other Covenants....................................... 1
12.7 Representations and Warranties........................ 1
12.8 Voluntary Bankruptcy, Etc............................. 1
12.9 Involuntary Bankruptcy, Etc........................... 1
12.10 Illegality............................................ 1
12.11 Indebtedness or Lease Default......................... 1
12.12 Government Action..................................... 1
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12.13 Judgments............................................. 1
12.14 Material Adverse Event................................ 1
SECTION 13. REMEDIES.......................................... 1
13.1 Retake Possession..................................... 1
13.2 Termination or Enforcement............................ 1
13.3 Application of Funds.................................. 1
13.4 Damages............................................... 1
SECTION 14. ASSIGNMENT OF LEASE............................... 1
14.1 Assignment by Lessor.................................. 1
14.1.1 Right to Assign.............................. 1
14.1.2 Cooperation and Limitations.................. 1
14.1.3 Absolute Transfer............................ 1
14.1.4 Transfer as Security......................... 1
14.2 Assignment by Lessee.................................. 1
14.3 Successors and Assigns................................ 1
SECTION 15. NO SETOFF, COUNTERCLAIM, ETC...................... 1
SECTION 16. FURTHER ASSURANCES, ETC........................... 1
16.1 Further Assurances.................................... 1
16.2 Lessor's Performance of Lessee's Obligations.......... 1
16.3 No Implied Waivers; Rights Cumulative................. 1
SECTION 17. CONFIDENTIALITY................................... 1
SECTION 18. GOVERNING LAW AND JURISDICTION.................... 59
18.1 New York Law.......................................... 59
18.2 Nonexclusive Jurisdiction in New York................. 59
18.3 Service of Process.................................... 61
SECTION 19. MISCELLANEOUS..................................... 61
19.1 Amendments............................................ 61
19.2 Severability.......................................... 61
19.3 Counterparts.......................................... 61
19.4 Chattel Paper......................................... 62
19.5 Time of the Essence................................... 62
19.6 Notices............................................... 62
19.7 Entire Agreement...................................... 62
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SCHEDULE 1 -- RETURN CONDITIONS
SECTION 1. GENERAL DEFINITIONS............................... 1
SECTION 2. MAINTENANCE; OPERATION; ETC....................... 1
2.1 General Maintenance.................................... 1
2.2 Modifications and Other Maintenance.................... 1
2.2.1 Required Modifications........................ 1
2.2.2 CPCP.......................................... 1
2.2.3 Repairs....................................... 1
2.2.4 Aviation Authority Communications............. 1
2.2.5 Correction of Discrepancies................... 1
2.2.6 Approved Maintenance Performer................ 1
2.2.7 Aviation Authority Approved Parts............. 1
2.2.8 Maintenance of Non-"Engine.".................. 1
2.3 Replacement of Parts................................... 1
2.3.1 Replacement of Parts Required................. 1
2.3.2 Ownership of Parts............................ 1
2.4 Modifications.......................................... 1
2.4.1 Ability to Modify............................. 1
2.4.2 No Obligation of Lessor to Pay................ 1
2.4.3 Removal of Modification Part.................. 1
2.4.4 Reversal of Modification...................... 1
2.4.5 Title to Removed Modification Part............ 1
2.4.6 Passenger Communication Equipment............. 1
2.4.7 Service Bulletin Kits......................... 1
2.5 Documentation.......................................... 1
2.6 Operation.............................................. 1
2.7 Insignia............................................... 1
2.8 Costs of Maintenance, Operation, Etc................... 1
2.8.1 In General.................................... 1
2.8.2 Payment of Flight Charges..................... 1
2.9 Inspection............................................. 1
2.9.1 Maintenance Schedule.......................... 1
2.9.2 Reasonable Inspections........................ 1
2.9.3 No Duty to Inspect............................ 1
SECTION 3. MAINTENANCE RESERVE PAYMENTS...................... 1
3.1 Maintenance Reserve Amounts............................ 1
3.1.1 Maintenance Reserve Amounts................... 1
3.1.2 Assumed Hour-to-Cycle Ratio Amount............ 1
3.1.3 Reserve Inflation Factor...................... 1
3.2 Reimbursement.......................................... 1
3.2.1 Airframe Reimbursement........................ 1
3.2.2 Engine Reimbursement.......................... 1
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3.2.2 Engine Reimbursement.......................... 1
3.2.3 APU Reimbursement............................. 1
3.2.4 Landing Gear Reimbursement.................... 1
3.3 Account Balances....................................... 1
3.4 No Negative Balances................................... 1
3.5 Rights in Reserves..................................... 1
3.6 Payments............................................... 1
SECTION 4. RETURN OF THE AIRCRAFT............................ 1
4.1 Date and Location of Return............................ 1
4.2 Condition of Aircraft.................................. 1
4.3 Final Inspection....................................... 1
4.4 Operational Ground Check............................... 1
4.5 Demonstration Flight................................... 1
4.6 Technical Acceptance................................... 1
4.7 Failure to Return Aircraft............................. 1
4.8 Transition............................................. 1
4.9 Indemnity.............................................. 1
4.10 Storage Upon Return.................................... 1
4.11 Deferred Discrepancy Correction........................ 1
ANNEX 1 TO SCHEDULE 1 -- RETURN CONDITIONS
SECTION 1. CONDITION OF AIRFRAME AND ENGINES................. 1
1.1 General Requirements................................... 1
1.2 Condition Permitting Commercial Operation.............. 1
1.3 Export Matters......................................... 1
1.4 Final Airframe Check................................... 1
1.5 ADs, Service Bulletins, Etc............................ 1
1.6 Engine Condition....................................... 1
1.6.1 Engine Borescope.............................. 1
1.6.2 Full-Rated Performance........................ 1
1.7 APU Condition.......................................... 1
1.8 Landing Gear Condition................................. 1
1.9 Life Limited Parts..................................... 1
1.10 Tires and Brakes....................................... 1
1.11 Paint.................................................. 1
1.12 Service Bulletin Kits.................................. 1
1.13 Fuel and Oil........................................... 1
1.14 Lessee Certificate..................................... 1
SECTION 2. AIRCRAFT DOCUMENTATION............................ 1
SCHEDULE 2 -- CERTAIN TRANSACTION SPECIFIC DEFINED TERMS
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SECTION 1. GENERAL DEFINITIONS............................. 1
SECTION 2. BASIC RENT AND RENEWAL RENT..................... 1
2.1 Rent Amount......................................... 1
2.2 Fair Market Rental.................................. 1
2.3 Renewal Rent Determination.......................... 1
SECTION 3. AMOUNT OF SECURITY DEPOSIT...................... 1
SECTION 4. TERMINATION OF LEASE PRIOR TO DELIVERY.......... 1
4.1 Termination Triggers................................ 1
4.2 Effect of Termination............................... 1
4.3 Cooperation......................................... 1
SCHEDULE 3 -- DELIVERY CONDITIONS
SCHEDULE 4 -- NOTICE AND ACCOUNT INFORMATION
SCHEDULE 5 -- TAX MATTERS
SECTION 1. LESSEE LIABILITY................................ 1
SECTION 2. EXCLUSIONS FROM LESSEE'S LIABILITY.............. 1
SECTION 3. NO REDUCTION FOR WITHHOLDING, ETC............... 1
SECTION 4. REPORTS......................................... 1
SECTION 5. PAYMENT......................................... 1
EXHIBIT A -- LEASE SUPPLEMENT
EXHIBIT B -- FORM OF CERTIFICATE OF INSURANCE
EXHIBIT C -- FORM OF BROKER'S LETTER
EXHIBIT D -- FORM OF LEGAL OPINION
EXHIBIT E -- FORM OF ASSIGNMENT
SECTION 1. ASSIGNMENT...................................... 1
SECTION 2. NOTICE TO INSURERS.............................. 1
SECTION 3. RIGHTS OF LESSOR................................ 1
SECTION 4. COUNTERPARTS.................................... 1
SECTION 5. GOVERNING LAW................................... 1
EXHIBIT F -- FORM OF MONTHLY UTILIZATION REPORT
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AIRCRAFT LEASE AGREEMENT
(MSN 28662)
AIRCRAFT LEASE AGREEMENT (MSN 28662), dated as of December 12, 1996 (this "Lease
Agreement"), between BOULLIOUN AIRCRAFT HOLDING COMPANY, INC., a Washington
corporation ("Lessor"), and FRONTIER AIRLINES, INC., a Colorado corporation
("Lessee").
RECITAL:
Lessee desires, upon the terms and conditions hereof, to lease the Aircraft (as
defined below) from Lessor, and Lessor is willing, upon the terms and conditions
hereof, to lease the Aircraft to Lessee.
AGREEMENT:
In consideration of the foregoing premise, and for other good and valuable
consideration the adequacy and receipt of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. SCHEDULES 1 AND 2; GENERAL DEFINITIONS; CONSTRUCTION OF TERMS.
1.1 SCHEDULE 1.
Schedule 1 of this Lease Agreement is intended to be used by Lessee's and
Lessor's aircraft operations personnel as a separate document containing the
large majority of the provisions of this Lease Agreement related to the
maintenance, operation and return of the Aircraft (and the definitions related
thereto), but both Lessor and Lessee acknowledge that the respective legal
rights and obligations of Lessor and Lessee are governed by this Lease Agreement
(including Schedule 1) and the other Operative Documents as an entirety.
The following terms are defined in Schedule 1:
AD
Aircraft Documentation
Airframe
Airframe Cycle
Airframe Flight Hour
Airworthiness Certificate
Approved Maintenance Performer
Approved Maintenance Program
APU
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Basic Shop Visit
Cabin
CPCP
Delivery Documentation
Engine
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Engine Cycle
Engine Flight Hour
External Repair
Final Inspection
Final Maintenance
Flight Charges
Follow-On Operator
Inspecting Party
Landing Gear
Landing Gear Overhaul
Major Checks
Major Modifications
Modification
Modification Parts
Obsolete Parts
Parts
Replacement Engine
Required Modifications
Reserves
Return
Return Acceptance Certificate
SB
1.2 CERTAIN TRANSACTION SPECIFIC DEFINITIONS.
Schedule 2 of this Lease Agreement is intended as a central short document
containing the majority of the transaction specific terms and conditions, such
as rent amounts and rent payment dates.
The following terms are defined in Schedule 2:
Airframe Manufacturer
Airframe Manufacturer Purchase Agreement
Airframe Reserve Amount
APU Reserve Amount
Assumed Hour-to-Cycle Ratio
Aviation Authority
Basic Lease Term Termination Date
Business Day
Commitment Termination Date
Damage Notice Threshold
Delivery Location
Engine Life Limited Part Reserve Amount
Engine Manufacturer
Engine Overhaul Reserve Amount
Insurance Brokers
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Landing Gear Reserve Amount
Lessee Jurisdiction
Past Due Rate
Permitted Jurisdiction
Renewal Lease Term Termination Date
Rent Determination Request
Reserve Inflation Factor
Return Location
Scheduled Delivery Date
State of Registration
Stipulated Loss Value
Stipulated Deductible Amount
Stipulated Liability Coverage
1.3 GENERAL DEFINITIONS.
The following terms shall have the following meanings for all purposes of
this Lease Agreement:
"Absolute Transfer" has the meaning set forth in Section 14.1.3.
"Affiliate" shall mean in relation to a Person, any other Person directly
or indirectly controlling, controlled by or under common control with that
Person.
"Aircraft" shall mean, collectively, the Airframe and the Engines and,
unless the context does not permit, the Aircraft Documentation.
"Authorizations" shall mean each and every approval, waiver,
authorization, consent, license, certificate or order of, or registration with,
or requirement for the giving of prior notice to, or the taking of any action in
respect of, the Aviation Authority or any other Government Entity having
jurisdiction over Lessee, the operation of the Aircraft or any action or
transaction contemplated hereby or by any Operative Document.
"Basic Lease Term" shall mean the period described in Section 3.1.
"Basic Rent" shall mean the rent payable during the Basic Lease Term with
respect to the Aircraft pursuant to Section 3.3.
"Basic Rent Payment Date" shall mean (i) the date one Business Day prior
to the Delivery Date and (ii) the date in each
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calendar month during the Basic Lease Term after the Delivery Date numerically
corresponding to the Delivery Date (or, if no corresponding date exists in any
such calendar month, the last day of such month).
"basis point" shall mean 1/100th of 1%.
"contractual currency" shall have the meaning set forth in Section 9.4.
"Default" shall mean any Event of Default or any condition, circumstance,
act or event which, upon the giving of notice, the lapse of time and/or the
fulfillment of any other condition would constitute or give rise to an Event of
Default.
"Delivery Date" shall mean the date, local time at the Delivery Location,
on which the Aircraft is delivered by Lessor and accepted by Lessee pursuant to
this Lease Agreement as such date is set forth in Lease Supplement No. 1.
"Dollars" and "US$" mean the lawful currency of the United States of
America.
"Event of Default" has the meaning set forth in Section 12.
"Event of Loss" shall mean, with respect to the Aircraft, the Airframe or
any Engine, any of the following events, conditions or circumstances with
respect to such property:
(1) retention of possession of the Aircraft by Lessee for more than 60
days beyond the last day of the Lease Term without the express written consent
or instructions of Lessor.
(2) the destruction of or damage of such property which renders (a)
repair of such property uneconomical or (b) such property permanently unfit for
normal use by Lessee or Lessor.
(3) any loss of or damage to such property or other occurrence which
the insurers determine or agree to be a total loss .
(4) the confiscation, condemnation, seizure, forfeiture, requisition
or similar taking of the title to such property (for any reason whatsoever and
whether de jure or de facto).
(5) the disappearance, hijacking or theft (including a
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confiscation, condemnation, seizure, forfeiture, requisition or similar taking
of title or use not otherwise included in this definition) of such property
which shall have resulted in the loss of possession or use of such property by
Lessee for a period that continues until the earliest of (a) the date that is 60
days following the commencement of such loss of possession or use (or, if less,
the remaining Lease Term) and (b) the date upon which the Aircraft is modified
in such a manner as would render conversion of such property for use in normal
commercial passenger service impractical or uneconomical.
(6) the confiscation, condemnation, seizure, requisition or similar
taking by any Government Entity or purported Government Entity (other than a
requisition for use or hire by a Government Entity of the State of Registration
or any political subdivision thereof) of use or hire of such property which
shall have resulted in the loss of possession or use of such property by Lessee
for a period that continues until the earliest of (a) the date that is 90 days
following the commencement of such loss of property or use (or, if earlier, the
last day of the Lease Term) and (b) the date upon which the Aircraft is modified
in such a manner as would render conversion of such property for use in normal
commercial passenger service impractical or uneconomical.
(7) the requisition for use or hire by a Government Entity of the
State of Registration which shall have resulted in the loss of possession or use
of such property by Lessee for a period that continues until the earliest of (a)
the last day of the Lease Term and (b) the date upon which the Aircraft is
modified in such a manner as would render conversion of such property for use in
normal commercial passenger service impractical or uneconomical.
(8) as a result of any Law, the use of such property in the normal
course of the business of air transportation of persons and/or cargo shall have
been prohibited for a continuous period in excess of 180 days (or if less, the
remaining Lease Term), unless Lessee, prior to the expiration of such period,
shall have undertaken and shall be diligently carrying forward all steps which
are necessary or desirable to permit such use of such property by Lessee and so
long as such use shall not have been prohibited for a continuous period in
excess of 270 days (or if less, the remaining Lease Term), provided that at
Lessor's option (to be exercised prior to the last day of the Lease Term),
Lessor may waive such incipient event of loss and Lessee shall return the
Aircraft in accordance with the terms and conditions
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of this Agreement and the other Operative Documents).
(9) any divestiture or impairment of any right, title or interest of
Lessor in or to an Engine as a result of the installation of such Engine on any
other airframe in violation of Section 8.
An Event of Loss with respect to the Aircraft shall be deemed to have occurred
if an Event of Loss occurs with respect to the Airframe. An Event of Loss with
respect to one or more Engines without loss of the Airframe shall not be deemed
an Event of Loss with respect to the Aircraft.
"Expense" shall mean any liabilities, obligations, losses (including any
loss, premium, penalty, termination fee or other cost or expense which may be
incurred, directly or indirectly, in the early termination of this Agreement or
any other Operative Document or in repaying funds raised to finance the Aircraft
or in unwinding any swap, forward interest rate agreement or other financial
instrument relating in whole or in part to Lessor's financing of the Aircraft),
damages (including damages for loss of life, injury to persons or damage to any
property), penalties, fines, sanctions, claims (whether fraudulent, groundless,
false or not), actions, suits, judgments, legal proceedings (whether civil or
criminal), investigations, Taxes, costs, disbursements and expenses (including
reasonable legal fees and expenses, costs of investigation and related expenses)
of every kind and nature whatsoever (including any liability, obligation or
claim arising in contract or tort, whether or not arising from the negligence,
actual, implied or imputed, active or passive, or absolute or strict liability
of an Indemnified Party, Airframe Manufacturer or any other Person or under any
other theory) (but excluding any liability, obligation or claim for any other
incidental and consequential damages).
"Financing Party" shall mean (1) each Person, if any, providing, directly
or indirectly, equity financing or refinancing related to the purchase price of
the Aircraft, as identified by Lessor to Lessee from time to time, and (2) the
Security Agent, if any.
"Force Majeure" shall mean delay or nonperformance 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, Lessor,
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Airframe Manufacturer or Engine Manufacturer 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 suppliers in a timely manner, any other "Excusable Delay" as defined in the
Airframe Manufacturer Purchase Agreement 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.
"GAAP" shall mean generally accepted accounting principles in Lessee
Jurisdiction, as such principles may at any time or from time to time be varied
by any applicable financial accounting rules and, with respect to any Person,
shall mean such principles applied on a basis consistent with prior periods.
"Government Entity" shall mean (1) any national, state or local government
of any country or any international authority (including in each case, any
central bank or fiscal, tax or monetary authority), (2) any board, commission,
department, division, instrumentality, court, agency, territory, possession or
political subdivision of any entity described in clause (1) above, however
constituted, (3) any association, organization or institution of which any
entity described in clause (1) or (2) above is a member or to whose jurisdiction
any thereof is subject or in whose activities any thereof is a participant and
(4) any taxing authority of any entity described in clause (1), (2) or (3)
above.
"Indebtedness" shall mean all obligations of Lessee that would, in
accordance with GAAP, be shown as a liability on Lessee's balance sheet, and in
any footnotes or notations thereto, including (1) obligations for the repayment
of monies borrowed or raised, (2) obligations under finance leases, hire-
purchase arrangements, conditional sale agreements and other obligations for the
deferred purchase price of property, (3) guarantees, direct or indirect, of the
obligations of any other Person, including any such obligations secured by a
Lien on any property of Lessee, (4) indemnity and reimbursement obligations,
including any such obligations arising to any issuer of a letter of credit or
similar instrument, and (5) obligations to purchase or otherwise acquire any
indebtedness of, or to advance monies to or on behalf of, or make any investment
in any other Person.
"Indemnified Party" shall mean Lessor, its Affiliates, each Financing
Party and the successors and permitted assigns of each of the foregoing and the
directors, officers, corporate
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stockholders, partners, employees, servants and agents of each of the foregoing.
"Insured Party" shall mean each Indemnified Party and, to the extent
Airframe Manufacturer is indemnified hereunder or under any other Operative
Document, Airframe Manufacturer.
"Lease Supplement" shall mean a supplement to this Lease Agreement
substantially in the form of Exhibit A, to be entered into between Lessor and
Lessee on the Delivery Date, and any subsequent lease supplement entered into in
accordance with the terms hereof.
"Lease Supplement No. 1" shall mean Lease Supplement No. 1, dated the
Delivery Date, between Lessor and Lessee in the form of Exhibit A.
"Lease Term" shall mean the Basic Lease Term and, if any, the Renewal
Lease Term.
"Lessor Lien" shall mean any Lien over all or any part of the Aircraft
arising as a result of any act or omission by Lessor.
"Letter of Credit" has the meaning set forth in Section 3.3.5.3.
"Lien" shall mean any mortgage, pledge, lien, charge, encumbrance,
hypothecation, lease, sublease, seizure, exercise of rights, security interest,
judgment, writ, order or other claim or right of possession of any kind or
nature whatsoever, however and wherever created or arising and whether or not
consensual (including any agreement or arrangement to give or effect any of the
foregoing and any conditional sale or other title retention agreement).
"Material Adverse Effect" shall mean (1) as of any date, a material
adverse change between the date hereof and such date, in the business, assets,
financial condition or prospects of Lessee, or (2) the occurrence of any event
or the existence of any circumstances that has or will, in Lessor's reasonable
judgment, have a material adverse effect on (a) the ability of Lessee to carry
on its business or to perform its obligations under any Operative Document to
which it is or will be a party or (b) the rights or interests of Lessor under
any Operative Document to which it is or will be a party.
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"Operative Documents" shall mean this Lease Agreement, each Lease
Supplement, each document delivered by Lessee to Lessor pursuant to Section 4
and any other document which Lessor and Lessee agree is an "Operative Document".
"Other Lease" shall mean any other aircraft lease agreement between (1)
Lessor, or any Affiliate of Lessor, and (2) Lessee, or any Affiliate of Lessee.
"Permitted Lien" shall mean any Lien referred to in Sections 6.2.3.1.1
through 6.2.3.1.5.
"Person" shall mean any individual, corporation, trust, partnership,
unincorporated association, joint venture, association, joint-stock company,
government or Government Entity.
"Rent" shall mean, collectively, Basic Rent, Renewal Rent and Supplemental
Rent.
"Renewal Lease Term" shall mean the period described in Section 3.2.
"Renewal Rent" shall mean the rent payable during the Renewal Lease Term
with respect to the Aircraft pursuant to Section 3.3.
"Renewal Rent Payment Date" shall mean (1) the first day of the Renewal
Lease Term and (2) the date in each calendar month during the Renewal Lease Term
after the first day of the Renewal Lease Term corresponding to the first day of
the Renewal Lease Term (or, if no corresponding date exists in any such calendar
month, the last day of such month).
"Rent Payment Date" shall mean a Basic Rent Payment Date and/or a Renewal
Rent Payment Date, as the context may require.
"Reserves" shall mean all amounts payable by Lessee pursuant to Section 3
of Schedule 1.
"Secured Obligations" has the meaning set forth in Section 3.5.1.
"Security Agent" shall mean the designated representative, howsoever
denominated, of one or more of the Financing Parties, as such agent is
identified by Lessor to Lessee from time to time.
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"Security Assignment" has the meaning set forth in Section 14.1.4.
"Security Deposit" has the meaning set forth in Section 3 of Schedule 2.
"Security Transaction" has the meaning set forth in Section 14.1.4.
"Successor" has the meaning set forth in Section 6.2.1.3.1.
"Supplemental Rent" shall mean all amounts, liabilities and obligations
(other than Basic Rent and Renewal Rent) which Lessee assumes, agrees or
otherwise becomes liable to pay to Lessor, any Indemnified Party or any other
Person hereunder or under any of the other Operative Documents, including
payments of or in respect of the Reserves, Stipulated Loss Value, Expenses,
Taxes, interest accrued pursuant to Section 3.6 or other amounts payable under
any indemnities.
"Tangible Net Worth" shall mean, for any Person, the excess of the total
assets (excluding goodwill, intangible assets and revaluation of fixed assets)
over total liabilities of such Person, each determined in accordance with
generally accepted accounting principles consistently applied.
"Taxes" shall mean any and all present or future fees (including license,
documentation and registration fees), taxes (including income, gross receipts,
sales, rental, use, turnover, value-added, property (tangible or intangible),
excise, franchise, capital, user, transfer, doing business and stamp taxes or
duties), licenses, levies, imposts, duties, recording charges or fees, or other
charges, assessments, deductions or withholdings of any nature whatsoever,
together with any assessments, penalties, late payment charges, notary charges,
fines, additions to tax or other similar liabilities with respect to any of the
foregoing and interest on any of the foregoing.
"Tax Indemnitee" shall mean Lessor, each Affiliate of Lessor and each
Financing Party and any successor or assign of any of the foregoing and any
Person that is a member of a group that files a consolidated or combined tax
return that includes Lessor or such Financing Party.
"Transaction Documents" has the meaning set forth in Section 3.5.1.
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"U.S. Air Carrier" shall mean a commercial United States air carrier as to
which there is in force an operating certificate issued by the Secretary of
Transportation pursuant to chapter 447 of U.S. Aviation Laws for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo and
an operating certificate issued pursuant to Part 121 of the U.S. Aviation
Regulations, or which may operate as an air carrier by certification or
otherwise under any successor or substitute provisions therefor.
"U.S. Aviation Laws" shall mean the provisions of Subtitle VII of Title 49
of the U.S. Code, as amended from time to time, or any similar legislation of
the United States enacted in substitution, replacement or supplement of all or
any part of such subtitle, together with the U.S. Aviation Regulations.
1.4 CONSTRUCTION.
1.4.1 In this Lease Agreement and each other Operative Document,
unless expressly provided otherwise, a reference to:
1.4.1.1 Each of "Lessor" or "Lessee" or any other Person includes,
without prejudice to the provisions of this Lease Agreement or any other
Operative Document, any successor in interest to it and any permitted assignee
and, in the case of any Government Entity, any Government Entity succeeding to
all or any of its functions.
1.4.1.2 The word "including" shall be construed as "including,
without limitation."
1.4.1.3 Words importing the plural include the singular and vice
versa.
1.4.1.4 Any document includes that document as amended, modified or
supplemented from time to time in accordance with its terms, and any document
entered into in substitution or replacement therefor.
1.4.1.5 A "Law" (1) includes any statute, decree, constitution,
regulation, decision, finding, order, rule, judgment or directive of any
Government Entity, (2) includes any treaty, pact, compact or other agreement to
which any Government Entity is a signatory or party having the force of law, (3)
includes any judicial or administrative interpretation or application thereof
binding upon the relevant party, (4) includes any guideline, directive,
interpretation, rule or regulation of
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any Person having the force of law and (5) is a reference to any of the
foregoing as amended, substituted, reissued or reenacted.
1.4.1.6 The words "this Lease," "this Agreement," "this Lease
Agreement," "hereby," "herein," "hereto," "hereof" and "hereunder" and words of
similar import when used in this Lease Agreement refer to this Lease Agreement
as a whole including the Schedules and Exhibits, and all Annexes, Attachments
and Supplements thereto, and not to any particular provisions of this Lease
Agreement.
1.4.1.7 A Section or an Exhibit or a Schedule is a reference to a
section of, or an exhibit or a schedule to, this Lease Agreement.
1.4.2 Headings used in this Lease Agreement and each other Operative
Document are for convenience only and shall not in any way affect the
construction of, or be taken into consideration in interpreting, this Lease
Agreement or such Operative Document.
SECTION 2. LEASE OF AIRCRAFT.
2.1 AGREEMENT TO LEASE.
Subject to satisfaction of the conditions set forth in Section 4 and to
the provisions of this Section 2, Lessor hereby agrees to deliver the Aircraft
to Lessee at the Delivery Location and to lease the Aircraft to Lessee, and
Lessee hereby agrees to accept the Aircraft at the Delivery Location and to
lease the Aircraft from Lessor, in each case, on the Scheduled Delivery Date and
in the condition specified in Schedule 3, but otherwise in the "as is, where is"
condition of the Aircraft, pursuant to the terms and conditions of this Lease
Agreement and the other Operative Documents, the commencement of such leasing to
be evidenced by the execution and delivery by Lessor and Lessee of Lease
Supplement No. 1.
2.2 INSPECTIONS.
2.2.1 DELIVERY INSPECTION.
Lessor shall use reasonable efforts to cause Airframe Manufacturer to
permit Lessee to participate in a customer acceptance inspection and a customer
acceptance flight conducted by Airframe Manufacturer under the Airframe
Manufacturer Purchase Agreement, provided that Lessee shall have no right to
direct
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Airframe Manufacturer and shall not interfere with the manufacturing process of
the Aircraft in any way, except that at Lessee's written request, Lessor shall
use reasonable efforts to cause Airframe Manufacturer to correct any
discrepancies from the condition of the Aircraft as described in Schedule 3
discovered during such inspection and test flight. Lessee, at its own expense,
shall participate in the final physical inspection and customer acceptance
flight of the Aircraft under the Airframe Manufacturer Purchase Agreement (but
shall not direct Airframe Manufacturer) and shall provide pilots and other crew
and personnel for the customer acceptance flight. Upon delivery of the Aircraft
to Lessor under the Airframe Manufacturer Purchase Agreement, the Lease Term
shall automatically commence and no further or other inspections or
demonstration flights shall be conducted by or for the benefit of Lessee and
Lessee shall have no right to reject the Aircraft or refuse to deliver Lease
Supplement No. 1 to Lessor.
2.2.2 DELIVERY DISCREPANCIES.
Any discrepancies from the condition of the Aircraft as described in
Schedule 3 which were identified by Lessee pursuant to Section 2.2.1 on or prior
to the Delivery Date, and which were not corrected by Lessor or Airframe
Manufacturer on or prior to the Delivery Date, shall be corrected by Lessee or
its designee and Lessor shall reimburse Lessee at 100% of Lessee's reasonable
actual cost for such correction, payable on demand. Such claim for
reimbursement shall be Lessee's sole remedy for noncompliance, and Lessee shall
not have the right to refuse acceptance of the Aircraft because of such
discrepancies.
2.2.3 DELIVERY INDEMNITY.
Without limiting the provisions of Section 9 hereof, Lessee hereby
assumes liability for and shall fully indemnify and hold harmless each
Indemnified Party on demand and shall keep such Indemnified Party fully
indemnified at all times and on an after-tax basis from and against all Expenses
arising directly or indirectly from any injuries to or deaths of Lessee's
representatives or loss of or damage to property of Lessee or their respective
representatives or designees during the inspections described in this Section
2.2.
2.3 CHANGES IN DELIVERY DATE; LIMITATION OF LESSOR'S OBLIGATION TO
DELIVER AIRCRAFT.
If, owing to (1) any of the conditions precedent specified
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in Section 4 not having been met or not having been waived by Lessor in
accordance with Section 4, (2) any delay in the delivery of, or failure to
deliver, the Aircraft to Lessor for whatsoever reason and/or (3) reasons of
Force Majeure, the delivery of the Aircraft under this Lease Agreement shall be
delayed beyond the Scheduled Delivery Date, then Lessee shall accept delivery of
the Aircraft on the first Business Day after such date on which Lessor has
possession of the Aircraft at the Delivery Location and all of such conditions
precedent have been satisfied or waived in accordance with Section 4, provided
that if delivery of the Aircraft under this Lease Agreement is delayed beyond
the Commitment Termination Date, then either party hereto may, by written notice
to the other, terminate this Lease Agreement and each other Operative Document,
whereupon neither Lessor nor Lessee shall have any further obligation to the
other hereunder or thereunder, except as otherwise expressly provided herein and
except that Lessor shall be obligated to return the Security Deposit and any
amounts of Basic Rent paid by Lessee prior to such termination. In the event of
any such delay or any eventual termination of this Lease Agreement, neither
Lessor nor Lessee shall be responsible for any losses, including loss of profit,
costs or expenses arising therefrom suffered or incurred by the other.
Notwithstanding the foregoing, (y) if such delay or failure is caused by a
Default, Lessor shall have all the rights and remedies against Lessee described
in Section 13, including the right to collect damages for Expenses or other
amounts payable to Airframe Manufacturer under the Airframe Manufacturer
Purchase Agreement in connection with any delay in delivery of the Aircraft, and
shall not be obligated to return the Security Deposit or any amounts of Basic
Rent paid by Lessee and (z) if Lessor shall delay or fail to deliver the
Aircraft in breach of its obligations hereunder or under the other Operative
Documents, Lessee shall have all rights provided by Law arising out of such
breach, including the right to terminate this Lease Agreement and the other
Operative Documents and to recover Expenses related to such breach and costs
associated with paying a higher lease rental on any replacement aircraft.
SECTION 3. LEASE TERM; RENT; SECURITY DEPOSIT; PAYMENTS.
3.1 BASIC LEASE TERM.
The Basic Lease Term shall commence on the Delivery Date and, unless this
Lease Agreement is terminated earlier pursuant to the provisions hereof, shall
end on the Basic Lease Term Termination Date, provided that if the last day of
the Basic Lease Term shall not be a Business Day, then the Basic Lease Term
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shall expire on the next preceding Business Day.
3.2 RENEWAL LEASE TERM.
Lessee shall have the option to extend the Lease Term * . Such option may
be exercised only by delivery of (1) a Rent Determination Request (as defined in
Section 2 to Schedule 2) on a timely basis and (2) written notice to Lessor at
least 12 months prior to the then scheduled expiration of the Lease Term
electing to extend the Lease Term * ,provided that Lessee may not exercise
such option at any time when an Event of Default has occurred and is continuing.
The Renewal Lease Term shall end on the Renewal Lease Term Termination Date,
provided that if the last day of the Renewal Lease Term shall not be a Business
Day, then the Renewal Lease Term shall expire on the next preceding Business
Day.
3.3 BASIC RENT AND RENEWAL RENT.
Lessee shall pay rent for the Aircraft in installments on each Basic Rent
Payment Date during the Basic Lease Term and on each Renewal Rent Payment Date
during the Renewal Lease Term, if any, in advance in immediately available
Dollars. Each such installment shall be in an amount equal to the amount so
specified in Section 2 of Schedule 2.
3.4 SUPPLEMENTAL RENT.
Lessee shall pay, or cause to be paid, promptly to Lessor, or to
whomsoever shall be entitled thereto, any and all Supplemental Rent when and as
the same shall become due and owing. Lessee also shall pay to Lessor, or to
whomsoever shall be entitled thereto, on demand, as Supplemental Rent, to the
extent permitted by applicable Law, interest at the Past Due Rate on any Rent
(including any interest accrued thereon pursuant to this Section 3 (compounded
on a daily basis)) not paid when due for any period for which the same shall be
overdue.
3.5 SECURITY DEPOSIT.
3.5.1 LESSOR'S INTEREST IN SECURITY DEPOSIT.
The Security Deposit shall be held by Lessor to secure the timely
payment and performance by Lessee of (1) its obligations hereunder and under
each other Operative Document and (2) its obligations under each of the Other
Leases and under each of the "Operative Documents" (howsoever denominated)
related to
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the Other Leases) (such documents and agreements referred to in
subclause (1) and (2), collectively, the "Transaction Documents" and such
obligations referred to in subclause (1) and (2), collectively, the "Secured
Obligations"). The Security Deposit shall be held by Lessor as security for the
timely and due and punctual payment by Lessee of the Secured Obligations and
Lessee hereby assigns, transfers and pledges to Lessor, and hereby grants to
Lessor, a first-priority security interest in the Security Deposit to secure
such payment and such performance. Lessee shall not assign, transfer, pledge or
otherwise dispose of any right, title or interest in or to the Security Deposit
except as provided in the preceding sentence. Subject only to Sections 2.3 and
3.5.2, the Security Deposit may be assigned or pledged by Lessor to any Person.
Any interest earned on the Security Deposit shall be for Lessor's sole account.
If an Event of Default (hereunder or under any of the Other Leases) shall occur
and be continuing, then in addition to any other rights Lessor may have under
applicable Law as a secured party or otherwise, or under this Agreement or any
other Transaction Document, Lessor or such Person, as the case may be, may at
any time as an agreed remedy set off against, use, apply or retain all or any
portion of the Security Deposit in full or partial payment for amounts
constituting or corresponding to the Secured Obligations (including to
compensate Lessor or such Person, as the case may be, for any amount it may in
its reasonable discretion advance as a result of the occurrence of any Default
(hereunder or under any of the Other Leases), or to apply toward Expenses
arising as a result of the occurrence of any Default (hereunder or under any of
the Other Leases) or otherwise). If Lessor or such Person uses or applies all
or a portion of the Security Deposit, such application shall not be deemed a
cure by Lessee, or waiver by Lessor or any other Person, of any Default
(hereunder and under any of the Other Leases), and Lessee shall, within ten days
after Lessor's or such Person's demand therefor, pay to Lessor or such Person,
as the case may be, an amount sufficient to restore the Security Deposit to its
original total sum.
3.5.2 RETURN OF SECURITY DEPOSIT.
So long as no Default shall have occurred and be continuing, that
portion, if any, of the Security Deposit that has not previously been used or
applied, or set off against, as provided for in this Agreement or any other
Operative Document, shall be returned to Lessee by wire transfer of immediately
available Dollars to an account of Lessee, specified in writing by Lessee to
Lessor, at the bank used by Lessee as specified in Schedule 4 hereto, on the
date which is not more than 30 Business
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Days after and excluding the date upon which the Aircraft is returned to Lessor
in accordance with this Agreement.
3.5.3 SUBSTITUTION OF LETTER OF CREDIT.
At any time prior to five days prior to the Scheduled Delivery Date,
Lessee shall have the option to substitute for the Security Deposit a letter of
credit (a "Letter of Credit"), in respect of all of the Secured Obligations,
with a stated amount equal to * . The Letter of Credit shall (1) be in the
form of Exhibit G, (2) shall be issued or confirmed by a bank satisfactory to
Lessor and (3) shall have an expiry date of no earlier than the date one month
after the Scheduled Return Date. In the event that at any time during the Lease
Term the bank issuing or confirming a Letter of Credit becomes unacceptable to
Lessor, in its reasonable judgment, Lessee shall within fourteen days of demand
therefor by Lessor provide Lessor with a replacement letter of credit issued or
confirmed, as the case may be, by a bank that is acceptable to Lessor, in its
reasonable judgment. The Letter of Credit may be assigned or pledged by Lessor
to any Person. If for any reason Lessor or such other Person is paid under the
Letter of Credit, then in addition to any other rights Lessor may have under
applicable Law, or under this Lease Agreement or any other Transaction Document,
Lessor or such Person, as the case may be, (1) may at any time as an agreed
remedy set off against, use, apply or retain all or any portion of the amounts
so paid in full or partial payment for amounts constituting or corresponding to
the Secured Obligations (including to compensate Lessor or such Person, as the
case may be, for any amount it may in its reasonable discretion advance as a
result of the occurrence of any Default (hereunder or under any of the Other
Leases), or to apply toward Expenses arising as a result of the occurrence of
any Default (hereunder or under any of the Other Leases) or otherwise) and/or
(2) may retain all or any portion of the amounts so paid as security for the
performance the Secured Obligations (and Lessee hereby grants Lessor a security
interest in all such amounts). Any such use or application shall not, however,
be deemed a cure by Lessee, or waiver by Lessor, of any Default (hereunder or
under any of the Other Leases). Any interest earned on the amounts so drawn
shall be for Lessor's sole account. If for any reason, Lessor is paid under a
Letter of Credit, then Lessee shall cause an additional Letter of Credit to be
issued so that the Lessor shall at all times have the benefit of a Letter of
Credit for the full Security Deposit.
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3.5.4 RETURN OF LETTER OF CREDIT.
So long as no Default shall have occurred and be continuing, the Letter
of Credit, unless drawn by Lessor, shall be returned to Lessee on the date which
is not more than 30 Business Days after and excluding the date upon which the
Aircraft is returned to Lessor in accordance with this Agreement.
3.6 PAYMENTS IN GENERAL.
3.6.1 TIMING AND PLACE OF PAYMENT.
All payments of Rent shall be made directly by Lessee in Dollars by
wire transfer of immediately available funds on the required date of payment for
receipt on such date and with value on such date to the account for Lessor
specified in Schedule 4, or to other such account as Lessor shall otherwise
direct by prior notice to Lessee.
3.6.2 BUSINESS DAY CONVENTION.
If the due date for any payment of Rent is not a Business Day, then,
unless otherwise provided herein, such payment shall be made on the Business Day
next preceding such scheduled date with the same force and effect as if made on
such scheduled date and without adjustment in the amount due.
3.6.3 CALCULATION OF INTEREST.
All amounts of interest or amounts calculated by reference to interest
payable under any of the provisions of this Lease Agreement or any other
Operative Document shall be calculated on the basis of the actual number of days
elapsed in a 360-day year.
SECTION 4. CONDITIONS PRECEDENT.
The obligation of Lessor to lease the Aircraft to Lessee under this Lease
Agreement is subject to the fulfillment to the satisfaction of Lessor, and
Lessee shall procure such fulfillment, to the satisfaction of Lessor, on or
prior to the Delivery Date (or, if another date is specified below, on or prior
to such date) of the following conditions precedent:
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4.1 AGREEMENTS AND DOCUMENTS.
The following documents, agreements, instruments or certificates shall
have been duly authorized, executed and delivered by the respective party or
parties thereto (other than Lessor), shall each be satisfactory in form and
substance to Lessor and shall be in full force and effect and in the English
language, and executed counterparts shall have been delivered to Lessor:
4.1.1 LEASE AGREEMENT.
This Lease Agreement.
4.1.2 LEASE SUPPLEMENT NO. 1.
Lease Supplement No. 1 evidencing the delivery and acceptance of the
Aircraft and dated the Delivery Date.
4.1.3 INSURANCE DOCUMENTS.
(1) A certificate of insurance in the form of Exhibit B and which
otherwise complies with the requirements of Section 11 and (2) a broker's letter
in the form of Exhibit C from the Insurance Broker and which otherwise complies
with the requirements of Section 11, in each case, to be effective on the
Delivery Date.
4.1.4 LEGAL OPINION.
An opinion of Lessee's General Counsel.
4.1.5 PROCESS AGENT LETTER.
A letter from the process agent appointed by Lessee pursuant to Section
18.3 accepting such appointment, duly executed by such process agent.
4.1.6 ASSIGNMENT OF INSURANCES.
An assignment of insurances and requisition compensation in the form of
Exhibit E.
4.1.7 OFFICER CERTIFICATE.
A certificate signed by a duly authorized officer of
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Lessee:
4.1.7.1 Attaching a copy of Lessee's certificate or articles of
incorporation, bylaws and any other organizational or charter documents and
certifying the same to be true, accurate, complete and in full force and effect
as of the Delivery Date.
4.1.7.2 Attaching copies of resolutions of the Board of Directors of
Lessee or other written evidence of appropriate corporate action, duly
authorizing or ratifying the lease of the Aircraft hereunder, and the execution,
delivery and performance of this Lease Agreement and the other Operative
Documents, and certifying the same, in the case of any such resolutions, to have
been passed at a duly convened and constituted meeting, and in each case to be
true, accurate, complete, unamended and in full force and effect as of the
Delivery Date.
4.1.7.3 Certifying the incumbency, and the accuracy of the
signatures, of the Person or Persons authorized to execute and deliver this
Lease Agreement and the other Operative Documents on behalf of Lessee.
4.2 APPROVED MAINTENANCE PROGRAM.
At least 10 Business Days prior to the Scheduled Delivery Date, Lessee
shall have provided to Lessor a copy of the proposed Approved Maintenance
Program and such information reasonably requested by Lessor regarding the
proposed Approved Maintenance Program, in each case, for the Aircraft (including
evidence that the Aviation Authority has approved the Approved Maintenance
Program), and Lessor shall have approved such proposed Approved Maintenance
Program.
4.3 TRUTH AND PERFORMANCE.
Each of the following shall be true on the Delivery Date:
4.3.1 FIRST RENT PAYMENT MADE.
Lessee shall have paid the first installment of Basic Rent when due
pursuant to Section 3.3 hereof.
4.3.2 SECURITY DEPOSIT PAID OR LETTER OF CREDIT DELIVERED.
Lessee shall have (1) paid all installments of the Security Deposit due
on or before the Delivery Date pursuant to
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Section 3.5 or (2) delivered to Lessor a Letter of Credit, which Letter of
Credit complies with the requirements of Section 3.5.3.
4.3.3 REPRESENTATIONS TRUE.
All representations and warranties of Lessee hereunder and under the
other Operative Documents shall be true and correct on and as of the Delivery
Date as though made on and as of such date (unless made as of a specified date,
in which case such representations and warranties shall be true and correct as
of such specified date).
4.3.4 NO DEFAULT.
No Default or Event of Loss, or event, condition or circumstance that
would with the giving of notice or passage of time become or give rise to an
Event of Loss, shall have occurred.
4.4 SECTION 1110.
Lessor shall have received evidence that Lessor is entitled to the
protection of Section 1110 of the United States Bankruptcy Code in connection
with its right to take possession of the Aircraft in the event of a case under
Chapter 11 of the United States Bankruptcy Code in which Lessee is a debtor.
4.5 FILING.
This Lease and Lease Supplement No. 1 shall have been duly filed for
recording with the Aviation Authority. Promptly upon the recording of this
Lease and Lease Supplement No. 1 with the Aviation Authority, Lessee will cause
Messrs. Crowe & Dunlevy, special counsel in Oklahoma City, Oklahoma, to deliver
to Lessor and Lessee an opinion as to the due recording of this Lease and Lease
Supplement No. 1.
4.6 DELIVERY FROM AIRFRAME MANUFACTURER.
The Aircraft shall have been delivered to Lessor at the Delivery Location,
new from Airframe Manufacturer, and shall comply with the requirements of
Schedule 3.
4.7 OTHER MATTERS.
All other matters incident to this Agreement and the other Operative
Documents and the lease of the Aircraft shall be
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reasonably satisfactory to Lessor.
The conditions precedent specified in this Section 4 are for the sole
benefit of Lessor and may be waived or deferred in whole or in part and with or
without condition by Lessor. If any of such conditions is not satisfied or
waived in writing by Lessor on and as of the Delivery Date and Lessor, in its
sole discretion, nonetheless delivers the Aircraft to Lessee hereunder, Lessee
hereby covenants and agrees to satisfy, or cause the satisfaction of, such
outstanding conditions within 15 days after the Delivery Date.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
5.1 LESSOR'S DISCLAIMER; REPRESENTATIONS AND WARRANTIES.
5.1.1 LESSOR'S DISCLAIMER
EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT BY LESSEE, WHICH SHALL BE
EVIDENCED BY LESSEE'S EXECUTION AND DELIVERY OF LEASE SUPPLEMENT NO. 1, THE
AIRCRAFT SHALL BE LEASED UNDER THIS LEASE AGREEMENT "AS IS, WHERE IS WITH ALL
FAULTS" (LESSEE HEREBY CONFIRMING THAT IT HAS BEEN ADVISED OF AND FULLY
UNDERSTANDS THE LEGAL IMPORT AND IMPLICATIONS OF SUCH PHRASE AND THE PROVISIONS
OF THIS SECTION 5.1 AND THAT SUCH IS APPROPRIATE IN A TRANSACTION OF THIS KIND)
AND LESSEE AGREES, ACKNOWLEDGES AND ACCEPTS THAT NONE OF LESSOR OR ANY OTHER
INDEMNIFIED PARTY OR AIRFRAME MANUFACTURER MAKES ANY WARRANTY OR REPRESENTATION
WHATSOEVER CONCERNING THE AIRCRAFT. EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT
BY LESSEE, WHICH SHALL BE EVIDENCED BY LESSEE'S EXECUTION AND DELIVERY OF LEASE
SUPPLEMENT NO. 1, LESSEE, FOR THE BENEFIT OF LESSOR AND EACH INDEMNIFIED PARTY
AND AIRFRAME MANUFACTURER, HEREBY WAIVES, RELEASES AND RENOUNCES ALL WARRANTIES,
REPRESENTATIONS AND OTHER INDEMNITIES, GUARANTIES, OBLIGATIONS AND LIABILITIES
OF LESSOR AND ANY OTHER INDEMNIFIED PARTY AND AIRFRAME MANUFACTURER AND ANY
RIGHTS, CLAIMS AND REMEDIES OF LESSEE, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE, IN EACH CASE, WITH RESPECT TO THE AIRCRAFT, ANY ENGINE, ANY PART, ANY
AIRCRAFT DOCUMENTATION OR ANY OTHER THING DELIVERED, LEASED, SOLD OR TRANSFERRED
UNDER THIS LEASE AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, INCLUDING:
5.1.1.1 ANY WARRANTY AS TO THE AIRWORTHINESS, VALUE, CONDITION, DESIGN
OR OPERATION OF, OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, OR THE
ABSENCE OF ANY DEFECT IN, THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY
AIRCRAFT DOCUMENTATION OR ANY OTHER THING DELIVERED, SOLD OR TRANSFERRED
HEREUNDER OR ANY
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OTHER OPERATIVE DOCUMENT.
5.1.1.2 ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR
FOR A PARTICULAR PURPOSE.
5.1.1.3 ANY EXPRESS OR IMPLIED WARRANTY AS TO TITLE.
5.1.1.4 ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE.
5.1.1.5 ANY OBLIGATION OR LIABILITY WITH RESPECT TO ANY ACTUAL OR
ALLEGED PATENT OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT.
5.1.1.6 ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT,
WHETHER OR NOT IN STRICT OR ABSOLUTE LIABILITY OR ARISING FROM THE NEGLIGENCE OF
LESSOR, OR ANY INDEMNIFIED PARTY OR AIRFRAME MANUFACTURER, ACTUAL OR IMPUTED,
ACTIVE OR PASSIVE.
5.1.1.7 ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OR
DAMAGE TO THE AIRCRAFT, ANY ENGINE, ANY PART, ANY AIRCRAFT DOCUMENTATION OR ANY
OTHER THING, FOR ANY LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER DIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES.
FOR THE AVOIDANCE OF DOUBT, THE FOREGOING SHALL NOT AFFECT OR LESSEN IN ANY WAY
LESSEE'S RIGHTS AGAINST AIRFRAME MANUFACTURER UNDER ANY ASSIGNMENT BY LESSOR TO
LESSEE OF THE WARRANTY AND/OR CUSTOMER SUPPORT PROVISIONS OF THE AIRFRAME
MANUFACTURER PURCHASE AGREEMENT.
EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT BY LESSEE, WHICH SHALL BE EVIDENCED BY
LESSEE'S EXECUTION AND DELIVERY OF LEASE SUPPLEMENT NO. 1, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES
CONFERRED UPON A LESSEE BY ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN THE STATE OF NEW YORK AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY ANY
OTHER STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY LESSOR'S RIGHTS AS DESCRIBED
IN THIS LEASE AGREEMENT.
LESSEE'S EXECUTION AND DELIVERY OF LEASE SUPPLEMENT NO. 1 WILL BE CONCLUSIVE
PROOF AS BETWEEN LESSOR AND LESSEE (BUT WITHOUT PREJUDICE TO ANY CLAIMS LESSOR
OR LESSEE MAY HAVE AGAINST THE AIRFRAME MANUFACTURER, ENGINE MANUFACTURER OR ANY
VENDOR WITH RESPECT TO THE AIRCRAFT) THAT LESSEE HAS EXAMINED AND INVESTIGATED
THE AIRCRAFT, THAT THE AIRCRAFT AND THE AIRCRAFT DOCUMENTATION ARE SATISFACTORY
TO LESSEE AND THAT LESSEE HAS
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IRREVOCABLY AND UNCONDITIONALLY ACCEPTED THE AIRCRAFT FOR LEASE HEREUNDER
WITHOUT ANY RESERVATIONS WHATSOEVER.
5.1.2 LESSOR'S REPRESENTATIONS AND WARRANTIES.
In order to induce Lessee to enter into this Lease Agreement and each
other Operative Document and to lease the Aircraft from Lessor, Lessor hereby
represents and warrants to Lessee that:
5.1.2.1 ORGANIZATION, CORPORATE POWER, ETC.
Lessor (1) is a corporation duly organized under the laws of the State
of Washington and (2) has the corporate power and authority to own or hold under
lease its properties wherever located or used and to enter into and perform its
obligations hereunder and under each other Operative Document.
5.1.2.2 CORPORATE AUTHORITY.
The execution, delivery and performance by Lessor of this Lease
Agreement, Lease Supplement No. 1 and each other Operative Document to which
Lessor is a party have been duly authorized by all necessary corporate action on
the part of Lessor.
5.1.2.3 LEGAL, VALID AND BINDING AGREEMENTS.
This Lease Agreement, Lease Supplement No. 1 and the other Operative
Documents each have been (as and when delivered to Lessor) duly executed and
delivered by Lessor and constitutes the legal, valid and binding obligation of
Lessor, enforceable against Lessor in accordance with its terms, except as may
be limited by (1) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other laws relating to or affecting creditors' rights
generally and (2) general principles of equity (regardless of whether considered
in a proceeding in equity or at law), including those relating to the
availability of the remedy of specific performance or injunctive relief.
5.2 LESSEE'S REPRESENTATIONS AND WARRANTIES.
In order to induce Lessor to enter into this Lease Agreement and each
other Operative Document and to lease the Aircraft to Lessee:
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5.2.1 CONTINUING REPRESENTATIONS AND WARRANTIES.
Lessee hereby represents and warrants to Lessor that:
5.2.1.1 ORGANIZATION, CORPORATE POWER, ETC.
Lessee (1) is a corporation duly organized under the laws of the State
of Colorado and (2) has the corporate power and authority to own or hold under
lease its properties wherever located or used and to enter into and perform its
obligations hereunder and under each other Operative Document.
5.2.1.2 CORPORATE AUTHORITY.
The execution, delivery and performance by Lessee of this Lease
Agreement, Lease Supplement No. 1 and each other Operative Document to which
Lessee is a party have been duly authorized by all necessary corporate action on
the part of Lessee.
5.2.1.3 AUTHORIZATIONS.
Lessee holds all Authorizations necessary to (1) authorize Lessee to
engage in air transport and to carry on scheduled passenger and cargo service in
each case as presently conducted, (2) permit the execution and delivery by
Lessee of this Lease Agreement, Lease Supplement No. 1 and each other Operative
Document and the performance by Lessee of its obligations hereunder and
thereunder and (3) operate the Aircraft in compliance with applicable Law.
5.2.1.4 NO CONTRAVENTION.
Neither the execution and delivery of this Lease Agreement, Lease
Supplement No. 1 or any other Operative Document by Lessee nor the performance
by Lessee of its obligations hereunder or thereunder contravenes any of the
provisions of the organizational or charter documents of Lessee.
5.2.1.5 LEGAL, VALID AND BINDING AGREEMENTS.
This Lease Agreement, Lease Supplement No. 1 and the other Operative
Documents each have been (as and when delivered to Lessor) duly executed and
delivered by Lessee and constitutes the legal, valid and binding obligation of
Lessee, enforceable against Lessee in accordance with its terms, except as may
be limited by (1) applicable bankruptcy, insolvency, reorganization,
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moratorium, fraudulent transfer or other laws relating to or affecting
creditors' rights generally and (2) general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including those
relating to the availability of the remedy of specific performance or injunctive
relief.
5.2.1.6 TAXES.
Lessee has filed or caused to be filed all tax returns which are
required to be filed and has paid or caused to be paid all Taxes shown to be due
and payable on such returns and (except to the extent being contested in good
faith and by appropriate proceedings, and for the payment of which adequate
reserves have been provided but only as long as such proceedings do not involve
any material danger of the sale, forfeiture, confiscation, seizure or loss
(including loss of use) of the Aircraft or any interest therein or of criminal
or civil liability of Lessor) on any assessment received by Lessee to the extent
that such Taxes have become due and payable. No Taxes (including any stamp or
value-added taxes), levies, imposts, duties or similar charges may be imposed by
the government of the Lessee Jurisdiction, or any Government Entity or political
or taxing subdivision therein, upon or with respect to the execution or delivery
of this Lease Agreement or any other Operative Document or the performance by
Lessee of its obligations hereunder or under any other Operative Documents.
5.2.1.7 PARI PASSU.
The obligations of Lessee under this Lease Agreement and the other
Operative Documents are direct, general and unconditional obligations of Lessee
and rank at least pari passu in right of payment 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.
5.2.1.8 GOVERNING LAW.
In any proceedings taken in the Lessee Jurisdiction for the
enforcement of this Agreement or any other Operative Document, the choice in
Section 18 of the governing law for this Agreement and the Operative Documents,
and any judgment obtained in any jurisdiction referred to in Section 18, will be
recognized and enforced.
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5.2.1.9 ALL DISCLOSURES MADE.
The financial and other information furnished by Lessee in connection
with this Agreement or any other Operative Document 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 in any material respect, nor omits to disclose any material matter to
Lessor.
5.2.1.10 SECTION 1110.
Lessor is entitled to the protection of Section 1110 of the United
States Bankruptcy Code in connection with its right to take possession of the
Aircraft in the event of a case under Chapter 11 of the United States Bankruptcy
Code in which Lessee is a debtor.
5.2.1.11 CITIZEN.
Lessor is a "citizen of the United States" as defined in the U.S.
Aviation Laws and is a U.S. Air Carrier.
The representations and warranties contained in this Section 5.2.1 are
continuing representations, warranties and covenants and shall be deemed made
and given throughout the Lease Term.
5.2.2 INITIAL REPRESENTATIONS AND WARRANTIES.
Lessee hereby represents and warrants to Lessor as of the date hereof
and as of the Delivery Date (unless, in each case, such representation and
warranty is expressly applicable on and as of another date or dates) that:
5.2.2.1 NO VIOLATION.
Neither the execution and delivery of this Lease Agreement, Lease
Supplement No. 1 or any other Operative Document by Lessee nor the performance
by Lessee of its obligations hereunder or thereunder violate any Law applicable
to or binding upon the Aircraft or Lessee.
5.2.2.2 LITIGATION.
There are no pending or, to Lessee's knowledge, threatened actions or
proceedings before any court or
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administrative agency (1) in respect of this Lease Agreement or any other
Operative Document or the Aircraft or the performance by Lessee of its
obligations hereunder or under any other Operative Document or (2) which might
if adversely determined materially adversely affect the ability of Lessee to
perform its obligations under the Operative Documents.
5.2.2.3 FILING.
Except for the filings or recordings described in Section 7, each of
which will be duly made and effected by Lessee on or prior to the Delivery Date,
no further action, including the filing or recording of any instrument or
document is necessary or advisable under the Laws of the State of Registration,
the Lessee Jurisdiction, or any jurisdiction in which the Aircraft will be
operated by Lessee (1) in order for this Lease Agreement to constitute a valid
and enforceable lease of record relating to the Aircraft, (2) to authorize or
permit Lessee to perform its obligations hereunder or under each other Operative
Document or (3) fully to protect, establish, perfect and preserve Lessor's title
to, and Lessor's rights and interests in, the Aircraft and the Operative
Documents as against Lessee and any other Person.
5.2.2.4 NO DEFAULT.
There has not occurred any event which is presently continuing and
which would constitute a Default under this Lease Agreement or any of the other
Operative Documents.
5.2.2.5 FINANCIAL CONDITION.
The Annual Financial Report of Lessee dated March 31, 1996, a copy of
which has been furnished to Lessor fairly presents the financial condition of
Lessee as at such date and the results of operations of Lessee for the period
ended on such date, all in accordance with GAAP, consistently applied.
5.2.3 NO PREJUDICE.
The rights and remedies of Lessor in relation to any misrepresentation
or breach of warranty on the part of Lessee shall not be prejudiced by any
investigation by or on behalf of Lessor into the affairs of Lessee, by the
performance of this Lease Agreement or any other Operative Document or by any
other act or thing which may be done or omitted to be done by Lessor under this
Lease Agreement or any other Operative Document or any
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related document and which would or might, but for this provision, prejudice
such rights and remedies.
SECTION 6. GENERAL COVENANTS.
6.1 LESSOR'S COVENANTS.
In order to induce Lessee to enter into this Lease Agreement and each
other Operative Document and to lease the Aircraft from Lessor:
6.1.1 QUIET ENJOYMENT.
Lessor hereby covenants to Lessee that so long as no Event of Default
shall have occurred and be continuing, except as may be expressly provided in
this Lease Agreement or any other Operative Document, neither Lessor nor any
Person claiming by or through Lessor shall take or cause to be taken any action
inconsistent with Lessee's right of quiet enjoyment of, or otherwise in any way
interfere with or interrupt, the continuing use, operation and possession of the
Aircraft by Lessee.
6.1.2 NO CLAIMS BY LESSEE.
For the benefit of each lessor of an airframe leased to Lessee and each
seller of an airframe purchased by Lessee subject to a conditional sale or other
security agreement, Lessor hereby covenants that it shall not acquire or claim,
as against such lessor or seller, any right, title or interest in any engine
covered by any such lease or conditional sale and owned by such lessor or
seller, which engine is attached to the Airframe, provided that such agreement
of Lessor shall not be for the benefit of any lessor or seller of any airframe
leased to Lessee or purchased by Lessee subject to a conditional sale, unless
such lessor or seller has expressly agreed (which agreement may be contained in
such lease or conditional sale agreement) that neither it nor its successors or
assigns will acquire, as against Lessor, any right, title or interest in an
Engine as a result of such Engine's being installed on such airframe.
6.2 LESSEE'S COVENANTS.
Lessee covenants and agrees with Lessor, at Lessee's sole cost and
expense, as follows:
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6.2.1 CONTINUING BUSINESS; MERGER, CONSOLIDATION, ETC.
Lessee shall not:
6.2.1.1 DISCONTINUE BUSINESS.
Either temporarily or permanently discontinue its business as a
commercial passenger or cargo air carrier.
6.2.1.2 SUSPEND OPERATIONS.
Voluntarily suspend all or substantially all of its commercial
airline operations (Lessor and Lessee agree that a labor stoppage or strike
shall not in itself constitute a discontinuance of business).
6.2.1.3 CONSOLIDATION, MERGER, ETC.
Consolidate with or merge into any other corporation, or permit any
other corporation to consolidate with or merge into Lessee, or convey, transfer
or lease substantially all of Lessee's assets as an entirety to any Person,
provided that Lessee may consolidate with or merge into any other corporation,
or permit any other corporation to consolidate with or merge into Lessee, and
Lessee may convey, transfer or lease substantially all of Lessee's assets as an
entirety to any Person if:
6.2.1.3.1 The corporation formed by such consolidation or merger
or the Person which acquires by conveyance, transfer or lease substantially all
of the assets of Lessee as an entirety (each such corporation and such Person
being hereinafter called the "Successor") shall be a corporation under the laws
of the United States or any state thereof or District of Columbia and shall be a
"citizen of the United States" as defined in the U.S. Aviation Laws and shall be
a U.S. Air Carrier.
6.2.1.3.2 Such Successor shall execute and deliver to Lessor an
agreement in form and substance reasonably satisfactory to Lessor containing an
assumption by such Successor of the due and punctual performance of each
covenant and condition of Lessee under this Lease, the Lease Supplements and all
other Operative Documents.
6.2.1.3.3 Immediately after giving effect to such transaction,
(1) no Event of Default or Default under this Lease shall have occurred and be
continuing and (B) the Tangible Net
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Worth of the Successor shall not be less than the Tangible Net Worth of Lessee
immediately prior to such transaction.
6.2.1.3.4 Lessee shall have delivered to Lessor an officer's
certificate, and an opinion of counsel reasonably satisfactory to Lessor, each
stating that such consolidation, merger, conveyance, transfer or lease and the
assumption agreement required by Section 6.2.1.3.2 comply with this Section
6.2.1.3 and that all conditions precedent herein provided for relating to such
action have been complied with.
Upon any consolidation or merger, or any conveyance, transfer or
lease of substantially all of the assets of Lessee as an entirety in accordance
with this Section 6.2.1.3, the Successor shall succeed to, and be substituted
for, and may exercise every right and power of, Lessee under this Lease with the
same effect as if such Successor or such Person had been named as Lessee herein.
No such conveyance, transfer or lease of substantially all of the assets of
Lessee as an entirety shall have the effect of releasing Lessee, or any
Successor which shall theretofore have become such in the manner prescribed in
this Section 6.2.1.3, from its liability hereunder or under any other Operative
Document to which Lessee is a party. Nothing contained herein shall permit any
lease, sublease or other arrangement for the use, operation or possession of the
Aircraft except in compliance with the applicable provisions of this Lease.
6.2.2 REPORTING REQUIREMENTS.
6.2.2.1 FINANCIAL REPORTS.
Lessee shall furnish to Lessor:
6.2.2.1.1 [INTENTIONALLY LEFT BLANK].
6.2.2.1.2 QUARTERLY REPORTS.
Within 45 days after the close of each fiscal quarter of Lessee
(other than the last fiscal quarter in each fiscal year of Lessee), copies of
unaudited (consolidated, if prepared) financial statements (including a balance
sheet, statement of cash flows and a profit and loss statement) prepared in
Dollars in accordance with GAAP.
6.2.2.1.3 ANNUAL REPORTS.
Within 90 days after the close of each fiscal year
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of Lessee, copies of audited consolidated financial statements (including a
balance sheet, statement of cash flows and a profit and loss statement) prepared
in Dollars in accordance with GAAP, all in reasonable detail and setting forth
in comparative form the respective figures as of the end of and for the
preceding fiscal year as certified by Lessee's independent public accountants,
including their certificate and accompanying comments.
6.2.2.1.4 OTHER INFORMATION.
Such other information respecting the business and properties,
operations or condition (financial or otherwise) of Lessee as Lessor may from
time to time reasonably request, including copies of all regular, periodic and
special reports, that Lessee makes available for review by the public or other
creditors.
6.2.2.2 NOTICE OF LOSS OR DAMAGE.
Lessee shall notify Lessor promptly of any loss or damage (whether
or not constituting an Event of Loss) of or to the Aircraft or the Airframe or
any Engine for which the cost of correction or repairs may exceed the Damage
Notice Threshold and, if not constituting an Event of Loss, shall provide a
proposal for carrying out the correction or repair. If after its receipt of such
proposal, Lessor does not reasonably believe that Lessee's proposal complies
with the provisions hereof or applicable Law, Lessor shall promptly notify
Lessee of such disagreement. Lessee and Lessor shall then consult with Airframe
Manufacturer, Engine Manufacturer or other relevant manufacturer, as
appropriate, and Lessee and Lessor agree to accept as conclusive, and be bound
by, such Person's directions or recommendations as to the manner in which to
carry out such repairs.
6.2.2.3 NOTICE OF MATERIAL ADVERSE EFFECT OR DEFAULT.
Lessee shall provide notice in writing to Lessor immediately after
an officer of Lessee obtains knowledge of the occurrence of a Default.
6.2.2.4 INFORMATION REGARDING AIRCRAFT OR LESSEE.
From time to time, Lessee shall promptly provide such other
information as Lessor may reasonably request concerning the
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location, condition, use and operation of the Aircraft or the financial
condition and business of Lessee.
6.2.2.5 MONTHLY AIRCRAFT STATUS REPORT.
Lessee shall provide Lessor on the tenth day of each calendar month
during the Lease Term with a completed and duly executed Aircraft status report
substantially in the form of Exhibit F.
6.2.2.6 PRINCIPAL PLACE OF BUSINESS.
Lessee shall give at least 30 days' prior written notice to Lessor
of any change of its principal place of business or chief executive office or
major executive office, in each case, as set forth in Schedule 4.
6.2.2.7 GOVERNMENT FILINGS.
Lessee shall promptly on request furnish or cause to be furnished to
Lessor such information as may be required to enable Lessor to file on a timely
basis any reports required to be filed by Lessor with any Government Entity
because of Lessor's rights, title and interests in and to the Aircraft or under
the Lease Agreement or any other Operative Document.
6.2.2.8 PERIODIC CERTIFICATION.
Upon not less than 10 days' prior written request by Lessor (but not
more than three times in any 12-month period) execute, acknowledge and deliver
to Lessor, or any intended successor or permitted assign of Lessor, a statement
in writing (which may be conclusively relied upon by Lessor or any such intended
successor or permitted assign):
6.2.2.8.1 Certifying that this Lease and each other Operative
Document (together with any amendments and modifications) are in full force and
effect.
6.2.2.8.2 Certifying that there are not any uncured Defaults, or
if any such Default is then existing, stating the nature of such Default or
Defaults.
6.2.2.8.3 In connection with any transaction described in Section
14.1, certifying (1) that there has been no amendment or modification of this
Lease Agreement or any other Operative Document, if any such amendment or
modification has
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been effected, stating the nature of all such amendments or modifications, (2)
the date to which Basic Rent has been paid, (3) that Lessee has no claim against
Lessor by reason of the condition of the Aircraft (a) as of the Delivery Date or
(b) arising subsequent thereto and (4) the amount of the Reserves (by account)
as of the date of the certificate.
Lessee's failure to deliver such statement within such time shall be
deemed to constitute a material misrepresentation under Section 12.7.
6.2.3 LIENS.
6.2.3.1 NO LIENS.
Lessee shall not directly or indirectly create, incur, assume or
suffer to exist, or agree to create or assume, any Lien on or with respect to
the Aircraft, any Engine or any Part or any Operative Document, or in any right,
title or interest in any of the foregoing, except:
6.2.3.1.1 LIENS OF THE OPERATIVE DOCUMENTS.
The rights of Lessor and Lessee provided in this Lease Agreement
and the other Operative Documents.
6.2.3.1.2 PERMITTED TRANSFER OF POSSESSION.
The rights of others under agreements or arrangements to the
extent permitted by the terms of Section 8.
6.2.3.1.3 LESSOR LIENS.
Lessor Liens.
6.2.3.1.4 CERTAIN TAX LIENS.
Liens for Taxes of Lessee arising in the ordinary course of
business either not yet due or being contested in good faith by appropriate
proceedings (and for the payment of which adequate reserves have been provided)
so long as such contest does not involve any material danger of the sale,
forfeiture, seizure or loss (including loss of use) of the Airframe, any Engine
or any Part or any interest therein or of any criminal or civil liability of
Lessor.
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6.2.3.1.5 MECHANICS' LIENS.
Materialmen's, mechanic's, workmen's, repairmen's, employees' or
other like Liens arising by operation of Law in the ordinary course of Lessee's
business (including those arising under maintenance agreements entered into in
the ordinary course of business) securing obligations that are not yet due or
are being contested in good faith by appropriate proceedings (and for the
payment of which adequate reserves have been provided) so long as such contest
does not involve any material danger of the sale, forfeiture or loss (including
loss of use) of the Airframe, any Engine or any Part or any interest therein.
6.2.3.2 OBLIGATION TO DISCHARGE.
Lessee will promptly, at its own expense, take, or cause to be
taken, such actions as may be necessary to discharge any Lien not excepted under
this Section 6.2.3 that may at any time arise, exist or be levied upon the
Airframe, any Engine, any Part or in this Lease Agreement or any other Operative
Document, or in any right, title or interest in any of the foregoing.
6.2.3.3 PROTECTION.
Without limiting the foregoing or any other provision of this Lease
Agreement or any other Operative Document, Lessee will not do or permit to be
done anything which may expose the Aircraft or any part thereof to penalty,
forfeiture, seizure, arrest, impoundment, detention, confiscation, taking in
execution, attachment, appropriation or destruction, nor abandon the Aircraft or
any Part or which may expose Lessor to any criminal or civil liability.
6.2.4 SECTION 1110.
Lessee shall be a "citizen of the United States" as defined in the
U.S. Aviation Laws and shall be a U.S. Air Carrier and Lessee shall otherwise
continue to be certified, qualified and/or registered to the extent necessary to
fall within the purview of, and to provide to Lessor the benefits contemplated
by, 11 U.S.C. Section 1110 or any analogous section of the federal bankruptcy
laws, as amended from time to time.
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SECTION 7. TITLE; REGISTRATION AND FILINGS; ETC.
7.1 TITLE TO THE AIRCRAFT.
7.1.1 LESSOR AS OWNER.
Lessee acknowledges that title to the Aircraft shall at all times be
and remain solely and exclusively vested in Lessor and that this Lease Agreement
and the other Operative Documents constitute an agreement to lease the Aircraft
to Lessee and, accordingly, Lessee shall have no right, title or interest in the
Aircraft except the right to use the Aircraft as provided herein.
7.1.2 LESSEE NOT OWNER.
Lessee will not at any time 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 or, except as expressly provided
herein, attempt, or hold itself out as having any power, to sell, charge, lease
or otherwise dispose of or encumber the Aircraft, the Engines or any Part.
7.1.3 TITLE VIS A VIS THIRD PARTIES.
On all occasions when the ownership of the Aircraft or any part of it
is relevant, Lessee will make clear to third parties that title to the same is
held by Lessor.
7.2 REGISTRATION AND FILINGS; ETC.
7.2.1 REGISTER AIRCRAFT.
Prior to delivery of the Aircraft pursuant to Section 2, Lessor shall
procure that the Aircraft is duly registered with the Aviation Authority in the
name of Lessor, as owner, and thereafter shall maintain, or procure the
maintenance of, such registration throughout the Lease Term. At no time during
the Lease Term shall Lessee take any action to interfere with such registration.
7.2.2 RECORDATION OF LEASE.
Upon delivery of the Aircraft pursuant to Section 2, Lessee shall
cause the recordation of this Lease Agreement and Lease Supplement No. 1 with
the Aviation Authority. Lessee shall
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cause such recordation to be maintained in good standing at all times during the
Lease Term.
7.2.3 FURTHER ACTIONS.
Lessee shall take, or cause to be taken, such action with respect to
the recording, filing, rerecording and refiling of this Lease Agreement, Lease
Supplement No. 1 or other documents or instruments as necessary or advisable
under the Laws of the State of Registration, the Lessee Jurisdiction, or any
jurisdiction in which the Aircraft will be operated by Lessee (1) in order for
this Lease Agreement to constitute a valid and enforceable lease of record
relating to the Aircraft, (2) to authorize or permit Lessee to perform its
obligations hereunder and under each other Operative Document or (3) fully to
protect, establish, perfect and preserve Lessor's title to, and Lessor's rights
and interests in, the Aircraft hereunder and the other Operative Documents as
against Lessee and any other Person.
7.2.4 GENEVA CONVENTION.
Without limiting the effect of the foregoing, Lessee shall do or cause
to be done any and all acts and things which are required under the terms of the
Convention for the International Recognition of Rights in Aircraft, signed at
Geneva, Switzerland, on June 18, 1948, to protect, establish, perfect and
preserve Lessor's title to, and Lessor's rights and interests in, the Aircraft
within the jurisdiction of any signatory state that has ratified such
Convention, and Lessee shall also do or cause to be done at its own expense any
and all acts and things which may be required under the terms of any other
agreement, treaty, convention, pact or by any practice, custom or understanding
involving any jurisdiction in which Lessee may operate, and any and all acts and
things which Lessor may reasonably request, to protect, establish, perfect and
preserve Lessor's title to, and Lessor's rights and interests in, the Aircraft
and the Operative Documents.
Lessor shall execute and deliver such documents as Lessee may
reasonably request in order to permit Lessee to comply with its obligations
under this Section 7.
SECTION 8. POSSESSION.
Lessee will not, without the prior written consent of Lessor, in any manner
deliver, transfer or relinquish possession of the Aircraft, Airframe or an
Engine or any Part, or install an
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Engine, or permit any such Engine to be installed, on an airframe other than the
Airframe covered hereby, provided that so long as (1) no Default shall have
occurred and be continuing, (2) the action to be taken shall not adversely
affect, or be of a nature that could reasonably be expected to adversely affect,
Lessor's or any Financing Party's right, title and interest in and to the
Aircraft or Airframe, or any Engine or Part, or under this Lease Agreement or
any other Operative Document (including any impairment of title to or the
registration with the Aviation Authority of, the Aircraft), (3) all applicable
approvals, if any, of the Aviation Authority and any other Government Entity
having jurisdiction shall have been obtained, and (4) the insurance provisions
of Section 11 hereof shall have been complied with, then:
8.1 SUBLEASING.
NOTWITHSTANDING THE FOREGOING OR ANY OTHER PROVISION OF ANY OPERATIVE
DOCUMENT, LESSEE SHALL NOT SUBLEASE THE AIRCRAFT AT ANY TIME WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR, WHICH SHALL NOT BE UNREASONABLY WITHHELD BY LESSOR.
8.2 MAINTENANCE, ETC.
Without the prior consent of Lessor, Lessee may deliver possession of the
Airframe or an Engine or any Part to the manufacturer thereof or to any Approved
Maintenance Performer for testing, service, repair, maintenance or overhaul work
or for alterations, modifications or additions to the extent required or
permitted by the terms hereof.
8.3 INSTALLATION OF ENGINES ON OTHER AIRFRAMES.
Without the prior consent of Lessor, Lessee may install an Engine on any
Airframe Manufacturer model 737-300 airframe (other than the Airframe) owned or
leased by Lessee or subject to a conditional sales agreement where Lessee is the
conditional vendee if (1) such airframe is free and clear of all Liens except
the rights of the parties to any security agreement and Permitted Liens, lease
or conditional sale agreement covering such airframe and (2) Lessee shall have
obtained from any security interest holder, lessor or conditional seller of such
airframe a written agreement (which may be the security agreement, lease or
conditional sale agreement), whereby such security interest holder, lessor or
conditional seller expressly and effectively agrees that neither it nor its
successors or assigns will acquire or claim any right, title or interest in any
Engine by reason of
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such Engine's being installed on such airframe at any time while such Engine is
owned by Lessor.
8.4 WET LEASE.
Without the prior consent of Lessor, Lessee may enter into one or more
arrangements whereby Lessee agrees to furnish the Aircraft to a third party
pursuant to which the Aircraft (1) shall at all times be in the sole possession
and control of Lessee, and shall at all times maintain its registration in the
State of Registration, (2) shall be operated in all respects solely by regular
employees of Lessee, and (3) shall be maintained, insured and otherwise operated
by Lessee in accordance with the requirements of this Lease Agreement and each
other Operative Document, provided no such arrangement extends beyond 135 days
(including extensions and renewals) or past the last day of the Lease Term.
The rights of any Person who receives possession by reason of a transfer
permitted by this Section 8 shall be effectively and expressly subject and
subordinate to all the terms of this Lease Agreement and each other Operative
Document, including the covenants contained in this Section 8 and Section 11 and
the rights of Lessor to repossession pursuant to Section 13 and to avoid
transfer upon such possession. No sublease or other relinquishment or transfer
of possession of the Aircraft or Airframe, or any Engine or Part, shall in any
way release, discharge or otherwise limit or diminish any of Lessee's
obligations to Lessor or any Financing Party (it being agreed that
notwithstanding any such sublease or other transfer or relinquishment of
possession, Lessee shall continue to be primarily liable and responsible for
performance of all of its obligations under this Lease Agreement and each other
Operative Document), or constitute a waiver of Lessor's rights or remedies
hereunder or affect the registration of the Aircraft with the Aviation
Authority. Notwithstanding any other provision of this Lease Agreement or any
other Operative Document, any sublease or other relinquishment or transfer of
possession must not adversely affect applicable tax benefits available to
Lessor.
SECTION 9. INDEMNITIES.
9.1 GENERAL INDEMNITY.
Subject only to the exceptions set forth in Section 9.2, Lessee hereby
assumes liability for and hereby agrees to indemnify Lessor and each other
Indemnified Party and Airframe
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Manufacturer (but, in the case of Airframe Manufacturer, only to the extent
provided in Part E of Exhibit C to the Airframe Manufacturer Purchase Agreement)
against, and agrees to protect, save and keep harmless each thereof from, any
and all Expenses from time to time (whether before, during or after the Lease
Term) imposed on, incurred by or asserted against any Indemnified Party or
Airframe Manufacturer in any way relating to or arising out of:
9.1.1 The Aircraft, the Airframe, any Engine or engine installed on
the Aircraft, Part or Aircraft Documentation or any other thing delivered under
this Lease Agreement or any other Operative Document.
9.1.2 The acceptance, rejection, delivery, ownership, nondelivery,
lease, sublease, charter, transport, subcharter, registration, deregistration,
reregistration, possession, repossession, presence, operation, location,
condition, use or non-use, control, airworthiness, overhaul, replacement,
existence, storage, preparation, installation, testing, manufacture, design,
modification, alteration, maintenance, repair, re-lease, sale, return, transfer,
exportation, importation, abandonment or other disposition of, or the imposition
of any Lien (or the incurrence of any liability to refund or pay over any amount
as the result of any such Lien) on, the Aircraft, the Airframe, any Engine or
engine or Part or any other thing delivered under this Lease Agreement or any
other Operative Document or interest therein (or the incurrence of any liability
to refund or pay over any amount as the result of any such Lien) (including any
claim for patent, trademark or copyright infringement, any claim or penalty
arising out of violations of applicable Laws by Lessee, including environmental
control, noise and pollution regulations, any liability for any injury to or
death of any Person or loss of or damage to any property or to the environment,
latent or other defects, whether or not discoverable and whether or not any of
the foregoing shall arise as a result of the action or inaction, negligent or
otherwise, of Lessee, any Indemnified Party, Airframe Manufacturer or any other
Person).
9.1.3 This Agreement or any of the Operative Documents, any of the
transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof, including the enforcement of this Section 9.
9.1.4 Any breach or noncompliance by Lessee with any covenant, term,
agreement, condition, undertaking or obligation
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under this Lease Agreement or under any other Operative Document or agreement
entered into or furnished by Lessee in connection herewith or therewith, or the
falsity or inaccuracy of any representation or warranty of Lessee set forth
herein or therein, or the occurrence of any other Default, including any
Expenses incurred, assumed or suffered by Lessor or any other Person as a
consequence of Lessee's failure to accept delivery of the Aircraft or Return the
Aircraft in accordance with this Lease Agreement and each other Operative
Document on any date specified or required herein.
9.2 EXCEPTIONS TO GENERAL INDEMNITY.
The indemnity provided for in Section 9.1 will not extend to any of the
following Expenses of any Indemnified Party (but without limiting any rights of
Lessor under Section 13) or Airframe Manufacturer:
9.2.1 Expenses incurred as the result of the decline in the market
value of the Aircraft, except to the extent that such decline is due to any
Default by Lessee.
9.2.2 Expenses solely and directly caused by the gross negligence or
willful misconduct of such Indemnified Party or Airframe Manufacturer (other
than negligence imputed to such Indemnified Party or Airframe Manufacturer by
reason of its interest in the Aircraft).
9.2.3 Expenses solely and directly caused by a breach by such
Indemnified Party or Airframe Manufacturer of any covenant or inaccuracy or
falsity of a representation or warranty made by such Indemnified Party or
Airframe Manufacturer in this Lease Agreement or the documents and agreements
delivered by such party to Lessee.
9.2.4 Taxes or loss of Tax benefits, it being understood that Schedule
5 sets forth Lessee's entire obligation with respect to Taxes.
9.2.5 Expenses attributable solely to acts of such Indemnified Party
or Airframe Manufacturer or the Follow-On Operator, or events which occur, in
either case, after this Lease Agreement has terminated or expired and Lessee has
returned the Aircraft to Lessor in the condition and manner required by this
Lease Agreement.
9.2.6 Expenses attributable to any financing or
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refinancing of the Aircraft by Lessor or any other transfer by Lessor or any
Financing Party of any interest in the Aircraft (unless such Expenses were
incurred after an Event of Default).
9.2.7 Expenses that Lessor has expressly agreed to pay under this
Lease Agreement.
9.2.8 Expenses constituting ordinary and usual operating or overhead
expenses (unless such Expenses were incurred after an Event of Default).
9.3 TAXES.
Lessee's tax indemnity and other related agreements are contained in
Schedule 5, which schedule is hereby incorporated in this Section 9.3 by
reference.
9.4 CURRENCY INDEMNITY.
9.4.1 If any Indemnified Party or Airframe Manufacturer receives an
amount from Lessee or in respect of Lessee's liability under this Lease
Agreement or any other Operative Document, or if such a liability is converted
into a claim, proof, judgment or order in a currency other than the currency
(the "contractual currency") in which the amount is expressed to be payable
under this Lease Agreement or any other Operative Document:
9.4.1.1 Lessee will, on demand, indemnify such Indemnified Party or
Airframe Manufacturer as an independent obligation against any loss arising out
of or as a result of such conversion.
9.4.1.2 If the amount received by such Indemnified Party or Airframe
Manufacturer, when converted into the contractual currency (at the market rate
at which such Indemnified Party or Airframe Manufacturer is able on the relevant
date to purchase the contractual currency in Seattle or, at such Indemnified
Party's or Airframe Manufacturer's option, London with such other currency), is
less than the amount owed by Lessee in the contractual currency, Lessee will,
forthwith on demand, pay to such Indemnified Party or Airframe Manufacturer an
amount in the contractual currency equal to the deficit.
9.4.1.3 Lessee will pay to such Indemnified Party or Airframe
Manufacturer on demand any exchange costs and Taxes payable in connection with
the conversion.
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9.4.2 Lessee waives any right it may have in any jurisdiction to pay
any amount under this Lease Agreement or any other Operative Document in a
currency other than that in which it is expressed to be payable.
9.5 SCOPE, SURVIVAL, ETC.
9.5.1 Lessee shall be obligated under this Section 9 and Schedule 5 as
a primary obligor irrespective of whether an Indemnified Party or Airframe
Manufacturer shall also be indemnified, guaranteed or insured with respect to
the same matter under any of the Operative Documents or otherwise by any other
Person, and such Indemnified Party or Airframe Manufacturer may proceed directly
against Lessee under this Section 9 and/or Schedule 5 without first resorting to
any such other rights of indemnification, guarantee or insurance.
9.5.2 All indemnities, obligations, adjustments and payments provided
for in this Section 9 and Schedule 5 shall, to the extent herein provided,
survive and remain in full force and effect, notwithstanding the expiration or
termination of the Lease Term or of this Lease Agreement or any other Operative
Documents and the payment in full of all sums payable under the Operative
Documents. The obligations of Lessee in respect of all such indemnities,
obligations, adjustments and payments are expressly made for the benefit of, and
shall be enforceable by, the Indemnified Party or Airframe Manufacturer entitled
thereto, without declaring this Lease Agreement to be in default or taking other
action under this Lease Agreement or any other Operative Document.
9.5.3 Lessee acknowledges that the Indemnified Parties, or any of
them, may authorize Lessor, by notice in writing to Lessor and Lessee, to make
claims and demands under any indemnity hereunder or under any other Operative
Document on behalf of such Indemnified Parties, and Lessee shall be obligated to
make all payments pursuant to any such indemnity to Lessor, to the extent
claimed by Lessor on behalf of such Indemnified Parties (it being understood
that Lessee is entitled to, and shall, conclusively rely upon the instructions
of Lessor with respect to the payment of amounts owing to any Indemnified Party
or Airframe Manufacturer under the indemnities).
9.5.4 Each Indemnified Party or Airframe Manufacturer 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 Section 9.1, provided
that failure to
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give such notice will not prejudice or otherwise affect any of the rights of the
Indemnified Parties under Section 9.1.
9.6 INDEMNITIES PAYABLE ON AFTER-TAX BASIS.
Lessee agrees that, with respect to any payment or indemnity to an
Indemnified Party, Airframe Manufacturer or Tax Indemnitee under this Section 9
or Schedule 5, Lessee's indemnity obligations shall include an amount necessary
to hold such Indemnified Party, Airframe Manufacturer or Tax Indemnitee harmless
from all Taxes required to be paid by such Indemnified Party, Airframe
Manufacturer or Tax Indemnitee with respect to the receipt or accrual of such
payment or indemnity (including any payment by such Indemnified Party, Airframe
Manufacturer or Tax Indemnitee of any Taxes in respect to any indemnity payments
received or receivable under this Section 9 or Schedule 5).
SECTION 10. RISK OF LOSS, DESTRUCTION AND REQUISITION, ETC.
10.1 RISK OF LOSS.
Throughout the Lease Term and until the Return, Lessee shall bear all
risk of loss, damage, theft or destruction of, or any other Event of Loss with
respect to, the Aircraft, the Airframe, each Engine and each Part.
10.2 EVENT OF LOSS WITH RESPECT TO THE AIRCRAFT.
10.2.1 Upon the occurrence of an Event of Loss with respect to the
Airframe or the Airframe and Engines, Lessee shall forthwith (and, in any event,
within three days after such occurrence) give Lessor and Security Agent written
notice of such Event of Loss. By the earlier of (1) 60 days after the
occurrence of such Event of Loss or (2) the date on which the applicable
insurance or requisition proceeds are paid, Lessee shall pay or cause to be paid
to Lessor in immediately available funds the Stipulated Loss Value (but only to
the extent the full amount of the Stipulated Loss Value was not obtained and
applied by Lessor pursuant to Section 11.2.1 or received by Lessor from the
relevant Government Entity in connection with any requisition).
10.2.2 Until the date on which the Stipulated Loss Value is paid in
full, Lessee shall be obligated to pay all Basic Rent as scheduled and shall
continue to perform all of its other obligations hereunder and under the other
Operative Documents, except to the extent rendered impossible by the occurrence
of
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such Event of Loss or rendered, in the opinion of Lessor, unnecessary. If the
Stipulated Loss Value is paid on a date other than a Rent Payment Date, Lessor
shall refund or cause to be refunded to Lessee any paid but unaccrued Basic
Rent. Upon receipt of the full amount of the Stipulated Loss Value by Lessor
pursuant to this Section 10.2, and if Lessee has paid all other amounts then due
and payable by Lessee under this Lease Agreement and the other Operative
Documents, then (1) Lessor shall, upon the joint written request of Lessee and
each insurer which contributed to the payment of the Stipulated Loss Value,
transfer to the Person designated in such request title to the Aircraft
(including the Engines and all Parts) without recourse or warranty (except as to
absence of all rights of all Lessor Liens) and subject to the disclaimer set
forth in Section 5.1, (2) Lessor shall return to Lessee the Security Deposit or
Letter of Credit, as applicable, and any insurance, requisition, condemnation or
similar proceeds received after and related to such Event of Loss in excess of
the Stipulated Loss Value and all Reserves previously paid by Lessee in respect
of the Aircraft (in each case, to the extent not previously applied in
accordance with the terms hereof) and (3) Lessee shall be relieved of its
obligations under this Lease Agreement and the other Operative Documents except
those that are expressly stated to survive termination hereof and thereof.
10.3 EVENT OF LOSS WITH RESPECT TO AN ENGINE.
10.3.1 Upon the occurrence of an Event of Loss with respect to an
Engine under circumstances in which there has not occurred an Event of Loss with
respect to the Airframe, Lessee shall promptly (and, in any event, within three
days after such occurrence) give Lessor and Security Agent written notice
thereof and shall, promptly and, in any event, within 30 days after the
occurrence of such Event of Loss (or, if earlier the date of expiration or
termination of the Lease Term) and upon five days' prior written notice, convey
or cause to be conveyed to Lessor, as replacement for the Engine with respect to
which such Event of Loss occurred, title to a Replacement Engine, free and clear
of all Liens (other than Permitted Liens). For all purposes hereof, each such
Replacement Engine shall, after such conveyance, be deemed part of the property
leased hereunder, and shall be deemed an "Engine."
10.3.2 Prior to or at the time of any conveyance of a Replacement
Engine, Lessee shall, at its own expense, (1) furnish Lessor with a full
warranty bill of sale, in form and substance satisfactory to Lessor, conveying
to Lessor such Replacement
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Engine, (2) execute one or more Lease Supplements subjecting such Replacement
Engine to this Lease Agreement, (3) cause the filing of such instruments, in
form and substance satisfactory to Lessor, as are necessary or advisable to
establish and protect the interests of Lessor and the Security Agent in any such
Engine (including such Lease Supplements), (4) furnish Lessor with such evidence
of the transfer of title to such Replacement Engine to Lessor as Lessor may
reasonably request, including that such Replacement Engine is free and clear of
all Liens, except Permitted Liens, such evidence to include, without limitation,
an opinion of Lessee's counsel addressed to Lessor and opining that such title
has been so conveyed and that such Replacement Engine has been duly subjected to
this Lease Agreement, (5) furnish Lessor with such evidence of compliance with
the provisions of Sections 2.5 and 2.7 of Schedule 1 and Section 11 with respect
to such Replacement Engine as Lessor may reasonably request, (6) furnish Lessor
with a certificate signed by a duly authorized officer of Lessee certifying
that, upon consummation of such replacement, no Default will exist hereunder and
(7) furnish Lessor with an appraisal satisfactory to Lessor which shall
establish, and a certificate of an aircraft engineer (who may be an employee of
Lessee) certifying, that such Replacement Engine complies with the definition of
"Replacement Engine" for purposes of this Lease Agreement and each other
Operative Document.
10.3.3 Upon compliance by Lessee with the requirements of this Section
10.3, if no Default shall have occurred or be continuing, Lessor shall, upon the
joint written request of Lessee and each insurer which contributed to the
payment of any insurance proceeds with respect to the lost Engine, transfer to
the Person designated in such request title to such Engine without recourse or
warranty (except as to absence of all rights of Lessor and all Lessor Liens) and
subject to the disclaimer set forth in Section 5.1, and such Engine shall
thereupon cease to be an Engine leased hereunder.
10.3.4 No Event of Loss with respect to an Engine shall result in any
reduction in Basic Rent.
10.4 REQUISITION FOR USE OF THE AIRCRAFT BY ANY GOVERNMENT ENTITY.
In the event of the requisition for use of the Airframe and the Engines
or engines installed on the Airframe during the Lease Term by any Government
Entity not constituting an Event of Loss, Lessee shall promptly notify Lessor
and the Security Agent of such requisition, and all of Lessee's obligations
under this
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Lease Agreement and each other Operative Document with respect to the Aircraft
shall continue to the same extent as if such requisition had not occurred. All
payments received by Lessor or Lessee from such Government Entity for the use of
such Airframe and Engines or engines during the Lease Term shall be paid over
to, or retained by, Lessee if no Default shall have occurred and be continuing
and all payments received by Lessor or Lessee from such Government Entity for
the use of such Airframe and Engines or engines after the end of the Lease Term
shall be paid over to, or retained by, Lessor.
10.5 APPLICATION OF PAYMENTS DURING EXISTENCE OF DEFAULT.
Any amount referred to in this Section 10 which is payable to or
retainable by Lessee shall not be paid to or retained by Lessee if at the time
of such payment or retention a Default shall have occurred and be continuing,
but shall be held by or paid over to Lessor, as security for the obligations of
Lessee under this Lease Agreement and the other Operative Documents to be held
and applied pursuant to Section 13 and applied against Lessee's obligations
hereunder as and when due. At such time as there shall not be continuing any
Default, such amount shall be paid to Lessee to the extent not applied in
accordance with the preceding sentence.
SECTION 11. INSURANCE.
11.1 SCOPE OF INSURANCES.
At all times during the Lease Term, and until the Aircraft is returned to
Lessor in the condition and manner required by this Lease Agreement and each
other Operative Document, Lessee shall maintain or cause to be maintained with
respect to the Aircraft, at its own expense:
11.1.1 LIABILITY COVERAGE.
Worldwide (subject to standard insurance market geographical limits)
aircraft liability and comprehensive general liability, bodily injury (including
passengers), property damage, non-owned aircraft liability, personal injury,
cargo, mail, baggage, hangarkeepers liability, comprehensive general liability
(including premises, products, and completed operations and contractual)
insurance (exclusive of Airframe Manufacturer's product liability insurance),
(1) in an amount not less than the greater of (a) the amounts of comprehensive
airline liability insurance from time to time applicable to aircraft owned or
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leased and operated by Lessee of the same type as the Aircraft and (b) the
Stipulated Liability Coverage, provided that if Lessor, on the basis of advice
received from an independent insurance advisor of international reputation,
believes that such limit should be revised upwards based on amounts then
customary in the industry generally, it shall be replaced by such higher limit,
if any, as such independent insurance advisor may consider appropriate, (2) of
the type and covering the same risks usually carried by first class United
States air carriers operating similar aircraft and engines on similar routes and
covering risks of the kind customarily insured against by such air carriers with
respect to such aircraft operating on such routes, (3) with insurers of
recognized reputation, responsibility and substantial financial capacity
reasonably acceptable to Lessor and (4) that names each Insured Party as an
additional insured and otherwise complies with the requirements set forth in,
and is consistent with the issuance of a valid Certificate of Insurance issued
in the form of, Exhibit B.
11.1.2 HULL COVERAGE.
Worldwide (subject to standard insurance market geographical limits)
all-risk ground and flight aircraft hull insurance covering the Aircraft, and
all-risk spares insurance covering Engines and Parts while temporarily removed
from the Aircraft (including while in transit) (1) for an agreed value not less
than the Stipulated Loss Value in respect of all-risk hull insurance, (2) for
the full replacement value, in respect of all-risk spares insurance, (3) of the
type and covering the same risks usually carried by first class United States
air carriers operating similar aircraft and engines on similar routes with
respect to such aircraft operating on such routes, (4) confirming that the
insurers shall not be entitled to replace the Aircraft or Airframe upon the
occurrence of an insured Event of Loss with respect thereto, (5) with insurers
and reinsurers of recognized reputation, responsibility and substantial
financial capacity reasonably acceptable to Lessor and (6) that names Lessor or
the Security Agent, as designated from time to time by Lessor, as the sole loss
payee for all amounts up to the Stipulated Loss Value, names each Insured Party
as an additional insured, provides that claims shall be adjusted and/or settled
only with the consent of Lessor (and the Security Agent if one is then
designated) and otherwise complies with the requirements set forth in, and is
consistent with the issuance of a valid Certificate of Insurance in the form of
Exhibit B hereto.
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11.1.3 WAR HULL AND LIABILITY COVERAGE.
Worldwide (subject to standard insurance market geographical limits)
coverage of war-risk, hijacking and related perils insurance of the type and
covering the same risks usually carried by first class United States air
carriers operating similar aircraft and engines on similar routes (1) in no
event in an amount less than (a) the Stipulated Liability Coverage with respect
to liability coverage and (b) the Stipulated Loss Value with respect to hull
coverage and (c) full replacement value with respect to spares coverage, (2)
covering the perils of (a) war, invasion, acts of foreign enemies, hostilities
(whether war be declared or not), civil war, rebellion, revolution,
insurrection, martial law, military or usurped power or attempts at usurpation
of power, (b) strikes, riots, civil commotions or labor disturbances, (c) any
act of one or more Persons, whether or not agents of a sovereign power, for
political or terrorist purposes and whether the loss or damage resulting
therefrom is accidental or intentional, (d) any malicious act or act of
sabotage, (e) confiscation, nationalization, seizure, restraint, detention,
appropriation, requisition for title or use by or under the order of any
government (whether civil, military or de facto) or public or local authority,
and (f) hijacking, or any unlawful seizure or wrongful exercise of control of
any aircraft or crew in flight (including any attempt at such seizure or
control) made by any Person or Persons on board any aircraft acting without the
consent of the insured (including if committed by Persons engaged in a program
of irregular warfare for terrorist purposes), (3) with insurers of recognized
reputation, responsibility and substantial financial capacity reasonably
acceptable to Lessor and (4) that names each Insured Party as an additional
insured and, for hull and spares coverage only, names Lessor or the Security
Agent, as designated from time to time by Lessor, as the sole loss payee for all
amounts up to the Stipulated Loss Value and provides that claims shall be
adjusted and/or settled only with the consent of Lessor (and the Security Agent
if one is then designated), and otherwise complies with the requirements set
forth in, and is consistent with the issuance of a valid Certificate of
Insurance in the form of Exhibit B.
11.2 APPLICATION OF PROCEEDS OF HULL INSURANCE.
11.2.1 EVENT OF LOSS.
All proceeds of hull insurance maintained in compliance with this
Section 11 and received as the result of the occurrence of an Event of Loss
shall be applied as follows:
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11.2.1.1 AIRCRAFT EVENT OF LOSS.
If such proceeds are received with respect to the Airframe (or the
Airframe and the Engines or engines installed thereon):
11.2.1.1.1 To pay all amounts owing by Lessee hereunder (other
than Stipulated Loss Value) and under the other Operative Documents.
11.2.1.1.2 In reduction of the Stipulated Loss Value payable by
Lessee to the extent not already paid by Lessee.
11.2.1.1.3 With the remaining amount, if any, of such proceeds
to be paid to, and retained by, Lessee.
11.2.1.2 ENGINE EVENT OF LOSS.
If such proceeds are received with respect to an Engine under the
circumstances contemplated by Section 10.3:
11.2.1.2.1 To pay all amounts owing by Lessee hereunder and
under the other Operative Documents.
11.2.1.2.2 With the remaining amount, if any, of such proceeds to
be paid to, and retained by, Lessee, provided that Lessee shall have provided
Lessor with a Replacement Engine pursuant to Section 10.3.
11.2.2 DAMAGE.
All proceeds of hull insurance maintained in compliance with this
Section 11 and received with respect to damage to or loss of any part of the
Aircraft not constituting an Event of Loss with respect to the Airframe or an
Engine shall be applied as follows:
11.2.2.1 To pay all amounts owing by Lessee hereunder and under the
other Operative Documents.
11.2.2.2 To reimburse Lessee for the cost of the related repair or
replacement, where such repair or replacement is performed in accordance with
the terms hereof.
11.2.2.3 With the remaining amount, if any, of such proceeds to be
paid to, and retained by, Lessee.
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11.3 APPLICATION OF PAYMENTS DURING EXISTENCE OF A DEFAULT.
Any amount referred to in this Section 11 that is payable to or retainable
by Lessee shall not be paid to or retained by Lessee if at the time of such
payment or retention a Default shall have occurred and be continuing, but shall
be held by or paid over to Lessor as security for the obligations of Lessee
under this Lease Agreement and each other Operative Document and, if a Default
shall have occurred and be continuing, may, at Lessor's option, be applied
against Lessee's obligations hereunder or under any other Operative Document as
and when due. At such time as there shall not be continuing any such Default,
such amount shall be paid to Lessee to the extent not applied in accordance with
the preceding sentence.
11.4 CONTINUATION OF LIABILITY INSURANCE.
For a period of two years after the last day of the Lease Term, and at
Lessee's cost, Lessee shall continue to name each Insured Party as an additional
insured under Lessee's comprehensive airline and war-risk liability insurance
described in Sections 11.1.1 and 11.1.3.
11.5 REPORTS, ETC.
Lessee shall furnish, or cause to be furnished, to Lessor and the Security
Agent, if one is then designated, on or before the Delivery Date and not later
than the renewal date of any insurance, and otherwise upon reasonable request,
(1) a letter from the Insurance Brokers, substantially in the form of Exhibit C,
and (2) a certificate of insurance issued by the Insurance Brokers substantially
in the form of Exhibit B.
11.6 SELF-INSURANCE.
Lessee may not self-insure the risks required to be insured against
pursuant to this Section 11, provided that Lessee may self-insure the risks
covered by the hull insurance maintained in compliance with this Section 11 by
way of deductible (except in connection with a total loss), in such amounts as
are customarily self-insured with respect to aircraft of the same type and used
in the same manner as the Aircraft by other similar air carriers, but in no
event in an amount greater than the Stipulated Deductible Amount per aircraft
per occurrence.
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11.7 CHANGE OF PRACTICE OR INSURERS.
In the event that there is a material change in the generally accepted
industry-wide practice with regard to the insurance of similar aircraft or any
material change with respect to the insurance of similar aircraft based or
operated in any jurisdiction in which the Aircraft may then be based or operated
(whether relating to all or any of the types of insurance required to be
effected under this Section 11), such that Lessor, on the basis of advice
received from an independent insurance advisor of international reputation,
shall be of the reasonable opinion that the insurance required pursuant to this
Section 11 is insufficient to protect the respective interests of Lessor and/or
any other Insured Parties, the insurance requirements set forth in this Section
11 shall be amended so as to include such additional or varied requirements as
Lessor (upon the advice of such independent insurance advisor) may reasonably
consider appropriate.
11.8 CHANGE OF CIRCUMSTANCE.
If at any time, Lessor reasonably considers that any change in
circumstances is likely to occur, or has occurred and is continuing, which would
materially affect or is materially affecting the insurance of the Aircraft or
Airframe, then Lessor shall be entitled (without prejudice to any other rights
which it may have or acquire under this Agreement or any other Operative
Document by reason of such change in circumstances) to require the Aircraft or
Airframe, as the case may be, to remain at any airport or to proceed to and
remain at any airport designated by Lessor on the routes flown by Lessee until
Lessee shall have supplemented or replaced, or implemented any necessary
amendments to the terms of, such insurance, and implemented any operational
changes, which Lessor reasonably considers are required as the result of such
change in circumstances.
11.9 NEGATIVE UNDERTAKINGS.
Lessee shall not act or fail to act, or cause, permit or suffer an act or
failure to act, whereby any insurance required by this Section 11 would or might
reasonably be expected to be limited or rendered in whole or in part invalid,
unenforceable or otherwise not in full force and effect (including any
limitation resulting from inaccuracy of any representation or warranty of
Lessee, or any illegal use of the Aircraft).
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11.10 FAILURE TO INSURE.
If at any time Lessee fails to maintain insurance in compliance with this
Section 11, each of Lessor and Security Agent shall be entitled but not bound to
do any of the following (without prejudice to any other rights which it may have
under this Lease Agreement or any other Operative Document by reason of such
failure):
11.10.1 To pay any premiums due or effect or maintain such insurance
or otherwise remedy such failure in such manner as Lessor or Security Agent, as
the case may be, considers appropriate (and Lessee shall upon demand reimburse
Lessor or Security Agent, as the case may be, in full for any amount so
expended) and/or
11.10.2 At any time while such failure is continuing, require the
Aircraft to remain at any airport or, as the case may be, upon provision by
Lessor or Security Agent, as the case may be, of insurance coverage satisfactory
to Lessee, proceed to and remain at any airport designated by Lessor or Security
Agent, as the case may be, until such failure is remedied to Lessor's and
Security Agent's satisfaction.
11.11 ADDITIONAL INSURANCE BY LESSOR.
Lessee acknowledges that Lessor has an insurable interest in the Aircraft.
Lessor shall have the right to obtain insurance in its own name with respect to
such insurable interest. Lessee will render Lessor all reasonable assistance
requested by Lessor in order that Lessor may adequately protect such insurable
interest. Lessee agrees that the maximum amounts payable to it or to others for
its account or to be applied in discharge of its obligations by any underwriter
or carrier of insurance maintained by Lessee upon the occurrence of an Event of
Loss with respect to the Aircraft shall be limited to the Stipulated Loss Value
unless the maintenance of any such insurance in an amount in excess of such
Stipulated Loss Value in respect of Lessee's insurable interest in the Aircraft
does not prejudice Lessor's interests under the insurances otherwise required by
this Section 11, or prevent Lessor from obtaining such insurances as it
requires, in which event nothing herein shall prevent Lessee from effecting such
additional insurance for its account. At Lessor's request, Lessee will have any
such additional insurance coverage for the Aircraft amended so as to cover, in
addition, Lessor's insurable interest therein, Lessor hereby agreeing, in such
case, to reimburse Lessee in the amount of the additional premium required
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to provide such coverage for such insurable interest of Lessor.
11.12 INSURANCE REQUIRED BY AIRFRAME MANUFACTURER.
Without limiting any other provision of this Section 11, Lessee shall
comply with the insurance requirements of Part E to Exhibit C of the Airframe
Manufacturer Purchase Agreement as if it were "Buyer" thereunder.
SECTION 12. EVENTS OF DEFAULT.
Lessor and Lessee agree that it is a fundamental term and condition of this
Agreement that none of the following events shall occur during the Lease Term
and that the occurrence of any of the following events shall constitute a
repudiatory breach of this Agreement and an "Event of Default" (whether any such
event shall be voluntary or involuntary or come about or be effected by
operation of Law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Government Entity):
12.1 FAILURE TO PAY SCHEDULED AMOUNTS.
Lessee shall have failed to make any payment in accordance with this Lease
Agreement or any other Operative Document (including any payment of Basic Rent
or Renewal Rent) within three Business Days after the later of demand and the
date the same shall have become due.
12.2 FAILURE TO PAY DEMAND AMOUNTS.
Lessee shall have failed to make any demand payment in accordance with
this Lease Agreement or the other Operative Documents when the same shall have
become due after demand and such failure shall continue for five Business Days.
12.3 INSURANCE.
12.3.1 Lessee shall have failed to carry and maintain, or cause to be
carried and maintained, on or with respect to the Aircraft, any insurance
required to be maintained in accordance with the provisions of Section 11.
12.3.2 The Aircraft shall be operated at a time in contravention of
any requirements or conditions of any insurance required under Section 11.
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12.4 RETURN.
Lessee shall have failed to return the Aircraft at the end of the Lease
Term as and in the condition required by Section 4 of Schedule 1.
12.5 CERTAIN COVENANTS.
Lessee shall have failed to comply with its obligations under Section 2.1,
3.5.1, 6.2.1, 6.2.3, 6.2.4, 7, 8 or 14.2 or Section 2.4, 2.6, 2.9.2 or 4.1 of
Schedule 1.
12.6 OTHER COVENANTS.
Lessee shall have failed to comply with, observe or perform, and shall
fail to cause to be complied with, observed and performed, any of its covenants,
agreements or obligations hereunder or under any other Operative Document,
except to the extent provided above in this Section 12, and such failure shall
continue for 20 days after the earlier of (1) the date of written notice thereof
to Lessee or (2) the date Lessee assuming exercise of reasonable diligence,
should have known of such failure.
12.7 REPRESENTATIONS AND WARRANTIES.
Any representation or warranty made by Lessee herein or in any other
Operative Document shall have proven to have been incorrect, inaccurate or
untrue in any material respect as of the time made.
12.8 VOLUNTARY BANKRUPTCY, ETC.
Lessee shall have (1) commenced any proceeding or filed any petition
seeking relief under any applicable bankruptcy, insolvency, liquidation,
administration, receivership or other similar Law, (2) consented to or
acquiesced in the institution of, or failed to contravene in a timely and
appropriate manner, any such proceeding or the filing of any such petition, (3)
applied for or consented to the appointment of a receiver, trustee, custodian,
sequestrator or similar official for itself or for a substantial part of its
property or assets, (4) filed an answer admitting the material allegations of a
petition filed against it in any such proceeding, (5) proposed or entered into
any composition or other arrangement, or made a general assignment, for the
benefit of creditors or declared a moratorium on the payment of indebtedness,
(6) become insolvent or suspended payments on, become unable to, admitted in
writing its inability
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to or failed generally to pay, any material portion of its debts as they become
due, (7) sought its own liquidation, reorganization, dissolution or winding up
or (8) taken any corporate action (including a petition, proposal or convening
of a meeting by the shareholders or directors of Lessee) for the purpose of
effecting any of the foregoing.
12.9 INVOLUNTARY BANKRUPTCY, ETC.
A proceeding shall have been commenced or a petition shall have been
filed, in either case, without the consent or application of Lessee, seeking (1)
relief in respect of Lessee or of a substantial part of its property or assets
under any applicable bankruptcy, insolvency, liquidation, administration,
receivership or similar Law, (2) the appointment of a receiver, trustee,
custodian, sequestrator or similar official for Lessee or for a substantial part
of its property or assets or (3) the liquidation, reorganization, dissolution or
winding up of Lessee; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing
shall be issued and shall not immediately be stayed.
12.10 ILLEGALITY.
It is or becomes unlawful for Lessee to perform any of its obligations
under this Lease Agreement or any other Operative Document or this Lease
Agreement or any other Operative Document is or becomes wholly or partly
illegal, invalid or unenforceable or the existence, validity, enforceability or
priority of the rights of Lessor as owner and as lessor in respect of the
Aircraft, or otherwise, are or become illegal, invalid or unenforceable or are
challenged by Lessee or any other Person claiming by or through Lessee.
12.11 INDEBTEDNESS OR LEASE DEFAULT.
(1) Lessee shall have failed to pay any amount in respect of any
Indebtedness, or any interest or premium thereon, when due (whether by a
scheduled maturity, required prepayment, acceleration, demand or otherwise), or
Lessee shall fail to perform or to comply with any other covenant, agreement or
condition contained in any agreement or instrument relating to such
Indebtedness, and such failure to pay or to perform or to comply shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness, if, as a result of any such failure,
the maturity of such Indebtedness is capable of being accelerated and if the
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aggregate outstanding amount of all such Indebtedness exceeds, in the aggregate
together with any other Indebtedness in respect of which Lessee has failed to
make any payment or in respect of which Lessee has otherwise failed to perform
or comply, US$1,000,000 (or the equivalent thereof), (2) Lessee shall breach or
otherwise fail to perform or comply with any representation, warranty or
covenant of any aircraft leases and such breach or failure to perform or to
comply shall continue after the applicable grace period, if any, specified in
such leases, if, as a result of such breach or failure, an aircraft lessor
shall have taken action to enforce the contractual or other legal right to
terminate the leasing of the relevant aircraft or repossess, or order the
redelivery of, such aircraft, or (3) any "Event of Default" shall occur and be
continuing under and as defined in any Other Lease.
12.12 GOVERNMENT ACTION.
Any Government Entity or any Person acting or purporting to act under
governmental authority shall have taken any action to condemn, seize or
appropriate, or to assume custody or control of, or to levy or sue out upon any
distress or other execution involving, all or a material part of the property of
Lessee.
12.13 JUDGMENTS.
One or more uninsured judgments are rendered against Lessee that either
(1) imposes or impose on Lessee an obligation or obligations for the payment of
money in excess of US$1,000,000 (or the equivalent thereof) in the aggregate or
(2) grants or grant to any Person equitable relief of any nature that could, if
enforced, be reasonably expected to have a Material Adverse Effect and, in the
case of any such judgment or judgments, the same shall remain undischarged for a
period of 30 days or more, during which time execution of such judgment or
judgments shall not be effectively stayed nor adequate bonding fully covering
such judgment or judgments exist.
12.14 MATERIAL ADVERSE EVENT.
Any other event (other than an Event of Loss with respect to the Aircraft
which is fully covered by insurance) occurs or state of affairs exists that has
or will have, in Lessor's reasonable judgment, a Material Adverse Effect.
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SECTION 13. REMEDIES.
Upon the occurrence of any Event of Default and so long as the same shall be
continuing, Lessor shall have the right, effective upon notice to Lessee, to
terminate this Lease Agreement and each other Operative Document and at any time
thereafter Lessor may do all or any of the following, at its option and in its
sole discretion (in addition to such other rights and remedies which Lessor may
have under applicable Law):
13.1 RETAKE POSSESSION.
Upon the written demand of Lessor and at Lessee's expense, cause Lessee to
return promptly, and Lessee shall return promptly, the Airframe and Engines or
such part of the Aircraft as Lessor may so demand to Lessor or its order in the
manner and condition required by, and otherwise in accordance with all the
provisions of, Section 4 of Schedule 1 as if such Airframe and Engines were
being returned at the expiration of the Lease Term, or Lessor at its option, may
enter upon the premises where the Airframe or an Engine, or such part of the
Aircraft is located and take immediate possession of and remove the same
(together with any engine which is not an Engine but which is installed on the
Airframe, subject to all the rights of the owner, lessor, lienor or secured
party of such engine, and such engine shall be held for the account of any such
owner, lessor, lienor or secured party or, if owned by Lessee, may, at the
option of Lessor, be exchanged with Lessee for an Engine as if the original
Engine had suffered an Event of Loss) by summary proceedings or otherwise, and
Lessee waives any right it may have under applicable Law to a hearing prior to
repossession of the Aircraft, Airframe or any Engine or Part (and/or, at
Lessor's option, store the same at Lessee's premises until disposal thereof by
Lessor), all without liability accruing to Lessor for or by reason of such entry
or taking of possession or removing whether for the restoration of damage to
property caused by such action or otherwise, and Lessor is hereby irrevocably by
way of security for Lessee's obligations under this Lease Agreement appointed
attorney for Lessee in causing the redelivery or in directing the pilots of
Lessee or other pilots to fly the Aircraft to the designated location and will
have all the powers and authorizations necessary for taking that action.
13.2 TERMINATION OR ENFORCEMENT.
Rescind this Lease Agreement and each other Operative Document, terminate
this Lease Agreement and each other Operative
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Document and/or exercise any other right or remedy which may be available to it
under applicable Law or proceed by appropriate court action to enforce the terms
hereof and/or exercise any other power, right or remedy which may be available
to Lessor hereunder or under applicable Law. Without limiting the generality of
the foregoing Lessor shall have the right, without need of any consent,
authorization or action of Lessee, to cause the Aircraft to be deregistered by
the Aviation Authority, and to be made ready for export and to be exported out
of the Lessee Jurisdiction, and to cause all rights of Lessee in respect of the
Aircraft and this Lease Agreement and each other Operative Document under or in
connection with or resulting from the registration of the Aircraft or the
recordation of the Operative Documents with the Aviation Authority or otherwise
under or in connection with or resulting from any Law in the Lessee
Jurisdiction, to be terminated and extinguished. In furtherance of the
foregoing, Lessor shall be entitled and empowered to act in the name and in the
place of Lessee as may be necessary or desirable, in Lessor's sole discretion,
including with respect to the execution of documents and instruments, to effect
such deregistration, derecordation, exportation, termination and extinguishment.
Lessee hereby irrevocably and by way of security for its obligations under this
Lease Agreement appoints Lessor as its attorney to execute and deliver any
documentation and to do any act or thing required in connection with the
foregoing.
13.3 APPLICATION OF FUNDS.
Without limiting any other provision of this Lease Agreement or of any
other Operative Document, Lessor shall have the right to continue to hold the
Security Deposit and/or Letter of Credit, as the case may be, and any other
amounts received or held as security for Lessee's obligations hereunder and
under any other Operative Document, and to withhold or set off against all
amounts otherwise payable to Lessee hereunder or under any other Operative
Document (all as security for Lessee's obligations and liabilities under this
Lease Agreement and the other Operative Documents) and to use and apply in whole
or in part any or all of such amounts, withholdings and setoffs to and against
such obligations and liabilities of Lessee (in whatever order and according to
whatever priority Lessor may choose), and any such use, application or setoff
shall be absolute, final and irrevocable.
13.4 DAMAGES.
In addition to Lessor's rights under Section 9.1, recover
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from Lessee, and Lessee shall on demand pay damages to equal the sum of:
13.4.1 All accrued and unpaid Rent payable hereunder in respect of any
period prior to Return of the Aircraft to Lessor in the condition and otherwise
in the manner required under Section 4 of Schedule 1.
13.4.2 All Expenses incurred by Lessor in connection with such Event
of Default or the exercise of Lessor's remedies with respect thereto, including
(1) all costs and expenses incurred in connection with recovering possession of
the Airframe or any Engine or in placing such Airframe or Engine in the
configuration, condition and repair required by Section 4 of Schedule 1 and all
lost Rent payments during such recovery and reconditioning and (2) all damages
(including incidental and consequential damages) incurred by Lessor in
connection with such Event of Default, including all losses (including
reasonable lost profits) suffered by Lessor because of Lessor's inability to
place the Aircraft on lease with another lessee on terms as favorable to Lessor
as this Lease Agreement or because whatever use, if any, to which Lessor is able
to put the Aircraft upon its return to Lessor, or the amount received by Lessor
upon a sale or other disposal of the Aircraft, is not as profitable to Lessor as
leasing the Aircraft in accordance with the terms of this Lease Agreement would
have been, including in each case, lost Rent payments during any remarketing
period.
SECTION 14. ASSIGNMENT OF LEASE.
14.1 ASSIGNMENT BY LESSOR.
14.1.1 RIGHT TO ASSIGN.
Lessor (and any subsequent permitted assignee or transferee) shall have
the right at any time to transfer, assign (including assign as security),
mortgage, grant participations in, or otherwise dispose of, all or any portion
of its right, title and interest in and to this Lease Agreement and any other
Operative Document and the Aircraft to any Person (including in connection with
any conversion of the lease transaction contemplated by this Lease Agreement to
a "leveraged lease" structure or a "headlease-sublease" structure with a new
headlease which may be either a "leveraged lease" or a "single-investor lease").
The foregoing right of Lessor is subject, in the case of an Absolute Transfer
(as defined below), to Lessor's compliance with the requirements of Section
14.1.3 or absent such
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compliance, to receipt of Lessee's consent (such consent not to be unreasonably
withheld).
14.1.2 COOPERATION AND LIMITATIONS.
Lessee shall comply, at Lessor's expense, with all reasonable requests
of Lessor in connection with any such transfer, assignment, mortgage, grant or
other disposition (including in connection with any such conversion), including
the execution of all consents and amendments in connection therewith and the
reissuance of any insurance certificate, broker's letter and broker's
acknowledgment required in connection therewith.
14.1.3 ABSOLUTE TRANSFER.
In connection with the transfer of Lessor's entire interest in this
Lease Agreement (other than with respect to indemnities and third-party
liability insurance, as provided herein) (an "Absolute Transfer"):
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14.1.3.1 Lessor's obligations under this Lease Agreement and the
other Operative Documents shall be assumed by the transferee or assignee (and
thereupon the assigning Lessor shall be released from all of its obligations
hereunder).
14.1.3.2 Lessor shall transfer (1) any cash constituting the Security
Deposit or (2) the Letter of Credit to such transferee or assignee.
14.1.3.3 Lessee shall, immediately following such Absolute Transfer,
incur no additional material obligations or additional material (over $1,000 in
the aggregate) costs (financial or otherwise) hereunder or under any other
Operative Document (unless Lessor agrees to indemnify Lessee therefor), provided
that neither a change in the Person or Persons to whom, or for whose benefit,
Lessee performs its obligations under the Operative Documents, nor an increase
in the number of, or change in the nature of, beneficiaries under any
indemnification, insurance or other obligation shall, in each case, constitute
by itself or in the aggregate a material increase in the obligations of Lessee
under the Operative Documents.
14.1.3.4 Such transferee or assignee shall make for the benefit of
Lessee all of the Lessor's representations set forth herein.
For a period of two years after such Absolute Transfer and at
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Lessee's cost, if any, Lessee will, upon Lessor's request, continue to name
Lessor (and each other Indemnified Party and Airframe Manufacturer) as an
additional insured under Lessee's airline and war-risk liability insurance
described in Sections 11.1.1 and 11.1.3, provided that Lessee's obligations
hereunder shall not exceed its obligation under Section 11.4 (as if the
effective date of such sale or assignment were the last day of the Lease Term).
14.1.4 TRANSFER AS SECURITY.
Without limiting the generality of Section 14.1.2, in connection with
any transfer, assignment, mortgage, grant or other disposition as security (a
"Security Transaction") by Lessor of its interests hereunder, under the other
Operative Documents or in the Aircraft, to a lender or a financier (the
"Security Assignee"), Lessee shall, at Lessor's expense:
14.1.4.1 Enter into documentation customary for Security Transactions
of the type so contemplated, and shall make such filings, and take such actions,
as may be requested by Lessor in connection therewith.
14.1.4.2 Lessee and Lessor shall amend this Lease Agreement to
reflect the Security Transaction, including (1) an amendment to the definition
of Operative Documents to include the documents and instruments to be entered
into and/or delivered in connection with the Security Transaction, and, in the
case where the Security Transaction is consummated on the Scheduled Delivery
Date, the inclusion of such documents and instruments in Section 4.1 hereof, and
(2) amendments to the insurance and indemnity provisions and definitions, in
each case, in order to provide the Security Assignee with customary rights and
protections.
14.2 ASSIGNMENT BY LESSEE.
Except as otherwise expressly provided herein, Lessee may not, without the
prior written consent of Lessor, which consent may be withheld in Lessor's sole
discretion, assign (by express assignment, merger, consolidation or otherwise)
any of its rights or delegate any of its obligations hereunder or under any
other Operative Document.
14.3 SUCCESSORS AND ASSIGNS.
Subject to the foregoing, the terms and provisions of this Lease Agreement
and each other Operative Document shall be
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binding upon and inure to the benefit of Lessor and Lessee and their respective
permitted successors and assigns.
SECTION 15. NO SETOFF, COUNTERCLAIM, ETC.
This Lease Agreement is a net lease and Lessee's obligation to pay Rent is
and shall be absolute and unconditional and shall not be abated, suspended,
diminished, reduced, delayed, discontinued or otherwise affected by any
condition, circumstance, act or event of any kind whatsoever, including any of
the following: (1) any right of setoff, deduction, counterclaim, recoupment,
defense, suspension, deferment or other right (including any right of
reimbursement) which Lessee may have against Lessor, Airframe Manufacturer,
Engine Manufacturer, any Insured Party, any Inspecting Party, any Indemnified
Party or any other Person for any reason whatsoever, including any claim Lessee
may have for the foregoing, any present or future Law to the contrary
notwithstanding, (2) the unavailability, interruption or cessation in use of the
Aircraft for any reason, including (a) any requisition thereof or any
restriction, prohibition or curtailment of, interference with, or other
restriction against, Lessee's use, operation or possession of the Aircraft
(whether by Law, any Government Entity or other Person (other than Lessor,
except as permitted by this Lease Agreement or any other Operative Document or
by law) or otherwise) and (b) any damage to or loss or destruction (including an
Event of Loss) of or to the Aircraft and (c) the removal of the Aircraft from
service to permit the Final Inspection, Final Maintenance or Return of the
Aircraft, (3) any defect in the title, airworthiness, merchantability, fitness
for any purpose, condition, design, specification or operation of any kind or
nature of the Aircraft, or the ineligibility of the Aircraft for any particular
use or trade or for registration or certification, (4) any amendment or
modification of or supplement to any of the Operative Documents, any agreements
relating to any thereof or any other instrument or agreement applicable to the
Aircraft, the Airframe or any Engine, or any assignment or transfer of any
thereof, or any furnishing or acceptance of any additional security, or any
failure or inability to perfect any security, (5) any insolvency, bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution, liquidation,
receivership, administration or similar proceedings by or against Lessee,
Lessor, any Indemnified Party or any other Person, (6) the invalidity,
unenforceability or impossibility of performance of this Lease Agreement, any
other Operative Document or any of the terms hereof or thereof, the lack of
power or authority of Lessee to enter into this Lease Agreement or any other
Operative Document, or any other defect in
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this Lease Agreement or any other Operative Document, (7) any breach by Lessor,
any Indemnified Party or any other Person of any representation, warranty or
covenant, express or implied, made or alleged to be made to Lessee, or any
right, claim, bill, action or suit whatsoever by or against or on the part of
Lessee, including whether arising out of legal action or otherwise, at law or in
equity, whether affirmative, negative or defensive in nature for or on account
of the legality, validity, enforceability or otherwise arising as a result of
(a) this Lease Agreement or any other Operative Document or any of the terms or
conditions hereof or thereof, (b) any express or implied warranty or (c) any
contract, agreement or transaction between Lessee and Lessor or any other
Person, whether direct or indirect, written or oral, (8) any waiver, consent,
change, extension, indulgence or any action or inaction under or in respect of
any such instrument or agreement or any exercise or nonexercise of any right,
remedy, power or privilege in respect of any such instrument or agreement or
this Lease Agreement or any other Operative Document, (9) any transfer of any
interest in this Lease Agreement or any other Operative Document or in the
Aircraft by Lessor or any change of ownership of Lessor, or (10) any other
circumstance, happening or event whatsoever, whether or not similar to the
foregoing, which but for this provision would or might have the effect of
terminating or in any other way affecting any obligation of Lessee hereunder, it
being the express intention of Lessor and Lessee that all Rent and other amounts
payable by Lessee hereunder or under any other Operative Document shall be
payable in all events, unless the obligation to pay the same shall be terminated
pursuant to the express provisions of this Lease Agreement.
Lessee hereby waives, to the extent permitted by applicable Law, any and all
rights which it may have or which at any time hereafter may be conferred upon
Lessee, by Law or otherwise, to terminate, cancel, quit or surrender this Lease
Agreement or any other Operative Document, or to abate, suspend, defer, reduce
or otherwise fail to comply in full with any obligation imposed upon Lessee
hereunder or thereunder or in relation hereto, except termination of this Lease
Agreement in accordance with the express provisions hereof. If for any reason
whatsoever this Lease Agreement is terminated in whole or in part by operation
of Law or otherwise, except as specifically provided herein, Lessee nonetheless
agrees to pay Lessor an amount equal to each Rent payment at the time such
payment would have become due in accordance with this Lease Agreement and each
other Operative Document had this Lease Agreement not been terminated in whole
or in part until Return of the Aircraft to Lessor. Each Rent
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payment made by Lessee shall be final, and Lessee shall not seek to recover all
or any part of any such payment for any reason whatsoever.
Nothing in this Section 15 shall be construed to limit any right Lessee may
have to pursue any claim it may have against Lessor or any Indemnified Party or
Airframe Manufacturer under this Lease Agreement, applicable Law or otherwise.
SECTION 16. FURTHER ASSURANCES, ETC.
16.1 FURTHER ASSURANCES.
Without limiting the other obligations and liabilities of Lessee under
this Lease Agreement and the other Operative Documents, Lessee agrees to
promptly and duly execute and deliver to Lessor such further documents and
assurances and take such further action as Lessor may from time to time
reasonably request in order to effectively carry out the intent and purpose of
this Lease Agreement and the other Operative Documents and to establish, perfect
and protect the rights and remedies created or intended to be created in favor
of Lessor hereunder and thereunder and if applicable, any Security Assignee
under any Security Transaction.
16.2 LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS.
If Lessee fails to make any payment of Rent or fails to perform or comply
with any agreement, covenant or obligation contained herein or in any other
Operative Document, Lessor or Security Agent shall have the right, but not the
obligation, at its election and without waiver of any of its rights or remedies
against Lessee, to perform or comply with such covenant, agreement or obligation
and/or pay such amount, and the amount of such payment and any Expenses incurred
by Lessor or Security Agent, as the case may be, in connection with such payment
or the performance of or compliance with such agreement, covenant or obligation,
as the case may be, together with interest at the Past Due Rate, shall be
payable by Lessee to Lessor upon demand as Supplemental Rent. The taking of any
action by Lessor or Security Agent, as the case may be, pursuant to this Section
16.2 shall not constitute a waiver or release of any obligation of Lessee
hereunder nor a waiver of any Default which may arise out of Lessee's
nonperformance of such obligation, nor an election or waiver by Lessor of any
right or remedy available to Lessor under or in relation to this Lease Agreement
or any other Operative Document.
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16.3 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE.
16.3.1 No failure on the part of Lessor or any other Person to
exercise and no delay in exercising any right, power, remedy or privilege under
any Operative Document or provided by statute or at Law or in equity or
otherwise shall impair, prejudice or constitute a waiver of any such right,
power, remedy or privilege or be construed as a waiver of any Event of Default
or as an acquiescence thereto, nor shall any single or partial exercise of any
such right, power, remedy or privilege impair, prejudice or preclude any other
or further exercise thereof or the exercise of any other right, power, remedy or
privilege. No acceptance of partial payment or performance shall, whether or
not expressly stated, be or be deemed to be a waiver of any Event of Default
then existing or a waiver or release of full payment and performance. No notice
to or demand on Lessee shall in any case entitle Lessee to any other or further
notice or demand in other or similar circumstances or constitute a waiver of the
right of Lessor or any other Person to any other or further action in any
circumstances without notice or demand.
16.3.2 Nothing contained in any Operative Document shall be construed
to limit in any way any right, power, remedy or privilege of Lessor or other
Person hereunder or under any Operative Document or now or hereafter existing at
Law or in equity. Each and every right, power, remedy and privilege of Lessor
under the Operative Documents (1) shall be in addition to and not in limitation
of, or in substitution for, any other right, power, remedy or privilege under
any Operative Document or at law or in equity, (2) may be exercised from time to
time or simultaneously and as often and in such order as may be deemed expedient
by Lessor and (3) shall be cumulative and not mutually exclusive, and the
exercise of one shall not be deemed a waiver of the right to exercise any other.
SECTION 17. CONFIDENTIALITY.
Each of Lessee and Lessor shall keep this Lease Agreement and each other
Operative Document (and all terms and provisions hereof and thereof)
confidential and shall not disclose, or cause to be disclosed, the same to any
Person, without the prior written consent of the other, except (1) to
prospective and permitted transferees of Lessor or to any Person considering the
provision of financing to Lessor or to such prospective transferee and their
respective counsel, accountants, insurance brokers and advisers or other agents,
(2) in connection with any enforcement of any provisions of this Lease Agreement
or any
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other Operative Document by Lessor or any provider of financing to Lessor, (3)
to its Affiliates or the Affiliates of any Person providing financing to Lessor
or (4) as may be required by Law, provided that any and all disclosures of all
or any part of such documents and/or information which are permitted by this
Section 17 shall be made only to the extent necessary to meet the specific
requirements or needs of the Persons to whom such disclosures are hereby
permitted and the disclosing party shall inform such Persons of the confidential
nature of such documents and/or information.
SECTION 18. GOVERNING LAW AND JURISDICTION.
18.1 NEW YORK LAW.
THIS LEASE AGREEMENT AND EACH OTHER OPERATIVE DOCUMENT, UNLESS OTHERWISE
EXPRESSLY PROVIDED THEREIN, SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS ENTERED INTO IN THAT STATE BETWEEN CITIZENS OF THAT
STATE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REFERENCE TO ANY
RULES GOVERNING CONFLICTS OF LAWS.
18.2 NONEXCLUSIVE JURISDICTION IN NEW YORK.
Lessee and Lessor each hereby irrevocably consents that any legal action
or proceeding against it or any of its assets arising out of or relating to this
Lease Agreement or any other Operative Document may be brought in any
jurisdiction where it or any of its assets may be found, in the courts of the
United States of America for the Southern District of New York or in the courts
of the State of New York located in Manhattan, as the party bringing such action
or proceeding may elect, and by execution and delivery of this Lease Agreement
each of Lessor and Lessee hereby irrevocably submits to and accepts with regard
to any such action or proceeding, for itself and in respect of its assets,
generally and unconditionally, the jurisdiction of the aforesaid courts and
irrevocably agrees to be bound by any judgment rendered thereby. Nothing herein
shall limit the right of Lessor from bringing any legal action or proceeding or
obtaining execution of judgment against Lessee in any other appropriate
jurisdiction or concurrently in more than one jurisdiction. Lessee and Lessor
further agree that a final judgment in any action or proceeding arising out of
or relating to this Lease Agreement or any other Operative Document shall be
conclusive and may be enforced in any other jurisdiction within
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or outside the United States of America by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and the
amount of the indebtedness or liability therein described, or in any other
manner provided by Law. Each of Lessee and Lessor hereby irrevocably waives, to
the fullest extent permitted by Law, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Lease Agreement or any other Operative Document brought in any
court in or of the State of New York, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any court in or of the
State of New York has been brought in an inconvenient forum.
Lessee shall maintain the process agent specified for it in Section 18.3,
or such other Person located within the State of New York as may be acceptable
to Lessor, as its agent for service of process in the State of New York during
the Lease Term and six months thereafter, at Lessee's sole cost and expense.
Lessee irrevocably and unconditionally agrees that if Lessor brings legal
proceedings against it or its assets in relation to this Lease Agreement no
immunity from such legal proceedings (which will be deemed to include 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. Lessee further irrevocably and unconditionally (1)
waives any such right of immunity which it or its assets now have or may in the
future acquire and (2) 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 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.
LESSEE AND LESSOR HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT.
18.3 SERVICE OF PROCESS.
Lessee hereby irrevocably designates, appoints and empowers National
Corporate Research, Ltd., 225 West 34th Street, Suite 2110, New York, New York
10122, as its authorized agent to receive on its behalf and on behalf of its
property service of copies of the summons and complaint and any other process
which
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may be served in any action or proceeding arising out of or relating to this
Lease Agreement or any other Operative Document. Such service may be made by
mailing or delivering a copy of such process in care of the appropriate process
agent set forth above and Lessee hereby irrevocably authorizes and directs its
designated process agent to accept such service on its behalf. Lessee further
agrees that failure by a process agent appointed in accordance with the
foregoing terms to notify Lessee of the process shall not invalidate the
proceeding concerned. Notwithstanding the foregoing, nothing herein shall affect
the rights of either party to serve process in any other manner permitted by
Law.
SECTION 19. MISCELLANEOUS.
19.1 AMENDMENTS.
No provision of this Lease Agreement or any other Operative Document may
be amended, changed, waived or discharged orally, but only by an instrument in
writing specifying the provision intended to be amended, changed, waived or
discharged and signed by each party hereto or thereto; and no provision of this
Lease Agreement or any other Operative Document shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or other
matter not specifically set forth in an agreement in writing and signed by each
party hereto or thereto.
19.2 SEVERABILITY.
If any provision hereof or of any Operative Document should be held
invalid, illegal or unenforceable in any respect in any jurisdiction, then, to
the extent permitted by Law (1) all other provisions hereof or thereof shall
remain in full force and effect in such jurisdiction and (2) such invalidity,
illegality or unenforceability shall not affect the validity, legality or
enforceability of such provision in any other jurisdiction.
19.3 COUNTERPARTS.
This Lease Agreement, any Operative Document and any amendments, waivers,
consents or supplements hereto or thereto may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of which counterparts, taken together, shall constitute one and the same
instrument.
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19.4 CHATTEL PAPER.
To the extent, if any, that this Lease Agreement constitutes chattel paper
(as defined in the Uniform Commercial Code in effect from time to time in any
applicable jurisdiction) no security interest in this Lease Agreement may be
created through the transfer or possession of any counterpart other than the
original executed counterpart, which shall be identified as the counterpart
containing the receipt therefor executed by Lessor on the signature page
thereof.
19.5 TIME OF THE ESSENCE.
Subject to the periods of grace referred to in Section 12, time shall be
of the essence as regards the performance by Lessee of its obligations under
this Lease Agreement and each other Operative Document.
19.6 NOTICES.
All notices, requests and other communications to Lessee, Lessor or any
other Person hereunder or under any other Operative Document shall be in writing
(for this purpose, "writing" includes telecopy or similar electronic
transmissions), shall refer specifically to this Lease Agreement or such other
Operative Document, as the case may be, and shall be personally delivered or
sent by telecopy or other similar electronic facsimile transmission, or sent by
overnight courier service (e.g., Federal Express), in each case to the
respective address and telecopy number specified in Schedule 4 or such other
address or telecopy number as such Person may hereafter specify by notice to the
other party or to the parties hereto. Each such notice, request or other
communication shall be effective when received or, if by telecopier or other
similar electronic transmission, when "confirmed" by the sending telecopy or
similar machine and written evidence of such confirmation is produced by such
machine, provided that any such notice by telecopy so "confirmed" after 6:00
p.m., for the recipient, shall be effective on the next succeeding local
Business Day.
19.7 ENTIRE AGREEMENT.
This Lease Agreement and the other Operative Documents in effect on the
date hereof constitute the entire agreement between the parties concerning the
subject matter hereof and thereof, and supersede all previous proposals,
agreements, understandings, negotiations and other written and oral
communications in
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relation hereto and thereto. The parties acknowledge that there have been no
representations, warranties, promises, guarantees or agreements, express or
implied, except as set forth herein and therein.
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Lessee and Lessor have caused this Lease Agreement to be executed by their
respective officers as of the day and year first above written.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
[THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART]
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Lessee and Lessor have caused this Lease Agreement to be executed by their
respective officers as of the day and year first above written.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING AIRCRAFT
LEASE AGREEMENT IS HEREBY ACKNOWLEDGED ON THIS ____ DAY OF
______________, 1996.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
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Schedule 1
Operational Matters
Lease Agreement
(MSN 28662)
SCHEDULE 1
OPERATIONAL MATTERS
(MSN 28662)
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28662), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company and
Frontier Airlines, Inc., to which this document is a schedule.
SECTION 1. GENERAL DEFINITIONS.
The following terms shall have the following meanings for all purposes of the
Lease Agreement and this Schedule 1:
"AD" shall mean any airworthiness directive or other requirement of the
Aviation Authority applicable to the Airframe, either Engine, any Part or the
Aircraft Documentation.
"Aircraft Documentation" shall mean the documentation described in Section
2.5 of this Schedule 1.
"Airframe" shall mean, collectively, (1) Airframe Manufacturer Model 737-36Q
airframe (except only Engines or engines from time to time installed thereon),
bearing Airframe Manufacturer's serial number 28662 and (2) any and all Parts so
long as the same shall be incorporated or installed in or attached to such
airframe, and any and all Parts removed therefrom so long as title to such
removed Parts shall remain vested in Lessor in accordance with the terms of
Section 2.3 of this Schedule 1.
"Airframe Cycle" shall mean one takeoff and landing of the Airframe.
"Airframe Flight Hour" shall mean each hour or part thereof elapsing from the
moment the wheels of the Airframe leave the ground on takeoff until the wheels
of the Airframe touch the ground on landing following such flight. For purposes
of all calculations under the Operative Documents measured in Airframe
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Flight Hours, such Airframe Flight Hours (or parts thereof) shall be rounded up
to the nearest minute.
"Airworthiness Certificate" shall mean a valid, current transport category
airworthiness certificate issued in respect of the Aircraft by the Aviation
Authority.
"Approved Maintenance Performer" shall mean Lessee or any other maintenance
performer having a valid repair station license and otherwise approved by the
Aviation Authority in the operation specifications with regard to major
maintenance, including airframe, engine, landing gear and APU overhaul, and
otherwise approved by the Aviation Authority.
"Approved Maintenance Program" shall mean the Lessee's Aviation Authority
approved written block maintenance, inspection and repair program and schedule
for Airframe Manufacturer 737-300 aircraft, designed in accordance with Airframe
Manufacturer's maintenance planning document and in accordance with Engine
Manufacturer's and Parts manufacturers' respective maintenance manuals,
including Lessee's current approved maintenance schedule and the CPCP, as such
maintenance, inspection and repair program is approved by Lessor pursuant to
Section 4.2 of the Lease Agreement and as amended from time to time in
accordance with the Lease Agreement, or such other written maintenance,
inspection and repair program, if any, as Lessor and Lessee shall agree in
writing (if required by this Lease Agreement or any other Operative Document),
in either case, as in effect from time to time. In all cases, such Approved
Maintenance Program shall be consistent with the latest revision of Airframe
Manufacturer's Maintenance Planning Document and the CPCP.
"APU" shall mean (1) the auxiliary power unit identified by manufacturer's
serial number in Lease Supplement No. 1 and (2) any auxiliary power unit
substituted for such auxiliary power unit in accordance with the Lease
Agreement.
"Basic Shop Visit" shall mean, (1) with respect to any Engine, any shop
visit, as defined by Engine Manufacturer that is based on an approved program of
condition monitoring and trend monitoring of performance deterioration requiring
complete disassembly, inspection and repair of any module of an Engine or a
whole Engine that results in a minimum of 5,000 cycles of operation remaining on
each of the life limited Parts in such Engine and with an attempt to restore
performance to a level consistent with Engine Manufacturer's specification
applicable to
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such Parts upon the completion of a shop visit of the kind contemplated by this
clause (1) and (2) with respect to the APU, a restoration of the nucleus or hot
section as defined by the APU manufacturer.
"Cabin" shall mean the passenger compartment and all doors (interior only),
windows, interior panels, storage bins, lights, seats, seat covers, carpets,
lavatories, galleys, galley equipment, closets, flight attendant seats,
passenger communications and entertainment systems (with respect to which Lessor
has or should, in accordance with the Lease Agreement, have title), emergency
and miscellaneous equipment, seat tracks and floor areas.
"CPCP" shall mean a Corrosion Prevention and Control Program that establishes
minimum requirements for the Aircraft, incorporating, among other things, the
recommendations of Airframe Manufacturer and the mandatory requirements
established by FAA AD 90-25-01 and Boeing document D6-38528.
"Delivery Documentation" shall mean, collectively, any and all log books,
records, manuals and other data or documents described in Annex 1 to Schedule 3.
"Engine" shall mean (1)(a) either of Engine Manufacturer Model CFM56-3C-1
engines listed by Engine Manufacturer's serial numbers in the Lease Supplement
No. 1 and originally installed on the Airframe at the time of delivery to Lessee
hereunder whether or not from time to time thereafter installed on the Airframe
or installed on any other airframe and (b) any Replacement Engine which may from
time to time be substituted, pursuant to the terms hereof, for either of such
Engines, and (2) in each case, any and all Parts incorporated or installed in or
attached thereto or any and all Parts removed therefrom so long as title thereto
shall remain vested in Lessor in accordance with the terms of Section 2.3 of
this Schedule 1 after removal from such Engine, provided that at such time as an
engine shall be deemed part of the property leased hereunder in substitution for
an "Engine," pursuant to the applicable provisions hereof, the replaced Engine
shall cease to be an "Engine" hereunder. The term "Engines" shall mean, as of
any date of determination, all Engines then leased hereunder. Each Engine has
750 or more rated takeoff power or its equivalent.
"Engine Cycle" shall mean, with respect to any Engine, one takeoff and
landing of the airframe (including the Airframe) on
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which such Engine is from time to time installed.
"Engine Flight Hour" shall mean each hour or part thereof elapsing from the
moment the wheels of the airframe (including the Airframe) on which such Engine
is from time to time installed leave the ground on takeoff until the wheels of
such airframe touch the ground on landing following such flight. For purposes
of all calculations under the Operative Documents measured in Engine Flight
Hours, such Engine Flight Hours (and parts thereof) shall be rounded up to the
nearest minute.
"External Repair" shall mean any repair to a penetration, scratch or dent of
the exterior surface of the Airframe, but where a "scab patch" to the Airframe
is permitted, it shall be a repair accomplished in conformity with the
Structural Repair Manual or approved by Airframe Manufacturer or the Aviation
Authority.
"Final Inspection" shall mean the inspection of the Aircraft by Lessor and
any other Inspecting Parties during any part of the inspections, checks, and
test flights required pursuant to Sections 4.3, 4.4 and 4.5 of this Schedule 1
or otherwise performed in connection with the Return, which, in each case, shall
be at Lessee's risk, cost and expense (subject to Section 4.9 of this Schedule
1).
"Final Maintenance" shall mean the work to be performed by Lessee in order to
cause the Aircraft to meet the requirements of this Schedule 1, including Annex
1 hereto.
"Flight Charges" shall mean all flight charges, route navigation charges,
navigation service charges and all other fees, charges or Taxes payable for the
use of or for services provided at any airport or otherwise payable to any
airport, airport authority, navigation or flight authority or other similar
entity or for any services provided in connection with the operation, landing or
navigation of aircraft.
"Follow-On Operator" shall mean any Person acquiring title to or the right to
use the Aircraft after the end of the Lease Term (whether or not such Person is
an airline or other operator).
"Inspecting Party" has the meaning set forth in Section 4.3.1 of this
Schedule 1.
"Landing Gear" shall mean (1) each landing gear assembly of
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the Aircraft identified by serial number in Lease Supplement No. 1 and (2) any
landing gear assembly substituted for any such identified landing gear assembly
in accordance with the Lease Agreement.
"Landing Gear Overhaul" shall mean any full overhaul of any Landing Gear to
essentially full manufacturer specification and operating condition, and, for
the avoidance of doubt, "full overhaul" does not mean only the replacement,
repair or overhaul of any rotable components, any cleaning or replacement of
seals, any repair of brakes, wheels or tires, brake rods, struts or braces, in
each case, that occurs any more frequently than a full overhaul.
"Major Checks" shall mean any "C" check, multiple "C" check, "7C/SI" check
(or equivalent) or annual heavy maintenance visit or segment thereof suggested
for commercial aircraft of the same model as the Aircraft by Airframe
Manufacturer or as set out in the Approved Maintenance Program.
"Major Modifications" shall include, but shall not be limited to (1) changes
that alter the fundamental nature of the Aircraft as a passenger and cargo
carrying aircraft or Cabin modifications that materially change the interior
layout of the Aircraft, (2) changes to the Aircraft structure or performance of
the Aircraft, (3) changes that adversely affect interchangeability or
replaceability of Parts, (4) changes that invalidate or impair any warranty with
respect to the Aircraft or any Engine or Part, (5) changes that adversely affect
the eligibility of the Aircraft to obtain an airworthiness certificate from the
Aviation Authority or (6) any changes that result in a variation from the
original type certificate for the Aircraft, but shall exclude changes pursuant
to ADs and SBs provided by Airframe Manufacturer which have Aviation Authority
approval and all Required Modifications.
"Modification" shall mean any modification, addition, alteration, removal or
other change (including performance of ADs and SBs and the removal of Obsolete
Parts) to the Airframe, any Engine or any Part.
"Modification Parts" shall mean those Parts installed on the Aircraft in
connection with a Modification.
"Obsolete Parts" shall mean Parts that Lessee has determined in its
reasonable judgment to be no longer suitable or
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appropriate for use on the Airframe or such Engine.
"Parts" shall mean any and all appliances, parts, components, modules,
navigation, avionics and communications equipment, computers, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(including the APU and the Landing Gear but excluding complete Engines or
engines) which may from time to time be incorporated or installed in or attached
to the Airframe or any Engine, so long as title thereto shall remain vested in
Lessor, in accordance with the terms of Section 2.3 of this Schedule 1.
"Replacement Engine" shall mean an Engine Manufacturer Model CFM56-3C-1
engine (or an improved model having a modification status, value and utility at
least equal to such an Engine Manufacturer Model CFM56-3C-1 engine) (including
all warranty rights with respect to such engine) suitable for installation and
use on the Airframe without impairing the value or utility of the Aircraft, and
which has a modification status, value, condition and utility (in each case,
taking into account the age of the Engine and the accumulated Engine Flight
Hours and Engine Cycles) at least equal to the Engine it is replacing (assuming
such Engine was at least in the modification status, condition and repair
required by the terms hereof immediately prior to being replaced).
"Required Modifications" has the meaning set forth in Section 2.2.1 of this
Schedule 1.
"Reserves" shall mean all amounts payable by Lessee pursuant to Section 3 of
this Schedule 1.
"Return" shall mean the return of the Aircraft by Lessee to Lessor at the
Return Location (or such other location as may be agreed by Lessor and Lessee)
in the condition and manner required by Section 4 of this Schedule 1 and the
other provisions of the Lease Agreement and the other Operative Documents, as
evidenced by the execution by Lessor, and the delivery to Lessee, of the Return
Acceptance Certificate.
"Return Acceptance Certificate" shall mean the acceptance certificate to be
delivered by Lessor to Lessee pursuant to Section 4.6 of this Schedule 1 in the
form of Attachment 2 to Annex 1 to this Schedule 1.
"SB" shall mean any optional, recommended or alert service
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bulletin or service letter as, where not expressly specified herein or in any
other Operative Document, issued by Airframe Manufacturer, Engine Manufacturer
or the manufacturer of the appliances or Parts.
SECTION 2. MAINTENANCE; OPERATION; ETC.
2.1 GENERAL MAINTENANCE.
Lessee, at its own expense, shall, at all times during the Lease Term and
until the Aircraft is returned in the condition and manner required by this
Schedule 1 and the Lease Agreement maintain, service, repair, test, inspect and
overhaul, or cause (subject to Section 8 of the Lease Agreement) to be
maintained, serviced, repaired, tested, inspected and overhauled, the Aircraft:
2.1.1 In accordance with:
2.1.1.1 The Approved Maintenance Program (which shall not be amended
in any way adverse to Lessor's reasonable interests (for example, increasing the
maintenance intervals for the airframe, engines, landing gear, APU or other
material items, or changing such intervals beyond those prescribed in the
approved maintenance manuals) except as may be required by Law or by the
applicable rules and regulations of the Aviation Authority).
2.1.1.2 The structural repair manual of Airframe Manufacturer and
the maintenance and repair manuals of Engine Manufacturer and the manufacturers
of the Parts.
2.1.1.3 The rules and regulations of the Aviation Authority.
2.1.1.4 Good commercial airline practice.
2.1.2 So as to keep the Aircraft in as good condition (operating and
otherwise) as when delivered on the Delivery Date, ordinary wear and tear
excepted, and in the same manner and with the same care and diligence as other
aircraft owned or operated by Lessee.
2.1.3 So as to keep the Aircraft in such condition as may be necessary
to enable an Airworthiness Certificate for the Aircraft to be maintained in good
standing at all times under
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applicable Law.
2.2 MODIFICATIONS AND OTHER MAINTENANCE.
Without limiting Lessee's obligations under Section 2.1 of this Schedule
1, Lessee shall, at its own expense:
2.2.1 REQUIRED MODIFICATIONS.
Comply on a terminating basis with (1) all applicable ADs issued by
the Aviation Authority and all alert SBs issued by Airframe Manufacturer, Engine
Manufacturer or the manufacturer of any Part and (2) and all Modifications
required to meet the standards of the Aviation Authority ("Required
--------
Modifications"), (y) in the case of ADs and other Aviation Authority-required
- -------------
Modifications, the mandatory compliance date for which action on such basis
falls during the Lease Term and (z) in the case of alert SBs, the issuance date
thereof is at least six months prior to the scheduled expiration of the Lease
Term, provided that Lessee may, in good faith, contest the validity or
application of any such Required Modification in any manner which does not
involve any danger of the sale, forfeiture or loss of the Aircraft or, in the
reasonable judgment of Lessor, otherwise materially adversely affect Lessor.
*
2.2.2 CPCP.
Carry out such work as may be required to comply with the CPCP, but
which shall in any case include periodic inspection, testing and corrosion
inhibiting treatment to or of fuel tanks, periodic inspection, cleanup and
resealing under galleys and lavatories, the cleaning and treating of all mild
and moderate corrosion and the correcting of all severe and exfoliated
corrosion, and the application of corrosion inhibition compounds to exposed
landing gear and critical surface areas and all hidden areas of the Aircraft as
recommended by Airframe Manufacturer.
2.2.3 REPAIRS.
Effect any required repair to the Airframe or any Engine, and any
Parts installed therein or thereon, only (1) by
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an Approved Maintenance Performer, (2) by Aviation Authority-licensed mechanics,
(3) in accordance with the Approved Maintenance Program, Airframe Manufacturer's
structural repair manual, Airframe Manufacturer's component repair manual,
Engine Manufacturer's repair manuals and the other repair and overhaul manuals
related to the Aircraft or any Part thereof, in each case, as approved by the
Aviation Authority and (4) the relevant, if any, engineering change orders
(which shall first be approved by the Aviation Authority).
2.2.4 AVIATION AUTHORITY COMMUNICATIONS.
Make available for review by Lessor copies of any written
communications with the Aviation Authority, Airframe Manufacturer, Engine
Manufacturer or other vendors with respect to incidents, defects or malfunctions
of the Aircraft.
2.2.5 CORRECTION OF DISCREPANCIES.
Diligently correct any and all discrepancies from the requirements
hereof identified by Lessor.
2.2.6 APPROVED MAINTENANCE PERFORMER.
Ensure that only an Approved Maintenance Performer services,
maintains, overhauls, repairs or performs any Modifications on or to the
Aircraft or any installed engine or part.
2.2.7 AVIATION AUTHORITY APPROVED PARTS.
Ensure that only Aviation Authority-approved parts and materials are
installed or used on the Aircraft.
2.2.8 MAINTENANCE OF NON-"ENGINE."
Notwithstanding anything to the contrary contained herein, maintain
any engine which is not an Engine but which is installed on the Airframe as if
it were an Engine.
2.3 REPLACEMENT OF PARTS.
2.3.1 REPLACEMENT OF PARTS REQUIRED.
Except as otherwise provided in Section 2.4 with respect
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to Modification Parts which may be removed pursuant to Section 2.4.6 of this
Schedule 1 and Obsolete Parts, Lessee shall replace, at its own expense, all
Parts which may from time to time become worn out, obsolete, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use for any reason whatsoever with replacement parts as set forth in
this Section 2.3. Each such replacement part incorporated or installed in or
attached or added to the Airframe or any Engine shall:
2.3.1.1 FREE OF LIENS.
Be free and clear of all Liens (except for Permitted Liens).
2.3.1.2 GOOD OPERATING CONDITION, ETC.
(1) Be in as good operating condition as, (2) have no more hours,
cycles or calendar time than, have the same interchangeable modification status
as, and have a value and utility at least equal to, the Part replaced, assuming
such replaced Part was in the condition and repair required to be maintained by
the terms hereof, and (3) with respect to avionics, navigation, communications
equipment, be of the same make and the same or more advanced model.
2.3.1.3 AVIATION AUTHORITY TAG.
Have a current valid Aviation Authority "serviceable tag" of the
manufacturer or maintenance facility providing such parts to Lessee, which tag
shall identify the manufacturer, vendor, part number, make, model and serial
number, date and hours and/or cycles and, where applicable, indicating that such
parts are new, serviceable or overhauled.
Lessee may use a replacement part that does not comply with the requirements of
the foregoing sentence if a complying part cannot be procured or installed
within the available ground time of the Aircraft, provided that the original
Part is reinstalled or the noncomplying part is removed and replaced by a
complying part, in each case as promptly as practicable (and in any event within
60 days of removal or, if earlier, on or before the last day of the Lease Term).
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2.3.2 OWNERSHIP OF PARTS.
Immediately upon any part's (including Modification Parts) becoming
incorporated in, installed on or attached to the Airframe or any Engine, without
further act (1) title to such part shall thereupon vest in Lessor, free and
clear of all Liens (other than Permitted Liens), (2) such part shall become
subject to the Lease Agreement and be deemed a "Part" of such Airframe or such
Engine for all purposes hereof and (3) title to any replaced Part shall
thereupon vest in Lessee, free and clear of all rights of Lessor and all Lessor
Liens and shall no longer be deemed a Part hereunder, except that with respect
to non-complying parts described in the last sentence of Section 2.3.1 of this
Schedule 1 where such non-compliance is due to the failure to meet the
requirements of Section 2.2.1.1 or 2.3.1.2 of this Schedule 1 and the parts
described in Section 2.4.5 of this Schedule 1, title thereto shall not vest in
Lessor. Lessee will at its own expense take all such steps and execute, and
procure the execution of, all such instruments as Lessor may reasonably 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 reasonable satisfaction (including the provision, if
required, to Lessor of a legal opinion) that title has so passed to Lessor. All
Parts (other than Modification Parts) at any time removed from the Airframe or
any Engine shall remain the property of Lessor, no matter where located, until
such time as such Parts shall be replaced by Parts which have been incorporated
or installed in or attached to the Airframe or any Engine and which meet the
requirements set forth in Section 2.3.1 of this Schedule 1. Upon any removal of
Modification Parts pursuant hereto, title thereto shall, without further act,
vest in Lessee free and clear of all rights of Lessor and all Lessor Liens, and
such Modification Part shall no longer be deemed a Part hereunder.
2.4 MODIFICATIONS.
2.4.1 ABILITY TO MODIFY.
Lessee, at its own expense, may from time to time add further parts or
accessories and make such Modifications to the Airframe or any Engine as Lessee
may deem desirable in the proper conduct of its business (so long as title to
any Obsolete Parts shall remain in Lessor), provided that:
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2.4.1.1 NO MAJOR MODIFICATIONS.
Lessee shall not, without Lessor's prior written consent, make any
Major Modifications to the Aircraft, and in connection with obtaining such
consent Lessee shall (1) provide Lessor with advance copies of all designs,
plans, diagrams, drawings and data to be used by Lessee in accomplishing such
Major Modifications and (2) obtain the approval of the Aviation Authority (as
evidenced by the issuance of a supplemental type certificate or similar
certification issued by the Aviation Authority).
2.4.1.2 MAY NOT DIMINISH VALUE, ETC.
No such Modification shall diminish the value or utility of the
Airframe or such Engine, or impair the condition or airworthiness thereof, below
the value, utility, condition or airworthiness thereof immediately prior to such
Modification, assuming the Airframe or such Engine were then of the value and
utility and in the condition and repair required to be maintained by the terms
of the Lease Agreement and each other Operative Document.
2.4.2 NO OBLIGATION OF LESSOR TO PAY.
Lessor shall not be required under any circumstances to pay directly
or indirectly for any Modifications, except as provided in Section 2.2.1 of this
Schedule 1.
2.4.3 REMOVAL OF MODIFICATION PART.
Notwithstanding the foregoing, Lessee may, at any time during the
Lease Term, so long as no Default shall have occurred and be continuing, remove
or suffer to be removed any such Modification Part, provided that such
Modification Part (1) is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in or attached
to the Airframe or any Engine at the time of delivery thereof or any Part in
replacement of or substitution for any such Part, (2) is not required to be
incorporated or installed in or attached or added to the Airframe or any Engine
pursuant to the terms hereof and (3) can be removed from the Airframe or such
Engine without damaging the Airframe or such Engine or diminishing or impairing
the value, utility, condition or airworthiness which the Airframe or such Engine
would have had at such time had such Modification not been made, assuming the
Airframe or such Engine was then of
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the value and utility and in the condition and repair required to be maintained
by the terms of the Lease Agreement and the other Operative Documents.
2.4.4 REVERSAL OF MODIFICATION.
Upon the written request of Lessor, to be given at least 30 Business
Days prior to the scheduled expiration of the Lease Term, Lessee shall, on or
before the last day of the Lease Term and at its own expense, reverse any
Modification and restore the Aircraft to its required condition as if such
Modification had not been made.
2.4.5 TITLE TO REMOVED MODIFICATION PART.
Upon the removal by Lessee of any Modification Part as provided in
Sections 2.4.3 and 2.4.4, title thereto shall, without further act, vest in
Lessee free and clear of Lessor and all Lessor Liens, and such Modification Part
shall no longer be deemed a Part of the Airframe or Engine from which it was
removed. Any Modification Part not removed by Lessee as above provided prior to
the return of the Airframe or Engine to Lessor hereunder shall remain the
property of Lessor.
2.4.6 PASSENGER COMMUNICATION EQUIPMENT.
Notwithstanding Section 2.3.1.1 of this Schedule 1, Lessee may from
time to time install on the Aircraft equipment that is leased or conditionally
sold to Lessee (and title to such equipment shall remain vested in the lessor or
conditional vendor thereof) if (1) such equipment is audio-visual equipment,
personal computers, telephones, fax machines and other passenger communications
equipment and (2) it can be removed without causing material damage to the
Aircraft and any damage caused by such removal is, prior to Return, repaired so
that the Aircraft is restored to a condition at least as good as prior to such
installation.
2.4.7 SERVICE BULLETIN KITS.
During the Lease Term, Lessee shall from time-to-time request, and
shall retain, all SB kits relating to the Aircraft, any Engine or any Part which
are available to Lessee at no cost other than postage and handling costs. If
any "no cost" period lapses without Lessee acquiring such kit, Lessee shall be
obligated to acquire such kit at the manufacturer's then cost for
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such kit.
2.5 DOCUMENTATION.
2.5.1 During the Lease Term, Lessee shall maintain:
2.5.1.1 The Delivery Documentation and all other documentation
delivered to Lessee on or about the Delivery Date with respect to the Aircraft,
either Engine or any Part.
2.5.1.2 All other logbooks, records (including, without limitation,
records relating to the service, inspection, maintenance, modification, testing,
overhaul and repair of the Aircraft and all Parts installed therein or thereon),
manuals (including, without limitation, operations, maintenance, repair,
overhaul or parts manuals), data, drawings or other documents that are required
to be maintained during the Lease Term under the terms of the Lease Agreement,
by the Aviation Authority, the Approved Maintenance Program, Airframe
Manufacturer, Engine Manufacturer or the manufacturer of any Part and those that
are provided to Lessee or otherwise maintained during the Lease Term with
respect to the Aircraft (including, without limitation, the Airframe, any
Engine, the APU and Parts).
2.5.1.3 Updates or additions to any of the foregoing and renewals,
revisions and replacements to any of the foregoing from time to time created or
obtained in accordance with the Lease Agreement, applicable Law or otherwise.
2.5.1.3.1 In the English language.
2.5.1.3.2 Current and up-to-date (through subscription to
Airframe Manufacturer and Engine Manufacturer update services and with all
documents and records unique to the Aircraft to be maintained unique to the
Aircraft).
2.5.1.3.3 In conformity with the rules of the Aviation Authority
and with normal practices of first class commercial air carriers.
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2.5.1.3.4 So that such documentation:
2.5.1.3.4.1 Accurately discloses the location of each Engine
and Part not installed on the Airframe.
2.5.1.3.4.2 Accurately records the amount of time consumed
and/or the cycles of use (as appropriate) of the Airframe, each Engine and all
Parts (including the APU) and all work performed thereon.
2.5.1.3.4.3 Contains accurate back-to-birth records of (1)
all life-limited Parts installed on the Aircraft and (2) all life-limited Parts
installed on the Aircraft by Lessee .
2.5.2 Any Aircraft Documentation not already owned by Lessor, when and
as created or obtained by Lessee, shall thereupon become the property of Lessor.
2.6 OPERATION.
2.6.1 Lessee shall not operate the Aircraft (or permit the operation
of the Aircraft) in violation of any Law of any Government Entity having
jurisdiction, in violation of the Approved Maintenance Program, any
manufacturer's operating manuals, recommendations or instructions or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such Government Entity.
2.6.2 Lessee shall not operate or locate the Aircraft or permit the
Aircraft to be operated or located (1) outside of the Permitted Jurisdictions,
(2) on routes other than those approved by the government of the State of
Registration between destinations in the Permitted Jurisdictions, (3) in any
area excluded from coverage by any insurance policy in effect or required by the
terms of the Lease Agreement or in any war zone or in any recognized or
threatened area of hostilities (without Lessor's consent) and unless fully
covered to the satisfaction of Lessor by war-risk and allied perils insurance or
(4) outside the U.S. for periods which, in the aggregate, would result in the
Aircraft being physically located outside the U.S. more than 50% of the time
during any year.
2.6.3 Lessee shall not used, suffer or cause the Aircraft to be used
for the carriage of (1) whole animals living or dead (other than living humans)
except in the cargo
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compartments according to I.A.T.A. regulations and except domestic pet animals
carried in suitable containers to prevent the escape of any liquid and as to
ensure the welfare of the animal, (2) explosives, acids, toxic chemicals or
other corrosive materials, unless the same are appropriately packaged in
compliance with applicable Law, (3) nuclear fuels or wastes, (4) illegal drugs,
controlled substances or the like or (5) any other goods, materials or items of
cargo which are prohibited by Law or which could reasonably be expected or
anticipated to cause damage to or forfeiture or seizure of the Aircraft.
2.6.4 Lessee shall not use, or permit the use of, the Aircraft for
testing or for training, qualifying or reconfirming the status of flight crew
members other than employees of Lessee, and then only if the use of the Aircraft
for such purpose is not disproportionate to the use for such purpose of other
Airframe Manufacturer Model 737-300 aircraft owned or operated by Lessee.
2.6.5 Notwithstanding anything herein to the contrary, Lessee shall
not install, and shall not permit the installation of, any Engine on any
airframe that is not an Airframe Manufacturer Model 737-300 airframe.
2.7 INSIGNIA.
Lessee shall affix and at all times maintain in respect of the Airframe
and each Engine and the APU a fireproof and legible identification plate of a
reasonable size, in the location specified below, that contains the following
legends or any other legend requested from time to time by Lessor in writing:
2.7.1 In the case of the Airframe, in the upper sill of the left-hand
forward entry door, adjacent to Airframe Manufacturer's plate, "THIS AIRCRAFT IS
OWNED BY BOULLIOUN AIRCRAFT HOLDING COMPANY, INC. AND IS HELD UNDER LEASE BY
FRONTIER AIRLINES, INC."
2.7.2 In the case of each Engine, in a clearly visible place in close
proximity to the manufacturer's plate, "THIS ENGINE IS OWNED BY BOULLIOUN
AIRCRAFT HOLDING COMPANY, INC. AND IS HELD UNDER LEASE BY FRONTIER AIRLINES,
INC."
2.7.3 In the case of the APU, in a clearly visible place in close
proximity to the manufacturer's plate, "THIS APU IS OWNED BY BOULLIOUN AIRCRAFT
HOLDING COMPANY, INC. AND IS HELD UNDER LEASE BY FRONTIER AIRLINES, INC.".
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2.8 COSTS OF MAINTENANCE, OPERATION, ETC.
2.8.1 IN GENERAL.
Lessee shall pay all costs incurred in the operation of the Aircraft
for profit or otherwise during the Lease Term, including the costs and expenses
of flight crews, cabin personnel, fuel, oil, lubricants, maintenance, insurance,
landing fees, navigation fees, airport charges, passenger service and any and
all other expenses or claims of any kind or nature, directly or indirectly
incurred or imposed in connection with or related to the acceptance, delivery,
nondelivery, lease, sublease, charter, subcharter, deregistration,
reregistration, possession, use, presence, existence, operation, condition,
storage, preparation, installation, testing, manufacture, design, modification,
alteration, maintenance, repair, re-lease, sale, return, transportation,
transfer, exportation, importation, abandonment or other disposition of the
Aircraft, the Airframe, any Engine or engine or Part or any other thing
delivered under the Lease Agreement during the Lease Term.
2.8.2 PAYMENT OF FLIGHT CHARGES.
Without limiting the effect of Section 6.2.3 of the Lease Agreement,
Lessee shall pay promptly upon the same becoming due and payable all Flight
Charges incurred by Lessee whether in respect of the Aircraft or any other
aircraft of Lessee, except to the extent being contested in good faith by
appropriate proceedings (and for the payment of which adequate reserves have
been provided) so long as such contest does not involve any material danger of
the sale, forfeiture or loss of the Airframe, any Engine or any Part or any
interest therein. Upon Lessor's written request, Lessee shall provide to Lessor
a list of the airports to which Lessee operates the Aircraft and, if also
reasonably so requested by Lessor, any other aircraft operated by Lessee. Upon
Lessor's written request, Lessee shall authorize Lessor (or its designee) to
confirm the status of Lessee's payment of Flight Charges at such airports or
with any other Government Entity specified by Lessor.
2.9 INSPECTION.
2.9.1 MAINTENANCE SCHEDULE.
During the Lease Term, Lessee shall furnish Lessor such information
concerning the location, condition, maintenance, use
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and operation of the Aircraft as Lessor may reasonably request. Lessee shall
provide Lessor with maintenance schedules relating to the Aircraft from time to
time as such schedules are adjusted or updated. Lessee shall give Lessor
reasonable prior notice of the date of, and any change in the date of, any Major
Checks, in order to enable Lessor, or its agents, representatives or designees,
to inspect the Aircraft at the time and place any such Major Checks occur.
2.9.2 REASONABLE INSPECTIONS.
At all reasonable times (including during Major Checks), Lessor's
personnel and/or its authorized representatives (including the personnel and/or
authorized representatives of a potential Follow-On Operator) may (at Lessor's
expense, or if such inspection is made in connection with or following a
Default, at Lessee's expense) inspect the Airframe and Engines and inspect and
make copies of the books and records of Lessee relating to the Airframe and
Engines and the maintenance of the Airframe and Engines (including any Aircraft
Documentation, the Approved Maintenance Program, and also including, for the
avoidance of doubt, any airworthiness directive and service bulletin compliance
records, component life status reports, and the then-current aircraft
configuration), and if such inspection is made at the time of any maintenance
operation, such Persons may inspect behind any panels, bays or other apertures
that have already been opened in the course of such maintenance operation,
provided that, so long as no Event of Default shall have occurred and be
continuing, no exercise of such inspection right shall unreasonably interfere
with the normal operation or maintenance of the Aircraft by Lessee and provided
that if during any Major Check Lessor detects or observes any corrosion or other
condition requiring repair under the Approved Maintenance Program, and such
corrosion or other condition is not limited to the then-open panels, bays or
other components of the Aircraft, Airframe or Engine, then Lessor shall be
entitled to require Lessee to open, or cause to be opened, such additional
panels as may be necessary to identify, correct, repair or defer such corrosion
or condition in accordance with the Approved Maintenance Program, the 737
Structural Repair Manual and the Corrosion Prevention Manual.
2.9.3 NO DUTY TO INSPECT.
Lessor shall not have a duty to make any such inspection nor shall it
incur any liability or obligation by reason of making or not making any such
inspection.
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SECTION 3. MAINTENANCE RESERVE PAYMENTS.
3.1 MAINTENANCE RESERVE AMOUNTS.
3.1.1 MAINTENANCE RESERVE AMOUNTS.
Lessee shall pay to Lessor on the tenth day of each calendar month,
commencing on the tenth day of the calendar month following the Delivery Date,
and ending on the tenth day of the calendar month following the last day of the
Lease Term, the amounts set forth below:
3.1.1.1 AIRFRAME RESERVE AMOUNT.
In respect of the Airframe, the Airframe Reserve Amount for each
Airframe Flight Hour that the Airframe is operated during the preceding calendar
month.
3.1.1.2 ENGINE RESERVE AMOUNT.
In respect of each Engine, the Engine Overhaul Reserve Amount for
each Engine Flight Hour that each Engine is operated during the preceding
calendar month.
3.1.1.3 ENGINE LIFE-LIMITED PARTS RESERVE AMOUNT.
In respect of life-limited Parts installed in each Engine, the
Engine Life Limited Part Reserve Amount for each Engine Flight Hour completed by
such Engine during the preceding calendar month.
3.1.1.4 LANDING GEAR RESERVE AMOUNT.
In respect of the Landing Gear, the Landing Gear Reserve Amount for
each Airframe Flight Hour that the Airframe is operated during the preceding
calendar month.
3.1.1.5 APU RESERVE AMOUNT.
In respect of the APU, the APU Reserve Amount for each Airframe Hour
that the Airframe is operated during the preceding calendar month, provided that
the APU Reserve Amount shall not accrue or be payable if Lessee enters into an
APU maintenance agreement acceptable to Lessor on or prior to June 30, 1997.
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3.1.2 ASSUMED HOUR-TO-CYCLE RATIO AMOUNT.
The Dollar amounts referred to in this Section 3.1 are based upon the
Assumed Hour-to-Cycle Ratio. If, from time to time during the Lease Term, the
actual ratio falls below or rises above this assumed level by more than 0.1
during any twelve month period, the relevant Dollar amounts shall be adjusted
upwards or downwards to reflect such actual ratio, the amount of such adjustment
to be determined by mutual agreement of Lessor and Lessee after prompt, good
faith negotiation.
3.1.3 RESERVE INFLATION FACTOR.
Each of the Dollar amounts set forth in this Section 3.1.1 (as may
have been previously adjusted pursuant to the preceding paragraph, and as
adjusted pursuant to this paragraph shall be adjusted on the anniversary of the
Delivery Date each year during the Lease Term by multiplying (1) such Dollar
amount by (2) the Reserve Inflation Factor.
3.2 REIMBURSEMENT.
3.2.1 AIRFRAME REIMBURSEMENT.
Lessor shall, subject to Section 3.4 of this Schedule 1 and if no
Default has occurred and is then continuing, reimburse Lessee from the Airframe
account for the actual costs incurred by Lessee in respect of labor and
materials consumed during the Airframe (excluding APU and Landing Gear) "7C/SI"
or equivalent) including the cost of defect rectification (but excluding
components, (unless they are scheduled to be overhauled at that check and their
lives are fully restored) and any maintenance resulting from design faults or
damage covered by warranty or caused by accidental damage, foreign objects,
faulty maintenance or operational mishandling).
3.2.2 ENGINE REIMBURSEMENT.
Lessor shall, subject to Section 3.4 of this Schedule 1 and if no
Default has occurred and is then continuing, reimburse Lessee for the cost of a
scheduled Basic Shop Visit pursuant to the Approved Maintenance Program, from
the appropriate Engine account and for such amounts as are equal to the costs
incurred by Lessee for such Basic Shop Visit, including replacement of life-
limited parts and components that are scheduled for overhaul or replacement at
that Basic Shop Visit and for the portion of
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unscheduled overhauls that replace work which would have been carried out at the
time of a scheduled removal or overhaul (but excluding any maintenance resulting
from design faults or damage covered by warranty or caused by accidental damage,
foreign objects, faulty maintenance or operational mishandling).
3.2.3 APU REIMBURSEMENT.
Lessor shall, subject to Section 3.4 of this Schedule 1 and if no
Default has occurred and is then continuing, reimburse Lessee from the APU
account, if any, the actual costs incurred by Lessee in respect of labor and
materials consumed during a scheduled Basic Shop Visit for the APU, including
the cost of defect rectification (but excluding any maintenance resulting from
design faults or damage covered by warranty or caused by accidental damage,
foreign objects, faulty maintenance or operational mishandling).
3.2.4 LANDING GEAR REIMBURSEMENT.
Lessor shall, subject to Section 3.4 of this Schedule 1 and if no
Default has occurred and is then continuing, reimburse Lessee from the Landing
Gear account the actual costs incurred by Lessee in respect of labor and
materials consumed during any scheduled Landing Gear Overhaul, including the
cost of defect rectification (but excluding any maintenance resulting from
design faults or damage covered by warranty or caused by accidental damage,
foreign objects, faulty maintenance or operational mishandling).
3.3 ACCOUNT BALANCES.
Lessor shall keep a notional running account in respect of the Airframe,
each Engine (with overhaul and life limited parts sub-accounts), the APU and the
Landing Gear to which shall be credited all amounts in respect thereof received
under Section 3.1 hereof and debited all sums paid in respect thereof by Lessor
to, or on behalf of, Lessee under Sections 3.2.
3.4 NO NEGATIVE BALANCES.
Lessor shall not be obliged to pay any sum under Sections 3.2 of this
Schedule 1 to the extent the amount requested would exceed the lesser of (1) the
balance in the relevant notional account at and as of the time the relevant
check, Basic Shop Visit or Landing Gear Overhaul was completed and (2) the
balance
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of such notional account at the time Lessor is required pursuant to this Section
3 to make a payment to Lessee in respect of such request. In any case in which
the amount paid to Lessee is not sufficient to pay the cost of such check, Basic
Shop Visit or Landing Gear Overhaul, to such extent Lessee shall be obligated to
meet such costs from its own resources. No shortfall may be carried forward or
made the subject of any further claim for reimbursement.
3.5 RIGHTS IN RESERVES.
For the avoidance of doubt, it is agreed and acknowledged that the
amounts in the accounts referred to in Section 3.3 of this Schedule 1 are the
sole and exclusive property of Lessor and Lessor shall be entitled to retain
absolutely any credit balance, including any interest thereon, on the accounts
referred to in Section 3.3 of this Schedule 1 remaining after any expiration or
termination of the Lease Term, except as set forth in Section 10.2 of the Lease
Agreement.
3.6 PAYMENTS.
Lessee shall promptly submit to Lessor detailed and substantiated labor
and material invoices for all maintenance for which reimbursement is sought
under this Section 3 and in any event, not later than the 30th day following
receipt by Lessee of such invoices from the Approved Maintenance Provider and
any parts supplier (or, if such maintenance is performed by Lessee, not later
than the 30th day following completion of such maintenance). Lessor shall pay
to Lessee all amounts reimbursable hereunder promptly upon its receipt of such
invoices. In the event that any payment otherwise due to Lessee is not paid to
Lessee as the result of any Default then continuing, Lessor shall pay such
amount to Lessee promptly upon Lessee's having cured such Default, but only if
no other Default shall be then continuing.
SECTION 4. RETURN OF THE AIRCRAFT.
4.1 DATE AND LOCATION OF RETURN.
Not later than the end of the Lease Term, subject only to Section 10.2 of
the Lease Agreement, Lessee, at its own risk, cost and expense, shall return the
Aircraft, including the Airframe, the Engines, all Parts thereof and the
Aircraft Documentation to Lessor at the Return Location in accordance with
Frontier Lease Agreement (MSN 28662)
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the provisions of the Lease Agreement, including this Schedule 1, and the other
Operative Documents.
4.2 CONDITION OF AIRCRAFT.
At Return, Lessee shall, at its sole risk, cost and expense, procure that
the Aircraft is free and clear of all Liens (other than Lessor Liens) and that
the Aircraft complies in all respects with the conditions and requirements set
forth in the Lease Agreement, including Annex 1 to this Schedule 1, and the
other Operative Documents.
4.3 FINAL INSPECTION.
4.3.1 No less than 120 days prior to commencement of the Return,
Lessee shall provide Lessor with written notice of the date of, and a reasonably
complete plan for the content of, the Final Maintenance and shall give Lessor
further written notice of the date of, and any changes to the plan for, the
Final Maintenance. During such Final Maintenance, the Aircraft, including the
Aircraft Documentation, shall be made available to Lessor and/or Lessor's
agents, representatives and designees (each, an "Inspecting Party") for ground
inspection by the Inspecting Parties at Lessee's facilities or such other
location as may be agreed by Lessor and Lessee. No less than 60 days prior to
the end of the Lease Term, Lessee shall make available to the Inspecting Parties
such documentation regarding the condition, use, maintenance, operation and
history of the Aircraft during the Lease Term as Lessor may reasonably request.
The Final Inspection shall include the procedures set forth in Annex 1 to this
Schedule 1. During the Final Inspection, Lessor's personnel shall have the
right to reasonably request that additional panels or areas be opened in order
to allow further inspection by any Inspecting Party. Lessee shall remove the
Aircraft from scheduled service and open the areas of the Aircraft as required
to perform the Final Maintenance and the other inspections and checks as
contemplated in this Section 4 and Annex 1 to this Schedule 1 and otherwise
permit Lessor to determine that the Aircraft, including the Aircraft
Documentation, is in the condition required under the Operative Documents.
4.3.2 Promptly after such inspections, except as otherwise agreed in
writing by Lessor and Lessee, any discrepancies from the Aircraft return
condition requirements set forth in this Section 4, and any discrepancies that
must be
Frontier Lease Agreement (MSN 28662)
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corrected in order to comply with the Approved Maintenance Program,
which shall include clearing of all deferred maintenance items, shall be
corrected by Lessee at its cost prior to the operational ground check described
in Section 4.4 of this Schedule 1.
4.4 OPERATIONAL GROUND CHECK.
4.4.1 Promptly after the correction of any discrepancies pursuant to
Section 4.3 of this Schedule 1, Lessee shall conduct an operational ground check
of the Aircraft in accordance with the procedures set forth in the Approved
Maintenance Program and Airframe Manufacturer's maintenance manual criteria for
the purpose of demonstrating to the reasonable satisfaction of Lessor the
operation of the systems, including, if required and at Lessee's cost, a full
fuel tank leak check, audible ignition check (both systems), pitot and static
systems check and hydraulic system internal leak check.
4.4.2 Promptly after the operational ground check, except as otherwise
agreed in writing by Lessor and Lessee, any discrepancies from the Aircraft
return condition requirements set forth in this Section 4, and any discrepancies
that must be corrected in order to comply with the Approved Maintenance Program
and Airframe Manufacturer's maintenance manual criteria, shall be corrected by
Lessee at its cost prior to the demonstration flight described in Section 4.5 of
this Schedule 1.
4.5 DEMONSTRATION FLIGHT.
4.5.1 Immediately following the operational ground check pursuant to
Section 4.4 of this Schedule 1, but prior to Lessor's technical acceptance of
the Aircraft, Lessee shall, using its own pilots, carry out for the Inspecting
Parties a demonstration flight in the Aircraft in accordance with such
procedures as may be mutually agreed between Lessor and Lessee, which shall be
no less stringent than the procedures used in Airframe Manufacturer's
predelivery flight test, to demonstrate the proper functioning of the Aircraft
systems and components within limits and/or guidelines established by the
relevant manufacturers and the Aviation Authority. Such flight shall continue
for the duration necessary to perform such check flight procedures, but for a
period not exceeding two hours of flying time.
4.5.2 Except as otherwise agreed in writing by the
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Lessor or Lessee, promptly following such demonstration flight, any deficiencies
from the Aircraft return condition requirements set forth in this Section 4, and
any discrepancies that must be corrected in order to comply with the Approved
Maintenance Program and Airframe Manufacturer's maintenance manual and to
achieve the proper functioning of the Aircraft systems and components, shall be
corrected by Lessee at its cost prior to Return.
4.6 TECHNICAL ACCEPTANCE.
Upon completion of the Final Inspection and, unless otherwise agreed in
writing by Lessor and Lessee, correction of any discrepancies or deficiencies
required to be corrected by Lessee prior to Return, Lessor shall execute and
deliver to Lessee, a Return Acceptance Certificate which shall, for all purposes
hereof, constitute complete, irrevocable and absolute evidence of Lessor's
acceptance of the Aircraft, except as validly noted in the Return Acceptance
Certificate. Notwithstanding such technical acceptance, Lessee shall remain
liable for the performance of all of its payments and other obligations
hereunder.
4.7 FAILURE TO RETURN AIRCRAFT.
If Lessee shall, for any reason whatsoever, fail to return the Aircraft at
the time or in the condition specified herein or return of the Aircraft is not
accepted by Lessor (in its sole discretion) because of Lessee's failure to meet
the requirements of this Section 4, the obligations of Lessee provided in the
Lease Agreement and each other Operative Document to which Lessee is a party
(including the obligation to pay Rent) shall continue in effect with respect to
the Aircraft, and the Lease Term shall, unless earlier terminated in accordance
with the Lease Agreement, be deemed to be extended until Return of the Aircraft
to Lessor, provided that this Section 4.7 shall not be construed as permitting
or authorizing Lessee to fail to meet, or consenting to or waiving any failure
by Lessee to perform, Lessee's obligation to return the Aircraft in accordance
with the requirements of the Lease Agreement.
4.8 TRANSITION.
Lessor intends to lease or sell the Aircraft to another Person at the end
of the Lease Term and in order to facilitate such lease or sale of the Aircraft,
Lessee agrees to cooperate
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with Lessor and to otherwise assist Lessor by, upon Lessor's request:
4.8.1 Allowing inspections of the Aircraft by the Follow-On Operator
(without interrupting any scheduled flight or the Final Maintenance) and,
specifically, inspections necessary to determine compliance with the return
requirements set forth in this Section 4.
4.8.2 Scheduling the Return of the Aircraft and the Final Inspection
in a manner that will allow for a simultaneous delivery of the Aircraft to the
Follow-On Operator.
4.8.3 Providing Aircraft Documentation and the Aircraft Maintenance
Program (including work cards) so that the Follow-On Operator can effect the
transition of the Aircraft from the Approved Maintenance Program to the
maintenance program of the Follow-On Operator.
4.8.4 Performing maintenance or modifications to the Aircraft as
reasonably requested by Lessor (subject to agreeing compensation and scheduling
with Lessee).
4.9 INDEMNITY.
Lessor hereby assumes liability for and shall fully indemnify and hold
harmless Lessee and its Affiliates on demand and shall keep Lessee and its
Affiliates fully indemnified at all times and on an after-tax basis from and
against all Expenses arising directly or indirectly from any injuries to or
deaths of Lessor's representatives or loss of or damage to property of Lessor or
its representatives or designees during the inspections described in this
Section 4. Lessor shall obtain from any Follow-On Operator or any other
Inspecting Party for the benefit of Lessee a similar undertaking prior to
participation by such Follow-On Operator in any such inspections.
4.10 STORAGE UPON RETURN.
Upon written request of Lessor received at least 15 days prior to the end
of the Lease Term, or upon demand of Lessor pursuant to Section 13.1 of the
Lease Agreement, Lessee shall extend the Lease Term for a period of up to 60
days and, during such period, continue to maintain and insure the Aircraft,
maintain the registration of the Aircraft and otherwise comply with Lessee's
obligations hereunder, provided that no Basic Rent
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shall be payable with respect to such period and Lessee shall not operate the
Aircraft during such period. Upon five days' written notice given during such
period, Lessee shall return the Aircraft pursuant hereto. Lessor and Lessee
shall agree an appropriate fee to be paid to Lessee for such extension, such fee
to be a reasonable estimate of Lessee's incremental cost in continuing to lease
the Aircraft during such period.
4.11 DEFERRED DISCREPANCY CORRECTION.
Lessor may, at its sole option, accept delivery of the Aircraft and any
discrepancies found during the ground inspection, operational ground check and
operational test flight set forth in this Section 4 that were not corrected by
Lessee prior to return of the Aircraft to Lessor may be corrected by Lessor or
its designee after return of the Aircraft, at Lessee's cost and expense,
provided that this Section 4.11 shall not be construed as permitting or
authorizing Lessee to fail to meet, or consenting to or waiving any failure by
Lessee to perform, Lessee's obligation to return the Aircraft in accordance with
the requirements of the Lease Agreement. Lessor shall consult with Lessee
regarding the identity of its designee for accomplishing such discrepancy
corrections. Lessee shall reimburse Lessor for the expenses incurred by Lessor
in accomplishing such discrepancy corrections within 30 days of the date of
Lessor's invoice therefor.
Frontier Lease Agreement (MSN 28662)
Schedule 1
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<PAGE>
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28662)
ANNEX 1 TO
SCHEDULE 1
RETURN CONDITIONS
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28662), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc.
and Frontier Airlines, Inc., to which this document is an annex to a schedule.
SECTION 1. CONDITION OF AIRFRAME AND ENGINES.
On the last day of the Lease Term, the Aircraft shall conform to Boeing
Detail Specification D6-38604-26-V-II, except as changed as required or
permitted pursuant to the Lease Agreement or any other Operative Document, and
shall:
1.1 GENERAL REQUIREMENTS.
Have been operated, maintained and repaired in accordance with the Lease
Agreement, have all of its components and systems functioning in accordance with
relevant manufacturer's specifications and comply with the requirements of
Attachment 1 to this Annex 1.
1.2 CONDITION PERMITTING COMMERCIAL OPERATION.
Be in a condition permitting immediate commercial passenger and cargo
revenue service by Lessee under the applicable operating regulations of the
Aviation Authority.
1.3 EXPORT MATTERS.
(1) Have, and be in compliance with, at Lessor's option, (a) a valid
export certificate of airworthiness (or its equivalent) or (b) a valid
certificate of airworthiness (or its equivalent), in either case, issued by the
Aviation Authority and (2) have and be in compliance with all necessary export
Frontier Lease Agreement (MSN 28662)
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certificates and other documents allowing for immediate export of the Aircraft
from the Lessee Jurisdiction.
1.4 FINAL AIRFRAME CHECK.
With respect to the Airframe, have accomplished immediately after removal
from service and immediately prior to delivery to Lessor the completion of the
next numbered "C" check in accordance with Airframe Manufacturer's Maintenance
Planning Document in respect of the Aircraft under the Approved Maintenance
Program (which check shall incorporate all lower-level checks and any special
repair items or special inspections (including CPCP items) as well as
inspections that have a frequency less than such "C" check) and the Airframe
shall not have been operated more than 30 months since the last "7C/SI" check or
its equivalent (including CPCP items) (with the effect that no Major Check for
the Airframe shall be required under the Approved Maintenance Program for either
18 months or 3,600 Airframe Flight Hours) and the Airframe shall have no less
than 12,000 Airframe Flight Hours until the next heavy structural inspection.
For the avoidance of doubt, Lessee is required to perform a "7C/SI" ("D" check)
check during the Lease Term. The final "C" check shall include removal and
overhaul of all seats, replacement of damaged, discolored or severely worn seat
suits and cushions and other work to insure that such seats are in good
operating condition. If reasonably requested by Lessor, the Aircraft carpeting
shall be replaced at the Final Maintenance. If not accomplished at the
preceding "7C/SI" check, the forward and aft galley and lavatories shall, at the
Final Maintenance, be removed and a full corrosion inspection shall be
accomplished of the floor beams, and the other structure in these and the door
areas of the Aircraft. The structure of the door surround and floor area of the
entry and to the centerline of the Aircraft in each cargo hold shall be removed
for inspection of the structure.
1.5 ADS, SERVICE BULLETINS, ETC.
(1) Be in compliance on a terminating basis with all Required
Modifications where (a) in the case of ADs and other Aviation Authority-required
Modifications, the mandatory compliance date for which action on such basis
falls during the Lease Term or 12 months after the Return and (b) in the case of
alert SBs, the issuance date thereof is during the Lease Term, and (2) have no
required inspection under any such outstanding
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AD, alert SB or instruction due within either (a) as applicable, 3,000 hours,
2,000 cycles or 12 months or (b) a full inspection period whichever is less,
provided that, in the case of both clauses (1) and (2), in the event that Lessee
has obtained a waiver or deviation from the Aviation Authority, Airframe
Manufacturer or from any such manufacturer from having to comply with any such
Required Modification or inspection, Lessee shall, irrespective of such waiver
or deviation, comply with all such Required Modifications and inspections prior
to the Return. In the case of each such Required Modification, Lessor shall
reimburse Lessee for the cost of such modification pursuant to Section 2.2.1 of
Schedule 1 to the Lease Agreement as if such modification fell within the scope
of such section, provided further that if Lessor shall be so required to
reimburse Lessee, Lessee shall, prior to performing such modification, provide
Lessor with at least 20 Business Days written notice of Lessee's intent to
perform such modification together with a detailed cost estimate, and Lessor
may, within such 20 Business Day period, elect to have Lessee not perform such
modification.
1.6 ENGINE CONDITION.
Have neither Engine on watch for any reason whatsoever and all performance
and operating parameters of each Engine including EGT margin and oil
consumption, shall be sufficiently within the limits specified by the Engine
Manufacturer so a to ensure that each Engine is fully capable of uninterrupted
on-wing operation for a period of at least one year, 4,000 Engine Flight Hours
and 3,000 Engine Cycles, until removal is requested for performance restoration,
maintenance, inspection, repair or for any other reason which would cause the
Engine to be removed. If Lessor and Lessee are unable to mutually agree the
parameters or whether one year of operation remains, Lessor and Lessee shall
consult a qualified CFMI engineer and agree to be bound by the determination of
such engineer (the cost of such engineer to be shared equally by Lessor and
Lessee).
1.6.1 ENGINE BORESCOPE.
Each Engine shall have had a complete (100% of all stages) video
borescope inspection performed by Lessee during Final Inspection, and in the
presence of the Inspecting Parties, and satisfactory evidence shall be provided
to Lessor reflecting the correction of any discrepancies from manufacturer or
regulatory limitations, recommendations and/or tolerances found
Frontier Lease Agreement (MSN 28662)
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during such inspection.
1.6.2 FULL-RATED PERFORMANCE.
The Aircraft shall be capable of certificated, full-rated performance
without limitations throughout the operating envelope as defined in the airplane
flight manual; performance compliance will be demonstrated by one or two of the
following, at Lessor's option: (1) at the time of the acceptance flight test,
(2) by on-wing static inspection and testing of the powerplants in accordance
with the engine maintenance manual, (3) by test cell data (in the event an
Engine is just out of test cell) or (4) by a power assurance check in accordance
with the Approved Maintenance Program and Engine Manufacturer's recommendations.
1.7 APU CONDITION.
With respect to the APU, have no more than 3,000 APU hours since last
removal and the most recent Basic Shop Visit, and shall have a video borescope
inspection performed by Lessee during Final Inspection, and in the presence of
the Inspecting Parties, and satisfactory evidence shall be provided to Lessor
reflecting the correction of any discrepancies from manufacturer or regulatory
limitations, recommendations and/or tolerances found during such inspection.
1.8 LANDING GEAR CONDITION.
With respect to each Landing Gear, have at least 10,000 Airframe Cycles
remaining until the next Landing Gear Overhaul.
1.9 LIFE LIMITED PARTS.
With respect to (1) all Airframe life and calendar controlled components,
have a minimum of one year, and 3,000 Airframe Flight Hours and 2,000 Airframe
Cycles remaining to next scheduled removal or inspection (in accordance with the
Approved Maintenance Program), but (a) if a component has a life, overhaul or
check interval limit that is less than the above-stated hours, cycles or
calendar time requirement (in accordance with the Approved Maintenance Program),
then such component shall have a full check interval remaining and (b) "on-
condition" and "condition-monitored" components shall be serviceable and shall
have no indication of incipient faults and (2) no Engine life-
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<PAGE>
limited parts shall have less than 2,000 Engine Cycles remaining until the next
scheduled removal or replacement.
1.10 TIRES AND BRAKES.
Have full treads on each of the tires (with not more than three re-caps)
and have remaining not less than 50 percent service wear life on each brake.
1.11 PAINT.
Have all Lessee's markings and logos removed and be properly stripped and
painted all white, and after such painting Lessee shall balance the rudder in
accordance with Airframe Manufacturer procedures.
1.12 SERVICE BULLETIN KITS.
Have all service bulletins for which kits have been received or
manufactured by Lessee for the Aircraft, in each case, at least 120 days prior
to the Return installed on the Aircraft prior to Return (with all other such
kits received or manufactured by Lessee after such time to be shipped by
commercial carrier to a location specified by Lessor).
1.13 FUEL AND OIL.
With each fuel tank and oil tank containing the same quantity of fuel or
oil as was contained in such fuel and oil tanks when the Airframe was delivered
to Lessee or, in the case of differences in any such quantities, an appropriate
adjustment will be made by payment to Lessor or Lessee, as appropriate, at the
then-current market price at the Return Location of fuel or oil, as the case may
be.
1.14 LESSEE CERTIFICATE.
Be accompanied by a certificate from a senior technical officer of Lessee
stating and certifying that:
1.14.1 The Aircraft has not been involved in any accidents (other than
those disclosed on an annex to such certificate) during the Lease Term.
1.14.2 All Aircraft Documentation for the Aircraft has
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been delivered with the Aircraft.
1.14.3 The Aircraft is free of corrosion to the extent required by the
Approved Maintenance Program.
1.14.4 The Engines and APU have been completely borescoped and that
either no defects exceeding the relevant manufacturer's tolerances were found or
such defects have been repaired.
1.14.5 All Required Modifications which are required by the Lease
Agreement and the other Operative Documents to be incorporated in the Aircraft
prior to the last day of the Lease Term have been so incorporated on the date
and in the manner of described in such certificate.
1.14.6 The completeness and accuracy of the list of engineering orders
attached to such certificate reflecting any Modification to the Aircraft.
1.14.7 The completeness and accuracy of the record of status of life-
limited Parts in each Engine and, if any such Part is a replacement for a
previous Part and is not a new Part, the full back-to-birth history of such
replacement Part (to the extent required by the Lease Agreement).
SECTION 2. AIRCRAFT DOCUMENTATION.
At Return, Lessee shall deliver to Lessor at the Return Location the Aircraft
Documentation. All Aircraft Documentation provided to Lessor at time of
redelivery of the Aircraft shall be listed and included as an attachment to the
Return Acceptance Certificate. Lessee shall ensure that all Aircraft
Documentation provided to Lessor shall be in good condition, readable and
capable of being reproduced using standard reproduction processes and otherwise
shall have been maintained in accordance with the Lease Agreement and the other
Operative Documents. All Aircraft Documentation shall be in printed form
(except only those documents which Lessee has received only in non-printed
form).
Frontier Lease Agreement (MSN 28662)
Annex 1 to Schedule 1
Execution Copy -6-
<PAGE>
Attachment 1 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28662)
GENERAL CONDITION RETURN REQUIREMENTS
General
- -------
1. The Aircraft shall (a) be clean and in good operational and physical
condition by good international standards for commercial passenger service
commensurate with a deep cleaning of the Aircraft, (b) be free of temporary
repairs, (c) have no excessive, multiple or overlaid External Repairs, (d) have
no repairs not in accordance with Airframe Manufacturer structural repair manual
or approved by Airframe Manufacturer, (e) be free of damage and loose, missing
or pulled fasteners, (f) be free of scratches, buckles and damage exceeding
manufacturer tolerances and (g) have no deferred or hold over maintenance.
2. The Aircraft shall be free of fuel leaks, and the fuel, hydraulic and oil
systems of the Aircraft, including the Engines, shall have been tested and free
of any contaminants and Lessee shall provide to Lessor the results of laboratory
tests of all such systems.
Fuselage, Windows and Doors
- ---------------------------
3. Windows shall be free of delamination, blemishes, crazing, and shall be
properly sealed and free of any air leaks.
4. Doors shall be free moving, correctly rigged and be fitted with serviceable
seals, and free of any air noise or leaks.
Wings and Empennage
- -------------------
5. All leading edges shall be free from significant damage.
6. All control surfaces shall be waxed and polished.
7. All unpainted cowlings and fairings shall be polished.
8. Wings shall be free of fuel leaks.
Frontier Lease Agreement (MSN 28662)
Annex 1 to Schedule 1
Execution Copy -7-
<PAGE>
9. With respect to the wings and horizontal stabilizer and all control
surfaces, be clean, in good condition, free of dents, cracks, abrasions, stain
and discoloration outside of manufacturer tolerances.
Interior
- --------
10. Ceilings, sidewalls and bulkhead panels shall be clean and free of cracks
and stains.
11. All carpets and seat covers shall be in good condition, clean and stain
free and meet applicable fire resistance regulations as required for continued
commercial operation by Lessee.
12. All seats shall be serviceable, in good condition and repainted as
necessary.
13. All signs and decals shall be clean and legible.
14. All emergency equipment having a calendar life shall have a minimum
remaining life of one year or one hundred percent (100%) of its total approved
life, whichever is less.
15. All passenger communication systems and entertainment systems shall be
functional and in good condition.
Galleys and Galley Equipment
- ----------------------------
16. All galley areas shall be clean, free from food contamination and free of
cracks and corrosion, and meet safety and health standards.
17. All galley areas and equipment shall be in good condition, clean, sealed,
stain free and meet safety and health standards.
18. All galley structure, galley inserts and galley carts installed on the
Delivery Date shall be clean, free of defects and serviceable.
Flight Deck
- -----------
19. Flight deck shall be clean, free of stains and cracks, and all features
shall be functional.
Frontier Lease Agreement (MSN 28662)
Annex 1 to Schedule 1
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<PAGE>
20. All decals shall be clean, secure and legible.
21. All fairing panels shall be free of stains and cracks, shall be clean,
secure and repainted, as necessary.
22. Floor coverings shall be clean and effectively sealed.
23. Seat covers shall be in good condition, clean and shall conform to
applicable fire resistance regulations.
24. Seats shall be fully serviceable and shall be repainted, as necessary.
Cargo Compartments
- ------------------
25. All panels shall be in good condition, properly installed, free of cracks
and stains and properly sealed.
26. All nets shall be in good condition.
27. All decals and required notices shall be installed.
28. All doors shall be in good repair, properly functional, sealed and properly
rigged.
Landing Gear and Wheel Wells
- ----------------------------
29. Landing gear and doors shall be clean, free of leaks and damage, properly
rigged and repaired, as necessary.
30. Wheel wells should be clean, free of leaks and damage, and properly treated
for corrosion prevention.
31. All decals shall be clean, secure and legible.
32. Wheels shall be clean and free of corrosion.
Corrosion
- ---------
33. The entire fuselage shall be substantially free from corrosion and shall be
adequately treated and an approved corrosion prevention program shall be in
operation.
34. After stripping and prior to painting as required in Annex 1 to Schedule 1
to the Lease Agreement, the exterior of the
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<PAGE>
Aircraft shall be inspected and any corrosion, structure damage, or other
defects shall be corrected in accordance with the corrosion treatment and
correction criteria set forth in the 737 Structural Repair Manual and the
Corrosion Prevention Manual and as recommended by Airframe Manufacturer.
35. Fuel tanks shall be free from contamination and corrosion and a tank
treatment program shall be in operation.
Frontier Lease Agreement (MSN 28662)
Annex 1 to Schedule 1
Execution Copy -10-
<PAGE>
Attachment 2 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28662)
AIRCRAFT AND AIRCRAFT DOCUMENTATION
RETURN ACCEPTANCE CERTIFICATE
Lessor hereby accepts and acknowledges receipt from Lessee, in accordance with
the terms and conditions of the Lease Agreement (MSN 28662), dated as of
December 12, 1996 (the "Lease Agreement"), between Lessor and Lessee, of:
Aircraft: [______]
Airframe Manufacturer's Serial Number: 28662
APU Serial Number: [______]
with two installed CFM56-3C-1 engines, Engine Manufacturer's Serial Numbers:
Position (1) [_________]
Position (2) [_________]
together with the aircraft documentation described in Supplement 1 hereto and
with the operating times and cycles as accumulated on the Aircraft up to the
time of redelivery as described in Supplement 2 hereto, and the loose equipment
described in Supplement 3 hereto, in [return location] on [date], at
________/a.m.//p.m./
Lessor and Lessee have each caused this receipt to be duly executed on the above
date.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
Frontier Lease Agreement (MSN 28662)
Annex 1 to Schedule 1
Execution Copy -11-
<PAGE>
FRONTIER AIRLINES, INC.
By:
Title:
Frontier Lease Agreement (MSN 28662)
Annex 1 to Schedule 1
Execution Copy -12-
<PAGE>
Supplement 1 to
Attachment 2 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28662)
AIRCRAFT DOCUMENTATION
Identification
Title/Description Number Quantity
Frontier Lease Agreement (MSN 28662)
Annex 1 to Schedule 1
Execution Copy -13-
<PAGE>
Supplement 2 to
Attachment 2 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28662)
AIRCRAFT STATUS AS OF ________, 19____
AIRFRAME __________
Serial Number: . . . . .
Registration Number: . . . . .
Airframe Flight Hours Since New: . . . . .
Airframe Cycles Since New: . . . . .
Last C-Check Performed: . . . . .
Flight Hours at Last C-Check: . . . . .
Cycles at Last C-Check: . . . . .
Last D-Check Performed: . . . . .
Flight Hours at Last D-Check: . . . . .
Cycles at Last D-Check: . . . . .
Fuel Aboard: . . . . .
Oil Aboard: . . . . .
ENGINES POSITION 1 POSITION 2
Serial Number of Original Engine*: . . . . . . . .
Flight Hours Since New: . . . . . . . .
Cycles Since New: . . . . . . . .
Last Basic Shop Visit Performed (type): . . . . . . . .
Flight Hours at Last Basic Shop Visit: . . . . . . . .
Cycles at Last Basic Shop Visit: . . . . . . . .
*or Replacement Engine, if applicable
AUXILIARY POWER UNIT
Serial Number . .
APU Hours Since New: . .
APU Cycles Since New: . .
Last Maintenance Visit (type): . .
APU Hours at Last Basic Shop Visit: . .
APU Cycles at Last Basic Shop Visit: . .
Frontier Lease Agreement (MSN 28662)
Annex 1 to Schedule 1
Execution Copy -14-
<PAGE>
LANDING GEAR NOSE LMG RMG
Serial Number: . . . . . . .
Flight Hours Since New: . . . . . . .
Cycles Since New: . . . . . . .
Flight Hours Since OH: . . . . . . .
Cycles Since OH: . . . . . . .
Cycles Last Shop Visit: . . . . . . .
TIRES AND BRAKES
% Wear Life Remaining
------------------------------
Nose Tires Brakes
- ---- ----- ------
Left . . . .
Right . . . .
RH Main:
- -------
Left . . . . . . . .
Right . . . . . . . .
LH Main:
- -------
Left . . . . . . . .
Right . . . . . . . .
Frontier Lease Agreement (MSN 28662
Annex 1 to Schedule 1
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Supplement 3 to
Attachment 2 to
Annex 1 to
Schedule 1 to
Lease Agreement
(MSN 28662)
LOOSE EQUIPMENT
Frontier Lease Agreement (MSN 28662)
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Schedule 2
Certain Transaction
Specific Defined Terms
Lease Agreement
(MSN 28662)
SCHEDULE 2
CERTAIN TRANSACTION SPECIFIC DEFINED TERMS
(MSN 28662)
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28662), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc.
and Frontier Airlines, Inc., to which this document is a schedule.
SECTION 1. GENERAL DEFINITIONS.
The following terms shall have the following meanings for all purposes of
this Schedule 2:
"Airframe Manufacturer" shall mean The Boeing Company.
"Airframe Manufacturer Purchase Agreement" shall mean Purchase Agreement No.
1922, dated as of May 1, 1996, between Airframe Manufacturer and Boullioun
Aviation Services, Inc., as from time to time amended and supplemented.
"Airframe Reserve Amount" shall mean * .
"APU Reserve Amount" shall mean * .
"Assumed Hour-to-Cycle Ratio" shall mean 1.5:1
"Aviation Authority" shall mean the United States Federal Aviation
Administration and any person, governmental department, bureau, commission or
agency succeeding to all or any of its functions.
"Basic Lease Term Termination Date" shall mean the seventh anniversary of the
Delivery Date.
"Business Day" shall mean a day (other than a Saturday or Sunday) on which
banks are not required or authorized to close in
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Denver or Seattle or one other jurisdiction, if any, designated to Lessee by
Lessor in writing from time to time.
"Commitment Termination Date" shall mean August 31, 1998.
"Damage Notice Threshold" shall mean US$200,000.
"Delivery Location" shall mean a Boeing facility in the State of Washington
or such other location, if any, as Lessor and Lessee shall agree in writing.
"Engine Life Limited Part Reserve Amount" shall mean * .
"Engine Manufacturer" shall mean CFM International, Inc.
"Engine Overhaul Reserve Amount" shall mean * .
"Insurance Brokers" shall mean Aon Risk Services, Inc. or any other
independent firm of internationally recognized insurance brokers reasonably
acceptable to Lessor.
"Landing Gear Reserve Amount" shall mean * .
"Lessee Jurisdiction" shall mean the United States.
"Past Due Rate" shall mean a rate equal to a fluctuating rate per annum equal
to 300 basis points above the Dollar prime rate in effect from time to time at
the main office of Seattle First National Bank in Seattle, Washington, but, in
any case, at least 9%, provided that such rate as determined from time to time
shall not in any event be higher than the highest rate per annum permitted from
time to time under any applicable Law.
"Permitted Jurisdiction" shall mean any country listed in Annex 1 to this
Schedule 2.
"Renewal Lease Term Termination Date" shall mean * .
"Reserve Inflation Factor" shall mean 1.05%.
"Return Location" shall mean an airport located in the United States
designated by Lessor in writing at least 30 days prior to the last day of the
Lease Term.
"Scheduled Delivery Date" shall mean a date notified by Airframe Manufacturer
as the delivery date for the Aircraft
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(local time at the Delivery Location), which delivery date is scheduled, as of
the date hereof, to occur in August 1997.
"State of Registration" shall mean the United States.
"Stipulated Loss Value" shall mean * .
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"Stipulated Deductible Amount" shall mean * .
"Stipulated Liability Coverage" shall mean * .
SECTION 2. BASIC RENT AND RENEWAL RENT.
2.1 RENT AMOUNT.
The amount referred to in Section 3.3 of the Lease Agreement is * ,
provided that during each of the first year and, if any, second year of any
Renewal Lease Term, the amount for such year referred to in Section 3.3 of the
Lease Agreement shall be the higher of * .
2.2 FAIR MARKET RENTAL.
For purposes of this Section 2, "Fair Market Rental" shall mean the fixed
monthly cash rental reasonably achievable by Lessor in the worldwide operating
lease market (1) the date (the "Renewal Rent Determination Date") 13 months
prior to any one year renewal period, (2) for the Aircraft, (3) from a lessee in
a similar financial condition to Lessee's then current financial condition, (4)
for such one year renewal period and (5) in an arms-length transaction between
an informed lessee under no compulsion to lease and an informed lessor under no
compulsion to lease, and shall be determined assuming that the Aircraft has been
maintained in compliance with the requirements of the Lease Agreement and the
other Operative Documents and complies with all Return requirements of the Lease
Agreement, including the requirements of Annex 1 to Schedule 1 to the Lease
Agreement.
2.3 RENEWAL RENT DETERMINATION.
Upon written request from Lessee at least 30 days prior to the Renewal
Rent Determination Date (a "Rent Determination Request"), Lessor and Lessee
shall in good faith and acting reasonably determine the Fair Market Rental. If
15 days prior to the Renewal Rent Determination Date, Lessor and Lessee cannot
determine the Fair Market Rental, then the Fair Market Rental shall be
determined by two recognized independent aircraft appraisers, one of which shall
be selected by Lessee (at its expense) and one of which shall be selected by the
Lessor (at its expense), or if such appraisers cannot agree, by a third
independent appraiser chosen by the mutual assent of the first two appraisers
(with the cost of such third appraiser to be shared equally by Lessor and
Lessee). If either party shall fail
Frontier Lease Agreement (MSN 28662)
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to appoint an appraiser at least 11 days prior to the Renewal Rent Determination
Date, or if such two appraisers cannot agree on the amount of the Fair Market
Rental and fail to appoint a third appraiser at least eight days prior to the
Renewal Rent Determination Date, then Lessor and Lessee shall jointly request
the American Association of Equipment Lessors (or any successor organization) to
appoint the relevant appraiser.
SECTION 3. AMOUNT OF SECURITY DEPOSIT.
Lessor acknowledges that it has received * from Lessee in accordance with
that certain letter agreement, dated August 15, 1996, between its affiliate and
Lessee. Lessee shall pay to Lessor, by wire transfer of immediately available
Dollars to the account of Lessor specified in Schedule 4 to the Lease Agreement:
3.1 Within five days after the date of the execution and delivery of this
Agreement by both Lessor and Lessor, the additional amount of * .
3.2 Unless Lessee shall have exercised its option to provide Lessor a
Letter of Credit pursuant to Section 3.5.3 of the Lease Agreement, at least five
days prior to the Scheduled Delivery Date, the additional amount of * .
3.3 Unless Lessee shall have exercised its option to provide Lessor a
Letter of Credit pursuant to Section 3.5.3 of the Lease Agreement, on each of
the second, third and fourth Basic Rent Payment Dates, the additional amount of
* .
All such amounts, as held by Lessor from time to time, are referred to in the
Lease Agreement and the other Operative Documents as the "Security Deposit."
SECTION 4. TERMINATION OF LEASE PRIOR TO DELIVERY.
4.1 TERMINATION TRIGGERS.
If any one or more of the following is true, then Lessor may, at its sole
option, terminate the Lease Agreement and the other Operative Documents by
notice to Lessee:
4.1.1 A Default shall have occurred at any time (even if not then
continuing).
4.1.2 Lessee shall not have an unrestricted cash
Frontier Lease Agreement (MSN 28662)
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balance as of December 31, 1996 of at least * .
4.1.3 Lessee shall not have an unrestricted cash balance as of March
31, 1997 of at least * .
4.1.4 Lessee shall not have a tangible net worth as of December 31,
1996 in excess of * .
4.1.5 Lessee shall not have a tangible net worth as of March 31, 1997
in excess of * .
4.1.6 Lessee shall not have had, for the 12-month period ending
December 31, 1996, total revenues in excess of * .
4.1.7 Lessee shall not have had, for the 3-month period ending March
31, 1997, net income in excess of * .
The accounting terms used in this Section 4.1 shall be interpreted with
reference to generally accepted accounting principles, as set forth in the
statements of financial accounting standards issued by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants, and
as applied on a basis consistent with prior periods.
4.2 EFFECT OF TERMINATION.
If Lessor does so terminate the Lease Agreement and the other Operative
Documents, neither Lessor nor Lessee shall have any further rights or
obligations thereunder and Lessor shall return all but * of the Security
Deposit then held by Lessor (and Lessor shall retain such * for its own
benefit and without any claim thereon by Lessee).
4.3 COOPERATION.
Lessee shall cooperate with Lessor, and will provide to Lessor such
information (including unaudited financial statements and/or confirmation of
cash balances) as may be requested by Lessor, to allow Lessor to determine as
soon as practicable whether any of the circumstances set forth in Section 4.1 of
this Schedule 2 has occurred. Lessee acknowledges and agrees that Lessor may
make such determination on the basis of the information available to it from
time to time and, for the avoidance of doubt, that it will not be necessary for
Lessor to base any such determination on audited financial statements.
Frontier Lease Agreement (MSN 28662)
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Annex 1 to
Schedule 2
Permitted
Jurisdictions
Lease Agreement
(MSN 28662)
ANNEX 1 TO SCHEDULE 2
PERMITTED JURISDICTIONS
United States
Canada
Mexico
Frontier Lease Agreement (MSN 28662)
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Schedule 3
Delivery Conditions
Lease Agreement
(MSN 28662)
SCHEDULE 3
DELIVERY CONDITIONS
(MSN 28662)
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28662), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc.
and Frontier Airlines, Inc., to which this document is a schedule.
On the Delivery Date, the Aircraft shall comply with Boeing Detail Specification
D6-38604-26-V-II, except that the Aircraft shall (1) have an additional galley
installed in the G2 position, (2) be configured in a 136 or 138 all coach
configuration at a minimum 31 inch pitch and (3) include operational provisions
for engine operation at 20,000 or 22,000 pounds thrust with -B1 or -B2 intermix
authority.
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Schedule 4
Notice and Account
Information
Lease Agreement
(MSN 28662)
SCHEDULE 4
NOTICE AND ACCOUNT INFORMATION
(MSN 28662)
LESSOR ADDRESS:
Boullioun Aircraft Holding Company, Inc.
500 - 108th Avenue N.E., 25th Floor
Bellevue, Washington 98004
Attention: Secretary
Facsimile: 206-450-1581
Telephone: 206-454-3106
LESSOR ACCOUNT:
Bank: Seattle First National Bank
701 Fifth Avenue
Seattle, Washington 98104
ABA Number: 125000024
Account Name: Boullioun Aircraft Holding Company, Inc.
Account Number: 63506513
Contact: Karol Bankston or Betty Batayola
Telephone: (206) 358-2919
Facsimile: (206) 358-7134
Reference: Frontier Airlines
LESSEE ADDRESS:
Frontier Airlines, Inc.
12039 E. 46th Avenue, Suite 200
Denver, Colorado 80239
Attention: Arthur T. Voss
Facsimile: 303-371-7007
Telephone: 303-371-7400
Frontier Lease Agreement (MSN 28662)
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LESSEE ACCOUNT:
Bank: Colorado National Bank
8401 E. Belleview
Denver, Colorado 80237
ABA Number: 102000021
Account Name: Frontier Airlines, Inc.
Account Number: 194310671392
Contact: James K. Edwards
Telephone: 303-773-0715
Facsimile: 303-290-8671
Frontier Lease Agreement (MSN 28662)
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Schedule 5
Tax Matters
Lease Agreement
(MSN 28662)
SCHEDULE 5
TAX MATTERS
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28662), dated as of December 12,
1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc.
and Frontier Airlines, Inc., to which this document is a schedule.
SECTION 1. LESSEE LIABILITY.
Lessee shall pay or cause to be paid, and on written demand shall indemnify
and hold harmless each Tax Indemnitee from and against, any and all Taxes
howsoever imposed or levied on or asserted against, from time to time, any Tax
Indemnitee, Lessee, the Aircraft, Airframe or any Engine or any Parts or any
interest therein by any Government Entity on, with respect to, based on or
measured by:
1.1 The acceptance, rejection, delivery, ownership, nondelivery, lease,
sublease, charter, transport, subcharter, registration, deregistration,
reregistration, possession, repossession, presence, operation, location,
condition, use or non-use, control, airworthiness, overhaul, replacement,
existence, storage, preparation, installation, testing, manufacture, design,
modification, alteration, maintenance, repair, re-lease, sale, return, transfer,
exportation, importation, abandonment or other disposition of, or the imposition
of any Lien on, the Aircraft, the Airframe, any Engine or engine or Part or any
other thing delivered under the Lease Agreement or any other Operative Document
or interest therein (or the incurrence of any liability to refund or pay over
any amount as the result of any such Lien);
1.2 The rentals, receipts or earnings from, or other amounts payable by
Lessee in connection with, the Aircraft, Airframe or any Engine or Parts thereof
or interest therein.
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1.3 The Aircraft, Airframe or any Engine or any Parts thereof or interest
therein (including, without limitation, title or a security interest therein) or
any data or any other thing delivered or to be delivered under the Operative
Documents.
1.4 Otherwise with respect to or in connection with the execution,
delivery, enforcement, amendment or supplement to the Operative Documents or the
transactions contemplated by the Operative Documents.
SECTION 2. EXCLUSIONS FROM LESSEE'S LIABILITY.
The provisions of Section 1 of this Schedule 5 shall not apply to:
2.1 Taxes that are imposed on a Tax Indemnitee by any Government Entity
(other than a Government Entity in the Lessee Jurisdiction, in the State of
Registration (if different) or in the jurisdiction of Lessee's principal place
of business (if different)) and that are based on, or measured by, net income of
any Tax Indemnitee (notwithstanding the foregoing, Section 1 of this Schedule 5
shall apply to, and the Tax Indemnitees shall be indemnified against, any such
Taxes (1) which are in the nature of sales, use, rental, ad valorem, license,
property or value-added Taxes, (2) which are imposed by the U.S. federal
government as a result of any improvement, alteration, repair, replacement or
modification of the Aircraft or (3) to the extent such Taxes would not have been
imposed by such Government Entity upon such Tax Indemnitee but for (a) the
occurrence of any of the transactions contemplated by the Operative Documents in
such jurisdiction, (b) the registration use, operation or location of the
Aircraft in such jurisdiction or (c) the activities of Lessee or any successor,
assign or Affiliate of Lessee or any user of the Aircraft in such jurisdiction.
2.2 Sales, use or similar transfer Taxes imposed on a Tax Indemnitee upon
any voluntary or involuntary transfer or disposition (other than any transfer
pursuant to any exercise of remedies in connection with an Event of Default,
pooling arrangement, Event of Loss or any deemed transfer caused by Lessee or
any user of the Aircraft) by such Tax Indemnitee of any equitable or legal
interest in the Aircraft, Airframe, any Engine or any Part to any Person other
than Lessee or any Affiliate of Lessee.
2.3 So long as no Default has occurred and is continuing,
Frontier Lease Agreement (MSN 28662)
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Taxes to the extent incurred with respect to any act occurring after the later
of (1) expiration or earlier termination of the Lease Agreement and (2) the (a)
return of possession of the Aircraft in accordance with Section 4 of Schedule 1
or (b) sale or other transfer of the Aircraft following an Event of Loss with
respect to the Aircraft in accordance with Section 10 of the Lease Agreement;
provided, however, that the exclusion set forth in this Section 2.3 shall not
apply to the extent such Taxes relate to periods prior to, or events occurring
or matters arising prior to or in connection with, such expiration, termination
or sale.
2.4 Taxes caused solely by activities of such Tax Indemnitee unrelated to
the transaction contemplated by the Operative Documents.
2.5 Taxes attributable to Lessor's Liens.
Each of the Lessor and Lessee shall cooperate and use reasonable best
efforts to avoid or minimize any Taxes imposed by any taxing authority
worldwide.
SECTION 3. NO REDUCTION FOR WITHHOLDING, ETC.
All payments by Lessee to Lessor under this Agreement or any other Operative
Document, whether in respect of Rent, interest, fees or any other item, shall be
made in full without any deduction or withholding (whether in respect of setoff,
counterclaim, duties, Taxes, charges, wages or otherwise whatsoever), unless the
withholding or deduction is required by Law, in which event Lessee shall:
3.1 Forthwith pay to Lessor such additional amount so that the net amount
received by Lessor after the deduction or withholding will equal the full amount
which would have been received by it had no such deduction or withholding been
made.
3.2 Pay to the relevant Taxing Authorities within the period for payment
permitted by applicable Law the full amount of the deduction or withholding
(including, but without prejudice to the generality of the foregoing, the full
amount of any deduction or withholding from any additional amount paid pursuant
to this Section 3.
3.3 Furnish to Lessor, within the period for payment permitted by
applicable Law, an official receipt of the relevant
Frontier Lease Agreement (MSN 28662)
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taxation or other authorities involved for all amounts deducted or withheld as
aforesaid or, if no such receipt is issued, a certificate of deduction or
equivalent evidence thereof.
The parties shall cooperate to find a solution eliminating any withholding or
deduction on account of Taxes which could be required after the date hereof in
respect of any amounts due under the Lease Agreement or any other Operative
Documents provided that Lessor is not thereby required to incur any material
cost or liability that is not covered by an indemnity.
SECTION 4. REPORTS.
Lessee will provide promptly upon request such information as may be
reasonably requested by a Tax Indemnitee or required to enable a Tax Indemnitee
to timely and properly fulfill its tax filing requirements with respect to the
transactions contemplated by the Operative Documents, including, without
limitation, those requirements that relate to Taxes based on or measured by the
total time the Aircraft is located in a particular place irrespective of whether
the Aircraft is there for revenue, maintenance or storage purposes. If any
report, return or statement is required to be filed with respect to any Tax
which is subject to indemnification under this Schedule 5, Lessee shall timely
file the same (except for any such report, return or statement which such Tax
Indemnitee intends to file or for income tax returns or any other return, report
or statement which the Tax Indemnitee is required by Law to file in its own
name). Lessee shall either file such report, return or statement and send a copy
of such report, return or statement to the Tax Indemnitee or, where Lessee is
not permitted to file such report, return or statement, it shall notify such Tax
Indemnitee of such requirement and prepare and deliver such report, return or
statement to such Tax Indemnitee in a manner satisfactory to such Tax Indemnitee
no later than 30 Business Days prior to the time such report, return or
statement is to be filed. Lessee shall hold each Tax Indemnitee harmless from
and against any liabilities, including, without limitation, penalties, late
payment charges, notary charges, additions to tax, fines and interest arising
out of any failure to timely file or inaccuracy in any such return, statement,
report or information if such failure to timely file or inaccuracy is
attributable in whole or in part to Lessee's failure to fulfill its obligations
hereunder. Lessee shall not have any right to examine the tax returns of any Tax
Indemnitee. Lessee agrees to use its best efforts to obtain official receipts
indicating the payment by it of all foreign
Frontier Lease Agreement (MSN 28662)
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income and withholding Taxes that are subject to indemnification under this
Schedule 5 and shall promptly deliver to the relevant Tax Indemnitee each such
receipt obtained by Lessee. Each Tax Indemnitee will give prompt notice to
Lessee of any liability of which such Tax Indemnitee has knowledge for which
Lessee is, or may be, liable under this Schedule 5, provided that failure to
give such notice will not prejudice or otherwise affect any of the rights of
such Tax Indemnitee under this Schedule 5 except to the extent Lessee's
successful defense of any such liability is prejudiced or otherwise affected
thereby.
SECTION 5. PAYMENT.
Upon written demand of the Tax Indemnitee, Lessee shall pay any Tax for which
it is liable pursuant to this Schedule 5 in immediately available funds directly
to the appropriate Government Entity or to such Tax Indemnitee, but in no event
shall such payment be required more than five Business Days prior to the date
such Tax is due. Any such demand for payment from a Tax Indemnitee shall
specify, in reasonable detail, the calculation of the amount of the payment and
the facts upon which the right to payment is based and shall be verified upon
the request and at the expense of Lessee by the independent accountants for
Lessor. The verification by the independent accountants for Lessor should be
conducted at Lessor's cost if the calculation was incorrect by more than 10%.
Each Tax Indemnitee shall promptly forward to Lessee any notice, bill or advice
in the nature of a notice or bill received by it concerning any Tax. As soon as
practical after each payment of any Tax by Lessee directly to any Government
Entity, Lessee shall furnish the appropriate Tax Indemnitee with the original or
a certified copy of a receipt for Lessee's payment of such Tax or such other
evidence of payment of such Tax as is reasonably acceptable to such Tax
Indemnitee. Lessee shall also furnish promptly upon request such data as any
Tax Indemnitee may require to enable such Tax Indemnitee to comply with the
requirements of any taxing jurisdiction.
Frontier Lease Agreement (MSN 28662)
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Exhibit A
Lease Supplement
Lease Agreement
(MSN 28662)
EXHIBIT A
LEASE SUPPLEMENT
(MSN 28662)
LEASE SUPPLEMENT (MSN 28662) NO. [___], dated as of [_______], 199[__] (this
"Lease Supplement"), between Boullioun Aircraft Holding Company, Inc. ("Lessor")
and Frontier Airlines, Inc. ("Lessee").
RECITAL:
Lessor and Lessee have entered into Lease Agreement (MSN 28662), dated as of
December 12, 1996 (the "Lease Agreement"), which provides for the execution and
delivery from time to time of Lease Supplements (this and all other capitalized
terms used but not defined herein shall have the respective meanings ascribed
thereto in the Lease Agreement) substantially in the form hereof in accordance
with the terms thereof.
AGREEMENT:
In consideration of the foregoing premises, and for other good and valuable
consideration the adequacy of receipt of which is hereby acknowledged, and
pursuant to Section [2], [10.3] [__] of the Lease Agreement, Lessor and Lessee
hereby agree as follows:
[Section 1. Lessor hereby delivers and leases to Lessee, and Lessee hereby
accepts and leases from Lessor, under the Lease Agreement as hereby
supplemented, the following described aircraft (the "Aircraft"):
_______________________
This Lease Supplement has been executed in several counterparts. To the extent,
if any, that this Lease Supplement constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction), no security
Frontier Lease Agreement (MSN 28662)
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<PAGE>
interest in this Lease Supplement may be created through the transfer or
possession of any counterpart other than the original executed counterpart
containing the receipt therefor executed by Lessor or, if Lessor has assigned
its rights to any Person in accordance with the Lease Agreement, such Person on
the signature page thereof.
Frontier Lease Agreement (MSN 28662)
Exhibit A
Execution Copy -2-
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One Boeing Model 737-36Q airframe bearing manufacturer's serial number 28662,
together with (a) two CFM International, Inc. CFM56-3C-1 engines bearing
manufacturer's serial numbers [_______] and [_______], respectively, (b) APU
bearing manufacturer's serial number [______] and (c) the Aircraft
Documentation. Each such engine has 750 or more rated takeoff power or its
equivalent.
Section 2. The "Delivery Date" for all purposes of the Lease Agreement is the
date set forth in the opening paragraph of this Lease Supplement.
Section 3. The Lease Term shall commence on the Delivery Date.
Section 4. Lessee hereby confirms its agreement to pay Rent throughout the
Lease Term in the amounts, to the Persons and otherwise in accordance with the
provisions of Section 3 of the Lease Agreement and in accordance with the other
provisions of the Lease Agreement and the other Operative Documents.
Section 5. Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof, of the Lease Agreement and the other Operative
Documents.]
[Section 1. The following-described property has been installed on and made a
part of the Aircraft and is the property of Lessor and is hereby made subject to
the Lease Agreement:
[Describe property]]
Section [6.][2.] This Lease Supplement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of which counterparts, taken together, shall constitute one and the same
instrument.
Section [7.][3.] THIS LEASE SUPPLEMENT SHALL IN ALL RESPECTS, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS ENTERED INTO IN THAT STATE BETWEEN CITIZENS OF THAT
STATE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REFERENCE TO ANY
RULES GOVERNING CONFLICTS OF LAWS.
Frontier Lease Agreement (MSN 28662)
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Lessee and Lessor have caused this Lease Supplement to be executed by their
respective officers as of the day and year first above written.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
[THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.]
[RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING LEASE SUPPLEMENT IS
HEREBY ACKNOWLEDGED ON THIS ____ DAY OF ______________, 1996.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
Frontier Lease Agreement (MSN 28662)
Exhibit A
Execution Copy -4-
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Exhibit B
Certificate of
Insurance
Lease Agreement
(MSN 28662)
EXHIBIT B
FORM OF CERTIFICATE OF INSURANCE
CERTIFICATE OF INSURANCE
Issued by
AON RISK SERVICES
123 N. Wacker Drive
Chicago, IL 60606
(312) 701-4249
THIS IS TO CERTIFY TO: Boullioun Aircraft Holding Company, Inc.
("Lessor")
[Lender] ("Lender")
______________________________________________________
that insurers, each for his own part and not one for the other, have issued the
policies described below to:
NAME OF INSURED: Frontier Airlines, Inc.
12015 East 46th Street
Denver, CO 80239
_____________________________________________________________
Effective 12:01 a.m., June 7, 1996 and to expire 12:01 a.m., June 7, 1997,
Standard Time at Place of Issue
DESCRIPTIVE SCHEDULE
GEOGRAPHICAL LIMITS: Worldwide*
INSURANCE COVERAGES A) All Risks (Ground and Flight) Aircraft Hull Insurance
B) Aircraft Hull War Risks Insurance, including Spares
in Transit
C) Aircraft Liability and Comprehensive General
Liability Bodily
Frontier Lease Agreement (MSN 28662)
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Injury (Including Passengers), Including War Liability
in accordance with AVN 52C, Property Damage, Non-Owned
Aircraft Liability, Personal Injury, Baggage,
Hangarkeepers Liability, Comprehensive General
Liability (including Premises, Products, and Completed
Operations and Contractual)
LIMITS OF LIABILITY: A) Maximum Agreed Value: * Subject to deductible of
$250,000 (not applicable in the event of Total
Loss/Constructive Total Loss)
B) Maximum Agreed Value: *
C) Combined Single Limit for Bodily Injury (including
passengers and non-passengers), Property Damage and
Personal Injury other than Bodily Injury (with respect
to Passengers only); $500,000,000 any one occurrence.
As respects Personal Injury (other than Bodily Injury)
to Third Parties other than passengers; $25,000,000 any
one occurrence, any one offense, in the aggregate
annually.
QUOTA SHARE INSURERS: EXHIBIT A
AIRCRAFT DESCRIPTIONS: Boeing 737-300, Mfg. Serial No. TBD,. Valued: *
* As respects Coverage B-Hull War Risks insurance, the geographical limits of
the policy are: U.S.A., Canada, Mexico, and Caribbean excluding Cuba,
Columbia, and Haiti.
To the extent required, but only in connection with the Aircraft Lease Agreement
dated as of December 12, 1996, The "Lease Agreement") between Frontier Airlines,
Inc. and Lessor such insurance is as afforded shall apply as follows:
1. Lessor and Lender and their respective directors, officers, agents and
employees are included as Additional Insureds under all liability policies
with respect to the Aircraft Lease, as their respective interests may
appear, but without
Frontier Lease Agreement (MSN 28662)
Exhibit B
Execution Copy -2-
<PAGE>
liability imposed on the Additional Insureds to pay premiums. Lessor and
Lender are included as Additional Insured under all hull policies and
either Lessor or Lender, as determined pursuant to the Lease Agreement,
will be sole loss payee.
2. Provision has been made for prior written notice to the Additional Insureds
shown above in the event of cancellation, lapse or material change
affecting the interest of any Additional Insureds and shall not be
effective as to any Additional Insureds until thirty (30) days after
receipt by such Additional Insureds of such notice (seven (7) days in the
case of war risk and allied perils coverage).
3. As to the respective interests of each Additional Insured designated
herein, the insurance afforded by the policies shall not be invalidated or
impaired by any action or inaction of Frontier Airlines, Inc. or any other
person, or any breach or violation of any warranties, declarations or
conditions in the policy.
4. Such insurance as is afforded by such policies shall be primary without
right of contribution by any insurance carried by any Additional Insured.
5. The Insurers waive any right of set-off (including without limitation or
unpaid premiums) recoupment or counterclaim or any other deduction, whether
by attachment or otherwise, in respect of any liability of any Additional
Insured.
6. The policies contain a standard cross liability and severability of
interest clause which protects each insured as though a separate policy
were issued to each insured containing all the coverages described in this
certificate except with respect to limits of liability.
7. The insurers waive their rights of subrogation with respect to this lease
against Lessor and each other additional insured.
8. Spares All Risk coverage is included as follows:
$20,000,000 any one location and one occurrence
$10,000,000 any one transit
$20,000,000 any one engine
A deductible of $10,000 applies to each and every loss.
Frontier Lease Agreement (MSN 28662)
Exhibit B
Execution Copy -3-
<PAGE>
9. The Hull All Risks Insurers and the Hull War Risks and Allied Perils
Insurers have agreed to a "50/50" settlement clause pursuant to the terms
of AVS103.
10. A hull loss will be settled and paid in accordance with the Lease Agreement
If prior Certificates have been issued, the Certificate cancels and supersedes
all such Certificates.
Frontier Lease Agreement (MSN 28662)
Exhibit B
Execution Copy -4-
<PAGE>
The above insurers have authorized AON RISK SERVICES, INC. OF ILLINOIS as
insurance brokers, to issue this certificate on their behalf. AON RISK
SERVICES, INC. OF ILLINOIS has no obligation or liability of any kind in respect
of the above policies. The coverage evidenced in this certificate of insurance
is subject to all policy exclusions, conditions and terms.
AON RISK SERVICES, INC.
OF ILLINOIS
________________, 1996 _________________________
DATE AUTHORIZED SIGNATURE
Frontier Lease Agreement (MSN 28662)
Exhibit B
Execution Copy -5-
<PAGE>
EXHIBIT A
FRONTIER AIRLINES, INC.
INSURER/ADDRESS POLICY NUMBER
As respects Hull & Liability:
AIG HL0532550-02
1175 Peachtree Street, NE
Atlanta, GA 30361
Underwriters at Lloyd's of London A00324A96
Nicholson Leslie Aviation
P.O. Box 615, Beaufort House
15 St. Botolph Street
London, England EC3A 7QQ
CIGNA ATA-015411
127 John Street, 8th Floor
New York, NY 10272
Assurance France Aviation 96-0577
46 rue Notre Dame Des Victoiores
75002 Paris France
Somerset Aviation, Inc. A0944/01/96
3102 Oaklawn Avenue, Suite #880
Dallas, TX 75219
Mutual Marine Office MMO-15186AV596
330 Madison Avenue, 7th Floor
New York, NY 10016
AS RESPECTS HULL DEDUCTIBLE
(B737-300'S ONLY)
CIGNA ATD-015362
127 John Street, 8th Floor
New York, NY 10272
The subscribing Insurer's obligations under contracts of insurance to which they
subscribe are several and not joint and are limited solely to the extent of
their individual
Frontier Lease Agreement (MSN 28662)
Exhibit B
Execution Copy -6-
<PAGE>
subscriptions. The subscribing insurers are not responsible for the subscription
of an co-subscribing insurer who for any reason does not satisfy all or part of
its obligations.
Frontier Lease Agreement (MSN 28662)
Exhibit B
Execution Copy -7-
<PAGE>
Exhibit C
Broker's Letter
Lease Agreement
(MSN 28662)
EXHIBIT C
FORM OF BROKER'S LETTER
______________, 1996
Boullioun Aircraft Holding Company, Inc.
500 108th Avenue NE
Twenty-Fifth Floor
Bellevue, Washington 98004
[Lender]
RE: Aircraft Lease Agreement, dated as of December 12, 1996, between Boullioun
Aircraft Holding Company, Inc., as Lessor, and Frontier Airlines, Inc., as
Lessee
Dear Sirs:
This report is furnished pursuant to Section 11 of the captioned Aircraft Lease
Agreement. We are independent insurance brokers and in that capacity have
placed certain aviation insurance coverages for Frontier Airlines, Inc. We
hereby certify that all coverage afforded by the policies listed in the
Descriptive Schedule of the Certificate of Insurance dated as of [_________],
are in effect at the date hereof and that all premiums due as of the date hereof
have been paid. We have reviewed Section 11 of the captioned Lease Agreement,
and it is our opinion that the coverages required by Section 11 of the Lease
Agreement, are included in the coverages afforded by the policies listed in the
Descriptive Schedule of the:
CERTIFICATE OF INSURANCE DATED AS OF _______, 1996 ISSUED BY AON RISK
SERVICES OF ILLINOIS, INC., ON BEHALF OF UNDERWRITERS.
It is further our opinion that the coverages afforded by these policies are the
risks that are customarily insured against by U.S. air carriers and said
coverages are in substantially
Frontier Lease Agreement (MSN 28662)
Exhibit C
Execution Copy -1-
<PAGE>
forms, customarily carried by U.S. air carriers and comply with Section 11 of
the Lease Agreement.
We agree to provide prompt written notice to the parties noted above in the case
of any lapse or material change in the amount or type of coverage, any default
in the payment of any premium or of any other act or omission on the part of
Frontier Airlines, Inc. of which we have knowledge and which might invalidate or
render unenforceable, in whole or in part, any insurance set forth herein and,
in the event of non-renewal, reduction, lapse or termination or any adverse
material change in the amount or type of coverage, in writing at least thirty
(30) days prior to the expiration date or termination of any such coverage, or
as respects the coverages provided under the War Risk Insurance, seven (7) days
prior written notice.
If there are any question in this regard, please contact me immediately.
Sincerely,
Michael H. McCray
Frontier Lease Agreement (MSN 28662)
Exhibit C
Execution Copy -2-
<PAGE>
Exhibit D
Legal Opinion
Lease Agreement
(MSN 28662)
EXHIBIT D
[Intentionally Left Blank]
Frontier Lease Agreement (MSN 28662)
Exhibit D
Execution Copy -1-
<PAGE>
Exhibit E
Assignment
Lease Agreement
(MSN 28662)
EXHIBIT E
FORM OF ASSIGNMENT
ASSIGNMENT, dated as of [__________], 199[__] (this "Assignment"), between
Boullioun Aircraft Holding Company, Inc. ("Lessor") and Frontier Airlines, Inc.
("Lessee").
RECITALS:
1. Lessor and Lessee have entered into that certain Lease Agreement (MSN
28662), dated as of December 12, 1996 (the "Lease Agreement"), pursuant to which
Lessor shall lease to Lessee the Aircraft (capitalized terms used but not
defined herein shall have the respective meanings ascribed thereto in the Lease
Agreement).
2. As a condition precedent to Lessor's obligation to lease the Aircraft to
Lessee, Lessor requires that certain rights of Lessee with regard to insurances
be assigned to Lessor as continuing security for Lessee's obligations under the
Lease Agreement and under each other Operative Document.
AGREEMENT:
In consideration of the foregoing premises and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION 1. ASSIGNMENT.
To secure the payment and performance of the obligations of Lessee under the
Lease Agreement and under each other Operative Document ("Lessee's
Obligations"), Lessee hereby grants Lessor a first priority security interest in
the following property:
1.1 All of Lessee's rights and benefits under the policies and contracts
of insurance required to be effected and maintained under the Lease Agreement
(other than liability insurance) as such are from time to time so effected and
maintained (the "Insurances").
<PAGE>
This Assignment has been executed in several counterparts. To the extent,
if any, that this Assignment 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 Assignment may be created through the transfer or
possession of any counterpart other than the original executed counterpart
containing the receipt therefor executed by Lessor or, if Lessor has assigned
its rights to any Person in accordance with the Lease Agreement, such Person on
the signature page thereof.
1.2 All monies or other compensation from time to time receivable by
Lessee or any other person (other than by Lessor) in respect of the requisition
for hire, requisition of title, acquisition, capture, deprivation, detention,
condemnation, confiscation or other use or seizure of the Aircraft ("Requisition
Compensation").
1.3 All proceeds from the foregoing.
SECTION 2. NOTICE TO INSURERS.
On the Delivery Date and from time to time thereafter upon the written
request of Lessor, Lessee shall cause the Insurance Broker, on behalf of the
insurers issuing the Insurances, to acknowledge and return to Lessor any notice
of assignment issued to the Insurance Broker by Lessor in the form of Annex A
hereto.
SECTION 3. RIGHTS OF LESSOR.
Upon the occurrence and during the continuance of a Default, Lessor shall
have all the rights, powers and remedies conferred upon similar secured parties
by any relevant law and/or conferred on Lessor by this Assignment, including the
power to initiate and settle any insurance claim or any claim for Requisition
Compensation and to direct the payor of such claim to pay Lessor directly.
Lessee agrees that Lessor's statement in writing that a Default has occurred
shall constitute conclusive evidence as between Lessor and the Insurance Broker
and the insurers that a Default has in fact occurred and is continuing. All
proceeds received by Lessor pursuant to this Assignment shall be held and
applied pursuant to the Lease Agreement and thereafter applied against Lessee's
Obligations as and when due. At such time as there shall not be continuing any
Default, such proceeds shall be paid to Lessee to the extent not applied in
accordance with the preceding sentence. In furtherance of Lessor's rights
hereunder,
Frontier Lease Agreement (MSN 28662)
Exhibit E
Execution Copy -2-
<PAGE>
Lessee shall deliver to Lessor on the Delivery Date an irrevocable power of
attorney in the form of Annex B hereto, which power of attorney Lessor shall not
use except after the occurrence and during the continuance of an Event of
Default.
SECTION 4. COUNTERPARTS.
This Assignment may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original, and all of which
counterparts, taken together, shall constitute one and the same instrument.
SECTION 5. GOVERNING LAW.
THIS ASSIGNMENT SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS ENTERED INTO IN THAT STATE BETWEEN CITIZENS OF THAT
STATE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REFERENCE TO ANY
RULES GOVERNING CONFLICTS OF LAWS.
Lessee and Lessor have caused this Assignment to be executed by their
respective officers as of the day and year first above written.
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
[THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.]
[RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING ASSIGNMENT IS HEREBY
ACKNOWLEDGED ON THIS ____ DAY OF ______________, 1996.
Frontier Lease Agreement (MSN 28662)
Exhibit E
Execution Copy -3-
<PAGE>
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
Frontier Lease Agreement (MSN 28662)
Exhibit E
Execution Copy -4-
<PAGE>
Annex A to
Exhibit E to
Lease Agreement
(MSN 28662)
ANNEX A TO EXHIBIT E
NOTICE OF ASSIGNMENT
By an Assignment, dated as of [_____________], 19[__] (the "Assignment"),
between Boullioun Aircraft Holding Company, Inc. ("Lessor") and Frontier
Airlines, Inc. ("Lessee") (a copy of the Assignment being attached hereto),
Lessee assigned to Lessor all of Lessee's rights and benefits under the
Insurances (which do not include any liability policies) and the proceeds
therefrom as continuing security for Lessee's Obligations. Your attention is
directed to Section 3 and the requirement that a Default have occurred and be
continuing prior to the exercise by the Lessor of certain of its rights under
the Assignment. Capitalized terms used but not defined herein having the
respective meanings ascribed thereto or incorporated by reference in the
Assignment.
Date: [__________], 199[__]
BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.
By:
Title:
Acknowledged:
[BROKER], on behalf of the
insurers issuing the Insurances
By:
Title:
[appropriate formalities]
Frontier Lease Agreement (MSN 28662)
Exhibit E
Execution Copy -5-
<PAGE>
Annex B to
Exhibit E to
Lease Agreement
(MSN 28662)
[LETTERHEAD OF LESSEE]
ANNEX B TO EXHIBIT E
IRREVOCABLE POWER OF ATTORNEY
Frontier Airlines, Inc. ("Grantor") hereby irrevocably makes, constitutes, and
appoints Boullioun Aircraft Holding Company, Inc. ("Attorney") Grantor's true
and lawful attorney from time to time to act in its name, place and stead:
1. To initiate, process, prosecute, settle and/or collect any insurance claims
arising under any insurances maintained with respect to the one Boeing Model
737-36Q airframe bearing manufacturer's serial number 28662, together with two
CFM56-3C-1 engines bearing manufacturer's serial numbers [_______] and [_______]
(the "Aircraft").
2. To negotiate, execute (under seal or hand, as appropriate) and deliver any
agreements, documents, instruments or certificates (with such amendments thereto
(if any) as Attorney determines may be required), and take such actions which
may be necessary or appropriate, to initiate, process, prosecute, settle and/or
collect any and all claims arising under any insurances maintained with respect
to the Aircraft.
3. Otherwise to negotiate, execute (under seal or hand, as appropriate) and
deliver any agreements, documents, instruments or certificates, take any and all
actions, incur any obligations and do any and all things which Attorney may deem
necessary or advisable, in its sole discretion, in order to effectuate the
purposes of this power of attorney, as determined by Attorney in its sole
discretion.
Grantor undertakes to indemnify Attorney against all costs, claims, expenses and
liabilities howsoever incurred by Attorney from time to time in connection
herewith and further undertakes to ratify and confirm from time to time
whatsoever Attorney shall do or cause to be done in or by virtue of this Power
of Attorney.
Grantor hereby further grants unto Attorney full power and
Frontier Lease Agreement (MSN 28662)
Exhibit E
Execution Copy -6-
<PAGE>
authority to substitute and appoint in its place one or more attorney or
attorneys to exercise for it as attorney or attorneys of Grantor any or all of
the powers and authorities hereby conferred and to revoke any such appointment
from time to time and substitute or appoint any other or others in the place of
such attorney or attorneys as Attorney shall from time to time think fit (and
any such other shall be an "Attorney" for all purposes hereof).
This Irrevocable Power of Attorney cannot be revoked by Grantor and any
recipient of a photocopy of this Irrevocable Power of Attorney may act in
reliance hereon without question or inquiry as to the currency or validity
hereof or otherwise.
THIS IRREVOCABLE POWER OF ATTORNEY SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS
OF CONSTRUCTION AND VALIDITY, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO POWERS OF ATTORNEY
GRANTED IN THAT STATE BY A CITIZEN OF THAT STATE AND USED WHOLLY WITHIN THAT
STATE WITHOUT REFERENCE TO ANY RULES GOVERNING CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Lessee has caused this Irrevocable Power of Attorney to
be duly executed on _______________, 19[__].
FRONTIER AIRLINES, INC.
By:
Title:
[Formalities]
Frontier Lease Agreement (MSN 28662)
Exhibit E
Execution Copy -7-
<PAGE>
Exhibit F
Aircraft Status Report
Lease Agreement
(MSN 28662)
EXHIBIT F
AIRCRAFT STATUS REPORT
- ------------------------------------
MONTH ENDING:
- ------------------------------------
AIRFRAME
--------- ---------- ----------
AIRCRAFT S/N TYPE REG.
--------- ---------- ----------
------------ ------------
TOTAL FLIGHT HOURS TOTAL CYCLES
------------ ------------
FLT. HOURS FOR CYCLES FOR MONTH
MONTH
------------ ------------
------------ ------------
DATE AND TIME APPROX. DATE AND
LAST "C" CHECK TIME NEXT "C"
CHECK
------------ ------------
ENGINES ENGINE 1 ENGINE 2
__________________ _________________
S/N
__________________ _________________
TOTAL FLIGHT HRS
__________________ _________________
TOTAL CYCLES
__________________ _________________
FLIGHT HRS FOR MONTH
__________________ _________________
CYCLES FOR MONTH
__________________ _________________
TIME/CYCLES SLSV
__________________ _________________
CURRENT LOCATION
__________________ _________________
TECHNICAL ACTIVITY DURING RELEVANT PERIOD
1. Major Maintenance (including C-Check or Structural check)
2. ADs complied with
3. Other significant Damages, Repairs or Modifications - indicate cause or
reason
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Frontier Lease Agreement (MSN 28662)
Exhibit F
Execution Copy -1-
<PAGE>
Frontier Lease Agreement (MSN 28662)
Exhibit F
Execution Copy -2-
<PAGE>
Exhibit G
Letter of Credit
Lease Agreement
(MSN 26962)
EXHIBIT G
LETTER OF CREDIT
______________, 1996
Letter of Credit No. _______
[Lessor]
[Address]
Attention: [______]
Dear Sir or Madam:
We hereby establish in your favor, at the request and for the account of
Frontier Airlines, Inc. (the "Company"), our irrevocable letter of credit in the
amount of US$[________] (the "Stated Amount") available against presentation of
(a) a sight draft drawn on us dated on or before the date of such presentation
and in the form of the Exhibit A hereto and (b) a certificate dated the date of
such draft in the form of Exhibit B hereto, in each case, signed by an
individual being or purporting to be your authorized representative.
Such presentation must be made on a Business Day to our Letter of Credit
Department in [New York] at [Bank's address] (Facsimile Number: [__________];
Confirmation Number: [______________])) on or before [___________] or if such
date is not a Business Day, then on or before the following Business Day.
"Business Day" means a day other than a Saturday, a Sunday or a day on which
banks are required or authorized to be closed in New York, New York. Any such
presentation may be made by means of telefacsimile and we shall be entitled to
rely thereon as if such draft and certificate were presented in person, provided
such draft and certificate are in conformity with the requirements for the same
as set forth herein, but for the requirement of an original signature. In
addition, any draft and certificate
Frontier Lease Agreement (MSN 28662)
Exhibit E
Execution Copy -1-
<PAGE>
hereunder may be presented by mail, express courier (e.g., DHL) or in person.
A draft presented hereunder may be in an amount of up to the Stated Amount.
More than one draft may be presented hereunder, subject to the aggregate amount
of such drafts not exceeding the Stated Amount.
We hereby agree with you that each draft presented hereunder in compliance with
the terms hereof will be duly honored by our payment to you (or in accordance
with your instruction) of the amount of such draft in immediately available
funds:
(a) not later than 3:00 p.m., [New York] time, on the day such draft is
presented to us as aforesaid, if such presentation is made to us at or before
12:00 noon, [New York] time, or
(b) not later than 3:00 p.m., [New York] time, on the Business Day following
the day such draft is presented to us as aforesaid, if such presentation is made
to us after 12:00 noon, [New York] time.
Upon the earlier of (a) [__________], and (b) irrevocable payment by us of the
entire Stated Amount (in one or more drawings), this Letter of Credit shall
automatically terminate.
Except as otherwise provided herein, this Letter of Credit shall be governed by
and construed in accordance with the Uniform Customs and Practice for
Documentary Credits (1993 Revision), ICC Publication No. 500 (the "UCP").
Notwithstanding Article 17 of the UCP, if this Letter of Credit expires during
an interruption of business as described in said Article 17, we agree to effect
payment if a drawing is made against this Letter of Credit within thirty (30)
days after the resumption of business.
Notwithstanding Article 48 of the UCP, this Letter of Credit may be transferred
and assigned in its entirety more than once.
Upon request, but no more than once in any thirty day period, we will confirm to
you in writing that this Letter of Credit is in full force and effect and is
enforceable against us in accordance with its terms.
This Letter of Credit sets forth in full the terms of our undertaking and shall
not in any way be modified, amended or amplified by reference to any documents
instruments or agreements
Frontier Lease Agreement (MSN 28662)
Exhibit G
Execution Copy -2-
<PAGE>
referred to herein, or in which this Letter of Credit is referred to or to which
this Letter of Credit relates and any such
Frontier Lease Agreement (MSN 28662)
Exhibit G
Execution Copy -3-
<PAGE>
reference shall not be deemed to incorporate herein by reference any such
documents, instruments and agreements.
Very truly yours,
[BANK]
By
Name:
Title:
Frontier Lease Agreement (MSN 28662)
Exhibit G
Execution Copy -4-
<PAGE>
Exhibit A to
Letter of Credit
No. _______________
SIGHT DRAFT
Irrevocable Letter of Credit No: _________ Date of Draft: _______, 19__
To the Order of [Lessor]
Pay [_____________] DOLLARS
At SIGHT by wire transfer of such amount to the account of [_________] at [Bank,
Address] (ABA number: [___________]; account number: [__________])
DRAWN UNDER [ISSUING BANK] LETTER OF CREDIT NO. __________
TO: [ISSUING BANK]
[Presentment Address]
[LESSOR]
By:
Name:
Title:
[Endorse on back]
Frontier Lease Agreement (MSN 28662)
Exhibit G
Execution Copy -5-
<PAGE>
Exhibit B to
Letter of Credit
No. _______________
DRAWING CERTIFICATE
Irrevocable Letter of Credit No.
- ----------- ------ -- ------ --
The undersigned, a duly authorized representative of [Lessor]
("Beneficiary"), hereby certifies to [ISSUING BANK] (the "Bank") with reference
to Irrevocable Letter of Credit No. [__________] (the "Letter of Credit"),
issued by the Bank in favor of Beneficiary, as follows:
1. Beneficiary is presenting a sight draft herewith to draw funds under
the Letter of Credit in the amount of US$[__________].
2. Demand for payment under the Letter of Credit is being made prior to
the expiration thereof.
3. An Event of Default has occurred and is continuing under that certain
Lease Agreement (MSN 28662), dated as of December 12, 1996, between Boullioun
Aircraft Holding Company, Inc. and Frontier Airlines, Inc.
IN WITNESS WHEREOF, Beneficiary has caused this certificate and the
accompanying draft to be executed as of the [__________] day of [__________],
199__.
[LESSOR]
By:
Name:
Title:
Frontier Lease Agreement (MSN 28662)
Exhibit G
Execution Copy -6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,604,456
<SECURITIES> 0
<RECEIVABLES> 5,335,526
<ALLOWANCES> 44,020
<INVENTORY> 890,857
<CURRENT-ASSETS> 33,382,206
<PP&E> 5,703,539
<DEPRECIATION> 1,647,578
<TOTAL-ASSETS> 44,970,597
<CURRENT-LIABILITIES> 31,024,121
<BONDS> 0
0
0
<COMMON> 8,766
<OTHER-SE> 12,902,729
<TOTAL-LIABILITY-AND-EQUITY> 44,970,597
<SALES> 83,435,232
<TOTAL-REVENUES> 83,435,232
<CGS> 0
<TOTAL-COSTS> 93,161,897
<OTHER-EXPENSES> 26,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,519
<INCOME-PRETAX> (8,895,482)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,895,482)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,895,482)
<EPS-PRIMARY> (1.12)
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</TABLE>
