- 15 -
FORM 10-Q
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, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-24126
FRONTIER AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1256945
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
12015 E. 46th Avenue, Denver, CO 80239
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code: (303) 371-7400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of the Company's Common Stock outstanding as of February
10, 1999 was 15,792,814.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Information
Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3: Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FRONTIER AIRLINES, INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, March 31,
1998 1998
--------------- ---------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $25,322,423 $ 3,641,395
Restricted investments 4,000,000 4,000,000
Trade receivables, net of allowance for doubtful accounts of $191,834
and $139,096 at December 31, 1998 and March 31, 1998 10,164,432 11,661,323
Maintenance deposits 12,025,502 9,307,723
Prepaid expenses and other assets 6,796,423 3,843,694
Inventories 1,192,077 1,164,310
Deferred lease expenses 380,975 380,975
--------------- ---------------
Total current assets 59,881,832 33,999,420
Security, maintenance and other deposits 10,289,233 7,633,143
Property and equipment, net 6,900,406 5,579,019
Deferred lease and other expenses 494,697 780,429
Restricted investments 4,555,332 2,606,459
=============== ===============
$82,121,500 $ 50,598,470
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 9,842,383 $ 13,664,750
Air traffic liability 20,301,758 18,910,441
Other accrued expenses 5,357,643 5,157,640
Accrued maintenance expense 15,987,605 12,537,228
Note payable 61,006 -
Current portion of obligations under capital leases 49,837 54,346
--------------- ---------------
Total current liabilities 51,600,232 50,324,405
Senior secured notes payable 814,019 3,468,138
Accrued maintenance expense 4,955,805 2,381,354
Obligations under capital leases, excluding current portion 102,605 97,757
--------------- ---------------
Total liabilities 57,472,661 56,271,654
--------------- ---------------
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 40,000,000 shares; 15,316,444 and 9,253,563 shares
issued and outstanding at December 31, 1998 and March 31, 1998 15,316 9,253
Additional paid-in capital 55,507,746 37,954,584
Accumulated deficit (30,874,223) (43,637,021)
--------------- ---------------
Total stockholders' equity 24,648,839 (5,673,184)
--------------- ---------------
$82,121,500 $ 50,598,470
=============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FRONTIER AIRLINES, INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
-------------- ---------------- --------------- ---------------
Revenues:
Passenger $ 49,112,767 $ 31,921,525 $146,175,655 $ 101,564,403
Cargo 1,279,175 596,736 3,250,994 2,008,154
Other 301,646 569,822 1,007,405 1,685,318
-------------- ---------------- --------------- ---------------
Total revenues 50,693,588 33,088,083 150,434,054 105,257,875
-------------- ---------------- --------------- ---------------
Operating expenses:
Flight operations 19,894,445 17,866,945 56,526,799 47,998,124
Aircraft and traffic servicing 8,584,155 8,376,494 24,175,968 22,824,452
Maintenance 9,178,653 9,052,299 27,317,001 23,606,405
Promotion and sales 8,365,827 7,481,557 23,788,720 21,037,834
General and administrative 1,989,114 1,503,212 5,025,693 4,753,969
Depreciation and amortization 438,380 433,350 1,154,354 1,154,469
-------------- ---------------- --------------- ---------------
Total operating expenses 48,450,574 44,713,857 137,988,535 121,375,253
-------------- ---------------- --------------- ---------------
Operating income (loss) 2,243,014 (11,625,774) 12,445,519 (16,117,378)
-------------- ---------------- --------------- ---------------
Nonoperating income (expense):
Interest income 422,217 200,604 1,042,189 580,935
Interest expense (203,789) (62,345) (661,870) (72,561)
Other, net (1,911) (31,753) (63,040) (45,180)
-------------- ---------------- --------------- ---------------
Total nonoperating income, net 216,517 106,506 317,279 463,194
-------------- ---------------- --------------- ---------------
Net income (loss) $ 2,459,531 $(11,519,268) $12,762,798 $(15,654,184)
============== ================ =============== ===============
Earnings (loss) per share:
Basic $ 0.17 $ (1.25) $ 0.93 $ (1.73)
============== ================ =============== ===============
Diluted $ 0.15 $ (1.25) $ 0.86 $ (1.73)
============== ================ =============== ===============
Weighted average shares of
common stock outstanding 14,697,983 9,228,313 13,726,675 9,048,926
============== ================ =============== ===============
Weighted average shares of common stock and
common stock equivalents outstanding 16,117,426 9,228,313 14,875,968 9,048,926
============== ================ =============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FRONTIER AIRLINES, INC.
Condensed Statements of Cash Flows
For the Nine Months Ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
--------------- ---------------
Cash flows from operating activities:
Net income (loss) $12,762,798 $(15,654,184)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Employee stock option plan compensation expense 645,750 -
Depreciation and amortization 1,640,062 1,386,633
Loss on sale of equipment 6,793 -
Changes in operating assets and liabilities:
Restricted investments (828,873) (2,250,266)
Trade receivables 1,496,891 (836,136)
Security, maintenance and other deposits (5,089,869) (3,383,149)
Prepaid expenses and other assets (2,952,729) (1,890,180)
Inventories (27,767) (207,753)
Note receivable - 11,741
Accounts payable (3,822,367) 2,337,583
Air traffic liability 1,391,317 3,980,925
Other accrued expenses 200,003 807,672
Accrued maintenance expense 6,024,828 5,777,719
--------------- ---------------
Net cash provided (used) by operating activities 11,446,837 (9,919,395)
--------------- ---------------
Cash flows used by investing activities:
Aircraft lease deposits (284,000) 207,500
Increase in restricted investments (1,120,000) (1,500,000)
Capital expenditures (2,447,096) (1,584,240)
--------------- ---------------
Net cash used by investing activities (3,851,096) (2,876,740)
--------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 14,064,381 415,357
Proceeds from sales of senior secured notes including warrants 5,000,000
Proceeds from short-term borrowings 179,664 170,318
Principal payments on short-term borrowings (118,658) (122,176)
Principal payments on obligations under capital leases (40,100) (26,787)
--------------- ---------------
Net cash provided by financing activities 14,085,287 5,436,712
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 21,681,028 (7,359,423)
Cash and cash equivalents, beginning of period 3,641,395 10,286,453
--------------- ---------------
Cash and cash equivalents, end of period $25,322,423 $ 2,927,030
=============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FRONTIER AIRLINES, INC.
Notes to Condensed Financial Statements
December 31, 1998
(1) Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the 1998 Annual
Report on Form 10-K. 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
three and nine months ended December 31, 1998 and 1997 are not necessarily
indicative of the results that will be realized for the full year.
(2) Senior Secured Notes Payable
In December 1997, the Company sold $5,000,000 of 10% senior secured notes
to Wexford Management LLC ("Wexford"). The notes were due and payable in
full on December 15, 2001 with interest payable quarterly in arrears. The
notes were secured by substantially all of the assets of the Company. The
Wexford agreement contained restrictions primarily related to liens on
assets and required prior written consent for expenditures outside the
ordinary course of business. In connection with this transaction, the
Company issued Wexford warrants to purchase 1,750,000 shares of Common
Stock at $3.00 per share. The Company determined the value of the warrants
to be $1,645,434 and recorded the value as equity in additional paid-in
capital. The balance of the notes were to be accreted to its face value
over the term of the notes and included as interest expense. The effective
interest rate on the notes was approximately 18.2% including the value of
the warrants. (See Note 5.)
During the nine months ended December 31, 1998, Wexford exercised warrants
to purchase 1,369,880 shares of Common Stock with proceeds to the Company
totaling $4,109,640. Under the terms of the agreement, Wexford elected to
tender debt for the warrant exercise price first by application of accrued
unpaid interest and the remainder by reducing the principal balance of the
notes. As a result, $3,912,951 of the principal balance of the notes was
tendered during the nine months ended December 31, 1998.
(3) Common Stock
In April 1998, the Company sold 4,363,001 shares of its Common Stock,
through a private placement to an institutional investor. Gross proceeds to
the Company from the transaction were $14,179,753, of which the Company
received net proceeds of approximately $13,650,000. The Company issued a
warrant to this investor to purchase 716,929 shares of Common Stock of the
Company at a purchase price of $3.75 per share, which warrant expires in
April 2002.
(4) Income Tax Expense
The Company's income tax expense was zero for the three and nine months
ended December 31, 1998. The current income tax expense for these periods
was offset by a reduction in the Company's valuation allowance for deferred
tax assets, a result of the Company's ability to utilize previously
reserved for net operating loss carryforwards.
(5) Subsequent Event
In January 1999, Wexford, the holder of the senior secured notes (see Note
2), exercised an additional 49,000 warrants with proceeds to the Company
totaling $147,000. Under the terms of the agreement, Wexford elected to
tender debt for the warrant exercise price first by application of accrued
unpaid interest and the remainder by reducing the principal balance of the
notes. As a result, an additional $145,208 of the principal balance of the
notes was tendered. In January 1999, the Company paid the remaining balance
of the note in full which totaled $941,841, thereby terminating all of
Wexford's security interests in the Company's assets. Wexford had warrants
to purchase 331,120 shares of Common Stock outstanding as of the date the
notes were paid. As of February 10, 1999, subsequent to the pay-off of the
notes, Wexford exercised warrants to purchase 261,120 additional shares of
Common Stock with total proceeds to the Company of $783,360.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 that describe the business and
prospects of Frontier Airlines, Inc. (the "Company") and the expectations of the
Company and management. When used in this document, the words "estimate,"
"anticipate," "intend," "project," "management believes" and similar words and
phrases are intended to identify forward-looking statements. 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 and ground handling
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, such as increasing capacity and pricing actions of United
Airlines and other competitors; the availability of Boeing 737 aircraft, which
may inhibit the Company's ability to achieve operating economies and implement
its business strategy; and uncertainties regarding aviation fuel prices. Because
the Company's business, like that of the airline industry generally, is
characterized by high fixed costs relative to revenues, small fluctuations in
the Company's yield per RPM or expense per ASM can significantly affect
operating results.
General
The Company is a low-fare, full-service commercial airline based in
Denver, Colorado. The Company currently operates routes linking its Denver hub
to 18 cities in 14 states spanning the nation from coast to coast. The Company's
current route system extends from Denver to Los Angeles, San Francisco and San
Diego, California; Chicago and Bloomington/Normal, Illinois; Boston,
Massachusetts; Baltimore, Maryland; Seattle/Tacoma, Washington; Phoenix,
Arizona; Minneapolis/St. Paul, Minnesota; Salt Lake City, Utah; Omaha, Nebraska;
Albuquerque, New Mexico, New York (LaGuardia), New York; El Paso and Dallas/Ft.
Worth, Texas; Atlanta, Georgia; and Las Vegas, Nevada. At present, the Company
utilizes approximately six gates at Denver International Airport ("DIA") for
approximately 83 daily flight departures and arrivals.
Organized in February 1994, the Company commenced flight operations in
July 1994 with two leased Boeing 737-200 jet aircraft. It has since expanded its
fleet to 17 leased jets as of December 1998, including eight Boeing 737-200s and
nine larger Boeing 737-300s.
On June 30, 1997, the Company signed an Agreement and Plan of Merger
("the Merger Agreement") providing for the merger (the "Merger") of the Company
with Western Pacific Airlines. Pursuant to the Merger Agreement, a "code share"
marketing alliance between the Company and Western Pacific went into effect on
August 1, 1997, in effect integrating the route networks of the two airlines. On
September 29, 1997, both companies mutually agreed to terminate the Merger
Agreement and the code-share arrangement. The separation of the two carriers
required the Company to implement a costly restructuring of its flight schedule
and route system to support a stand-alone operation competing against both
Western Pacific and United Airlines, the dominant air carrier at DIA. On October
5, 1997, Western Pacific filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. Western Pacific ceased operations on February 4, 1998. This
transaction and the Company's competition with Western Pacific adversely
affected the Company's results of operations for the nine months ended December
31, 1997.
Results of Operations
The Company had net income of $12,763,000 or .86(cent) per diluted share
for the nine months ended December 31, 1998 as compared to a net loss of
$15,654,000 or 1.73(cent) per share for the nine months ended December 31, 1997.
The Company had net income of $2,460,000 or .15(cent) per diluted share for the
three months ended December 31, 1998 as compared to a net loss of $11,519,000 or
1.25(cent) per share for the three months ended December 31, 1997. During the
three and nine months ended December 31, 1998 as compared to the prior
comparable period, the Company experienced higher fares as a result of increases
in business travelers, decreased competition as a result of the demise of
Western Pacific, and an increase in the average length of haul and stage length.
During the nine months ended December 31, 1998, the Company also experienced
higher average fares in certain of its markets as a result of accommodating
Northwest Airlines passengers during that carrier's pilot strike in August and
September 1998. The Company's cost per ASM declined to 7.72(cent) during the
nine months ended December 31, 1998 from 8.54(cent) for the prior comparable
period, principally as a result of lower fuel prices and improved operating
efficiencies and economies of scale as the Company's fixed costs were spread
across a larger base of operations.
Small fluctuations in the Company's yield per RPM or expense per ASM can
significantly affect operating results because the Company, like other airlines,
has high fixed costs and low operating margins in relation to revenues. Airline
operations are highly sensitive to various factors, including the actions of
competing airlines and general economic factors, which can adversely affect the
Company's liquidity, cash flows and results of operations.
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, 1998, the Company's break-even load factor was 54.4% compared to
the passenger load factor achieved of 59.6%. For the nine months ended December
31, 1997, the Company's break-even load factor was 64.3% compared to the
achieved passenger load factor of 55.7%. The Company's break-even load factor
decreased from the prior comparable period largely as a result of an increase in
its average fare to $119 during the nine months ended December 31, 1998 from $98
during the nine months ended December 31, 1997, an increase in its total yield
per RPM from 13.31(cent) for the nine months ended December 31, 1997 to
14.14(cent) for the nine months ended December 31, 1998, and a decrease in its
expense per ASM to 7.72(cent) for the nine months ended December 31, 1998 from
8.54(cent) for the nine months ended December 31, 1997.
<PAGE>
The following table sets forth certain quarterly financial and operating
data regarding the Company for the fifteen months of operations ended December
31, 1998.
<TABLE>
<CAPTION>
Selected Financial and Operating Data
Quarter Ended
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, March 31, June 30, September 30, December 31,
1997 1998 1998 1998 1998
Passenger revenue $31,922,000 $40,454,000 $41,561,000 $55,502,000 $49,113,000
Revenue passengers carried 301,000 370,000 368,000 420,000 373,000
Revenue passenger
miles (RPMs)(1) 259,443,000 328,309,000 337,555,000 387,810,000 338,691,000
Available seat miles
(ASMs)(2) 524,686,000 575,294,000 544,557,000 609,111,000 632,754,000
Passenger load factor(3) 49.4% 57.1% 62.0% 63.7% 53.5%
Break-even load factor(4) 67.3% 60.0% 61.3% 52.3% 50.8%
Block hours(5) 11,059 12,114 11,255 12,543 13,325
Average daily block hour
utilization(6) 10.52 10.30 10.27 10.27 9.57
Yield per RPM (cents)(7) 12.30 12.32 12.31 14.31 14.50
Total yield per RPM (cents)(8)
Total yield per ASM (cents)(9) 6.31 7.28 7.88 9.33 8.01
Expense per ASM (cents) 8.52 7.70 7.80 7.73 7.66
Passenger revenue per
block hour $2,886.52 $3,339.44 $3,692.67 $4,424.94 $3,685.78
Average fare(10) $101 $105 $108 $125 $124
Average aircraft in fleet 13.0 13.6 14.0 14.0 14.4
Operating income (loss) ($11,626,000) ($2,437,000) $425,000 $9,778,000 $2,243,000
Net income (loss) ($11,519,000) ($2,092,000) $434,000 $9,870,000 $2,460,000
EBITDAR(11) ($4,372,000) $5,318,000 $8,384,000 $17,859,000 $11,126,000
EBITDAR as a % of revenue (13.2%) 12.7% 19.5% 31.4% 21.9%
</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) "Total yield per RPM" is determined by dividing total revenues by revenue
passenger miles.
(9) "Total yield per ASM" is determined by dividing total revenues by available
seat miles.
(10) "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.
(11) "EBITDAR", or " earnings before interest, income taxes, depreciation,
amortization and aircraft rentals," is a supplemental financial measurement used
by the Company in the evaluation of its business and by many airline industry
analysts. However, EBITDAR should only be read in conjunction with all of the
Company's financial data summarized above and its financial statements appearing
elsewhere herein, and should not be construed as an alternative either to
operating income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance or to cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
<PAGE>
The following table provides operating revenues and expenses for the Company
expressed as cents per total available seat miles ("ASM") and as a percentage of
total operating revenues, as rounded, for the three and nine months ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months ended December 31, Nine Months Ended December 31,
----------------------------------------- -----------------------------------------
1998 1997 1998 1997
-------------------- -------------------- ------------------- --------------------
Per % Per % Per % Per %
total of total of total of total of
ASM Revenue ASM Revenue ASM Revenue ASM Revenue
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Passenger 9.36 96.9% 6.09 96.5% 8.18 97.2% 7.15 96.5%
Cargo .24 2.5% .11 1.8% .18 2.1% .14 1.9%
Other .06 0.6% .11 1.7% .06 0.7% .12 1.6%
--------- --------- --------- --------- --------- --------- ---------- --------
Total revenues 9.66 100.0% 6.31 100.0% 8.42 100.0% 7.41 100.0%
Operating expenses:
Flight operations 3.15 39.3% 3.40 54.0% 3.17 37.5% 3.38 45.6%
Aircraft and traffic 1.36 16.9% 1.60 25.3% 1.35 16.1% 1.61 21.7%
servicing
Maintenance 1.45 18.1% 1.72 27.4% 1.53 18.2% 1.66 22.4%
Promotion and sales 1.32 16.5% 1.43 22.6% 1.33 15.8% 1.48 20.0%
General and .31 3.9% .29 4.5% .28 3.3% .33 4.5%
administrative
Depreciation and .07 0.9% .08 1.3% .06 0.8% .08 1.1%
amortization
========= ========= ========= ========= ========= ========= ========== ========
Total operating expenses 7.66 95.6% 8.52 135.1% 7.72 91.7% 8.54 115.3%
========= ========= ========= ========= ========= ========= ========== ========
Total ASMs (000s) 632,754 524,686 1,786,422 1,420,891
</TABLE>
Revenues
The Company's revenues are highly sensitive to changes in fare levels.
Fare pricing policies have a significant impact on the Company's revenues.
Because of the elasticity of passenger demand, the Company believes that
increases in fares will result in a decrease in passenger demand in many
markets. The Company cannot predict future fare levels, which depend to a
substantial degree on actions of competitors. When sale prices or other price
changes are initiated by competitors in the Company's markets, the Company
believes that it must, in most cases, match those competitive fares in order to
maintain its market share. Passenger revenues are seasonal in leisure travel
markets depending on the markets' locations and when they are most frequently
patronized.
The Company's average fare for the nine months ended December 31, 1998
and 1997 was $119 and $98, respectively. Management believes that the increase
in the average fare during the nine months ended December 31, 1998 over the
prior comparable period was largely a result of the Company's focus on
increasing the number of business travelers, decreased competition as a result
of the demise of Western Pacific, and an increase in the average length of haul
and stage length. The average length of haul increased from 802 miles for the
nine months ended December 31, 1997 to 916 miles for the nine months ended
December 31, 1998. The Company also experienced higher average fares in certain
of its markets as a result of accommodating Northwest Airlines passengers during
that carrier's pilot strike in August and September 1998.
Passenger Revenues. Passenger revenues totaled $146,176,000 for the nine
months ended December 31, 1998 compared to $101,564,000 for the nine months
ended December 31, 1997, or an increase of 43.9%. The number of revenue
passengers carried was 1,161,000 for the nine months ended December 31, 1998
compared to 986,000 for the nine months ended December 31, 1997 or an increase
of 17.8%. The Company had an average of 14.4 aircraft in its fleet during the
nine months ended December 31, 1998 compared to an average of 11.8 aircraft
during the nine months ended December 31, 1997, an increase of 22%, and an
increase in ASMs of 365,531,000 or 25.7%.
Cargo revenues, consisting of revenues from freight and mail service,
totaled $3,251,000 and $2,008,000 for the nine months ended December 31, 1998
and 1997, respectively, representing 2.1% and 1.9% of total operating revenues,
respectively, or an increase of 61.9%. 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 interline handling fees, liquor
sales and excess baggage fees, totaled $1,007,000 and $1,685,000 or .7% and 1.6%
of total operating revenues for each of the nine months ended December 31, 1998
and 1997, respectively. Other revenues were higher during the nine months ended
December 31, 1997 as a result of ticket handling fees associated with the code
share agreement with Western Pacific. Ticket handling fees are earned by the
ticketing airline to offset ticketing costs incurred on segments ticketed on the
flight operated by the Company's code share partner. The Company recognized
approximately $857,000 in ticket handling fees associated with its code share
agreement with Western Pacific during the nine months ended December 31, 1997.
The costs that offset this revenue are included in sales and promotion expenses.
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 were
$137,989,000 and $121,375,000 for the nine months ended December 31, 1998 and
1997 and represented 91.7% and 115.3% of total revenue, respectively. Operating
expenses decreased as a percentage of revenue during the nine months ended
December 31, 1998 as the Company experienced significantly lower fuel prices and
improved operating efficiencies and economies of scale as the Company's fixed
costs were spread across a larger base of operations.
Flight Operations. Flight operations expenses of $56,527,000 and
$47,998,000 were 37.5% and 45.6% of total revenue for the nine months ended
December 31, 1998 and 1997, 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 $16,691,000 for 28,964,000 gallons used and $17,478,000 for 23,918,000
gallons used resulted in an average fuel cost of 57.6(cent) and 73.1(cent) per
gallon and represented 29.5% and 36.4% of total flight operations expenses for
the nine months ended December 31, 1998 and 1997, respectively. The average fuel
cost per gallon decreased for the nine months ended December 31, 1998 from the
comparable prior period due to an overall decrease in the cost of fuel. Fuel
prices are subject to change weekly as the Company does not purchase supplies in
advance for inventory. Fuel consumption for each of the nine months ended
December 31, 1998 and 1997 averaged 780 gallons per block hour.
Aircraft lease expenses totaled $23,387,000 (15.6% of total revenue) and
$17,041,000 (16.2% of total revenue) for the nine months ended December 31, 1998
and 1997, respectively, or an increase of 37.2%. The increase is largely due to
higher lease expenses for larger and newer Boeing 737-300 aircraft added to the
fleet and partially attributable to the increase in the average number of
aircraft to 14.4 from 11.8, or 22%, for the nine months ended December 31, 1998
and 1997, respectively.
Aircraft insurance expenses totaled $1,774,000 (1.2% of total revenue) for the
nine months ended December 31, 1998 offset by a profit commission of $153,000
for the policy period ended June 6, 1998. The profit commission was earned
because the Company had no aircraft hull insurance claims during the 1997-1998
policy year. Aircraft insurance expenses for the nine months ended December 31,
1997 were $2,075,000 (2% of total revenue). Aircraft insurance expenses
decreased as a percentage of revenue as a result of competitive pricing in the
aircraft insurance industry, the Company's favorable experience rating since it
began flight operations in July 1994 and economies of scale due to the increase
in fleet size. For the policy period June 7, 1998 to June 6, 1999, the Company
reduced its aircraft insurance rates by approximately 44.8% or an estimated
annual savings of $1,787,000 at its present fleet levels.
Pilot and flight attendant salaries before payroll taxes and benefits
totaled $8,235,000 and $6,948,000 or 5.6% and 6.8% of passenger revenue for each
of the nine months ended December 31, 1998 and 1997, or an increase of 8.5%.
Pilot and flight attendant compensation increased principally as a result of a
22% increase in the average number of aircraft in service and an increase of
21.1% in block hours. The Company pays pilot and flight attendant salaries for
training consisting of approximately six and three weeks, respectively, prior to
scheduled increases in service which can cause the compensation expense during
that period 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, pilot and flight attendant expense per aircraft normalizes. 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 $24,176,000 and $22,825,000 (an increase of 5.9%) for the nine months ended
December 31, 1998 and 1997, respectively, and represented 16.1% and 21.7% of
total revenue. These include all expenses incurred at airports served by the
Company, 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, 1998
over the nine months ended December 31, 1997 as a result of the Company's rental
costs (in particular, the gate rentals at DIA and other cities where the Company
added additional frequencies), which are largely fixed costs, remaining
relatively constant as compared to the increase in revenue. Additionally, the
Company began its own ground handling operations at DIA effective September 1,
1998 which is more cost effective than using a third party contractor. Aircraft
and traffic servicing expenses will increase with the addition of new cities to
the Company's route system; however, the increased existing gate utilization at
DIA is expected to reduce per unit expenses.
Maintenance. Maintenance expenses of $27,317,000 and $23,606,000 were
18.2% and 22.4% of total revenue for the nine months ended December 31, 1998 and
1997, respectively. These include all labor, parts and supplies expenses related
to the maintenance of the aircraft. Routine maintenance is charged to
maintenance expense as incurred while major engine overhauls and heavy
maintenance check expense is accrued monthly. Maintenance cost per block hour
was $736 and $770 per block hour for the nine months ended December 31, 1998 and
1997, respectively. Maintenance costs per block hour decreased as a result of
six new aircraft added to the Company's fleet during the past year and the fixed
rental cost of the hangar facility being spread over a larger aircraft fleet
offset by FAA mandated corrosion inspections on the Company's 737-200s. The
newer aircraft require fewer routine repairs and are generally covered by a
warranty period of approximately up to three years on standard Boeing
components. Management believes that these costs will continue to normalize as
additional aircraft are added to the fleet.
Promotion and Sales. Promotion and sales expenses totaled $23,789,000 and
$21,038,000 and were 15.8% and 20% of total revenue for the nine months ended
December 31, 1998 and 1997, 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. The
Company's promotion and sales expenses for the nine months ended December 31,
1997 included expenses as a result of the code share agreement with Western
Pacific, under which the Company incurred additional communications, computer
reservation, and interline service charges and handling fees for the code share
agreement. These expenses were offset, in part, by interline handling fees
earned which are included in other revenues. The Company did not have any code
share agreements during the nine months ended December 31, 1998 that had as
large of an impact on its expenses as the code share agreement with Western
Pacific. Promotion and sales expenses decreased as a percentage of revenue for
the nine months ended December 31, 1998 over the prior comparable period largely
as a result of the increase in revenue.
Promotion and sales expenses per passenger decreased to $20.49 from
$21.32 for the nine months ended December 31, 1997, as a result of the
elimination of expenses related to the code share agreement with Western Pacific
offset by increased reservation costs and an increase in credit card fees. The
costs of reservation expenses increased as a result of outsourcing part of the
Company's reservations requirements. These increased costs were offset by a
decrease in travel agency commissions. During April 1998, the Company reduced
travel agency commissions to 8% from 10%, matching an 8% commission instituted
by the Company's competitors in the fall of 1997. Additionally, the Company's
direct sales, which are not subject to commissions, increased as a percentage of
passenger revenue. Travel agency commissions and interline service charges and
handling fees, as a percentage of passenger revenue, before non-revenue
passengers, administrative fees and breakage (revenue from expired tickets),
decreased to 5.4% for the nine months ended December 31, 1998 from 7.5% for the
nine months ended December 31, 1997.
Advertising expenses of $2,654,000 were 1.8% of passenger revenue for the
nine months ended December 31, 1998, compared to $2,336,000 or 2.3% of passenger
revenue for the nine months ended December 31, 1997. 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 revenue
largely as a result of the increase in the average fare. Additionally, during
the nine months ended December 31, 1997 the Company was competing with Western
Pacific for the "low fare" market which required a higher volume of advertising.
General and Administrative. General and administrative expenses for the
nine months ended December 31, 1998 and 1997 totaled $5,026,000 and $4,754,000,
respectively, and were 3.3% and 4.5% 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. Included in
general and administrative expenses during the nine months ended December 31,
1997 were unusual expenses of approximately $500,000 associated with the
terminated Merger Agreement with Western Pacific.
Depreciation and Amortization. Depreciation and amortization expenses of
$1,154,000 were approximately .8% and 1.1% of total revenue for each of the nine
months ended December 31, 1998 and 1997. 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.
Nonoperating Income (Expense). Net nonoperating income totaled $317,000
for the nine months ended December 31, 1998 compared to $463,000 for the nine
months ended December 31, 1997. Interest income increased from $581,000 to
$1,042,000 during the nine months ended December 31, 1998 from the prior
comparable period due to an increase in cash balances as a result of the sale of
Common Stock in April 1998 and an increase in cash from operating activities.
Interest income was offset by interest expense of $662,000 during the nine
months ended December 31, 1998. In December 1997, the Company sold $5,000,000 of
10% senior notes. In connection with this transaction, the Company issued the
lender warrants to purchase 1,750,000 shares of Common Stock. Interest expense
paid in cash and the accretion of the warrants and deferred loan expenses
totaled $562,000 during the nine months ended December 31, 1998.
See Notes 2 and 5 to Financial Statements.
Income Tax Expense: The Company has substantial net operating loss
carryforwards (NOL's) available to offset future taxable income. However, a
portion of these NOL's could be subject to Internal Revenue Code Section 382
annual limitations. Additionally, alternative minimum tax rules could limit the
Company's ability to utilize a portion of the NOL's each year and could result
in alternative minimum tax expense.
Expenses per ASM. The Company's expenses per ASM for the nine months
ended December 31, 1998 and 1997 were 7.72(cent) and 8.54(cent), respectively,
or a decrease of 9.6%. Expenses per ASM decreased from the prior comparable
period as a result of economies of scale as fixed costs were spread across a
larger base of operations, a decrease in fuel prices, and the average ASMs per
aircraft having increased as the Company added aircraft with greater seating
capacity as compared to earlier fleet additions. Expenses per ASM excluding fuel
for the nine months ended December 31, 1998 and 1997 were 6.79(cent) and
7.31(cent), respectively, or a decrease of 7.1%. Expenses per ASM are influenced
to a degree by the amount of aircraft utilization and by aircraft seating
configuration. For example, with the 108 seat all coach seating configuration
selected by the Company on five of its Boeing 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. The Company's average seats per aircraft for the nine
months ended December 31, 1998 were 124 as compared to 122 seats per aircraft
for the nine months ended December 31, 1997.
Liquidity and Capital Resources
The Company's balance sheet reflected cash and cash equivalents of
$25,322,000 at December 31, 1998 and $3,641,000 at March 31, 1998. At December
31, 1998, total current assets were $59,882,000 as compared to $51,600,000 of
total current liabilities, resulting in working capital of $8,282,000. At March
31, 1998, total current assets were $33,999,000 as compared to $50,324,000 of
total current liabilities, resulting in a working capital deficit of
$16,325,000. The Company had a working capital deficit of $13,580,000 at
December 31, 1997. The Company's present working capital is largely a result of
the sale in April 1998 of 4,363,001 shares of the Company's Common Stock with
net proceeds to the Company totaling approximately $13,650,000, combined with
cash flows from operating activities during the nine months ended December 31,
1998.
Cash provided by operating activities for the nine months ended December
31, 1998 was $11,447,000. This is attributable to the Company's net income for
the period, a decrease in receivables and increases in air traffic liability,
other accrued expenses and accrued maintenance expenses, offset by increases in
restricted investments, security, maintenance and other deposits and prepaid
expenses and other assets, and decreases in accounts payable. Cash used by
operating activities for the nine months ended December 31, 1997 was $9,919,000.
This was attributable primarily to the Company's net loss for the period, an
increase in restricted investments, trade receivables, security, maintenance and
other deposits, and prepaid expenses and other assets, offset by increases in
accounts payable, air traffic liability, other accrued expenses and accrued
maintenance expenses.
Cash used by investing activities for the nine months ended December 31,
1998 was $3,851,000. The Company used $2,447,000 for capital expenditures for
ground handling equipment, rotable aircraft components and aircraft leasehold
costs and improvements. The Company used cash of $284,000 for initial lease
acquisition security deposits for one Boeing 737-200 aircraft delivered in
October 1998. Additionally, the Company secured two aircraft delivered in
December 1998 with letters of credit totaling $1,120,000. The Company's
restricted investments increased $1,120,000 to collateralize the letters of
credit. Cash used by investing activities for the nine months ended December 31,
1997 was $2,877,000, largely a result of capital expenditures for rotable
aircraft components and aircraft leasehold costs and improvements for three
aircraft delivered in May, August and September 1997. Additionally, the Company
secured aircraft delivered in August 1997 and February 1998 with letters of
credit totaling $1,500,000. In turn the Company received $650,000 during the
nine months ended December 31, 1997 from the aircraft lessor that was previously
on deposit to secure these aircraft. The Company's restricted investments
increased $1,500,000 to collateralize the letter of credit.
Cash provided by financing activities for the nine months ended December
31, 1998 and 1997 was $14,085,000 and $5,437,000, respectively. During the nine
months ended December 31, 1998, the Company sold 4,363,001 shares of its Common
Stock through a private placement to an institutional investor. Gross proceeds
to the Company from the transaction were approximately $14,180,000, of which the
Company received net proceeds of approximately $13,650,000. The Company issued a
warrant to this investor to purchase 716,929 shares of Common Stock of the
Company at a purchase price of $3.75 per share. This warrant expires in April
2002. Additionally, during the nine months ended December 31, 1998, the Company
received $208,000 from the exercise of Common Stock options. During the nine
months ended December 31, 1997, the Company received $415,000 from the exercise
of Common Stock options. In December 1997, the Company sold $5,000,000 of 10%
senior secured notes. In connection with this transaction, the Company issued
warrants to purchase 1,750,000 shares of Common Stock at $3.00 per share.
<PAGE>
Five of the Company's Boeing 737-200 aircraft are leased under operating
leases that originally expired in 1997. The leases provide for up to two renewal
terms of two years each with no increase in basic rent. The Company renewed the
leases for the first two-year renewal period and these leases now expire in
1999. 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 $4,431,000, respectively, at December 31, 1998. These aircraft are
not compliant with FAA Stage 3 noise regulations. As their leases expire in 1999
the Company plans to replace these aircraft with Stage 3 compliant aircraft.
Although there can be no assurances that the Company will be successful in
replacing any or all of these aircraft, the Company has entered into a letter of
intent to lease two Boeing 737-200 advanced aircraft to replace two of the non
Stage 3 compliant aircraft. Management believes that the replacement aircraft,
if any, will be newer, larger aircraft with higher monthly rental costs.
The Company in November 1995 leased two Boeing 737-300 aircraft under
operating leases that 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
$2,918,000, respectively, at December 31, 1998. 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 an aggregate 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 that expire in the year 2001. In November 1997, the
Company renegotiated one of these leases extending the lease term by one year to
2002 in return for a slight reduction in the monthly rental payment. The Company
was required to make security deposits for these aircraft totaling $858,000.
Commencing July 1996, the Company was required to make monthly deposits for
maintenance of these leased aircraft. At December 31, 1998, these deposits
totaled $2,921,000. 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
an aggregate purchase price of $503,300 per warrant. These warrants, to the
extent not earlier exercised, expire upon the expiration dates of the aircraft
leases.
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. The
Company is also required to make monthly cash deposits for maintenance of this
aircraft. As of December 31, 1998, the Company had maintenance deposits
associated with this leased aircraft totaling $1,459,000.
During the year ended March 31, 1997, the Company entered into four
operating lease agreements for four additional new Boeing 737-300 aircraft. The
Company took delivery of these aircraft in May, August and September 1997 and in
February 1998. In connection with the Boeing 737-300 aircraft delivered in
September 1997, the Company has issued to the lessor a warrant to purchase
55,000 shares of common stock at an aggregate purchase price of $385,000. This
warrant, to the extent not earlier exercised, expires upon the expiration date
of the aircraft lease. As of December 31, 1998, the Company had made cash
security deposits totaling $1,616,000 with respect to these aircraft. During the
year ended March 31, 1998, the Company secured lease obligations for two of
these aircraft with letters of credit totaling $1,500,000 and, in turn, $650,000
of cash security deposits was returned to the Company. The Company's restricted
cash increased by $1,500,000 to collateralize the letters of credit. Two of the
four leases have seven year terms, and two have eight year terms, in each case
from date of delivery. Two of the four leases have up to two one year renewal
terms and a third may be renewed for up to three one year terms. The Company is
required to pay monthly cash deposits to each aircraft lessor based on flight
hours and cycles operated to provide funding of future scheduled maintenance
costs. As of December 31, 1998, the Company had maintenance deposits associated
with these aircraft totaling $5,358,000.
In October 1998, the Company took delivery of a leased Boeing 737-200
advanced aircraft. The lease term for this aircraft is seven years from date of
delivery. The Company has made cash security deposits totaling $284,000 to
secure the aircraft lease. The Company is also required to make monthly cash
deposits for maintenance. As of December 31, 1998, the Company had maintenance
deposits associated with this aircraft totaling $22,000.
During December 1998, the Company leased from two different lessors two
additional new Boeing 737-300 aircraft. The first aircraft has a 40 month lease
term from date of delivery with an option to extend the lease term for an
additional 12 months. The second aircraft lease term expires on May 1, 2000, and
may be extended to October 31, 2000 at the lessor's option. The Company secured
these aircraft with letters of credit totaling $1,120,000. The Company is also
required to make monthly cash deposits for maintenance of these aircraft
commencing in January 1999. The addition of these two aircraft permitted the
Company's then 17 aircraft fleet to be in compliance with Stage 3 noise level
requirements until January 1, 2000.
Management is continuing to take steps designed to improve the Company's
operating performance. Effective in January 1997, the Company introduced
electronic ticketing. Passengers who call the Company directly are provided the
option of receiving a paper ticket or a confirmation number in lieu of a paper
ticket. Electronic ticketing decreases certain costs including postage and
handling costs, ticket stock, and reduced revenue accounting fees.
The Company is exploring various means to increase revenues and reduce
expenses. The Company has performed ad hoc charters and will consider them in
the future depending on the availability of its fleet. The Company is
considering revenue enhancement initiatives with new marketing alliances.
Effective March 1, 1999, the Company will begin to conduct certain aircraft
heavy maintenance checks in-house which is expected to reduce maintenance
expenses. Other potential expense reduction programs include the installation of
an upgraded flight operations, maintenance, and parts inventory management
information system which will be installed by the end of the fiscal year ending
March 31, 1999.
The Company began its own ground handling operations at DIA effective
September 1, 1998, a function which had been provided by an independent
contractor. Ground handling equipment required by the Company to perform these
operations internally necessitated capital expenditures of approximately
$800,000
The Company's sublease with Continental Airlines for terminal gates and
other related space at DIA expires in March 2000. If DIA is unsuccessful in
reallocating the cost of the inoperative automated baggage system on Concourse
A, which is presently subsidized by Continental Airlines, the Company's
operating costs to cover the additional cost associated with this system would
increase materially. The Company's present fixed monthly rate under the terms of
the sublease with Continental would change to a per passenger fee charged
directly to the Company.
The Company has a contract with a credit card processor that requires the
Company to provide a letter of credit to match the total amount of air traffic
liability associated with credit card customers. The credit card processor does
not always require the Company to match the total amount depending on certain
events or circumstances such as seasonality, ticket price sales, and the
Company's financial condition. In November 1997, the credit card processor
required an increase in the collateral amount from its present level of
$2,000,000 to $4,000,000, which increased the Company's current restricted
investment balance accordingly. The credit card processor has not requested any
increases since November 1997. As of February 4, 1999, the Company could be
required to increase the collateral amount to $7,314,000.
The Company's goal is to continue to lease additional aircraft to serve
additional cities and to add flights on existing routes from Denver. The Company
added routes to Atlanta, Georgia, Dallas/Ft. Worth, Texas and Las Vegas, Nevada
effective December 17, 1998. The Company believes that expanding its 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. Expansion of the
Company's operations will entail the hiring of additional employees to staff
flight and ground operations in new markets, and significant initial costs such
as deposits for airport and aircraft leases. Because of the expansion of the
Company's business, and competition within the airline industry which often
requires quick reaction by management to changes in market conditions, the
Company may require additional capital to further expand its business.
In February 1997, United Airlines commenced service using its low fare
United "Shuttle" between Denver and Phoenix, Arizona, and in October 1997 such
service to Salt Lake City was added by United. These are both markets in which
the Company provides service, in addition to other markets where United Airlines
provides flights. The Company commenced service between Denver and Las Vegas in
December 1998, another market in which United provides service with United
"Shuttle". This competition, as well as other competitive activities by United
and other carriers, have had and could continue to have an adverse effect on the
Company's revenues and results of operations.
Except for the nine months ended December 31, 1998, the Company has
incurred substantial operating losses since its inception. In addition, the
Company has substantial contractual commitments for leasing and maintaining
aircraft. The Company believes that its existing cash balances coupled with
improved operating results are and will be adequate to fund the Company's
operations at least through December 31, 1999.
Year 2000 Compliance
Background. Older computers were programmed to use a two-digit code for
the date entry rather than a four-digit code. For example, the date November 17,
1970 would be entered as "11/17/70" rather than "11/17/1970." The decision to
use two digits instead of four was based largely on cost-reduction
considerations and the belief that the code would no longer be used at the
millennium. Nevertheless, coding conventions have not changed, and on January 1,
2000, computers may read the digits "00" as denoting the year 1900 rather than
2000. At the least, this could result in massive quantities of incorrect data.
At worst, it could result in the total or partial failure of time sensitive
computer systems and software.
The Company's Year 2000 Issues. The Company began operations in July
1994, and its operations depend predominantly on third party computer systems.
Because of the Company's limited resources during its start-up, the most cost
effective way to establish its computer systems was to outsource or to use
manual systems. Internal systems developed and any software acquired are limited
and were designed or purchased with the Year 2000 taken into consideration.
The Company has designated an employee committee that is responsible for
(1) identifying and assessing Year 2000 issues, (2) modifying, upgrading or
replacing computer systems, (3) testing internal and third party systems and,
(4) developing contingency plans in the event that a system or systems fail.
This committee periodically reports to management regarding progress being made
in addressing the Year 2000 issue. Management, in turn, periodically reports to
the Board of Directors on the issue.
The Company relies on third parties which provide goods and services
which are imperative to the Company's operations including, but not limited to,
the U.S. Federal Aviation Administration, the U.S. Department of Transportation,
local airport authorities including DIA, utilities, communication providers, and
fuel suppliers. The Company is reviewing, and has initiated formal
communications with, these third party service providers to determine their Year
2000 readiness, the extent to which the Company is vulnerable to any failure by
such third parties to remediate their Year 2000 problems and to resolve such
issues to the extent practicable.
Although the Company is primarily in the identification and assessment
phase of its Year 2000 project, some systems are in the modification and testing
phases. These include the customer reservations and ticketing system and the
credit card processing system that is interfaced with the reservations and
ticketing system. These systems are outsourced and the costs of modifying and
testing these systems are being absorbed by the third party provider. The
Company's general accounting and payroll systems are being upgraded to new
versions that are Year 2000 compliant at an insignificant cost to the Company.
The Company's crew and dispatch training records, aircraft maintenance records
and inventory control are in the process of automating from manual systems to
computer systems that are Year 2000 compliant. The Boeing Company has verified
that the computer systems on the aircraft type operated by the Company are or
will be Year 2000 compliant before the year 2000. The Company plans to complete
its identification and assessment phase by February 28, 1999, its modification
and testing phases by June 30, 1999, and its contingency plans by October 31,
1999.
The Company has utilized existing resources and has not incurred any
significant costs to implement its Year 2000 project to date. The total
remaining cost of the Year 2000 project are expected to be immaterial and will
be funded through cash from operations. The costs and the dates on which the
Company anticipates it will complete the Year 2000 project are based on
management's best estimates. There can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Despite its efforts to address Year 2000 issues, the Company could
potentially experience disruptions to some of its operations, including those
resulting from non-compliant systems used by third party business and
governmental entities. The Company's business, financial condition or results of
operations could be materially adversely affected by the failure of its systems
or those operated by third parties upon which the Company's business relies.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 5: Other Information
Effective January 11, 1999, Arthur H. Amron resigned his position as a
member of the Company's board of directors.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.35 Aircraft Lease Agreement (MSN 28738) dated as of November 23, 1998
among First Security Bank, National Association, Lessor, Heller
Financial Leasing, Inc., Owner Participant, and the Company, Lessee.
10.36 Aircraft Sublease Agreement (MSN 28734) dated as of December 14, 1998
between Indigo Pacific AB, Sublessor, and the Company, Sublessee.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FRONTIER AIRLINES, INC.
Date: February 12, 1999 By: /s/ Samuel D. Addoms
Samuel D. Addoms, Principal Executive
Officer and Principal Financial Officer
Date: February 12, 1999 By: /s/ Elissa A. Potucek
Elissa A. Potucek, Vice President,
Controller, Treasurer and Principal
Accounting Officer
Exhibit 10.35
LEASE AGREEMENT
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity but solely as Owner Trustee,
as Lessor
HELLER FINANCIAL LEASING, INC.,
as Owner Participant
and
FRONTIER AIRLINES, INC.,
as Lessee
Relating to one (1) Boeing 737-3U3 Aircraft
Manufacturer's Serial No.: 28738
U.S. Registration No. N308FL
Dated as of November 23, 1998
This Lease Agreement has been executed in several counterparts. To the extent,
if any, that this 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 Lease Agreement may be created
through the transfer or possession of any counterpart other than the original
executed counterpart containing the receipt executed by Lessor or, if Lessor has
assigned its rights to a third party in accordance with this Lease Agreement,
such third party on the signature page of this Lease Agreement.
Vedder, Price, Kaufman & Kammholz
Chicago, Illinois
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Definitions; Construction of Terms 1
(a) General Definitions 1
(b) Construction 15
SECTION 2. Lease of Aircraft 16
(a) Agreement to Lease 16
(b) Delivery Conditions; Inspections 16
(c) Changes in Delivery Date; Limitation of
Lessor's Obligation to Deliver Aircraft 17
(d) Bridging Maintenance 18
SECTION 3. Lease Term; Rent; Payments 18
(a) Lease Term 18
(b) Basic Rent and Renewal Rent 19
(c) Supplemental Rent 19
(d) Security Deposit 19
(e) Payments in General 21
(f) No Deductions or Withholdings 22
SECTION 4. Conditions Precedent 22
(a) Delivery of Aircraft 22
(b) Delivery Conditions 22
(c) Approved Maintenance Program 22
(d) [Intentionally reserved] 23
(e) Agreements and Documents 23
(f) Delivery Date Conditions 24
(g) Registration 25
(h) Necessary Government Actions 25
(i) No Government Actions 25
(j) No Change in Law 26
SECTION 5. Representations and Warranties 26
(a) Disclaimer; Representations, Warranties and
Covenants of Lessor and Owner Participant 26
(b) Lessee's Representations and Warranties 28
SECTION 6. Certain Covenants of Lessee 31
(a) Maintenance of Corporate Existence;
Duly Qualified; Certificated Air Carrier 31
(b) Merger or Consolidation 32
(c) Reporting Requirements 32
(d) Government Approvals 33
(e) Taxes 33
(f) Place of Business 34
(g) Filings 34
(h) Approved Maintenance Program 34
SECTION 7. Return of the Aircraft 34
(a) Date and Location of Return 34
(b) Condition of Aircraft 34
(c) Final Inspection 34
(d) Operational Ground Check 35
(e) Demonstration Flight 36
(f) Technical Acceptance 36
(g) Failure to Return Aircraft 36
(h) Transition 37
SECTION 8. Liens 37
(a) No Liens 37
(b) Removal of Liens 38
(c) No Adverse Action 38
SECTION 9. Indemnities 39
(a) General Indemnity 39
(b) Exceptions to General Indemnity 39
(c) Taxes 40
(d) [Intentionally reserved] 44
(e) Scope, Survival, Etc 44
(f) Gross-Up for Taxes on Indemnity Payments 45
(g) Tax Contests 45
SECTION 10. Title; Registration; Maintenance and
Operation; Insignia 47
(a) Title to the Aircraft 47
(b) Registration 47
(c) Maintenance 48
(d) Operation 51
(e) Insignia 52
(f) Costs of Operation 53
(g) Payment of Flight Charges 53
(h) Loss or Damage 53
(i) Cost Sharing 54
SECTION 11. Possession 54
(a) Maintenance, Etc 54
(b) Installation of Engines on Other Airframes 55
(c) Pooling; Sublease. 55
(d) Transfers of Possession in General 56
SECTION 12. Replacement of Parts, Alterations,
Modifications and Additions 57
(a) Replacement of Parts 57
(b) Modifications 58
SECTION 13. Risk of Loss, Destruction, Requisition, Etc 60
(a) Risk of Loss 60
(b) Event of Loss With Respect to the Aircraft 60
(c) Event of Loss With Respect to an Engine 61
(d) Application of Payments From any Government
Entity for Requisition of Title, Etc 62
(e) Application of Payments During Existence
of Default 63
SECTION 14. Maintenance Reserves. 63
(a) Amount 63
(b) Payments 64
(c) Release of Maintenance Reserves 64
SECTION 15. Insurance 65
(a) Requirements 65
(b) Application of Proceeds of Hull Insurance 65
(c) Insurance for Indemnities;
Continuation of Liability Insurance 66
(d) Reports, Etc 66
(e) Self-Insurance 66
(f) Additional Insurance 66
(g) Application of Payments During
Existence of a Default 67
(h) Change of Practice or Insurers 67
(i) Change of Circumstance 67
(j) Negative Undertakings 68
(k) Failure to Insure 68
SECTION 16. Inspection 68
(a) Maintenance Schedule 68
(b) Reasonable Inspections 69
(c) No Duty to Inspect 69
(d) Follow-On Lease 69
(e) Absolute Right 69
SECTION 17. Assignment 69
(a) Assignment by Lessee 70
(e) Collateral Assignment 71
(g) Successors and Assigns 73
SECTION 18. Early Termination 73
SECTION 19. Events of Default 73
(a) Failure to Pay Basic Rent,
Renewal Rent or Stipulated Loss Value 74
(b) Failure to Pay Supplemental Rent 74
(c) Insurance 74
(d) Return 74
(e) Unauthorized Transfer 74
(f) Certain Covenants 74
(g) Other Covenants 74
(h) Representations and Warranties 75
(i) Authorizations 75
(j) Voluntary Bankruptcy, Etc 75
(k) Involuntary Bankruptcy, Etc 75
(l) Indebtedness 75
(m) Government Action 76
(n) Judgments 76
(o) Cross Default 76
(p) Adverse Change 76
(q) Letter of Credit. 76
SECTION 20. Remedies 76
(a) Retake Possession 77
(b) Termination or Enforcement 77
(c) Application of Funds 77
(d) Damages 78
SECTION 21. Transaction Expenses 78
SECTION 22. No Setoff, Counterclaim, Etc 78
SECTION 23. Further Assurances, Etc 81
(a) Further Assurances 81
(b) Lessor's Performance of Lessee's Obligations 81
(c) No Implied Waivers; Rights Cumulative 81
(d) Warranties 82
SECTION 24. Confidentiality 82
SECTION 25. Governing Law and Jurisdiction 83
(a) Governing Law 83
(b) Nonexclusive Jurisdiction in Illinois 83
SECTION 26. Miscellaneous 84
(a) Amendments 84
(b) Severability 84
(c) Counterparts 84
(d) Chattel Paper 84
(e) Time of the Essence 84
(f) Notices 84
(g) Entire Agreement 85
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A Technical Acceptance Certificate
Exhibit B Basic Rent
Exhibit C Form of Lease Supplement
Exhibit D Intentionally Omitted
Exhibit E Insurance Requirements
Exhibit F Intentionally Omitted
Exhibit G Intentionally Omitted
Exhibit H Intentionally Omitted
Exhibit I Form of Aircraft Status Report
Schedule 1 Permitted Jurisdictions
Schedule 2 Delivery Conditions
Annex A Delivery Receipt
Attachment 1 Aircraft Status
Attachment 2 Aircraft Documentation
Schedule 3 Addresses and Accounts
Schedule 4 Filings and Recordings
Schedule 5 Return Conditions
Annex A Redelivery Receipt
Attachment 1 Return Documentation
Attachment 2 Aircraft Status
<PAGE>
[Lease Agreement]
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated as of November 23, 1998 (this "Agreement"
or this "Lease"), is between FRONTIER AIRLINES, INC., a Colorado corporation
having its principal place of business at 12015 E. 46th Avenue, Denver, Colorado
80239 ("Lessee") and FIRST SECURITY BANK, NATIONAL ASSOCIATION not individually,
but solely as trustee under that certain Trust Agreement dated as of November
23, 1998 between itself and Heller Financial Leasing, Inc. ("Lessor"), and
HELLER FINANCIAL LEASING, INC., a corporation organized under the laws of the
State of Delaware ("Owner Participant").
WITNESSETH:
WHEREAS, 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:
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration the adequacy and receipt of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions; Construction of Terms.
(a) General Definitions. The following terms shall have the
following meanings for all purposes of this Agreement:
"AD" shall mean any airworthiness directive issued by the
Aviation Authority or mandatory SB.
"Additional Parts" has the meaning specified in Section 12(b)
(ii)(z).
"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 (including
the APU) and the Engines and, unless the context does not permit, the Aircraft
Documentation.
"Aircraft Documentation" shall mean, collectively, any and all
log books, records, manuals and other data or documents relating to the Aircraft
which are delivered to Lessee in connection with the delivery of the Aircraft
and/or set forth on Attachment 1 to Annex A to Schedule 5 hereto and such
additional log books, records, manuals and other data or documents relating to
the Aircraft which are maintained by Lessee as required by the Aviation
Authority.
"Aircraft Status Report" shall mean a report substantially in
the form of Exhibit I hereto.
"Airframe" shall mean, collectively, (i) the Airframe
Manufacturer model 737-3U3 airframe (except only Engines or engines from time to
time installed thereon), bearing the Airframe Manufacturer's serial number and
the registration mark specified in Lease Supplement No. 1, leased hereunder by
Lessor to Lessee and (ii) 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 12.
"Airframe Manufacturer" shall mean The Boeing Company, a
Delaware corporation.
"Airworthiness Certificate" shall mean a valid, current
transport category airworthiness certificate issued in respect of the Aircraft
by the Aviation Authority.
"Airframe Cycle" shall mean, with respect to the Airframe, one
takeoff and landing thereof.
"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 this Agreement measured in
Airframe Flight Hours, such Airframe Flight Hours (and parts thereof) shall be
rounded to the nearest minute.
"Approved Maintenance Performer" shall mean Lessee or such
other maintenance performer, if any, which shall have a repair station license
and approval by the Aviation Authority and, with respect to maintenance
performers who are to accomplish Heavy Checks, Basic Shop Visits and/or Landing
Gear Overhauls, the Lessor.
"Approved Maintenance Program" shall mean Lessee's Aviation
Authority-approved written maintenance, inspection and repair program and
schedule for Boeing Model 737-3U3 aircraft, including Lessee's current approved
maintenance schedule, and the CPCP approved by the Aviation Authority, as such
maintenance, inspection and repair program is approved by Lessor pursuant to
Section 4(c), or such other written maintenance, inspection and repair program,
if any, as Lessor and Lessee shall agree in writing.
"APU" shall mean (i) the auxiliary power unit identified by
manufacturer's serial number in Lease Supplement No. 1 and (ii) any auxiliary
power unit substituted for such auxiliary power unit in accordance with this
Agreement.
"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 transactions
contemplated hereby or by any Operative Document.
"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 such authority's functions.
"Base Rate" shall mean the rate of interest announced from
time to time by The First National Bank of Chicago as its prime commercial
lending rate (or its equivalent successor rate if the prime commercial lending
rate is no longer used).
"Basic Lease Term" shall be the period from and including the
Delivery Date to but excluding the 40th monthly anniversary of the Rent
Commencement Date.
"Basic Rent" shall mean the rent payable during the Basic
Lease Term with respect to the Aircraft pursuant to Section 3(b)(i).
"Basic Rent Date" shall mean (i) the Rent Commencement Date
and (ii) each monthly anniversary of the Rent Commencement Date (provided that
if there is no corresponding date in a particular month, the Basic Rent Date for
such month shall be the last day of such month) occurring during the Basic Lease
Term.
"Basic Term Expiry Date" shall mean the date forty (40) months
following the Rent Commencement Date.
"Basic Shop Visit" shall mean, with respect to any Engine or
the APU, any shop visit, as defined by the Engine Manufacturer or the APU
manufacturer, as the case may be, that is based on an approved program of
condition monitoring and trend monitoring of performance deterioration that
results in an Engine or APU, as the case may be, being restored to full
performance standard.
"Basis point" shall mean 1/100 of 1%.
"Break Amount"shall mean, with respect to any termination of
the Lease prior to the Expiry Date pursuant to Section 20 hereof, an amount
equal to the sum of the present values calculated pursuant to the following
formula:
(A - B)/12 x C where:
A = The yield, as published by the Federal
Reserve System in its "Statistical Release H.15
(519), Selected Interest Rates" under the caption
"U.S. Government Securities/Treasury Constant
Maturities," for a U.S. Government Security having a
maturity on the Basic Term Expiry Date (which may be
obtained by interpolating between the yields
published for whole years), on the Delivery Date;
B = The yield, as published by the Federal
Reserve System in its "Statistical Release H.15
(519), Selected Interest Rates" under the caption
"U.S. Government Securities/Treasury Constant
Maturities," for a U.S. Government Security having a
maturity on the Basic Term Expiry Date (which may be
obtained by interpolating between the yields
published for whole years), on the date of
determination of such Break Amount; and
C = The amount of Stipulated Loss Value
which would have been outstanding on the date of
determination of such Break Amount and on the first
day of each month thereafter throughout the Basic
Lease Term had no termination of this Agreement
occurred.
The present value of each of the amounts calculated above will be obtained by
discounting each amount at the monthly equivalent of the rate obtained in clause
B above for the number of whole months from the date of termination of this
Agreement to the Basic Term Expiry Date (all percentages shall be rounded to the
nearest one hundred thousandth percent and Dollar amounts to the nearest whole
Dollar). In no event shall Break Amount be a negative number. Break Amount shall
be zero during any Renewal Term.
"Business Day" shall mean a day (other than a Saturday or
Sunday) on which banks are not required or authorized to close in Salt Lake
City, Utah or Chicago, Illinois.
"Cabin" shall mean the passenger compartment and all doors,
windows, interior panels, storage bins, lights, seats, seat covers, carpets,
lavatories, galleys, galley equipment, closets, flight attendant seats,
passenger communications and entertainment systems, emergency and miscellaneous
equipment, seat tracks and floor areas.
"Certificate of Registration" shall mean the certificate of
registration issued by the Aviation Authority in respect of the Aircraft.
"Certificated Air Carrier" means a Citizen of the United
States holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49 of the United States Code,
for aircraft capable of carrying ten or more individuals or 6,000 pounds or more
of cargo or that otherwise is certified or registered to the extent required to
fall within the purview of 11 U.S.C. Section 1110 or any analogous successor
provision of the United States Bankruptcy Code.
"Commitment Termination Date" shall mean December 31, 1998.
"CPCP" shall mean a Corrosion Prevention and Control Program
and/or Aging Aircraft Program that establishes minimum requirements for the
Aircraft, incorporating, among other things, the recommendations of the Airframe
Manufacturer and the mandatory requirements established by the Approved
Maintenance Program.
"Cycle" shall mean an Airframe Cycle or an Engine Cycle, as
indicated by the context.
""D" Check" means a "D" Check, as such term is defined in the
Approved 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.
"Default" shall mean any Event of Default or any condition,
circumstance, act or event which, upon the giving of notice, the passage of time
and/or the fulfillment of any other condition would constitute or give rise to
an Event of Default.
"Delivery" shall have the meaning set forth in Section 2(b).
"Delivery Conditions" shall mean the requirement for the
condition of the Aircraft on delivery, as set forth in Schedule 2.
"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 Agreement as such date is set forth in Lease Supplement
No. 1.
"Delivery Location" shall mean the Airframe Manufacturer's
delivery facility in Seattle, Washington, or such other location, if any, as
Lessor, Owner Participant and Lessee shall agree, in writing.
"Delivery Receipt" shall have the meaning specified in Section
4(e)(iii).
"Dollars" and "US$" mean the lawful currency of the United
States of America.
"Engine" shall mean (i)(y) either of the Engine Manufacturer
Model CFM56-3C-1 engines listed by Engine Manufacturer's serial numbers in 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 (z) any
Replacement Engine which may from time to time be substituted, pursuant to the
terms hereof, for either of such engines, and (ii) 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 12 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.
"Engine Cycle" shall mean, with respect to any Engine, one
takeoff and landing of the airframe (including, without limitation, the
Airframe) on 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, without
limitation, 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 this
Agreement measured in Engine Flight Hours, such Engine Flight Hours (and parts
thereof) shall be rounded to the nearest minute.
"Engine Manufacturer" shall mean CFM International, Inc.
"Event of Default" has the meaning specified in Section 19.
"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:
(i) the actual or constructive loss of such property
or the use thereof due to the destruction of or damage to such
property which renders repair uneconomical or which renders
such property permanently unfit for normal use by Lessee or
Lessor;
(ii) any damage to such property or other occurrence
which results in an insurance settlement with respect to such
property on the basis of a total loss or a constructive,
compromised, arranged or agreed total loss;
(iii) the confiscation, condemnation, seizure,
forfeiture or requisition of the title to such property
(for any reason whatsoever and whether de jure or de facto),
other than as set forth in clause (v) below);
(iv) the disappearance, hijacking or theft (including
a seizure of title or use not otherwise included in this
definition) of such property for a continuous period in excess
of ten (10) days (or, if less, the remaining Lease Term); and
(v) the confiscation, condemnation or seizure of, or
requisition by any Government Entity or purported Government
Entity 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 continuous period in excess of thirty (30) days
(or, if less, the remaining Lease Term).
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.
"Event of Loss Date" shall mean (i) with respect to any Event
of Loss set forth in clause (i) or (ii) of the definition of "Event of Loss,"
the earliest of (x) the date of actual loss, (y) the date on which the loss is
agreed, arranged or compromised by the insurers and (z) thirty (30) days after
the date of notice to Lessee's brokers or insurers claiming the loss, (ii) with
respect to any Event of Loss set forth in clause (iii) of the definition of
Event of Loss, the date such event, condition or circumstance occurs, or (iii)
with respect to any Event of Loss set forth in clause (iv) or (v) of the
definition of Event of Loss, the earlier of (y) the date on which insurers make
payment on the basis of a total loss and (z) the expiration of the period, or
the continuation of the condition or circumstance beyond the date, described
therein.
"Expense" shall mean any liabilities, obligations, losses,
damages (including, without limitation, 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), costs, disbursements and expenses
(including reasonable legal fees and expenses, costs of investigation and
related expenses), in each case, of every kind and nature whatsoever (including,
without limitation 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 or
any other Person or under any other theory).
"Expiry Date" shall mean the Basic Term Expiry Date or, if the
Renewal Lease Term shall be entered into, the date of expiry of the Renewal
Lease Term.
"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 7(c), 7(d) and 7(e) or
otherwise performed in connection with the Return.
"Final Maintenance" shall mean prior to the return of the
Aircraft on the last day of the Lease Term, the completion of the next scheduled
heavy maintenance check ("C" Check or above and, if applicable, multiples of
such checks falling due within a "C" Check maintenance interval) 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, without limitation, all applicable AD's that are
required to be accomplished in accordance with the terms of this Lease,
mandatory SB's and CPCP items) as well as inspections that have a frequency less
than a "C" Check and all cleaning and refurbishment that would be a normal part
of the Approved Maintenance Program were the Aircraft to continue in commercial
passenger service by Lessee.
"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).
"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 or Lessee 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, or any other
cause (including unforeseen maintenance) to the extent that such cause is beyond
the control of Lessor or Lessee whether above mentioned or not and whether or
not similar to the foregoing.
"GAAP" shall mean generally accepted accounting principles as
shall from time to time be in effect in the 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 (i) any national, state or
local government of any country, any territory or possession of any country, or
any international authority (including, without limitation, in each case, any
central bank or fiscal, tax or monetary authority), (ii) any board, commission,
department, division, instrumentality, court, agency, territory, possession or
political subdivision of any entity described in clause (i) above, however
constituted, (iii) any association, organization or institution of which any
entity described in clause (i) or (ii) above is a member or to whose
jurisdiction any thereof is subject or in whose activities any thereof is a
participant and (iv) any taxing authority of any entity described in clause (i),
(ii) or (iii) above.
"Hour" shall mean an Airframe Flight Hour or an Engine Flight
Hour, as indicated by the context.
"Indebtedness" means 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, without limitation, (i)
obligations for the repayment of monies borrowed or raised, (ii) obligations
under finance leases, hire-purchase arrangements, conditional sale agreements
and other obligations for the deferred purchase price of property, (iii)
guarantees, direct or indirect, of the obligations of any other Person,
including any such obligations secured by a Lien on any property of Lessee, (iv)
indemnity and reimbursement obligations, including any such obligations arising
to any issuer of a letter of credit or similar instrument, and (v) 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, in its individual and
trust capacities, Owner Participant and each Inspecting Party (but, as to an
Inspecting Party, only in connection with an inspection pursuant to Section
7(c)) and each of their respective Affiliates, and the successors and permitted
assigns of each of the foregoing and the directors, officers, corporate
stockholders, partners, employees, servants and agents of each of the foregoing.
"Inspecting Party" shall have the meaning specified in Section
7(c)(i).
"Insurance Brokers" shall mean any independent firm of
internationally recognized insurance brokers reasonably acceptable to Lessor.
"Insured Party" shall mean each Indemnified Party.
"Landing Gear" shall mean (i) each landing gear assembly of
the Aircraft identified by serial number in Lease Supplement No. 1 and (ii) any
landing gear assembly substituted for any such identified landing gear assembly
in accordance with this Agreement.
"Landing Gear Overhaul" means any full overhaul of any Landing
Gear to 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, but includes 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.
"Lease Supplement" shall mean any lease supplement entered
into in accordance with the terms hereof to this Agreement substantially in the
form of Exhibit C; "Lease Supplement No. 1" to be entered into between Lessor,
Owner Participant and Lessee on the Delivery Date for the purpose of leasing the
Aircraft under and pursuant to the terms of this Agreement.
"Lease Term" shall mean the Basic Lease Term and the Renewal
Lease Term.
"Lender" means each of (a) any person or persons as the Lessor
may from time to time advise Lessee in writing to be the person or persons
providing finance to the Lessor to assist it in purchasing, funding or
refinancing the purchase by the Lessor of the Aircraft and including, where the
context so admits or requires, any agent or trustee for any one or more of such
persons; and (b) any of the respective successors, permitted assigns or
permitted transferees of any one or more of any such persons.
"Lessee Jurisdiction" shall mean the United States.
"Lessor Lien" shall mean any Lien of any Person claiming by,
through or under Lessor or Owner Participant which arises from any act or
omission of Lessor or Owner Participant, other than any Lien created or
permitted hereby or by any other Operative Document.
"Letter of Credit" shall have the meaning specified in Section
3(d).
"Letter of Credit Bank" shall have the meaning specified in
Section 3(d)(ii).
"Letter of Credit Deposit" shall have the meaning specified in
Section 3(d)(iii).
"Lien" means 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, without limitation, any agreement or arrangement to give
or effect any of the foregoing and any conditional sale or other title retention
agreement).
"Life Limited Component" shall mean any part or component on
the Aircraft for which the manufacturer has specified a certain life in either
calendar time, Cycles or Hours accumulated after which such part or component
must be replaced.
"Maintenance Planning Document" shall mean the Boeing 737
maintenance planning document.
"Maintenance Reserves" shall have the meaning assigned thereto
in Section 14(a).
"Major Checks" shall mean any "D" check, "C" check, multiple
"C" check (including all lower checks and all other items that are due before
the next "C" check), heavy structural inspection (or equivalent), structural
inspection or annual heavy maintenance visit or segment thereof suggested for
commercial aircraft of the same model as the Aircraft by the Airframe
Manufacturer as set out in the Approved Maintenance Program.
"Major Modifications" includes, but shall not be limited to:
(i) 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, (ii) changes to the Aircraft structure or
performance of the Aircraft, (iii) changes that adversely affect
interchangeability or replaceability of Parts, (iv) substitution of different
types of equipment or accessories which are not equivalent in cost, value,
remaining useful life and/or operational capability to the equipment or
accessories being replaced, (v) changes that invalidate or impair any warranty
with respect to the Aircraft or any Engine or Part, (vi) changes that adversely
affect the eligibility of the Aircraft to obtain an Airworthiness Certificate
from the Aviation Authority or (vii) 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 the Airframe Manufacturer which have
Aviation Authority approval and all Required Modifications.
"Modification" shall mean any modification, addition,
alteration, removal or other change, including, without limitation, ADs and SBs,
to the Airframe, any Engine or any Part.
"Operative Documents" shall mean this Agreement, each Lease
Supplement, the Trust Agreement and any other document, agreement or instrument
to which Lessee is a party, or to which it consents in writing, or which is
delivered by or on behalf of Lessee and which is entered into or delivered in
connection with any of the foregoing or with any of the transactions
contemplated by the foregoing.
"Parts" shall mean any and all appliances, parts, components,
modules, communications equipment, computers, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature (including the
APU, 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 hereof.
"Past Due Rate" shall mean a rate per annum equal to 5% over
the Base Rate.
"Permitted Jurisdiction" shall mean any country listed in
Schedule 1.
"Permitted Lien" shall mean any Lien referred to in clauses
(i) through (vi) of Section 8(a).
"Person" shall mean any individual, corporation, trust,
partnership, unincorporated association, joint venture, association, joint-stock
company, government or Government Entity.
"Proposal Letter" shall mean the Letter Agreement between
Lessee and Owner Participant dated October 23, 1998.
"Purchase Agreement" shall mean the Purchase Agreement Number
2198 between Heller Financial, Inc and the Airframe Manufacturer dated September
16, 1998.
"Reconfiguration" shall mean configure to 136 coach passenger
seats with flotation type seat bottom cushions and provide LOPA and
certification for interior reconfiguration; rearrange cabin emergency equipment;
paint aircraft exterior to conform to Frontier provided drawings; replace
existing Allied Signal wheels and brakes with Goodrich; convert fuel related
systems to U.S. standards; reprogram the Electronic Flight Instrument System
(EFIS), Electronic Horizontal Situation Indicator (EHSI), Flight Management
System (FMS), and the Ground Proximity Warning System (GPWS); perform Boeing
Service Bulletin ###-##-#### to operate CFM56-3C1 engines at 20,000 pounds
thrust; deactivate ACARS; deactivate the HF communications system; reprogram the
SelCal decoder; deactivate the passenger video and audio entertainment systems;
deactivate the prerecorded passenger announcement system; replace control wheel
switches with switches that are spring loaded to the OFF position; load the
Frontier provided FMS Navigational Data Base; and such other reconfiguration
items as may be agreed upon in advance by Lessor.
"Renewal Rent" shall mean the rent payable for the Aircraft
during the Renewal Lease Term, if any, determined pursuant to Section 3(b)(ii).
"Renewal Rent Date" shall mean with respect to the Renewal
Lease Term, if any, (i) the Basic Term Expiry Date, and (ii) each monthly
anniversary of the Rent Commencement Date (provided that if there is no
corresponding date in a particular month, the Renewal Rent Date for such month
shall be the last day of such month) occurring during the Renewal Lease Term.
"Renewal Lease Term" shall mean the period, if any, for which
the leasing of the Aircraft hereunder has been renewed pursuant to Section
3(a)(ii).
"Rent" shall mean, collectively, Basic Rent, Renewal Rent and
Supplemental Rent.
"Rent Commencement Date" shall mean the later of (i) December
15, 1998 and (ii) the date of completion of the Reconfiguration, provided that
this clause (ii) shall not extend beyond the fifteenth (15th) day following the
Delivery Date.
"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, without limitation, 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 with neither Engine Flight Hours nor Engine Cycles
since the last Basic Shop Visit greater than the Engine Flight Hours or Engine
Cycles of the Engine it is replacing (and with an equal or greater life
remaining on each Life Limited Component), and which has a value and utility at
least equal to the Engine it is replacing (assuming such Engine was in the
modification status, condition and repair required by the terms hereof
immediately prior to being replaced) and which has been maintained, serviced,
repaired and overhauled in substantially the same manner as is required under
this Agreement as to "Engines" and without discrimination in any way, title to
which shall have been conveyed to Lessor pursuant to the terms hereof, together
with all Parts relating to such Engine so long as the same shall be incorporated
or installed in or attached to such Engine leased hereunder, 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 hereof.
"Required Modifications" has the meaning specified in Section
10(c)(ii)(B).
"Return" shall mean the return of the Aircraft by Lessee to
Lessor at the Return Location in the condition and manner required by Section 7
and the other provisions of this Agreement and the other Operative Documents, as
evidenced by the execution by Lessor, and the delivery to Lessee, of the Return
Receipt referred to in Section 7(f).
"Return Date" shall mean the date upon which the Aircraft is
returned to Lessor pursuant to and in accordance with Section 7 hereof.
"Return Location" shall mean such location in the United
States as may be designated by Lessor, or such other location as shall be
mutually agreed between Lessor and Lessee.
"Return Receipt" shall have the meaning specified in Section 7
(f).
"SB" shall mean any service bulletin or service letter as
issued by the Airframe Manufacturer, Engine Manufacturer or the manufacturer of
any appliances or Parts.
"Scheduled Delivery Date" shall mean November 23, 1998 (local
time at the Delivery Location), or if such date is not a Business Day, the next
succeeding Business Day (such date to be extended in the event of a delay in the
delivery of the Aircraft as a result of additional work being performed on the
Aircraft at the request of Lessee), provided that if the conditions precedent of
Lessor contained in Section 4 hereof are not met, or waived by Lessor, on such
date, (i) Lessor and Lessee shall cooperate and, as applicable, use reasonable
efforts to satisfy such conditions precedent as soon as practicable after such
date and (ii) the next Business Day on which such conditions precedent are met,
or waived by Lessor, shall be the Scheduled Delivery Date.
"Security Deposit" shall have the meaning specified in Section
3(d).
"State of Registration" shall mean the United States.
"Stated Amount" shall have the meaning specified in Section 3
(d)(ii).
"Stipulated Deductible Amount" shall mean US$250,000.
"Stipulated Loss Value" shall mean US$36,000,000.
"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, Owner Participant, any
Indemnified Party or any other Person hereunder or under any of the other
Operative Documents, including, without limitation, payments of or in respect of
the Stipulated Loss Value, Expenses, Maintenance Reserves, Taxes, Break Amount
or other amounts payable under any indemnities.
"Taxes" shall mean any and all present or future fees
(including, without limitation, license, documentation and registration fees),
taxes (including, without limitation, income, 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, Owner Participant, any
Affiliate of Owner Participant, any successor or permitted assign of any of the
foregoing or any Affiliate that is a member of a group that files a consolidated
or combined tax return that includes Owner Participant, and the directors,
officers, employees, servants and agents of each of the foregoing.
"Technical Acceptance Certificate" shall have the meaning
specified in Section 2(b)(ii).
"Time Controlled Component" shall mean any component that
Lessee monitors with an interval pursuant to which action is taken to inspect,
replace and/or overhaul such component and that is limited by Airframe Cycles,
Airframe Flight Hours and/or calendar time.
"Trust Agreement" means that certain Trust Agreement dated as
of November 23, 1998 between Owner Participant and Owner Trustee.
"U.S. Money Center Bank" shall mean U.S. Bank Corporation or
such other bank as shall be acceptable to Owner Participant in its sole
discretion.
"Wet Lease" shall mean any arrangement whereby the Lessee
agrees to furnish the Aircraft to a third party and pursuant to which the
Aircraft shall be (i) operated solely by regular employees of the Lessee
possessing all current certificates and licenses required by the Aviation
Authority and applicable laws and (ii) maintained by the Lessee in accordance
with its normal maintenance practices and the terms of this Lease.
(b) Construction.
(i) In this Agreement, unless the contrary intention is
stated, a reference to:
(u) Each of "Lessor," "Lessee," "Owner
Participant" or any other Person includes, without prejudice
to the provisions of this Agreement, 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;
(v) Words importing the plural include the
singular and vice versa;
(w) Any document or any law includes that
document or that law, as the case may be, as amended, modified
or supplemented from time to time in accordance with its
terms, and any document entered into or any law enacted or
promulgated, as the case may be, in substitution or
replacement therefor;
(x) 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, (3) includes
any judicial or administrative interpretation or application
thereof, and (4) is a reference to any of the foregoing as
amended, substituted, reissued or reenacted;
(y) The words "this Lease," "this
Agreement," "hereby," "herein," "hereto," "hereof" and
"hereunder" and words of similar import when used in this
Agreement refer to this Agreement as a whole including,
without limitation, the Schedules and Exhibits, and all
Annexes thereto, and not to any particular provisions of this
Agreement; and
(z) A Section or an Exhibit or a Schedule is
a reference to a section of, or an exhibit or schedule to,
this Agreement.
(ii) Headings used in this Agreement are for convenience only
and shall not in any way affect the construction of, or be taken into
consideration in the interpretation of, this Agreement.
SECTION 2. Lease of Aircraft.
(a) 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, on the
Scheduled Delivery Date, in each case in the condition specified in Schedule 2,
but otherwise in an "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, Owner Participant
and Lessee of Lease Supplement No. 1. Lessee hereby agrees that its execution of
Lease Supplement No. 1 shall, without further act, constitute unconditional and
irrevocable acceptance by Lessee of the Aircraft for all purposes of this
Agreement.
(b) Delivery Conditions; Inspections.
(i) Owner Participant shall use reasonable best efforts to
procure that the Airframe Manufacturer complies with its obligations with regard
to delivery of the Aircraft (the "Delivery") pursuant to the Purchase Agreement.
Lessee shall be entitled to participate in the inspection and test flight
relating to the redelivery of the Aircraft from the Airframe Manufacturer which
inspection shall take place at the Delivery Location. Lessee shall be entitled
to have one representative on board as observer of any test flight. Lessee's
participation in the inspection and test flight under the Purchase Agreement
shall satisfy Lessor's obligations to provide Lessee with reasonable opportunity
to verify that the Aircraft meets the Delivery Conditions.
(ii) Upon completion of the inspection and test flight
referred to above, Lessee agrees to execute and deliver to Lessor a technical
acceptance certificate (the "Technical Acceptance Certificate") substantially in
the form attached hereto as Exhibit A. Upon execution of the Technical
Acceptance Certificate, Lessee shall be deemed to have found the Aircraft to be
in acceptable condition for delivery hereunder (and shall not be permitted to
refuse to accept delivery of the Aircraft on the Delivery Date on that basis)
except to the extent damage or loss to the Aircraft or any Part thereof occurs
during the period following execution of the Technical Acceptance Certificate
and prior to the Delivery Date (unless Lessor has repaired any such damage or
loss prior to the Delivery Date).
(iii) Lessor, Owner Participant and Lessee shall cooperate
such that the inspection and delivery procedures shall minimize the tax impact
to such parties under Section 9(c) hereof.
(c) Changes in Delivery Date; Limitation of Lessor's
Obligation to Deliver Aircraft.
(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 (including, without
limitation, a failure by the Airframe Manufacturer to perform its obligations
regarding delivery pursuant to the Purchase Agreement).
(ii) Lessor shall use reasonable efforts to give advance
written notice to Lessee of any change in the Scheduled 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 Purchase Agreement 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
"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; 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, except
that Lessor shall be obligated to return the Security Deposit paid (or
delivered) by Lessee prior to such termination. 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.
(d) Bridging Maintenance. Following delivery of the Aircraft
to Lessee, Lessee, except as explicitly set forth in Schedule 2 hereto, shall be
solely responsible for:
(i) causing the Aircraft to be listed on Lessee's Operating
Specifications; and
(ii) subject to the following sentence, performing, or causing
to be performed, all bridging maintenance work necessary to allow Lessee to
operate the Aircraft in regularly scheduled revenue passenger service.
Lessee may, following delivery of the Aircraft, arrange for the Reconfiguration.
Upon completion of the Reconfiguration and submission to Owner Participant of an
invoice therefor setting out in reasonable detail the applicable costs related
thereto, Owner Participant shall remit to the Lessee an amount equal to the
lesser of the actual cost of the Reconfiguration and US$300,000. The actual cost
of the Reconfiguration, to the extent in excess of US$300,000, shall be the sole
responsibility of the Lessee.
SECTION 3. Lease Term; Rent; Payments.
(a) Lease Term.
(i) The Basic Lease Term shall commence on the Delivery Date
and, unless this Agreement is terminated earlier pursuant to the provisions
hereof, shall end on the Basic Term Expiry Date.
(ii) Renewal Lease Term. Lessee shall have the option to
extend the Lease Term beyond the Basic Term Expiry Date for one (1) additional
term consisting of twelve (12) months (the "Renewal Lease Term"). The Renewal
Lease Term shall commence on the Basic Term Expiry Date and end on the date
twelve (12) months following the commencement of the Renewal Lease Term;
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. Such option may be exercised only by delivery of irrevocable written notice
to Lessor at least one hundred eighty (180) days prior to the expiration of the
Basic Lease Term. The Renewal Lease Term shall be governed by the terms of this
Agreement. As a condition precedent to Lessee's right to elect to extend the
Lease Term, no Event of Default may be occurring at the time of such notice or
such extension. Exercise of Lessee's option to extend the Lease Term pursuant to
this Section 3(a)(ii) shall not prejudice the rights of Lessor arising upon the
occurrence of a Default or an Event of Default, including, without limitation,
the right of Lessor, upon the occurrence of an Event of Default, to terminate
this Lease at any time after such occurrence.
(b) Basic Rent and Renewal Rent.
(i) Basic Rent. During the Basic Lease Term, from and
including the Rent Commencement Date, Lessee shall pay rent for the Aircraft in
advance on each Basic Rent Date during the Basic Lease Term in advance in
immediately available Dollars, in forty (40) consecutive monthly payments, in
the amount set forth in Exhibit B hereto.
(ii) Renewal Rent. Lessee shall pay rent for the Aircraft on
each Renewal Rent Date during the Renewal Lease Term in advance in immediately
available Dollars and in the amount 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 or in respect of the Stipulated Loss Value, Break
Amount and all other amounts of Supplemental Rent when and as the same shall
become due and owing. In the event of any failure on the part of Lessee to pay
any Supplemental Rent when due, Lessor and each other Indemnified Party shall
have all rights, powers and remedies provided for herein or in any other
Operative Document, or at law or in equity or otherwise, in the case of
nonpayment of Basic Rent or Renewal Rent. 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 part of
any installment of Basic Rent or Renewal Rent not paid when due for any period
for which the same shall be overdue and on any payment of Supplemental Rent (to
the extent permitted by applicable law) not paid when due for the period until
the same shall be paid.
(d) Security Deposit.
(i) Initial Deposit. In connection with the execution of the
Proposal Letter, Lessee delivered to the Owner Participant an initial security
deposit in the amount of US$260,000 (the "Initial Security Deposit"). The
Initial Security Deposit shall be and remain the property of the Owner
Participant unless the Delivery Date fails to occur due for reasons other than a
default by Lessee, in which case the Initial Security Deposit shall be returned
to Lessee.
(ii) In connection with the Delivery, and as a condition
thereto, Lessee shall deliver to the Owner Participant an additional security
deposit in the amount of US$260,000 (the "Additional Security Deposit", and
together with the Initial Security Deposit, the "Security Deposit"). So long as
no Default shall have occurred and is continuing, Lessee may, in exchange for
the Security Deposit, cause an irrevocable letter of credit in form and
substance satisfactory to the Lessor (the "Letter of Credit") issued by a U.S.
Money Center Bank (the "Letter of Credit Bank") to be issued in favor of Owner
Participant (or its designee) in an amount equal to Five Hundred Twenty Thousand
Dollars (US$520,000) (the "Stated Amount") on the following terms and
conditions:
(A) Drawings under any Letter of Credit may be made by
Owner Participant (or its designee) in part or in
full upon the occurrence of any of the following
(each, a "Drawing Event"):
(1) if Lessor or Owner Participant receives a
notice from the Letter of Credit Bank that
it will not renew such Letter of Credit, and
Lessee fails to provide Owner Participant
(or its designee) 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) Thirty (30) days after the Expiry Date, and provided
Lessee shall have satisfied all of its obligations
hereunder (other than potential contingent
obligations (of which Lessor and Owner Participant
has no knowledge) under the indemnity provisions of
this Agreement), Owner Participant 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 Owner Participant (or its designee) makes
a drawing on the Letter of Credit in excess of the amount then owing to Lessor
and Owner Participant hereunder, such excess amount shall be treated as a
deposit held by Lessor and Owner Participant 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 has occurred and is continuing, Owner Participant
(or its designee) shall return the Letter of Credit Deposit (net of any amount
of the Letter of Credit Deposit applied by Owner Participant as provided
pursuant to Section 3(d)(vi)) to Lessee.
(iv) At any time during the term while a Letter of Credit
shall remain outstanding and provided that no Default has occurred and is
continuing Lessee shall have the option of providing Owner Participant with a
Security Deposit in the Stated Amount and Owner Participant (or its designee)
will promptly thereafter terminate and return to Lessee the outstanding Letter
of Credit.
(v) Each of the Security Deposit and the Letter of Credit
Deposit (collectively, the "Deposit") shall be held by the Owner Participant (or
its designee) during the Lease Term as security for the full and punctual
performance of all of Lessee's obligations 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. Lessee
acknowledges that the Owner Participant (or its designee) may commingle the
Deposit with its general funds. Lessee hereby grants to the Owner Participant or
its designee, as applicable, a security interest by way of first priority
perfected security interest in its interest, if any, in the Deposit and the
proceeds thereof and hereby grants to the Owner Participant or its designee, as
applicable, 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 the Deposit held by the Owner Participant or its
designee, as applicable. At the end of the Lease Term, upon performance by
Lessee, satisfactory to the Owner Participant of all of Lessee's obligations
hereunder (other than potential contingent obligations (of which Lessor has no
knowledge) under the indemnity provisions of this Agreement), the Owner
Participant or its designee, as applicable, shall refund any remaining Security
Deposit to Lessee. The Owner Participant's obligations in respect of the return
of the Security Deposit shall be that of a debtor of Lessee, not as a trustee or
other fiduciary.
(vi) If a Default shall have occurred and be continuing, the
Owner Participant or its designee, as applicable, may, but shall not be obliged
to, apply the Deposit and any amount drawn under the Letter of Credit 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 or Owner Participant as a result of any Default or
utilize the Security Deposit and any amount drawn under the Letter of Credit in
whole or in part to perform any of Lessee's obligations under this Agreement or
to otherwise remedy any circumstance giving rise to a Default, including the
redelivery condition of the Aircraft, without prejudice to any other remedy of
Lessor or Owner Participant (it being understood that an application of the
Security Deposit and any amount drawn under the Letter of Credit shall not
constitute a cure of any Default unless and until Lessee shall have complied
with the following sentence). In any such event Lessee shall, on demand, restore
the full amount of the Security Deposit by payment to the Owner Participant of
an amount in immediately available Dollars equal to the amount by which the
balance of the Security Deposit has been reduced under this clause (iv) or, if
applicable, increase the amount available to be drawn under the Letter of Credit
to the Stated Amount.
(e) Payments in General.
(i) All payments of Rent shall be made directly by Lessee in
Dollars by wire transfer of immediately available funds on the date for payment
to the account for Lessor specified in column (2) of Schedule 3, or to such
account as Lessor shall otherwise direct by notice to Lessee.
(ii) If the due date for any payment of Basic Rent, Renewal
Rent, Break Amount or Stipulated Loss Value is not a Business Day, then, unless
otherwise provided herein, such payment shall be made on the Business Day next
preceding such due date with the same force and effect as if made on such due
date and without adjustment in the amount due.
(iii) All amounts of interest or amounts calculated by
reference to interest payable under any of the provisions of this Agreement
shall be calculated on the basis of the actual number of days elapsed and a
360-day year.
(f) No Deductions or Withholdings. All payments by Lessee
under this Agreement or any other Operative Document to Lessor or any other
Indemnified Party, including payments in respect of Basic Rent, Renewal Rent,
Supplemental Rent, interest, fees, indemnities or any other item, shall be made
in full without any counterclaim, delay, deduction or withholding of any kind or
nature whatsoever (including, without limitation, in respect of any setoff,
counterclaim, Taxes, insurance charges, monetary transfer fees or any costs and
expenses arising in connection with the use and operation of the Aircraft).
SECTION 4. Conditions Precedent. The obligations of Owner Participant
to enter into the transactions contemplated hereby and of Lessor to lease the
Aircraft to Lessee are subject to the fulfillment to the satisfaction of Lessor
and Owner Participant, and Lessee shall (with respect to such conditions
precedent as are within Lessee's reasonable control) procure such fulfillment,
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:
(a) Delivery of Aircraft. The Airframe Manufacturer shall have
performed all of its obligations under the Purchase Agreement with respect to
the delivery of the Aircraft.
(b) Delivery Conditions. Prior to the Scheduled Delivery Date,
the Aircraft shall have met all of the Delivery Conditions set forth on Schedule
2 hereto.
(c) Approved Maintenance Program. Prior to the Scheduled
Delivery Date, Lessee shall have provided to Lessor and Owner Participant a
summary of the Approved Maintenance Program and such information reasonably
requested by Lessor or Owner Participant regarding the proposed Approved
Maintenance Program, in each case, for the Aircraft (including, without
limitation, evidence that the Aviation Authority has approved the Approved
Maintenance Program and such minimum equipment list), and Owner Participant
shall have reviewed and approved such Approved Maintenance Program.
(d) [Intentionally reserved].
(e) 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, shall each be
satisfactory in form and substance to Lessor and Owner Participant and shall be
in full force and effect and in the English language and executed counterparts
shall have been delivered to Lessor and Owner Participant and/or to their
respective counsel:
(i) this Agreement;
(ii) Lease Supplement No. 1 covering the delivery and
acceptance of the Aircraft and dated the Delivery Date;
(iii) (y) a Technical Acceptance Certificate and an Aircraft
Status Report (as of the Delivery Date) and (z) a delivery receipt (the
"Delivery Receipt") in the form of Annex A to Schedule 2;
(iv) (y) a Certificate of Insurance in form and substance
satisfactory to Lessor and Owner Participant and which otherwise
complies with the requirements of Section 15 and (z) a Broker's Letter
in form and substance reasonably satisfactory to Owner Participant from
the Insurance Brokers and which otherwise complies with the
requirements of Section 15, together with such other evidence as Lessor
shall request as to the due compliance by Lessee with Section 15;
(v) (w) an opinion of Ray, Quinney & Nebeker, special counsel
to the Owner Trustee, (x) an opinion of Arthur T. Voss, in-house
counsel to Lessee in form and substance reasonably satisfactory to
Owner Participant, (y) an opinion of Daugherty, Fowler, Perigrin &
Haught, special FAA counsel, in form and substance reasonably
satisfactory to Lessor and Owner Participant, and in each case covering
such other matters as Lessor or Owner Participant may reasonably
request;
(vi) copies of documents where available evidencing the
issuance of each Authorization that may be required in connection with
the remittance to Lessor and any other intended recipient of any amount
payable under this Agreement, or any other Operative Document and the
performance by Lessee of any of its respective obligations hereunder or
thereunder;
(vii) certified copies of Lessee's Certificate of
Incorporation, bylaws and any other organizational documents plus any
subsequent amendments thereto;
(viii) 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 Agreement and the other
Operative Documents, certified by a duly authorized officer of Lessee,
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;
(ix) certificate signed by a duly authorized officer of
Lessee:
(u) certifying the incumbency, and the
accuracy of the signatures, of the Person or Persons
authorized to execute and deliver the Operative Documents on
behalf of Lessee;
(v) stating that Lessee's representations
and warranties contained in this Agreement and each other
Operative Document are and 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);
(w) stating that no Default or Event of
Default has occurred and is continuing or will result from the
lease of the Aircraft under this Agreement; and
(x) such other documents, agreements, certificates and
evidence with respect to the Aircraft, Lessee, any Persons acting for
Lessee or otherwise as Lessor or Owner Participant may reasonably
request in connection with the consummation of the transactions
contemplated by this Agreement or the other Operative Documents, the
taking of all proceedings (corporate or otherwise) in connection
therewith or compliance with all the conditions set forth in this
Section 4.
(f) Delivery Date Conditions. Each of the following shall be
true on the Delivery Date:
(i) Lessee shall have paid in full (x) the first
installment of Basic Rent and (y) the Security Deposit;
(ii) 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);
(iii) Lessee shall have performed, complied with and
observed all its obligations, covenants and agreements set forth herein
and in each other Operative Document which it is required to perform,
comply with or observe prior to or on the Delivery Date;
(iv) no Default, Event of Default or Event of Loss,
or event, condition or circumstance that would with the giving of
notice or passage of time or both become or give rise to an Event of
Loss, shall have occurred;
(v) (y) no material adverse change has occurred in
the financial condition or prospects of Lessee from that set forth in
its unaudited consolidated financial statements dated September 30,
1998 and (z) nothing has occurred between September 30, 1998 and the
Delivery Date which could materially and adversely affect 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; and
(vi) Owner Participant shall have received a copy of
Lessee's consolidated financial statements referenced in Section
5(b)(x) hereof.
(g) Registration. The Aircraft shall be registered with the
Aviation Authority in the name of Lessor.
(h) Necessary Government Actions. All appropriate action
required to have been taken prior to the Delivery Date by the Aviation Authority
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).
(i) No Government Actions. 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.
(j) No Change in Law. 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 or Owner Participant, would make it a
violation of a law or regulations for Lessor or Owner Participant to execute,
deliver and perform its obligations hereunder or under any other Operative
Document to which it is a party.
The conditions precedent specified in this Section 4 are for the sole benefit of
Lessor and Owner Participant and may be waived or deferred in whole or in part
and with or without condition by Lessor and Owner Participant. If any of such
conditions is not satisfied or waived in writing by Lessor on and as of the
Delivery Date and Lessor, nonetheless delivers the Aircraft to Lessee hereunder,
Lessee hereby covenants and agrees to satisfy, or cause the satisfaction of,
such outstanding conditions within thirty days after the Delivery Date.
SECTION 5. Representations and Warranties.
(a) Disclaimer; Representations, Warranties and Covenants of
Lessor and Owner Participant.
(i) EXCEPT AS SPECIFICALLY SET FORTH IN ANY OF THE
OPERATIVE DOCUMENTS, THE AIRCRAFT SHALL BE DELIVERED UNDER THIS LEASE
"AS IS, WHERE IS" AND LESSEE AGREES, ACKNOWLEDGES AND ACCEPTS THAT,
NEITHER LESSOR NOR ANY OTHER INDEMNIFIED PARTY MAKES ANY WARRANTY OR
REPRESENTATION WHATSOEVER CONCERNING THE AIRCRAFT OR OTHERWISE. LESSEE,
FOR THE BENEFIT OF LESSOR AND EACH INDEMNIFIED PARTY, HEREBY WAIVES,
RELEASES AND RENOUNCES ALL WARRANTIES, REPRESENTATIONS AND OTHER
INDEMNITIES, OBLIGATIONS AND LIABILITIES OF LESSOR AND ANY OTHER
INDEMNIFIED PARTY AND ANY RIGHTS, CLAIMS AND REMEDIES OF LESSEE,
EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, IN EACH CASE, WITH
RESPECT TO ANY NONCONFORMANCE OR DEFECT IN THE AIRCRAFT, ANY PART
THEREOF OR ANY OTHER THING DELIVERED, LEASED, CHARTERED OR TRANSFERRED
UNDER THIS LEASE, OR OTHERWISE INCLUDING, WITHOUT LIMITATION:
(A) ANY WARRANTY AS TO THE AIRWORTHINESS, VALUE, CONDITION,
DESIGN, OPERATION OF, OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN,
OR ANY DEFECT IN, THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY
DATA, ANY AIRCRAFT DOCUMENTATION OR ANY OTHER THING DELIVERED, SOLD OR
TRANSFERRED HEREUNDER;
(B) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE
FOR A PARTICULAR PURPOSE;
(C) ANY EXPRESS OR IMPLIED WARRANTY AS TO TITLE;
(D) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE;
(E) ANY OBLIGATION OR LIABILITY WITH RESPECT TO ANY ACTUAL OR
ALLEGED PATENT OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT;
(F) 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, ACTUAL OR IMPUTED,
ACTIVE OR PASSIVE; AND
(G) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS
OR DAMAGE TO THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY DATA
OR ANY OTHER THING, FOR ANY LOSS OF USE, REVENUE OR PROFIT OR FOR ANY
OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
(ii) DELIVERY BY LESSEE TO LESSOR 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 INSPECTED THE AIRCRAFT, THAT THE AIRCRAFT AND THE AIRCRAFT
DOCUMENTATION ARE SATISFACTORY TO LESSEE AND THAT LESSEE HAS
IRREVOCABLY AND UNCONDITIONALLY ACCEPTED THE AIRCRAFT FOR
LEASE HEREUNDER WITHOUT ANY RESERVATIONS WHATSOEVER.
(iii) Each of Lessor and the Owner Participant
represents and warrants that on the Delivery Date and
throughout the Lease Term, so long as no Event of Default
shall have occurred and be continuing, except as may be
expressly provided in this Agreement or in any other Operative
Document to which Lessee is a party or consents, it shall not
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, the Airframe or any Engine by
Lessee.
(iv) Each of Lessor and the Owner Participant hereby
agrees for the benefit of each lessor of any airframe leased
to Lessee and each seller of an airframe purchased by Lessee
subject to a conditional sale or other security agreement that
it will 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 and the Owner Participant 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 or Owner
Participant, any right, title or interest in an Engine as a
result of such Engine's being installed on such airframe.
(b) Lessee's Representations and Warranties. In order to
induce Lessor and Owner Participant to enter into this Lease and to lease the
Aircraft, Lessee hereby represents and warrants to Lessor and Owner Participant
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:
(i) Organization, Qualification, Etc. Lessee (w) is a
corporation duly incorporated under the laws of the State of Colorado,
(w) holds all Authorizations necessary to authorize Lessee to engage in
air transport and to carry on scheduled passenger and cargo service in
each case as presently conducted, (x) 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 under each Operative
Document to which it is a party, (y) is duly qualified and authorized
to do business, and is in good standing, in each jurisdiction in which
the nature of its business makes such qualification necessary, except
where the absence of such qualification would not materially adversely
affect its ability to perform its obligations under the Operative
Documents and (z) is a Certificated Air Carrier.
(ii) Corporate Authority. The execution, delivery and
performance by Lessee of this 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, do
not require any stockholder or shareholder approval, or approval or
consent of any trustee or holders of any indebtedness or obligations of
Lessee, except such as have been duly obtained or, by the Delivery
Date, will have been duly obtained, and copies of which shall have been
delivered to Lessor and Owner Participant on or before the Delivery
Date.
(iii) Government Approvals. Neither the execution and
delivery by Lessee of this Agreement, Lease Supplement No. 1 or any
other Operative Document to which Lessee is a party nor the performance
by Lessee of its obligations hereunder or thereunder requires any
Authorization, except for (y) Authorizations that have been duly
obtained and are in full force and effect, and copies of which shall
have been delivered to Lessor and Owner Participant on or before the
Delivery Date, and (z) any normal periodic and other reporting
requirements under the applicable rules and regulations of the Aviation
Authority (but only to the extent required to be observed or performed
after the Delivery Date).
(iv) No Breach. Neither the execution and delivery of
this Agreement, Lease Supplement No. 1 or any other Operative Document
by Lessee nor the consummation by Lessee of the transactions
contemplated hereby or thereby nor compliance by Lessee with any of the
terms or provisions hereof or thereof will (x) violate any of the
provisions of the organizational or charter documents or bylaws of
Lessee, (y) conflict with or contravene, or result in the creation,
perfection or enforcement of any lien under, any law applicable to or
binding upon the Aircraft, Lessee or any property of Lessee or (z)
conflict with or result in any breach of any of the terms or provisions
of, or constitute any default under, or result in or require the
creation of any Lien upon any property of Lessee under, any indenture,
mortgage, deed of trust, conditional sales contract, note, loan, credit
agreement or other agreement or instrument to which Lessee is a party
or by which Lessee or its properties or assets may be bound or
affected.
(v) Legal, Valid and Binding Agreements. This Lease,
Lease Supplement No. 1 and each other Operative Document to which
Lessee is a party, in each case, as and when entered into, have been,
or will be, duly executed and delivered by Lessee and constitute, or
will constitute, legal, valid, binding and enforceable obligations of
Lessee.
(vi) Litigation. There are no pending or threatened
actions or proceedings before any court or administrative agency (y) in
respect of this 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 (z) which would, if adversely
determined, materially adversely affect the ability of Lessee to
perform its obligations under the Operative Documents.
(vii) Filing. Except for the registration of the
Aircraft with the FAA and the filings or recordings described in
Schedule 4, 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 or the Lessee Jurisdiction (x) in order for this
Agreement to constitute a valid and perfected lease of record relating
to the Aircraft, (y) to authorize or permit Lessee to perform its
obligations under each Operative Document (including, without
limitation, Lessee's obligation to pay Rent) or (z) fully to protect,
establish, perfect and preserve Lessor's title to, and Lessor's rights
and interests in, the Aircraft as against Lessee and any other Person.
(viii) No Withholding. Lessee will not be required to
deduct from any Rent payment made or to be made hereunder any
withholding or other Tax under the laws of the State of Registration,
the Lessee Jurisdiction or any other jurisdiction, either (y) on or by
virtue of the execution or delivery by Lessee of this Agreement or any
other Operative Document or (z) on or by virtue of the performance by
Lessee of this Agreement or any other Operative Document, including,
without limitation, payment of Rent or any other amount made, or to be
made, by Lessee pursuant to this Agreement or any other Operative
Document.
(ix) No Default or Event of Default. There has not
occurred any event which is presently continuing and which would
constitute a Default or Event of Default under this Agreement or any of
the other Operative Documents.
(x) Financial Condition. The statements of financial
position of Lessee as of March 31, 1998 and September 30, 1998 and the
related statements of earnings and cash flows of Lessee for the fiscal
year and six (6) months then ended, fairly present the financial
condition of Lessee as at such dates and the results of operations and
cash flow of Lessee for the periods ended on such dates, in accordance
with generally accepted accounting principles consistently applied
(except as may be stated in the notes thereto), and, subject in the
case of the March 31, 1998 statements, to normal year-end audit
adjustments, since March 31, 1998, there has been no material adverse
change in such condition or operations, except as disclosed in press
releases issued by Lessee.
(xi) Taxes. Lessee has paid or caused to be paid all
Taxes when due and payable or has made adequate provision by way of
security for all Taxes payable by Lessee (except to the extent being
contested in good faith and by appropriate proceedings, and for the
payment of which adequate reserves have been provided, so long as such
contest does not involve a material danger of the sale, forfeiture,
confiscation, seizure or loss of the Aircraft, any Engine or Part
thereof). No Taxes (including, without limitation, 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 Agreement or any other Operative
Document or the delivery of the Aircraft hereunder.
(xii) No Material Adverse Change. Since September 30,
1998 no event has occurred or state of affairs exists that has or may
have a material adverse effect on (i) 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 (ii) the rights or interests of
Lessor under any Operative Document to which it is or will be a party.
(xiii) Pari Passu. The obligations of Lessee under
this Agreement and the other Operative Documents are direct, general
and unconditional obligations of Lessee and rank at least pari passu
with all other present and future unsecured and unsubordinated
obligations (including contingent obligations) of Lessee with the
exception of such obligations as are mandatorily preferred by law and
not by virtue of any contract.
(xiv) Section 1110. Lessor is entitled to the
protection of Section 1110 of Chapter 11 of Title 11 of the United
States Code in connection with its right to take possession of the
Aircraft, Airframe and Engines in the event of a case under such
Chapter 11 in which Lessee is a debtor.
The rights and remedies of Lessor or Owner Participant 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 or Owner Participant
into the affairs of Lessee, by the performance of this Agreement or by any other
act or thing which may be done or omitted to be done by Lessor or Owner
Participant and which would or might, but for this provision, prejudice such
rights and remedies.
SECTION 6. Certain Covenants of Lessee. Lessee covenants and agrees
with Lessor and Owner Participant at Lessee's sole cost and expense, as follows:
(a) Maintenance of Corporate Existence; Duly Qualified;
Certificated Air Carrier. Subject to Section 6(b), at all times during the Lease
Term, Lessee shall (i) exist as a company incorporated under the laws of the
State of Colorado, (ii) hold all Authorizations necessary to authorize Lessee to
engage in air transport and to carry on passenger and cargo service in each case
as presently conducted by Lessee, (iii) have 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 under each Operative Document to which it is a
party, (iv) be duly qualified and authorized to do business, and be in good
standing, in each jurisdiction in which the nature of its business makes such
qualification necessary, except where the absence of such qualification would
not materially or adversely affect its ability to perform its obligations under
the Operative Documents and (v) at all times be a Certificated Air Carrier.
(b) Merger or Consolidation. Lessee shall preserve its
corporate existence, and will not merge or consolidate with any person unless
the successor person resulting from such merger or consolidation (the
"Successor"):
(i) is the Lessee or a corporation incorporated in
the State of Colorado or another State of the United States;
(ii) shall have a net worth immediately after such
merger or consolidation of not less than the Lessee's net worth
immediately prior thereto;
(iii) shall be authorized under applicable law to
perform the Lessee's obligations under this Lease to the same extent as
the Lessee;
(iv) shall deliver to the Lessor and Owner
Participant an agreement in form and substance reasonably satisfactory
to the Lessor Owner Participant containing an assumption by the
Successor of the Lessee's representations and warranties under this
Lease, together with the due and punctual performance of all the
Lessee's obligations under this Lease; and
(v) shall deliver to the Lessor and Owner Participant
an opinion of counsel reasonably satisfactory in form and substance to
the Lessor and Owner Participant to the effect that the agreement
referred to in sub-clause (iii) above constitutes the Successor's
legal, valid, binding and enforceable obligations.
(c) Reporting Requirements. The Lessee shall furnish to the
Lessor and Owner Participant:
(i) within 45 days after the last day of the first
three fiscal quarters of each fiscal year of Lessee, unaudited
consolidated quarterly financial statements of the Lessee prepared for
such quarter as of the last day of such quarter and statements of
income and retained earnings for such fiscal quarter and on a
comparative basis figures for the corresponding period of the
immediately preceding fiscal year, all in reasonable detail, each such
statement to be certified in a certificate of Lessee's chief financial
officer or chief accounting officer as fairly presenting the financial
position and the results of operations of the Lessee as at its date and
for such quarter (subject to year-end audit adjustments) and as having
been prepared in accordance with GAAP;
(ii) as soon as available but not in any event later
than 90 days after the last day of each fiscal year of Lessee, audited
financial statements of the Lessee prepared for such year, including a
balance sheet of Lessee of the last day of such year, statements of
income and retained earnings of Lessee for such fiscal year, a balance
sheet of the Lessee as of the last day of such year and statements of
income and retained earnings of the Lessee for such fiscal year and in
all cases on a comparative basis figures for the immediately preceding
fiscal year, all in reasonable detail, each prepared in accordance with
GAAP and certified without qualification by KPMG Peat Marwik or another
firm of independent certified public accountants as fairly presenting
the financial position and the results of operations of Lessee at the
end of and for such fiscal year and as having been prepared in
accordance with GAAP;
(iii) in lieu of the financial statements referred to
in sub-clauses (i) and (ii) above, any Quarterly Reports on Form 10-Q
and Annual Report on Form 10-K for the respective periods filed by
Lessee pursuant to and in accordance with the Securities Exchange Act
of 1934, as amended;
(iv) concurrently with the financial statements
furnished pursuant to Clauses 6(c)(i) and (ii) above, an officer's
certificate signed by the chief financial officer or chief accounting
officer of Lessee certifying to the best knowledge after due inquiry of
such officer that no Default occurred during the period covered by such
financial statements and no Default exists on the date of such
officer's certificate or, if a Default occurred or exists, stating that
fact and specifying the nature and period of existence of such Default
and the actions Lessee took or proposes to take with respect to such
Default; and
(v) on request from time to time such other
information regarding the Lessee and its business and affairs as the
Lessor or the Lender may reasonably request.
(d) Government Approvals. Lessee shall maintain, or cause to
be maintained, in full force and effect all Authorizations obtained or effected
in connection with this Agreement and every document or instrument contemplated
hereby as are required to be maintained and shall take all such additional
action as may be necessary or advisable in connection therewith. Lessee further
undertakes to obtain or effect any new or additional Authorizations as may
become necessary for the performance of any of the terms and conditions hereof
or any other document or instrument contemplated hereby.
(e) Taxes. Lessee shall file or cause to be filed all tax
returns which are required to be filed and shall pay or cause to be paid all
Taxes when due and payable (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 of the
Aircraft or any interest therein).
(f) Place of Business. Lessee shall provide to Lessor written
notice of any change in its principal place of business as set forth in Schedule
3 within 30 days thereafter.
(g) Filings. Lessee shall promptly take all such action,
including the filing or recording of any instrument or document as may, from
time to time, be necessary or advisable under the laws of the State of
Registration and the Lessee Jurisdiction (x) in order for this Agreement to
constitute a valid and perfected lease of record relating to the Aircraft, (y)
to authorize or permit Lessee to perform its obligations under each Operative
Document (including, without limitation, its obligation to pay Rent) or (z) to
fully protect, establish, perfect and preserve Lessor's title to, and Lessor's
rights and interests in, the Aircraft as against Lessee, and any other Persons.
For the avoidance of doubt, the cost of all filings and related notarizations,
required by this Agreement or any other Operative Document shall be borne by
Lessee.
(h) Approved Maintenance Program. Lessee shall not make any
substantive changes to the Approved Maintenance Program unless Owner Participant
shall have reviewed and approved such substantive changes to the Approved
Maintenance Program which Lessee proposes to make during the Lease Term,
provided that (ii) Owner Participant's approval/disapproval of such substantive
changes shall be reasonable and consistent with industry standards.
SECTION 7. Return of the Aircraft.
(a) Date and Location of Return. Upon any expiration or
termination of the Lease Term, subject only to Section 13(b)(ii)(x), 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 or its designee in accordance with the provisions of this Agreement and
shall perform the elements of the Final Inspection as required hereby, all prior
to the end of the Lease Term (the "Return"). Not later than the end of the Lease
Term, the Aircraft shall be returned to Lessor or its designee at the Return
Location.
(b) 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 Schedule 5.
(c) Final Inspection.
(i) No less than 60 days prior to commencement of the
Return, Lessee shall provide Lessor with written notice of the date
(which shall be not less than fifteen (15) days prior to the Expiry
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 the
entire period of 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 the Return
Location. So long as no Event of Default has occurred and is
continuing, no such inspection shall unreasonably interfere in the
business operations of Lessee except to the extent such interference is
reasonably necessary to enable an Inspecting Party to exercise its
rights set forth in this Section 7(c)(i).
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. During the Final Inspection, any Inspecting Party 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 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 7 and Schedule 5
that are reasonably requested by Lessor in accordance with the terms
hereof and otherwise permit Lessor to determine, and assist Lessor in
determining that the Aircraft, including the Aircraft Documentation, is
in the condition required herein.
(ii) 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 7, and any discrepancies that must be 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 7(d).
(d) Operational Ground Check.
(i) In connection with the Return (and following the
inspection referred to in Section 7(c)), Lessee shall conduct an
operational ground check of the Aircraft in accordance with the
procedures set forth in the Airframe Manufacturer's maintenance manual,
for the purpose of demonstrating to the reasonable satisfaction of
Lessor the operation of all Aircraft systems that can be verified on
the ground, including, if required by Lessor 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.
(ii) 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 7, and any discrepancies that must be corrected in
order to comply with the Approved Maintenance Program and the Airframe
Manufacturer's maintenance manual criteria, shall be corrected by
Lessee at its cost prior to the demonstration flight described in
Section 7(e).
(e) Demonstration Flight.
(i) Immediately following the operational ground
check pursuant to Section 7(d), but prior to Lessor's technical
acceptance of the Aircraft, Lessee shall, using its own pilots and at
its own cost, carry out for the Inspecting Parties a demonstration
flight in the Aircraft in accordance with Lessee's specifications and
the Lessee's Aviation Authority-approved flight manual to demonstrate
the proper functioning of Aircraft systems and components, as requested
by Lessor 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 (2) hours. Lessor shall be allowed at
least two representatives on-board as observers during such flight and
Lessee shall comply with all reasonable requests made by such
representatives during such flight.
(ii) Except as otherwise agreed in writing by the
Lessor and Lessee, promptly following such demonstration flight, any
deficiencies from the Aircraft return condition requirements set forth
in this Section 7 and Schedule 5, and any discrepancies that must be
corrected in order to comply with the Approved Maintenance Program and
the 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.
(f) Technical Acceptance. Upon satisfactory completion of the
Final Inspection and, unless otherwise agreed in writing by Lessor and Lessee,
satisfactory correction of any discrepancies or deficiencies required to be
corrected by Lessee prior to Return, Lessor shall execute and deliver to Lessee,
a delivery receipt in the form of Annex A to Schedule 5 (the "Return Receipt")
which shall, for all purposes hereof, constitute complete, irrevocable and
absolute evidence of Lessor's technical acceptance of the Aircraft, except as
validly noted in such Return Receipt. To the extent technical acceptance occurs
prior to Return, Lessee shall remain liable for the performance of all of its
payments and other obligations hereunder, and for any damage to or loss of the
Aircraft occurring between the date thereof and Return (it being understood and
agreed that Lessee shall maintain insurance as required by Section 15 to and
including such date).
(g) Failure to Return Aircraft. If Lessee shall, due to
reasons of Force Majeure or for any other 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 because of Lessee's failure to meet the
requirements of this Section 7 and Schedule 5, the obligations of Lessee
provided in this Agreement and each other Operative Document to which Lessee is
a party (including the obligation to pay Rent, on a per diem basis based upon a
pro rata application of 125% of the monthly Rent in force during the last month
of the Lease Term) shall continue in effect with respect to the Aircraft, and
the Lease Term shall be deemed to be extended until Return of the Aircraft to
Lessor; provided that, this Section 7(g) 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 this Agreement.
(h) Transition. Lessee acknowledges that Lessor intends to
lease or sell the Aircraft to another Person at the end of the Lease Term. In
order to facilitate such lease or sale of the Aircraft, Lessee agrees to
cooperate with Lessor and to otherwise assist Lessor in such matters by, for
example:
(i) allowing reasonable inspections of the Aircraft
by the Follow-On Operator (without interrupting any commercial
operation of the Aircraft);
(ii) using reasonable endeavors to schedule 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;
(iii) assisting with exporting the Aircraft from the
State of Registration and arranging for the notice of
deregistration of the Aircraft to be sent to the aviation
authority in the country where the Aircraft will be registered
by the Follow-On Operator;
(iv) assisting with the transition of the Aircraft
from the Approved Maintenance Program to the maintenance
program of the Follow-On Operator by providing access to the
relevant technical data; and
(v) performing or procuring the maintenance or
modifications to the Aircraft as may be agreed by Lessor and
Lessee, at Lessor's cost.
SECTION 8. Liens.
(a) No Liens. Lessee will 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 in this Agreement, or in
any right, title or interest in any of the foregoing, except:
(i) the rights of Lessor and Owner Participant
provided in the Operative Documents;
(ii) the rights of others under agreements or
arrangements to the extent permitted by the terms of Section 11;
(iii) Lessor Liens;
(iv) 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 of
the Airframe, any Engine or any Part or any interest therein;
(v) materialmen's, mechanics', 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, seizure
or loss of the Airframe, any Engine or any Part or any interest
therein; and
(vi) Liens, other than Liens for Taxes, in respect
only of Lessee's interest as Lessee under this Agreement and arising
out of any judgment or award against Lessee (and for the payment of
which adequate reserves have been provided), but only if the judgment
secured shall have been discharged, vacated, reversed or execution
thereof stayed pending a good faith appeal or shall have been
discharged, vacated or reversed upon expiration of such stay.
(b) Removal of Liens. Lessee will promptly, at its own
expense, take, or cause to be taken, such actions as may be necessary duly to
discharge any Lien not excepted under Section 8(a) that may at any time arise,
exist or be levied upon the Aircraft, any Engine, any Part or in this Agreement,
or in any right, title or interest in any of the foregoing, and Lessee shall
indemnify and hold harmless Lessor, Owner Participant and each other Indemnified
Party from any Expenses arising therefrom.
(c) No Adverse Action. Without limiting the foregoing or any
other provision of this 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.
SECTION 9. Indemnities.
(a) General Indemnity. Subject only to the exceptions set
forth in Section 9(b), Lessee hereby assumes liability for and hereby agrees to
indemnify Lessor, Owner Participant and each other Indemnified Party against,
and agrees to protect, save and keep harmless each thereof from, any and all
Expenses of whatsoever kind and nature from time to time imposed on, incurred by
or asserted against any Indemnified Party in any way relating to or arising out
of:
(i) the Operative Documents, any of the transactions
contemplated thereby or the enforcement of any of the terms
thereof, including, without limitation, the enforcement of
this Section 9;
(ii) the Aircraft, the Airframe, any Engine or engine
or Part or any other thing delivered under this Agreement;
(iii) the acceptance, delivery, lease, sublease,
charter, subcharter, registration, deregistration,
reregistration, possession, repossession, use, presence,
operation, condition, storage (unless otherwise expressly
provided herein), installation, testing, modification,
alteration, maintenance, repair, release, 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 this Agreement (including, without limitation,
any claim for patent, trademark or copyright infringement in
respect of any Part of the Aircraft which was not delivered to
Lessee hereunder, any liability for any injury to or death of
any Person or loss of or damage to any property, 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 of Lessee or any other Person); and
(iv) any breach or noncompliance by Lessee with any
covenant, term, agreement, condition, undertaking or
obligation under this 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
in any material respect of any representation or warranty of
Lessee set forth herein or therein, or the occurrence of any
other Default, including, without limitation, any Expenses
incurred, assumed or suffered by Lessor or any other
Indemnified Party as a consequence of Lessee's failure to
Return the Aircraft in accordance with this Agreement on any
date specified or required herein.
(b) Exceptions to General Indemnity. The indemnity provided
for in Section 9(a) will not extend to any of the following Expenses of any
Indemnified Party:
(i) Expenses caused solely by the gross negligence or
willful misconduct of such Indemnified Party (other than
negligence imputed to such Indemnified Party by reason of its
interest in the Aircraft solely and by virtue of law);
(ii) Expenses caused solely by a breach by such
Indemnified Party of any covenant or inaccuracy or falsity of
a representation or warranty made by such Indemnified Party in
this Agreement or the documents and agreements delivered by
such party to Lessee on or prior to the Delivery Date;
(iii) Expenses that are Taxes (it being agreed that
Lessee's sole responsibility for Taxes is as set out in
Section 9(c) hereof);
(iv) Expenses attributable solely to the period (x)
prior to the Delivery Date and (y) after the return of
possession of the Airframe, the Engines and the Parts to
Lessor or its designee pursuant to and in accordance with the
terms of this Lease (other than pursuant to Section 20 hereof,
in which case (and other than with respect to Taxes) Lessee's
liability under this Section 9(b) shall survive for so long as
Lessor shall be entitled to exercise remedies under such
Section 20); and
(v) Expenses caused solely by any voluntary transfer
or disposition (other than any transfer pursuant to any
exercise of remedies in connection with an Event of Default,
pooling arrangement or Event of Loss) by Lessor of its
interest in the Aircraft, Airframe or Engines.
(c) Taxes.
(i) Lessee Liability. Except as provided in Section
9(c)(ii), Lessee shall pay or cause to be paid when due, and
shall indemnify and hold harmless each Tax Indemnitee for,
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:
(A) the acceptance, delivery, redelivery,
transport, registration, reregistration,
deregistration, possession, operation, location, use,
presence, condition, alteration by or on behalf of
Lessee, maintenance, repair, return, storage (unless
otherwise expressly provided herein), repossession,
disposition, abandonment, installation, storage,
charter, leasing, subleasing, modification, transfer
by or on behalf of Lessee, importation, exportation
or other disposition of, or the imposition of any
Lien on, the Aircraft, Airframe or any Engine or any
Part or interest therein (or the incurrence of any
liability to refund or pay over any amount as the
result of any such Lien);
(B) the rentals or receipts from the
Aircraft, Airframe or any Engine or Parts thereof or
interest therein;
(C) the Aircraft, Airframe or any Engine or
any Parts thereof or interest therein (including,
without limitation, title or a security interest
therein), this Lease, any other Operative Document or
any data or any other thing delivered or to be
delivered under the Operative Documents; or
(D) 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.
(ii) Exclusions From Lessee's Liability. The provisions of Section 9
(c)(i) shall not apply to:
(A) Taxes imposed on the income, profits or
gains of a Tax Indemnitee by any Government Entity;
provided, however, that the exclusion contained in
this clause (A) shall not apply to any Taxes imposed
by any Government Entity if and to the extent that
such Tax results from (i) the use, operation,
presence or registration of the Aircraft, the
Airframe, any Engine or any Part in the jurisdiction
imposing the Tax; or (ii) the situs of organization,
any place of business or any activity of Lessee or
any other Person having use, possession or custody of
the Aircraft, the Airframe, any Engine or any Part in
the jurisdiction imposing the Tax; or (iii) any
payment (actual or constructive) by or on behalf of
Lessee; provided, further, however, notwithstanding
anything to the contrary contained in this clause
(A), a gross withholding tax shall not be excluded by
this clause (A) unless due to the activities of the
Tax Indemnitee or an Affiliate thereof unrelated to
the transactions contemplated by this Lease Agreement
or the negotiation thereof;
(B) Sales, use or similar transfer Taxes
imposed on a Tax Indemnitee upon any voluntary
transfer (including a transfer by way of security but
excluding a transfer pursuant to the exercise of
remedies in connection with an Event of Default, a
Modification, a pooling arrangement or an Event of
Loss) or disposition (including a disposition by way
of security but excluding a disposition pursuant to
any exercise of remedies in connection with an Event
of Default) by such Tax Indemnitee of any equitable
or legal interest in the Aircraft, Airframe, any
Engine or any Part or this Agreement to any Person;
(C) Taxes attributable solely to any period
(a) prior to the Delivery Date; or (b) after the
return of possession of the Airframe, the Engines and
the Parts to Lessor or its designee pursuant to the
terms of this Lease (other than pursuant to Section
20 hereof, in which case Lessee's liability under
this Section 9(c) shall survive for so long as Lessor
shall be entitled to exercise remedies under such
Section 20); provided, however, that the exclusions
set forth in this subparagraph (C) shall not apply to
Taxes to the extent such Taxes relate to events
occurring or matters arising prior to or
simultaneously with such return of possession;
(D) Taxes caused solely by a breach by such
Tax Indemnitee of any covenant or inaccuracy or
falsity of any representation or warranty made by
such Tax Indemnitee in this Agreement or the
documents and agreements delivered by such Tax
Indemnitee to Lessee pursuant to this Agreement; and
(E) Taxes caused solely by the gross
negligence or wilful misconduct of any Tax
Indemnitee.
(iii) No Reduction for Withholding, Etc. Notwithstanding anything that
may be contained herein, all payments by Lessee 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:
(A) forthwith pay the recipient such
additional amount so that the net amount received by
such recipient 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;
(B) 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 clause (iii)); and
(C) furnish to Lessor, within the period for
payment permitted by applicable law, an official
receipt of the relevant 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.
(iv) 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
Section 9(c), Lessee shall timely file the same (except for any such
report, return or statement which such Tax Indemnitee intends to file
itself (and so notifies Lessee in writing)); provided, however, that
Lessee shall have no obligation under this sentence to the extent such
Tax Indemnitee, after receipt of Lessee's written request, shall have
failed to furnish Lessee with such information (including instructions)
as is peculiarly within such Tax Indemnitee's control and which is
necessary to file such report, return or statement. 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 not have any right to examine the tax returns or books of
any Tax Indemnitee. Lessee agrees to use reasonable endeavors to obtain
official receipts indicating the payment by it of all foreign income
and withholding Taxes that are subject to indemnification under this
Section 9 and shall promptly deliver to the relevant Tax Indemnitee
each such receipt obtained by Lessee. Notwithstanding the foregoing,
nothing in this Section 9(c)(iv) shall (x) require Lessor or Lessee to
divulge to the other any information which Lessor or Lessee, as the
case may be, considers confidential, provided, however, that Lessor and
Lessee, as the case may be, shall be so required if required by
applicable law or reasonably related to a matter indemnified hereunder;
or (y) prevent Lessor or Lessee from arranging its tax affairs in such
manner as it sees fit, unless to do so would increase the obligations
of the other under this Agreement.
(v) Payment. Lessee shall pay any Tax for which it is liable
pursuant to this Section 9(c) in immediately available funds directly
to the appropriate Government Entity or, upon written demand of the Tax
Indemnitee, to such Tax Indemnitee, but in no event shall such payment
be required more than five (5) 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 a
nationally recognized firm of independent accountants for such Tax
Indemnitee. 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; provided, however, failure to provide any such
notice or bill shall not relieve Lessee of its obligations hereunder.
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
reasonably require to enable such Tax Indemnitee to comply with the
requirements of any Government Entity.
(d) [Intentionally reserved].
(e) Scope, Survival, Etc.
(i) Lessee shall be obligated under this Section 9 as a
primary obligor irrespective of whether an Indemnified Party or Tax
Indemnitee 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 may proceed
directly against Lessee under this Section 9 without first resorting to
any such other rights of indemnification, guarantee or insurance.
(ii) All indemnities, obligations, adjustments and payments
provided for in this Section 9 shall survive and remain in full force
and effect, notwithstanding the expiration or termination of the Lease
Term or of this 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 Tax Indemnitee
entitled thereto, without declaring this Agreement to be in default or
taking other action under this Agreement.
(iii) Lessee acknowledges that the Indemnified Parties or Tax
Indemnitees, 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 or Tax Indemnitees, 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 or Tax
Indemnitees (it being understood that Lessee is entitled to
conclusively rely upon the instructions of Lessor with respect to the
payment of amounts owing to any Indemnified Party or Tax Indemnitee
under the indemnities).
(iv) Each Indemnified Party 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(a), provided that failure to give such notice will not prejudice or
otherwise affect any of the rights of the Indemnified Parties under
this Section 9.
(f) Gross-Up for Taxes on Indemnity Payments. If and to the
extent any sums payable to an Indemnified Party or Tax Indemnitee under this
Section 9 are subject to any Taxes (including any payments made pursuant to this
Section 9(f)), Lessee shall pay to such Indemnified Party or Tax Indemnitee such
sum as will, after the obligation in respect of such Taxes has been fully
satisfied with respect to all sums payable by Lessee under this Section 9, leave
the Indemnified Party or Tax Indemnitee with the same amount as it would have
been entitled to receive in the absence of the imposition of any such obligation
in respect of such Taxes.
(g) Tax Contests. If any taxing authority proposes to impose a
Tax for which Lessee would be required to make an indemnity payment to a Tax
Indemnitee under this Section 9, such Tax Indemnitee shall if requested by
Lessee in writing in a timely fashion, contest (or permit Lessee, if requested
by Lessee and if the Tax Indemnitee consents, which consent shall not be
unreasonably withheld or delayed (such consent shall not be deemed to be
unreasonably withheld or delayed in the case of any Tax contest involving claims
for other Taxes asserted against such Tax Indemnitee for which Lessee has no
responsibility hereunder and which cannot be severed for the purposes of such
contest)) the validity, applicability or amount of such Tax at Lessee's sole
cost and expense by:
(i) resisting payment thereof, if practicable;
(ii) not paying the same except under protest, if protest
shall be necessary and proper;
(iii) if payment shall be made using reasonable efforts to
obtain a refund thereof in appropriate administrative proceedings; and
(iv) considering in good faith such other action as is
reasonably requested by the Lessee from time to time; provided,
however, that (x) in the case of Taxes that are required by law to be
contested in the Tax Indemnitee's name in proceedings that involve both
Taxes for which such Tax Indemnitee is indemnified hereunder and other
Taxes and which cannot, as a matter of law, be severed or otherwise
contested separately such Tax Indemnitee may in its sole discretion
select the forum for such contest and determine whether or not to pay
such Tax in connection with the contest and shall control the conduct
of such proceedings (although such Tax Indemnitee shall keep Lessee
reasonably informed of the status of such proceedings and shall consult
in good faith with Lessee and its counsel concerning the conduct of
such proceedings); and (y) no contest shall be required or permitted
unless: (A) such Tax Indemnitee shall have received from Lessee (I) an
indemnity reasonably satisfactory to Lessor for any liability, expense
or loss resulting from such contest; and (II) an opinion of independent
tax counsel selected by Lessee and reasonably satisfactory to such Tax
Indemnitee, furnished at Lessee's expense, to the effect that a
reasonable basis exists for contesting such claim (or, in the case of
an appeal of a judicial decision, that a meritorious basis exists for
such appeal); (B) no Event of Default shall have occurred and be
continuing; (C) such Tax Indemnitee shall have reasonably determined
that the contest will not create a material risk of a sale, forfeiture
or loss of, or creation of any Lien (other than a Permitted Lien but
not including a Lien of the kind described in clause (iv) of Section
8(a)) on, the Aircraft, or any portion thereof or interest therein
unless Lessee shall have provided a bond or other security for such
risk reasonably adequate to Lessor; and (z) in the case of any Taxes
not described in subclause (x) and subject to the requirement of
subclause (y), Lessee may conduct such contest in the forum and in the
manner Lessee deems appropriate (although Lessee shall keep such Tax
Indemnitee informed of the status of such proceedings and shall consult
in good faith with such Tax Indemnitee and its counsel concerning the
conduct of such proceedings).
If a Tax Indemnitee contests any claim for Taxes by making a payment
and seeking a refund thereof, then Lessee shall advance to such Tax Indemnitee,
on an interest-free basis, an amount equal to such Taxes (including any
penalties, additions to tax, fines and interest paid by such Indemnitee in
connection with the contest) and shall hold such Tax Indemnitee harmless, on a
net after-tax basis, against any adverse tax consequences of the receipt or
payment of such advance. In the event a Tax Indemnitee shall recover any Taxes
or other amounts advanced to it by Lessee pursuant to the preceding sentence,
such Tax Indemnitee shall promptly refund to Lessee the amount recovered plus
any interest received thereon. Notwithstanding the foregoing, the Tax Indemnitee
may waive in writing its rights to indemnification hereunder with respect to any
claim for any Tax and refrain from contesting, or continuing the contesting of,
such claim, in which event Lessee shall have no liability to Lessor hereunder
with respect to such claim. In addition, if a Tax Indemnitee shall agree to a
settlement of any contest under this Section 9 without the prior written consent
of Lessee (which shall not be unreasonably withheld or delayed), then such Tax
Indemnitee shall be deemed to have waived its rights to the indemnities provided
for in this Section 9 with respect to the Tax liability accepted in such
settlement. Lessee shall not be deemed to be in default under the
indemnification provisions of this Section 9 so long as it or a Tax Indemnitee
shall conduct a contest in accordance with the provisions of this Section 9(g).
SECTION 10. Title; Registration; Maintenance and Operation; Insignia.
(a) Title to the Aircraft.
(i) Lessee acknowledges that title to the Aircraft
shall at all times be and remain solely and exclusively vested
in Lessor and that this Agreement and the other Operative
Documents constitute an agreement to lease the Aircraft from
Lessor 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.
(ii) Lessee will not at any time represent or hold
out Lessor, Owner Participant or any other Indemnified Party
as carrying goods or passengers on the Aircraft or as being in
any way connected or associated with any operation of the
Aircraft or 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, nor create, incur or suffer
to exist any Lien over the Aircraft, the Engines or any Part.
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.
(b) Registration.
(i) Upon Delivery of the Aircraft pursuant to Section
2, Lessee shall, at its own cost and expense, procure that the
Aircraft will be duly registered with the Aviation Authority
in the name of Lessor on the register (except that Lessor and
Owner Participant shall be responsible for ensuring that the
Trust Agreement and all other documents necessary for filing
with the Aviation Authority to effect registration in the
Lessor's name are in due form for filing with the Aviation
Authority), and thereafter shall maintain, or procure the
maintenance of, such registration throughout the Lease Term
and shall promptly deliver to Lessor a certified copy of the
Certificate of Registration when issued by the Aviation
Authority and at all times during the Lease Term, Lessee shall
neither cause nor permit the Aircraft to be registered under
the laws of any other jurisdiction.
(ii) Upon the Delivery Date of the Aircraft pursuant
to Section 2, Lessee shall, at its own cost and expense,
procure that, if required by applicable regulations, any
Operative Document as is required (including, without
limitation, this Lease and Lease Supplement No. 1) shall be
filed for recording with the Aviation Authority, and shall
promptly (and in any event within five (5) days) after such
registration deliver evidence of such registration to Lessor.
Lessee shall, at its own cost and expense, cause such
recordation to be maintained in good standing at all times
during the Lease Term.
(iii) Lessee will take, or cause to be taken, such
action with respect to the recording, filing, rerecording and
refiling of this Agreement or other documents or instruments
(including, without limitation, Uniform Commercial Code
financing statements) as necessary or advisable in order to
establish, protect, preserve and perfect, as against Lessee
and any third party, Lessor's interest in the Aircraft and
this Agreement and each other Operative Document and shall
furnish to Lessor timely notice of the necessity of such
action, together with such documents and instruments, in
execution form, and such other information as may be necessary
or advisable to take such action. Lessee shall cooperate fully
with Lessor and Owner Participant, if, notwithstanding the
foregoing, Lessor or Owner Participant notifies Lessee that
Lessor or Owner Participant wishes to take any of the
foregoing actions, in lieu of Lessee taking any of the
foregoing actions.
(iv) Without limiting the effect of the foregoing,
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 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 or Owner Participant may reasonably request, to
establish, perfect, preserve and protect the respective rights
of Lessor in the Aircraft and in this Agreement and each other
Operative Document.
(v) Lessee shall procure that, at all times during
the Lease Term, the Aircraft possesses a current, legal and
valid Airworthiness Certificate, and all such other
certificates, licenses, permits and authorizations as are from
time to time required for the use and operation of the
Aircraft for the public transport of passengers or cargo by
any Government Entity having jurisdiction in any country,
state, province or other political subdivision in or over
which the Aircraft is flown, including, without limitation,
any aviation authority.
(c) Maintenance. Lessee, at its own cost and expense, shall,
at all times during the Lease Term and until the Aircraft is returned in the
condition and manner required by this Agreement:
(i) maintain, service, repair, test, inspect and
overhaul, or cause to be maintained, serviced, repaired,
tested, inspected and overhauled, the Aircraft in accordance
with the Approved Maintenance Program (which shall not be
amended in any material respect without Lessor's prior written
consent, which consent shall not be unreasonably withheld),
the structural repair manual and the rules and regulations of
the Aviation Authority, including, without limitation, FAR
Part 121, and the regulations promulgated by the Aviation
Authority thereunder, and, except to the extent in conflict
with the rules and regulations of the Aviation Authority, as
well as standard commercial airline practice, (x) 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 at least the same manner and
with at least substantially the same care and diligence as
other aircraft owned or operated by Lessee, (y) so as to keep
the Aircraft free of, or so as to promptly correct, physical
damage to the Airframe, any Engine or any Part which may have
resulted from foreign object damage, from damage caused by
ramp equipment, ramp personnel, operational mishandling,
Lessee staff or passengers or from other means or sources and
(z) so as to keep the Aircraft in such condition as may be
necessary to enable the applicable airworthiness certification
for the Aircraft to be maintained in good standing at all
times under applicable law;
(ii) without limiting Lessee's obligations under
Section 10(c)(i), agree that such maintenance and repairs will
include, but will not be limited to, each of the following
specific items:
(A) to perform in accordance with recognized
standards of prudent air carriers and the Approved
Maintenance Program, and all applicable rules and
regulations of the Aviation Authority, and, except to
the extent in conflict with the rules and regulations
of the Aviation Authority, all routine and nonroutine
maintenance work, including, without limitation, line
maintenance to be done upon the Aircraft;
(B) without prejudice to the provisions of
Section 7, to comply with all applicable ADs that are
issued during the Lease Term and are due for
compliance on such basis at any time during the Lease
Term and within 180 days after the end of the Lease
Term ("Required Modifications");
(C) to incorporate and retain in the
Approved Maintenance Program for the Aircraft an
applicable CPCP, and to carry out such work as may be
required to comply therewith, including 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 all areas of the
Aircraft recommended by the Airframe Manufacturer
that are manufactured from aluminum or other metals,
in accordance with the recommendations of the
Airframe Manufacturer, the CPCP, the Airframe
Manufacturer structural repair manual and the
Approved Maintenance Program;
(D) to effect any required repair to the
Airframe or any Engine, and any Parts installed
therein or thereon, only (w) by an Aviation
Authority-approved repair station, (x) by Aviation
Authority-licensed mechanics and (y) in accordance
with Lessee's Approved Maintenance Program, the
Airframe Manufacturer's structural repair manual, the
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 (z) the relevant, if any,
engineering change orders (which shall be initiated
in accordance with procedures approved by the
Aviation Authority);
(E) to maintain, in the English language,
the Aircraft Documentation and to keep the Aircraft
Documentation current and up to date (with all
documents and records unique to the Aircraft to be
maintained unique to the Aircraft, which Aircraft
Documentation shall (i) conform with the laws of any
Government Entity having jurisdiction over the
Aircraft and with normal practices of commercial air
carriers, (ii) disclose the location of any Engine
not installed on the Airframe, (iii) accurately
record the amount of time consumed and/or the cycles
of use (as appropriate) by each operation of the
Airframe, each Engine and all Parts and all work
performed thereon, (iv) accurately maintain complete
back-to-birth records of all Life Limited Components,
and (v) be made available for review by Lessor, Owner
Participant or their respective designees on
reasonable notice in order to facilitate Lessor's or
Owner Participant's ability periodically to inspect
the Aircraft and monitor the maintenance of the
Aircraft);
(F) to make available for review upon
request by Lessor or Owner Participant or their
respective designees 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;
(G) to diligently correct any and all
deficiencies revealed by any inspection of Lessor or
Owner Participant by proper cleaning, sealing,
repair, replacement, overhaul and adjustment as
required pursuant to the Approved Maintenance
Program;
(H) to 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;
(I) all parts or materials installed or used
on the Aircraft shall have a current valid Aviation
Authority "serviceable tag" of the manufacturer or
maintenance facility providing such item to Lessee;
and
(J) notwithstanding anything to the contrary
contained herein, to maintain any engine which is not
an Engine but which is installed on the Airframe as
if it were an Engine;
(iii) furnish or cause to be furnished to Lessor and
Owner Participant as soon as reasonably practicable and at no
cost to Lessee such information as may be required to enable
Lessor and Owner Participant to file on a timely basis any
reports required to be filed by Lessor or Owner Participant
with any Government Entity because of Lessor's or Owner
Participant's rights, title and interests in and to the
Aircraft or under this Agreement or any other Operative
Document.
(d) Operation.
(i) Lessee shall not maintain, use, service, repair,
overhaul or operate the Aircraft (or permit maintenance, use,
service, overhaul or operation of the Aircraft) in violation
of any law of any Government Entity having jurisdiction, in
violation of 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.
(ii) Lessee shall not operate the Aircraft or permit
the Aircraft to be operated (y) outside of the Permitted
Jurisdictions or (z) on routes other than those approved by
the government of the State of Registration.
(iii) Lessee shall not knowingly employ, suffer or
cause the Aircraft to be used for the carriage of (w)
livestock, (x) acids, toxic chemicals or other corrosive
materials, unless the same are appropriately packaged in
compliance with applicable law, (y) explosives, nuclear fuels
or wastes, (z) illegal drugs, controlled substances or the
like or 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 the Aircraft.
(iv) Lessee will 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 aircraft
owned or operated by Lessee.
(v) 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 737-3U3 airframe, except solely to
the extent the Aviation Authority has approved the use of
engines of the same model and manufacturer as such Engine on
any Airframe Manufacturer model 737-3U3 airframe, such
airframe.
(vi) 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 I.
(e) Insignia. Lessee shall affix and maintain in respect of
the Airframe and each Engine a fireproof 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:
Location:
(i) in the case of the Airframe, in the upper sill of
the left-hand forward entry door, adjacent to the Airframe
Manufacturer's plate and
(ii) in the case of each Engine, in a clearly visible
place in close proximity to the manufacturer's plate.
Legend:
(y) in the case of the Airframe, "THIS AIRCRAFT IS
OWNED BY FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER
TRUSTEE, AND IS HELD UNDER LEASE BY FRONTIER AIRLINES, INC.,",
and
(z) in the case of each Engine, "THIS ENGINE IS OWNED
BY FIRST SECURITY BANK,NATIONAL ASSOCIATION, AS OWNER TRUSTEE,
AND IS HELD UNDER LEASE BY FRONTIER AIRLINES, INC.".
Lessee shall promptly replace any such nameplate that becomes illegible, lost,
damaged or destroyed for any reason.
(f) Costs of Operation. Lessee shall pay all costs incurred in
the operation of the Aircraft for profit or otherwise, including, without
limitation, 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 (including, without limitation, any and all Taxes) directly or
indirectly incurred or imposed in connection with or related to the use,
movement, operation, maintenance, repair, storage or location of the Aircraft
during the Lease Term.
(g) Payment of Flight Charges. Without limiting the effect of
Section 8, Lessee shall pay during the Lease Term promptly upon the same
becoming due and payable all Flight Charges payable by Lessee during the Lease
Term whether in respect of the Aircraft or any other aircraft of Lessee and
which involve any risk of the imposition of a Lien on the Aircraft or the
confiscation or detention thereof (unless such Flight Charges are being
contested in good faith by appropriate proceedings) and shall indemnify and hold
Lessor, Owner Participant and any other Indemnified Party harmless in respect of
the same, which indemnity shall continue in full force and effect
notwithstanding the termination or expiration of the Lease Term or Return of the
Aircraft.
(h) Loss or Damage.
(i) Without limiting the other provisions of this
Section 10, if the Aircraft or any part thereof suffers loss
or damage not constituting an Event of Loss of the Aircraft or
the Airframe or any Engine (in respect of which, for the
avoidance of doubt, Section 13 shall apply), Lessee shall
promptly correct and repair such loss or damage, including the
repair or replacement of all damaged or lost Parts at its own
expense in accordance with this Agreement in order that the
Aircraft is placed in an airworthy condition and in
substantially the same condition as it was prior to such loss
or damage. Any insurance payments with respect to loss or
damage not constituting an Event of Loss of the Aircraft or
the Airframe shall be paid in accordance with the provisions
of Section 15 and applied in payment for repairs to or for
replacement of the property suffering the loss or damage.
(ii) Lessee shall notify Lessor forthwith of any such
loss or damage to the Aircraft for which the cost of
correction or repairs may exceed the Damage Notice Threshold
and shall provide an explanation or proposal for carrying out
the correction or repair. If after its receipt of such
proposal, Lessor does not agree with Lessee's proposal, Lessor
shall promptly notify Lessee of such disagreement. Lessee and
Lessor shall then consult with the Airframe Manufacturer,
Engine Manufacturer or other relevant manufacturer, 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.
(i) Cost Sharing. The Lessor shall, if the cost to Lessee of
performing an inspection resulting in modification or terminating action with
regard to any AD or causing such inspection resulting in modification or
terminating action being performed with regard to such AD, exceeds $100,000 in
respect of any individual item of the same, provided no Default or Event of
Default has occurred and is continuing, on receipt by Lessor of evidence of
payment for and completion of the relevant work, reimburse Lessee with an amount
equal to the solution to the following formula:-
P=Cx(N-R)/N
where "N" equals the Lease Term in months;
"R" represents the remainder of the Lease Term in months after
completion of the modification/terminating action;
"C" equals the cost of the modification/terminating action in excess of
$100,000; and
"P" equals the Lessor's share of any cost.
SECTION 11. Possession. Lessee will not, without the prior written
consent of Lessor, sublease or otherwise in any manner deliver, transfer or
relinquish possession of the Aircraft, Airframe or an Engine or any Part, or
install an Engine, or permit any such Engine to be installed, on an airframe
other than the Airframe, provided that so long as (1) no Event of 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 rights, title and interests in and to the Aircraft or Airframe, or any
Engine or Part, or under this Agreement or any other Operative Document
(including, without limitation, any impairment of title to or the registration
with the then 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 15 hereof shall have been complied with, then, at the cost and
expense of Lessee:
(a) 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, to any Approved Maintenance Performer or to any other
Aviation Authority-approved company acceptable to Lessor for testing, service,
repair, maintenance or overhaul work on the Airframe or Engine or any Part or
for alterations or modifications in or additions to such Airframe or Engine or
Part to the extent required or permitted by the terms of Section 12(b).
(b) Installation of Engines on Other Airframes. Without the
prior consent of Lessor, Lessee may install an Engine on any Airframe
Manufacturer model 737 airframe (other than the Airframe) operated by Lessee so
long as no Person will acquire or claim any right, title or interest in any
Engine by reason of such Engine's being installed on such airframe at any time
while such Engine is owned by Lessor.
(c) Pooling; Sublease.
Lessee will not, without the prior written consent of Lessor,
sublease or otherwise in any manner deliver, transfer or relinquish possession
of the Aircraft, the Airframe or any Engine or install any Engine, or permit any
Engine to be installed, on any airframe other than as permitted under Section
11(b); provided, however, subject to the provisions of this Section 11(c) that
if and for so long as (y) no Default or Event of Default shall have occurred and
be continuing, and (z) all approvals, consents or authorizations required in
connection with any such delivery, transfer or relinquishment of possession by
the Aviation Authority have been obtained and remain in full force and effect,
then Lessee may, without such prior written consent:
(i) Subject any Engine to normal interchange agreements or
pooling agreements or arrangements, in each case customary in the
commercial airline industry and entered into in writing by Lessee in
the ordinary course of business and with any solvent United States air
carrier; provided, however, that no such agreement or arrangements
shall require, contemplate or result in any transfer of Lessor's title
to such Engine. If, notwithstanding the foregoing, Lessor's title to
any such Engine is divested under any such agreement or arrangement,
then such Engine shall be deemed to have suffered an Event of Loss as
of the date of such divestiture, with the effect that Lessee shall be
required to replace such Engine with a Replacement Engine meeting the
requirements of, and in accordance with, Section 13(c).
(ii) With respect to the Aircraft, enter into a Wet Lease with
any United States air carrier, but only if:
(A) Lessee shall provide 30 days advance written
notice to Lessor;
(B) At the time that Lessee enters into such Wet
Lease, no such air carrier shall be insolvent or subject to
any bankruptcy, insolvency, liquidation, reorganization,
dissolution or similar proceeding, or any similar non-ordinary
course transaction, shall be seeking any reorganization or any
readjustment of its debts, or shall have substantially all of
its property in the possession of any liquidator, trustee,
receiver or similar person; and
(C) Any such Wet Lease shall be for a period not in
excess of 6 months and not extending beyond the date which is
one year prior to the end of the Lease Term, and shall be
expressly subject to and subordinate to all the terms of this
Agreement and to the rights, powers and remedies of Lessor
hereunder, including, without limitation, Lessor's rights
under Section 20 to repossess the Aircraft, Airframe and
Engines and to terminate such Wet Lease, upon the occurrence
of an Event of Default.
(iii) Notwithstanding anything to the contrary in this Section
11(c):
(A) Lessee shall remain primarily liable hereunder
for the performance of all the terms of this Lease to the same
extent as if such transfer had not occurred and no transfer of
possession of the Aircraft, the Airframe, any Engine, any
Part, or any Aircraft Documentation shall in any way discharge
or diminish any of Lessee's obligations to Lessor hereunder or
under any Operative Document; and
(B) Lessee shall ensure that no delivery, transfer or
relinquishment permitted under this Section 11(c) shall affect
the United States registration of the Aircraft.
(d) Transfers of Possession in General. The rights of any
Person who receives possession by reason of a transfer or sublease permitted by
this Section 11 shall be effectively and expressly subject and subordinate to
all the terms of this Lease, including, without limitation, the covenants
contained in Section 10, this Section 11 and Section 15 and the rights of Lessor
to repossession pursuant to Section 20 and to avoid transfer upon such
possession. No sublease, 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 (it being
agreed that notwithstanding any such transfer or relinquishment of possession,
Lessee shall continue to be primarily liable and responsible for performance of
all of its obligations under this 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 Agreement or any other Operative Document, any sublease,
relinquishment or transfer of possession must (x) be consistent with the terms
of this Agreement and the other Operative Documents, and (y) not adversely
affect the rights, title or interests of Lessor in or to the Aircraft or
Airframe, or any Engine or Part, or under this Agreement or any other Operative
Document, and (z) not result in any increases in Taxes to the Lessor which are
not indemnifiable hereunder, or otherwise adversely affect applicable tax
benefits available to Lessor.
SECTION 12. Replacement of Parts, Alterations, Modifications and
Additions.
(a) Replacement of Parts.
(i) Lessee, at its own expense, will replace or cause
to be replaced as soon as reasonably practicable and in
accordance with applicable manufacturer maintenance manual
limits (and in any event within thirty (30) days of removal
or, if earlier, on the date the Lease Term expires or
terminates) 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, except as otherwise provided in
Section 12(b) with respect to Additional Parts.
(ii) All Parts incorporated or installed in or
attached or added to the Airframe or any Engine shall (x) be
free and clear of all Liens (except for Permitted Liens), (y)
except with respect to Additional Parts, be in as good
operating condition as, and shall have a value and utility at
least equal to, the Parts replaced, assuming such replaced
Parts were in the condition and repair required to be
maintained by the terms hereof and (z) have a current valid
Aviation Authority "serviceable tag" of the manufacturer or
maintenance facility providing such items to Lessee
identifying the manufacturer, vendor, part number, make, model
and serial number, date and hours and/or cycles and, if such a
tag is issuable with respect to the Parts, indicating that
such Parts are new, serviceable or overhauled. Lessee may
substitute for any Part a part that does not meet the
requirements of the foregoing sentence if a complying Part
cannot be procured or installed within the available 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 soon as reasonably
practicable (and in any event within thirty (30) days of
removal or, if earlier, on the date the Lease Term expires or
terminates).
(iii) Immediately upon any Part's becoming
incorporated in, installed on or attached to the Airframe or
any Engine, as above provided, without further act (x) title
to such Part shall thereupon vest in Lessor, free and clear of
all Liens (other than Permitted Liens), (y) such Part shall
become subject to this Agreement and be deemed part of such
Airframe or such Engine for all purposes hereof, and (z) title
to any replaced Part shall thereupon vest in Lessee, free and
clear of all Lessor Liens and shall no longer be deemed a Part
hereunder. All Parts (other than Additional 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 clause
(iii) above. Upon any removal of Additional Parts, title
thereto shall, without further act, vest in Lessee, and such
Additional Part shall no longer be deemed a Part hereunder.
(iv) Notwithstanding any other provision hereof, no
Part that is a life limited part shall be installed on the
Aircraft or any Engine, including, without limitation, a
Replacement Engine, after the Delivery Date unless such Part
is new or Lessee has complete certified, back-to-birth records
for such part. (b) Modifications.
(i) Lessee, at its own expense, will make, or cause
to be made, such Modifications to the Airframe and Engines as
may be required from time to time to meet the applicable
standards of the Aviation Authority, provided that except as
otherwise provided with respect to Required Modifications in
Section 10(c)(ii)(B), Lessee may, in good faith, contest the
validity or application of any law, rule, regulation or order
in any manner which does not involve any risk of the sale,
forfeiture or loss of the Aircraft or, in the reasonable
judgment of Lessor, materially adversely affect Lessor or
involve any risk of civil or criminal liability on Lessor or
any Indemnified Party.
(ii) 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, provided
that:
(y) other than the Reconfiguration, Lessee
shall not, without Lessor's prior written consent,
make any Major Modifications, including, without
limitation, modifications as to the type or
manufacture of the avionics and Cabin modifications
which change the interior layout, to the Aircraft (it
being agreed that Lessee shall, if requested by
Lessor, provide advance copies of regulatory
approvals and all designs, plans, diagrams, drawings
and data used by Lessee in accomplishing such Major
Modifications); provided that any such Major
Modifications that are performed shall be approved by
the Aviation Authority (as evidenced by the issuance
of a supplemental type certificate or similar data
acceptable to the Aviation Authority and Lessor); and
(z) no such Modification shall reduce the
remaining useful life of the Airframe or such Engine
or diminish the value or utility of the Airframe or
such Engine or impair the condition, airworthiness or
marketability thereof below the remaining useful
life, value, utility, condition, marketability or
airworthiness thereof immediately prior to such
Modification, assuming the Airframe or such Engine
was then of the remaining useful life, value and
utility and in the condition and airworthiness
required to be maintained by the terms of this
Agreement. Title to all Parts incorporated or
installed in or attached or added to the Airframe or
an Engine as the result of such Modification (the
"Additional Parts") shall, without further act, vest
in Lessor, and Lessee hereby relinquishes all right,
title and interest thereto. Any Part installed as
part of the Reconfiguration shall not constitute an
Additional Part.
(iii) Except as provided in Sections 2(d) and 10(i)
hereof, neither Lessor nor Owner Participant shall be required
under any circumstances to pay directly or indirectly for any
Modifications. Notwithstanding the foregoing, Lessee may, at
any time during the Lease Term, so long as no Event of Default
shall have occurred and be continuing, remove or suffer to be
removed any such Additional Part, provided that such
Additional Part (x) 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, (y) is not required to be
incorporated or installed in or attached or added to the
Airframe or any Engine pursuant to the terms of this Section
12 and (z) 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 occurred, assuming the Airframe or such
Engine was then of the fair market value and utility and in
the condition and airworthiness required to be maintained by
the terms of this Agreement.
(iv) Upon expiration or termination of the Lease Term
and the written request of Lessor at least ten (10) Business
Days prior to such expiration or termination, Lessee shall, at
its own expense, remove or cause to be removed any Additional
Part. Upon the removal by Lessee of any Additional Part as
provided above, title thereto shall, without further act, vest
in Lessee, and such Additional Part shall no longer be deemed
part of the Airframe or Engine from which it was removed. Any
Additional 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.
(v) Notwithstanding anything to the contrary
contained herein, Lessee shall not, without Lessor's prior
written consent, remove any Modification which is required by
the Aviation Authority.
SECTION 13. Risk of Loss, Destruction, Requisition, Etc.
(a) Risk of Loss. Throughout the Lease Term and until the
Return shall have been effected in accordance with the terms of this Agreement,
Lessee shall bear all risk of loss, damage, theft or destruction of, or any
other Event of Loss with respect to, the Aircraft or to the Airframe, any Engine
or any Part.
(b) Event of Loss With Respect to the Aircraft.
(i) Upon the occurrence of an Event of Loss with
respect to the Airframe or the Airframe and Engines and/or
engines then installed thereon, Lessee shall forthwith (and,
in any event, within three (3) days after such occurrence)
give Lessor written notice of such Event of Loss. By the
earlier of (y) sixty (60) days following the Event of Loss
Date or (z) the date on which the applicable insurance
proceeds are received by the loss payee, Lessee shall pay or
cause to be paid to Lessor in immediately available funds the
Stipulated Loss Value of the Aircraft together with all other
amounts then due and owing by Lessee hereunder.
(ii) Until the date on which the Stipulated Loss
Value and the other amounts referred to in clause (b)(i) above
are paid in full, Lessee shall be obligated to pay all Basic
Rent or Renewal Rent, as applicable, as scheduled and shall
continue to perform all of its other obligations under the
Operative Documents, except to the extent rendered impossible
by the occurrence of such Event of Loss or rendered, in the
opinion of Lessor, unnecessary. If the Stipulated Loss Value
referred to in clause (b)(i) above is paid on a date other
than a Basic Rent Date or Renewal Rent Date, Lessor shall
refund or cause to be refunded to Lessee any paid but
unaccrued Basic Rent or Renewal Rent, as applicable. Upon
receipt of the full amount of the Stipulated Loss Value and
the other amounts referred to in clause (b)(i) above by Lessor
pursuant to this Section 13(b), and if Lessee has paid all
other amounts then due and payable by Lessee under this
Agreement and the other Operative Documents, then (x) Lessor
shall, upon the joint written request of Lessee and each
insurer or their appointed representatives which contributed
to the payment of the Stipulated Loss Value, transfer to the
Person designated in such request all of Lessor's right, title
and interest in the Aircraft without recourse or warranty
(except as to absence of Lessor Liens) and subject to the
disclaimer set forth in Section 5(a), and (y) Lessee shall be
relieved of its obligations under Section 7.
(c) Event of Loss With Respect to an Engine.
(i) 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 (3)
days after such occurrence) give Lessor written notice thereof
and shall, as soon as reasonably practicable and, in any
event, within forty-five (45) 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) and having an
equivalent or greater value, condition, utility,
airworthiness, remaining useful life as, and being in as good
operating condition as, the Engine with respect to which such
Event of Loss occurred, assuming such replaced Engine was in
the condition and repair required to be maintained by the
terms of this Agreement. 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."
(ii) Prior to or at the time of any conveyance of a
Replacement Engine, Lessee, at its own expense, shall (t)
furnish Lessor with a full warranty (as to title) bill of
sale, in form and substance satisfactory to Lessor, conveying
to Lessor such Replacement Engine, (u) cause supplements to be
executed which shall subject such Replacement Engine to this
Agreement, (v) cause the filing of such instruments as are
necessary or advisable to establish, perfect and protect the
interest of Lessor in any such Engine (including, without
limitation, cause a Lease Supplement, in form and substance
satisfactory to Lessor, to be duly executed by Lessee) (w)
furnish Lessor with such evidence of the transfer of title to
such Replacement Engine to Lessor as Lessor may reasonably
request, including, without limitation, 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 Agreement (such opinion to be
in form and substance, and from counsel, satisfactory to
Lessor), (x) furnish Lessor with such evidence of compliance
with the provisions of Sections 10(e), 12(a)(iv) and 15 with
respect to such Replacement Engine as Lessor may reasonably
request, (y) furnish Lessor with a certificate signed by an
officer of Lessee certifying that, upon consummation of such
replacement, no Event of Default will exist hereunder and (z)
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 has a value, condition, utility,
airworthiness and remaining useful life at least equal to, and
is in as good operating condition as, the Engine so replaced,
assuming such Engine was in the condition and repair required
by the terms of this Agreement immediately prior to the
occurrence of such Event of Loss.
(iii) Upon compliance by Lessee with the requirements
of this Section 13(c), if no Event of 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
all of Lessor's right, title and interest in such Engine
without recourse or warranty (except as to absence of Lessor
Liens) and subject to the disclaimer set forth in Section
5(a), and such Engine shall thereupon cease to be an Engine
leased hereunder.
(iv) No Event of Loss with respect to an Engine shall
result in any reduction in Basic Rent or Renewal Rent.
(d) Application of Payments From any Government Entity for
Requisition of Title, Etc. Any payments (other than insurance proceeds the
application of which is provided for in Section 15) received at any time by
Lessor or by Lessee from any Government Entity 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 an Engine or engines then
installed thereon), after reimbursement of Lessor for
reasonable costs and expenses, so much of such payments
remaining as shall not exceed the Stipulated Loss Value
required to be paid by Lessee pursuant to Section 13(b) shall,
unless a Default or any Event of Default shall have occurred
and be continuing, be applied in reduction of Lessee's
obligation to pay such Stipulated Loss Value and such other
amounts of Rent, if not already paid by Lessee, or, if already
paid by Lessee, shall be applied to reimburse Lessee for its
payment of such Stipulated Loss Value, and the balance, if
any, of such payments shall be distributed to or retained by
Lessor or
(ii) if such payments are received with respect to an
Engine under circumstances contemplated by Section 13(c), then
so much of such payments remaining after reimbursement of
Lessor for reasonable costs and expenses; up to an amount
equal to Lessee's actual cost of replacing such Engine in
accordance with Section 13(c), shall, unless a Default or
Event of Default shall have occurred and be continuing, be
paid over to, or retained by, Lessee if Lessee shall have
fully performed, or concurrently therewith will perform, the
terms of Section 13(c) with respect to the Event of Loss for
which such payments are made, and the balance, if any, of such
payments shall be distributed to or retained by Lessor.
(e) Application of Payments During Existence of Default. Any
amount referred to in this Section 13 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 any 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 Agreement to be held and applied pursuant to
Section 20 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 paid to Lessee to the extent not applied in
accordance with the preceding sentence.
SECTION 14. Maintenance Reserves.
(a) Amount. Lessee shall pay the following Maintenance
Reserves to Owner Participant during the Lease Term:
(i) in respect of the Airframe, US$70 for each
Airframe Flight Hour operated by the Aircraft to cover 2C, 4C, 6C and
7C Checks of the Aircraft during the Lease Term ("Airframe Maintenance
Reserves");
(ii) in respect of each Engine, US$57 for each Engine
Flight Hour and US$52 for each Engine Cycle, in each case operated by
that Engine to cover such Engine's Basic Shop Visits during the Lease
Term (each, "Engine Maintenance Reserves");
(iii) in respect of the APU, US$15 for each Airframe
Flight Hour operated by the Aircraft to cover APU Basic Shop Visits
during the Lease Term ("APU Maintenance Reserves"); and
(iv) in respect of the Landing Gear, US$6 for each
Airframe Flight Hour operated by the Aircraft to cover the Landing Gear
Overhaul during the Lease Term ("Landing Gear Maintenance Reserves").
The Airframe Maintenance Reserves, the Engine Maintenance Reserves, the APU
Maintenance Reserves and the Landing Gear Maintenance Reserves are referred to
collectively herein as the "Maintenance Reserves." It is understood and agreed
that Owner Participant may conduct an annual review of the Dollar amounts set
forth in this Section 14. Upon each anniversary of the Delivery Date, Owner
Participant and Lessee agree to negotiate in good faith any adjustments to the
Dollar amounts set forth in this Section 14 (as may have been previously
adjusted pursuant to this sentence) as may be necessary or appropriate to
reflect changes in Airframe Manufacturer or Engine Manufacturer recommendations,
industry overhead cost experience or such other factors as may be relevant for
the purposes of establishing appropriate reserve payments. Without agreement to
a change in the Dollar amounts as aforesaid, no adjustment will be made thereto.
(b) Payments. Lessee shall pay the Maintenance Reserves in
respect of each calendar month during which Maintenance Reserves accrue on the
tenth day of the subsequent calendar month beginning on the tenth day of the
calendar month following the Delivery Date and ending on the tenth day of the
calendar month in which the Expiry Date occurs. A final payment of the
Maintenance Reserves shall be made on the Expiry Date in respect of the
operation of the Aircraft during the final month of the Lease Term. Owner
Participant shall keep notional running accounts in respect of the Airframe,
each Engine, the APU and the Landing Gear to which shall be credited all amounts
in respect thereof received under Section 14(a) and debited all sums paid in
respect thereof by Owner Participant to, or on behalf of, Lessee under Section
14(c).
(c) Release of Maintenance Reserves. If Lessee submits to
Owner Participant, within six months after the commencement of such maintenance
work and before the Expiry Date, an invoice and supporting documentation
evidencing performance (in reasonable detail) of the following work by or on
behalf of Lessee, Owner Participant shall, provided that (i) no reimbursement
shall be made in respect of replacement, repair or overhaul caused by foreign
object damage, operational or other mishandling, faulty maintenance or any
accidental cause or in respect of any cost which is reimbursable by insurance,
and (ii) no Default or Event of Default is continuing, release to Lessee the
following amounts from the respective Maintenance Reserves:
(i) Airframe Checks: with respect to a scheduled 2C,
4C, 6C or 7C Check of the Airframe, the lesser of (i) the amount of
such invoice and (ii) the balance of Airframe Maintenance Reserves held
by Owner Participant at the time of payment.
(ii) Engine Refurbishment: with respect to any Engine
Basic Shop Visit, the lesser of (i) the amount of such invoice and (ii)
the balance of Engine Maintenance Reserves held by Owner Participant in
respect of such Engine at the time of payment;
(iii) APU and Landing Gear: with respect to any
scheduled APU Basic Shop Visit or Landing Gear Overhaul, the lesser of
(i) the amount of such invoice and (ii) the balance of APU Maintenance
Reserves or Landing Gear Maintenance Reserves, as applicable, held by
the Owner Participant at the time of payment.
For the avoidance of doubt, Lessee has no right to payment of any amount from
the Maintenance Reserves except as expressly provided in this clause 14(c), and
any remaining balances of the Maintenance Reserves following the Expiry Date,
after application of the foregoing provisions, shall be retained by Owner
Participant as its sole property. Subject to its rights and obligations
hereunder, Lessee will not assign, transfer or otherwise dispose of its rights
or interest in the Maintenance Reserves. To the extent any maintenance expenses
exceed the amount available in the applicable Maintenance Reserves account, such
expenses shall be for the account of the Lessee and the shortfall, if any, shall
not be carried forward or made the subject of any further claim for
reimbursement. Lessee acknowledges that Owner Participant may commingle the
Maintenance Reserves with its general funds and no interest shall accrue in
favor of Lessee in respect of Maintenance Reserves held by Owner Participant
SECTION 15. Insurance.
(a) Requirements. At all times during the Lease Term, and
until the Aircraft is returned to Lessor in the condition and manner required by
this Agreement, Lessee shall maintain or cause to be maintained with respect to
the Aircraft, at its own expense, insurance in compliance with the Insurance
Requirements of Exhibit E hereto.
(b) Application of Proceeds of Hull Insurance. As between
Lessor and Lessee, it is agreed that all proceeds of insurance maintained in
compliance with this Section 15 (except Section 15(f)) 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 or engines installed
thereon), so much of such payments remaining, after
reimbursement of Lessor for reasonable costs and expenses, as
shall not exceed the Stipulated Loss Value and the other
amounts payable under Section 13(b) shall be applied in
reduction of Lessee's obligation to pay such Stipulated Loss
Value and the other amounts payable under Section 13(b), if
not already paid by Lessee, or, if already paid by Lessee,
shall be applied to reimburse Lessee for its payment of such
Stipulated Loss Value, and the balance, if any, of such
payments remaining thereafter shall 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 13(c),
so much of such payments remaining, after reimbursement of
Lessor and Owner Participant for reasonable costs and
expenses, shall be paid over to, or retained by, Lessee,
provided that Lessee shall have fully performed or,
concurrently therewith, will fully perform the terms of
Section 13(c) with respect to the Event of Loss for which such
payments are made.
As between Lessor and Lessee, the insurance payments with
respect to any property damage loss not constituting an Event of Loss with
respect to the Airframe or an Engine will be applied in payment (or to reimburse
Lessee) for repairs or for replacement property in accordance with the terms of
Sections 10 and 12, if not already paid for by Lessee, and any balance remaining
after compliance with such sections with respect to such loss shall be paid to
Lessee.
(c) Insurance for Indemnities; Continuation of Liability
Insurance. The insurance referred to in Section 15(a) shall in each case include
and insure (to the extent of the risks covered by the policies) the indemnity
provisions of Section 9. For a period of twenty-four months after the last day
of the Lease Term, or, if earlier, the next C-Check of the Aircraft, and at
Lessee's cost, Lessee shall continue to name each Indemnified Party as an
additional insured under Lessee's comprehensive airline and war-risk liability
insurance described in Exhibit E to the extent of its interest under the
indemnities referred to in the preceding sentence.
(d) Reports, Etc. Lessee shall furnish, or cause to be
furnished, to Lessor and Owner Participant (i) on or before the Delivery Date
and not later than each renewal date of any insurance, and otherwise upon
reasonable request, a Certificate of Insurance in the same form as the
Certificate of Insurance delivered on the Delivery Date and a report, signed by
"Insurance Brokers," substantially in the form of Exhibit F, and (ii) on the
Delivery Date and no later than five (5) days prior to the date of expiration of
any insurance policy referenced in a previously delivered certificate of
insurance and a report of the Insurance Broker.
(e) Self-Insurance. Lessee may not self-insure the risks
required to be insured against pursuant to this Section 15, provided that Lessee
may self-insure the risks required to be insured against pursuant to Exhibit E
(except total loss) by way of deductible, premium adjustment or similar
provisions, 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 major
international air carriers, but in no event in an amount greater than the
Stipulated Deductible Amount per aircraft per occurrence.
(f) Additional Insurance. Lessee acknowledges that each of
Lessor and Owner Participant has an insurable interest in the Aircraft. Each of
Lessor and Owner Participant shall have the right to obtain insurance in its own
name with respect to such insurable interest. Lessee will render each of Lessor
and Owner Participant all reasonable assistance requested by Lessor or Owner
Participant, as the case may be, in order that Lessor or Owner Participant, as
the case may be, 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 or any Insured Party's interests under the insurances
otherwise required by this Section 15, 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.
(g) Application of Payments During Existence of a Default. Any
amount referred to in this Section 15 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 any 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 Agreement and, if any such Default or 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 applied in accordance with the preceding sentence.
(h) Change of Practice or Insurers. In the event that there is
a material change in the generally accepted aviation insurance practice and
custom with regard to the insurance of aircraft or any material change with
respect to the insurance of 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 15), such
that Lessor or Owner Participant, on the basis of advice received from an
independent insurance advisor of international reputation (selected by Lessor or
Owner Participant and acceptable to Lessee), shall be of the reasonable opinion
that the insurance required pursuant to this Section 15 is insufficient to
protect the respective interests of Lessor, Owner Participant and/or any other
Insured Parties (bearing in mind the nature and route of operation of the
Aircraft), the insurance requirements set forth in this Section 15 shall be
amended, effective upon notice by Lessor or Owner Participant to Lessee, so as
to include such additional or varied requirements as Lessor or Owner Participant
(upon the advice of such advisor) may reasonably consider appropriate in order
to ensure that the insurance as so varied shall provide comparable protection to
Lessor, Owner Participant and the other Insured Parties to that which it would
have done if such change had not occurred. In addition, if at any time Lessor or
Owner Participant reasonably determines that any insurer or reinsurer providing
any of the insurances required under this Section 15 is, or could reasonably be
expected to be, unable to meet its obligations as they fall due or may fall due,
Lessor or Owner Participant shall so notify Lessee, and Lessee and Lessor or
Owner Participant, as the case may be, shall negotiate in good faith the
selection of an alternative insurer or reinsurer, as the case may be, which is
reasonably acceptable to Lessor or Owner Participant, and Lessee shall promptly
after such selection arrange for insurance with such insurer or reinsurer.
(i) Change of Circumstance. If any change in circumstance has
occurred and is continuing at any time and such change materially adversely
affects the insurance of the Aircraft or Airframe, then Lessee shall, as soon as
reasonably practicable, make such amendments, supplements or replacements to the
insurance coverage in place with respect to the Aircraft as Lessor or Owner
Participant may reasonably request in light of such change in circumstances.
(j) Negative Undertakings. Lessee shall not (i) act or fail to
act, or cause, permit or suffer an act or failure to act, whereby any insurance
required by this Section 15 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), and
(ii) without limiting the foregoing, use, operate, employ or locate the
Aircraft, Airframe, any Engine or any Part, or cause, permit or suffer the
Aircraft, Airframe, any Engine or any Part to be used, operated, employed or
located, in any place or in any manner or for any purpose (x) in any area
excluded from coverage, or in any manner for any purpose that is not covered, by
any insurance policy in effect or required by the terms of this Agreement to be
maintained by Lessee or (y) that might reasonably be expected to be excluded
from coverage under, or to invalidate or in any way limit (including any
limitation with respect to coverage of the specified insured perils, events or
circumstances) any such insurance policy.
(k) Failure to Insure. If at any time Lessee fails to maintain
insurance in compliance with this Section 15, each of Lessor and Owner
Participant shall be entitled but not bound to do any of the following (without
prejudice to any other rights which it may have under this Agreement by reason
of such failure):
(i) to pay any premiums due or effect or maintain
such insurance or otherwise remedy such failure in such manner
as Lessor or Owner Participant, as the case may be, considers
appropriate (and Lessee shall upon demand reimburse Lessor or
Owner Participant, as the case may be, in full for any amount
so expended in that connection) and/or
(ii) 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 Owner Participant, as the
case may be, of insurance coverage satisfactory to Lessee,
proceed to and remain at any airport designated by Lessor or
Owner Participant, as the case may be, until such failure is
remedied to Lessor's and Owner Participant's satisfaction.
SECTION 16. Inspection.
(a) Maintenance Schedule. During the Lease Term, Lessee shall
furnish Lessor with such information concerning the location, condition, use and
operation of the Aircraft as Lessor may reasonably request. Lessee shall provide
Lessor with maintenance schedules relating to the Aircraft upon delivery of the
Aircraft and 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 Owner Participant, or
their respective agents, representatives or designees, to inspect the Aircraft,
including, without limitation, the Aircraft Documentation (should Lessor or
Owner Participant choose to do so), at the time and place any such Major Checks
occur and to make a reasonable number of photocopies of any Aircraft
Documentation.
(b) Reasonable Inspections. At all reasonable times, Lessor,
Owner Participant or their respective authorized representatives may inspect the
Airframe and Engines and inspect and make copies (at such Person's expense, or
if such inspection is made in connection with or following a Default or an Event
of Default, at Lessee's expense) of the books and records of Lessee relating to
the Airframe and Engines and the maintenance of the Airframe and Engines
(including, without limitation, any Aircraft Documentation, the Approved
Maintenance Program, and also including 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 which have already been opened in the course of such maintenance
operation, provided that, so long as no Default or Event of Default has occurred
and is continuing, no exercise of such inspection right shall interfere with the
normal operation of the Aircraft by Lessee.
(c) No Duty to Inspect. Neither Lessor nor Owner Participant
shall have any duty to make any such inspection nor shall Lessor or Owner
Participant incur any liability or obligation by reason of making or not making
any such inspection.
(d) Follow-On Lease. Upon request by Lessor, Lessee shall from
time to time during the Lease Term make the Aircraft, including, without
limitation, the Aircraft Documentation, available for inspection and/or a
reasonable amount of photocopying to Lessor's designated representatives or
technical teams evaluating the Aircraft for use after the end of the Lease Term.
Lessor agrees to give Lessee at least five (5) Business Days' advance notice of
any such inspection and to coordinate such inspections with Lessee so as not to
unreasonably interfere with Lessee's operation or maintenance or with its
personnel.
(e) Absolute Right. The right of Lessor and Owner Participant
and their respective designated representatives to inspect the Aircraft and
Aircraft Documentation in accordance with this Section 16 during the Lease Term
shall be absolute.
SECTION 17. Assignment.
(a) Assignment by Lessee. Lessee shall not assign, convey or
otherwise transfer (each, an "assignment") any of its rights, title or interests
in and to the Aircraft or this Agreement without the prior written consent of
Lessor.
(b) The Lessor may sell, assign or transfer all or any of its
rights under this Agreement and in the Aircraft (a "Transfer") and the Lessor
will, other than in the case of an assignment for security purposes, have no
further obligation under this Agreement following a Transfer but,
notwithstanding any Transfer, will remain entitled to the benefit of each
indemnity under this Agreement. In connection with any Transfer, the following
conditions shall apply:
(i) Lessor shall give Lessee written notice of such
Transfer at least 10 Business Days before the date of such Transfer,
specifying the name and address of the proposed purchaser, assignee or
transferee (the "Transferee");
(ii) the Transfer will not adversely affect the
Lessee's rights and interests in the Aircraft and/or this Agreement,
not subject the Lessee, on the date of such transfer, to any Tax,
claim, liability or any other obligation or expense to which it would
not have been subject had such assignment or transfer not taken place;
(iii) the Transferee will be a Citizen of the United
States and have full corporate power and authority to enter into and
perform the transactions contemplated by this Agreement on the part of
"Lessor";
(iv) on the Transfer date the Lessor and the
Transferee shall enter into an agreement or agreements in which the
Transferee confirms that it shall be deemed a party to this Agreement
and agrees to be bound by all the terms of, and to under take all of
the obligations of, the Lessor contained in this Agreement; and
(v) such Transfer shall not violate any applicable
law.
(c) Upon any Transfer, the Transferee shall be deemed Lessor
for all purposes of this Agreement, each reference in this Agreement to the
"Lessor" shall thereafter be deemed for all purposes to refer to the Transferee,
and the transferor shall be relieved of all obligations of the "Lessor" under
this Agreement arising after the time of such Transfer except to the extent
attributable to acts or events occurring prior to the time of such Transfer.
(d) Upon compliance by Lessor and a Transferee with the terms
and conditions of Clause 17(b), Lessee shall at the time of Transfer, at the
specific written request of Lessor and with Lessor paying all of Lessee's
out-of-pocket costs and expenses:
(i) execute and deliver to Lessor and to such
Transferee an agreement, in form and substance satisfactory to Lessor,
Lessee and such Transferee, dated the date of such transfer, consenting
to such transfer, agreeing to pay all or such portion of the Basic Rent
and other payments under this Agreement to such Transferee or its
designee as such Transferee shall direct, and agreeing that such
Transferee shall be entitled to rely on all representations and
warranties made by Lessee in this Agreement or in any certificate or
document furnished by Lessee in connection with this Agreement as
though such Transferee was the original "Lessor";
(ii) execute and deliver to Lessor or such
Transferee, as the case may be, precautionary Uniform Commercial Code
financing statements or amendments reflecting the interests of such
Transferee in the Aircraft and this Agreement;
(iii) deliver to Lessor and to such Transferee a
certificate, signed by a duly authorized officer or Lessee, dated the
date of such transfer, to the effect that no Event of Default has
occurred and is continuing or, if one is then continuing, describing
such Event of Default;
(iv) cause to be delivered to Lessor and such
Transferee certificates of insurance and broker's letter of undertaking
substantially in the form delivered on the Delivery Date, detailing the
coverage and confirming the insurers' agreement to the specified
insurance requirements of this Agreement and listing the Lessor and
Transferee as additional insureds and the Transferee as sole loss
payee;
(v) deliver to Lessor and such Transferee information
on the location of the Airframe and Engines at all times requested by
Lessor in order to permit the Transfer to take place at a time and on a
date so as to eliminate or minimize any Taxes applicable to the
Transfer; and
(vi) such other documents as Lessor or such
Transferee may reasonably request, so long as such documents do not
adversely affect the rights or obligations of Lessee under this Lease
or otherwise adversely effect Lessee.
(e) Collateral Assignment. Notwithstanding any of the
foregoing, it is understood and agreed that Lessor may, without the prior
written consent of Lessee but with prior notice to the Lessee, mortgage or
pledge and/or assign all or any portion of its right, title and interest in and
to this Agreement, the Aircraft or any Rent due hereunder to any Lender. Lessee
shall acknowledge in writing any such mortgage, pledge or assignment by an
acknowledgment in a form reasonably satisfactory to the Lessee. Upon notice to
the Lessee from any Lender under any such mortgage, pledge or assignment, such
Lender may require that all Rent shall be paid directly to such Lender and/or
that the Aircraft be returned to such Lender, but, in the case of the return of
the Aircraft, only upon completion or termination of this Agreement. Any
acknowledgment from the Lessee shall include, without limitation, an agreement
of the Lessee that:
(i) upon such mortgage, pledge or assignment, all rights
of the Lessor hereunder (including without
limitation, all rights to be named as loss payee and
an additional insured under any policies of insurance
maintained pursuant to Section 15 hereof, all rights
to receive monies, reports, certificates and any
other information pursuant to the terms of this
Agreement and all rights to indemnification) shall,
to the extent provided for in the mortgage, pledge or
assignment, be exercisable by such Lender, and such
Lender shall be deemed an Indemnified Party and a Tax
Indemnitee for all purposes of this Agreement;
(ii) the rights of such Lender shall not be subject to any
defense, counterclaim, or set-off that the Lessee may
have or assert against Lessor;
(iii) such Lender shall not be liable for any of Lessor's
obligations hereunder;
(iv) subject to the terms of the mortgage, pledge or
assignment, such Lender may require that all Rent be
paid directly to such party (or its designee), and
Lessee agrees that upon receipt of such notice,
Lessee shall pay directly to such Lender all Rent due
or to become due hereunder; and
(v) Lessee shall comply, at the Lessor's expense, with
all reasonable requests of Lessor and such Lender in
connection with any such mortgage, pledge or
assignment including, without limitation, the
execution of all consents and amendments in a form
reasonably acceptable to Lessee and the making of any
and all registrations and filings.
Lessee agrees, from and after any such mortgage, pledge or assignment, to pay,
as Supplemental Rent, any indemnity obligations which Lessor shall be obligated
to pay under any related loan documentation which constitute breakage costs (to
the extent arising in connection with an Event of Default hereunder), increased
costs or withholding taxes, in each case to the extent such indemnities were, at
the time of their grant to such Lender similar to indemnities granted to other
similar lenders in the debt markets generally (by execution of the
acknowledgment the Lessee agrees to be bound to reimburse Lessor for such
indemnities).
(f) The Owner Participant may sell, assign or transfer all or
any of its rights under this Agreement and in the Aircraft (an "OP Transfer")
and the Owner Participant will have no further obligation under this Agreement
following an OP Transfer (except with regard to a breach by Lessor of this
subpart (f)) but, notwithstanding any OP Transfer, will remain entitled to the
benefit of each indemnity under this Agreement. In connection with any OP
Transfer, the following conditions shall apply:
(i) Owner Participant shall give Lessee written
notice of such OP Transfer at least 3 Business Days before the date of
such OP Transfer, specifying the name and address of the proposed
purchaser, assignee or transferee (the "OP Transferee");
(ii) the OP Transfer will not adversely affect the
Lessee's rights and interests in the Aircraft and/or this Agreement,
nor subject the Lessee to any Tax, claim, liability or any other
obligation or expense to which it would not have been subject had such
assignment or transfer not taken place;
(iii) the OP Transferee will be a Citizen of the
United States (including, for purposes hereof, through compliance with
14 C.F.R. ss. 47.7(c)(3)) and have full corporate power and authority
to enter into and perform the transactions contemplated by this
Agreement on the part of "Owner Participant"; and
(iv) on the OP Transfer date, the Lessor and the OP
Transferee shall enter into an agreement or agreements in which the OP
Transferee confirms that it shall be deemed a party to this Agreement
and agrees to be bound by all the terms of, and to under take all of
the obligations of, the Owner Participant contained in this Agreement.
Upon any OP Transfer, the OP Transferee shall be deemed Owner Participant for
all purposes to refer to the OP Transferee, and the transferor shall be relieved
of all obligations of the "Owner Participant" under this Agreement arising after
the time of such OP Transfer, except to the extent attributable to acts or
events occurring prior to the time of such OP Transfer.
(g) Successors and Assigns. Subject to the foregoing, the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of Lessor, Owner Participant, Lessee and their respective successors and
permitted assigns.
SECTION 18. Early Termination. Lessee may not terminate the Lease
prior to the Expiry Date.
SECTION 19. Events of Default. Lessor, Owner Participant 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):
(a) Failure to Pay Basic Rent, Renewal Rent or Stipulated Loss
Value. Lessee shall have failed to make any payment of Basic Rent, Renewal Rent
or Stipulated Loss Value in accordance with this Agreement and the other
Operative Documents when the same shall have become due and payable and such
failure shall continue for three (3) Business Days from such due date.
(b) Failure to Pay Supplemental Rent. Lessee shall have failed
to make any payment of Supplemental Rent (other than as specified in paragraph
(a) above) in accordance with this Agreement or the other Operative Documents
when the same shall have become due and such failure shall continue for five (5)
Business Days from such due date.
(c) Insurance.
(i) 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 15; or
(ii) The Aircraft shall be operated at a time when
any insurance required under Section 15 shall not be in
effect.
(d) Return. Lessee shall have failed to return the Aircraft at
the end of the Lease Term pursuant to the provisions of, and in the condition
required by, Section 7.
(e) Unauthorized Transfer. There shall be any unauthorized
transfer of possession of the Aircraft, Airframe or any Engine by Lessee.
(f) Certain Covenants. Lessee shall have failed to comply with
its obligations under Section 6(a), 6(b), 10(a), 10(b), 10(d)(ii) or 11.
(g) 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 19, and such failure shall continue for 30 days after the earlier of (i)
the date of written notice thereof to Lessee or (ii) the date Lessee, assuming
exercise of reasonable diligence, should have known of such failure.
(h) 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.
(i) Authorizations. Lessee shall no longer possess the
Authorizations required hereunder or under any other Operative Document or
material for the conduct of its business as a commercial passenger air carrier
in the Lessee Jurisdiction or for the performance of its obligations hereunder
or under any other Operative Document, or any such Authorizations are revoked,
canceled, adversely modified or otherwise terminated, or the continued use and
exercise thereof is prevented.
(j) Voluntary Bankruptcy, Etc. Lessee shall have (i) commenced
any proceeding or filed any petition seeking relief under any applicable
bankruptcy, insolvency, liquidation, examination, administration, receivership
or other similar law, (ii) 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, (iii) applied for or consented to the
appointment of a receiver, examiner, trustee, custodian, sequestrator or similar
official for itself or for a substantial part of its property or assets, (iv)
filed an answer admitting the material allegations of a petition filed against
it in any such proceeding, (v) 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, (vi) become insolvent or
suspended payments on, become unable to, admitted in writing its inability to or
failed generally to pay, any material portion of its debts as they become due,
(vii) sought its own liquidation, reorganization, dissolution or winding up,
(viii) suspended payment procedures or (ix) taken any corporate action for the
purpose of effecting any of the foregoing.
(k) 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 (i) relief in respect of Lessee or of
a substantial part of its property or assets under any applicable bankruptcy,
insolvency, liquidation, examination, administration, receivership or similar
law, (ii) the appointment of a receiver, examiner, trustee, custodian,
sequestrator or similar official for Lessee or for a substantial part of its
property or assets or (iii) 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.
(l) Indebtedness. 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 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$500,000 (or the equivalent thereof).
(m) Government Action. The franchises, concessions, permits,
rights or privileges required for the conduct of the business or operations of
Lessee shall have been revoked, canceled or otherwise terminated or the free and
continued use or exercise thereof curtailed, prevented or modified in a manner
that materially adversely affects Lessee's ability to perform its obligations
under any Operative Document.
(n) Judgments. One or more judgments are rendered against
Lessee that either (i) imposes or impose on Lessee at any given point in time an
obligation or obligations for the payment of money in excess of US$500,000 (or
the equivalent thereof) in the aggregate or (ii) grants or grant to any Person
equitable relief of any nature that could, if enforced, have a material adverse
effect on Lessee's ability to perform any of its obligations under any Operative
Document and, in the case of any such judgment or judgments, the same shall
remain undischarged for a period of thirty (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.
(o) Cross Default. Any lease, conditional sale, installment
sale or forward purchase agreement of the Lessee in respect of an aircraft is
terminated as a consequence of an event of default or termination event (however
described).
(p) Adverse Change. Any event or series of events occurs
which, in the reasonable opinion of the Lessor or Owner Participant, causes a
material adverse effect on the financial condition or operations of the Lessee
and its Affiliates or on the ability of the Lessee to comply with its
obligations under this Agreement.
(q) Letter of Credit. Any Letter of Credit ceases to be in
full force and effect or is repudiated or canceled by the Letter of Credit Bank
and Lessee shall have failed to provide a substitute Letter of Credit or
Security Deposit as required by Section 3(d) hereof.
SECTION 20. 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 Agreement and all of Lessee's rights
hereunder; 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):
(a) 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 7 as if such
Airframe and Engines were being returned at the expiration of the Lease Term, or
Lessor, acting in its individual capacity or as attorney for Lessee, at its
option, may enter upon the premises where the Airframe or an Engine 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 in accordance with the provisions of Section 7(b)) 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, 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.
(b) Termination or Enforcement. Rescind this Agreement,
terminate this Agreement 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 under or in connection with or resulting
from the registration of the Aircraft 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 with respect to the Aircraft as may be necessary or desirable,
in Lessor's sole discretion, including, without limitation, with respect to the
execution of documents and instruments, to effect such deregistration,
exportation, termination and extinguishment.
(c) Application of Funds. Without limiting any other provision
of this Agreement or of any other Operative Document, Lessor shall have the
right to withhold or set off against all amounts otherwise payable to Lessee
hereunder, all as security for Lessee's obligations and liabilities under this
Agreement and the other Operative Documents, and to use and apply in whole or in
part any or all of such amounts 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.
(d) Damages. In addition to Lessor's rights under Section 9,
Lessor may recover from Lessee, and Lessee shall on demand pay, damages to equal
the sum of:
(i) 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 7 together with Break Amount, if any;
(ii) all Expenses incurred by Lessor, Owner
Participant and any other Indemnified Party in connection with
such Event of Default or the exercise of Lessor's remedies
with respect thereto, including, without limitation, 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 airworthiness
required by Section 7 and all lost Rent payments during such
recovery and reconditioning;
(iii) all incidental and consequential damages
incurred by Lessor, Owner Participant and any other
Indemnified Party in connection with such Event of Default,
including, without limitation, all losses (including, without
limitation, 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
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 Agreement would
have been, including, without limitation, in each case, lost
Rent payments during any remarketing period; and
(iv) all reasonable and actual legal fees and other
reasonable costs and Expenses incurred by Lessor, Owner
Participant and any other Indemnified Party by reason of the
occurrence of any Event of Default or the exercise of Lessor's
remedies with respect thereto.
SECTION 21. Transaction Expenses. Except as expressly otherwise
provided herein, each of Lessor, Owner Participant 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.
SECTION 22. No Setoff, Counterclaim, Etc. This Agreement is a net lease
and Lessee's obligation to pay Rent under this Agreement and each other
Operative Document to which it is a party 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, without limitation, any of the following:
(i) any right of setoff, deduction, counterclaim, recoupment,
defense, suspension, deferment or other right (including any right of
reimbursement) which Lessee may have against Lessor, Owner Participant,
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;
(ii) 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 or
otherwise) and (B) any damage to or loss or destruction (including an
Event of Loss except as otherwise expressly provided in Section 13(b))
of or to the Aircraft and (C) the removal of the Aircraft from service
to correct deficiencies described in Section 2 or to permit the Final
Inspection or Return of the Aircraft;
(iii) 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
documentation under the laws of any jurisdiction;
(iv) 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;
(v) any insolvency, bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution, liquidation, receivership,
administration or similar proceedings by or against Lessee, Lessor,
Owner Participant, any Indemnified Party or any other Person;
(vi) the invalidity, unenforceability or impossibility of
performance of this 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 Agreement or any other Operative Document, or any
other defect in this Agreement or any other Operative Document;
(vii) any breach by Lessor, Owner Participant, any Indemnified
Party or any other Person of any representation, warranty or covenant,
express or implied, made or alleged to be made to Lessee;
(viii) any right, claim, bill, action or suit whatsoever by or
against or on the part of Lessee, including, without limitation,
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 (x) this Agreement or any other Operative Document or any of
the terms or conditions hereof or thereof, (y) any express or implied
warranty or (z) any contract, agreement or transaction between Lessee
and Lessor or any other Person, whether direct or indirect, written or
oral;
(ix) 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
Agreement or any other Operative Document;
(x) any transfer of any interest in this Agreement or in the
Aircraft by Lessor or any Indemnified Party or any change of ownership
of Lessor, Owner Participant or any Indemnified Party; or
(xi) 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, Owner Participant 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
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
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
Agreement in accordance with the express provisions hereof. Each Rent 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 22 shall be construed to limit Lessee's rights
and remedies in the event of Lessor's or Owner Participant's breach of its
representation and warranty of quiet enjoyment as set forth in Section 5(a)(iii)
or to limit Lessee's rights and remedies to pursue any claims it may have
against Lessor, Owner Participant or any other Person.
SECTION 23. Further Assurances, Etc.
(a) Further Assurances. Without limiting the other obligations
and liabilities of Lessee under this Agreement and the other Operative
Documents, Lessee agrees to promptly and duly execute and deliver to Lessor or
Owner Participant such further documents and assurances and take such further
action as Lessor or Owner Participant may from time to time reasonably request
in order to effectively carry out the intent and purpose of this 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 or any other
Person hereunder and thereunder, including, without limitation, (x) any
explanations, clarifications or translations (into English) requested by Lessor
or Owner Participant relating to the information required to be provided by
Lessee under Section 6(c), and (y) the execution and delivery of supplements or
amendments hereto, in recordable form, rendering subject to this Agreement any
Replacement Engine and the recording or filing of counterparts hereof or thereof
or of other appropriate materials, in accordance with the laws of such
jurisdictions as Lessor or Owner Participant may from time to time reasonably
deem advisable.
(b) 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 Owner Participant 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 Owner Participant 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, or Owner Participant, as the case may be, upon demand as
Supplemental Rent. The taking of any action by Lessor or Owner Participant
pursuant to this Section 23(b) 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
Agreement.
(c) No Implied Waivers; Rights Cumulative.
(i) No failure on the part of Lessor 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 to any other or
further action in any circumstances without notice or demand.
(ii) Nothing contained in any Operative Document
shall be construed to limit in any way any right, power,
remedy or privilege of Lessor 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 (x) 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, (y) may be exercised from time to time or
simultaneously and as often and in such order as may be deemed
expedient by Lessor and (z) 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.
(iii) Lessee hereby agrees and acknowledges that
nothing contained herein or in any Operative Document shall be
construed to require in any way, Lessor to take any action,
upon a Default by Lessee of this Agreement, or a breach by
Lessee of any provision of any Operative Document, to limit
the damages suffered by Lessor as a result of any such Default
or breach as the case may be.
(d) Warranties. Lessor agrees that it will assign to Lessee,
for the duration of the Lease Term so long as no Event of Default shall have
occurred and be continuing, the benefit of any assignable warranties (including,
without limitation, any repair warranties on any Engines or Parts) from the
Airframe Manufacturer, Engine Manufacturer or manufacturer or supplier of any
Part for which Lessor has an interest (but only to the extent of such interest).
SECTION 24. Confidentiality. Each of Lessee, Owner Participant and
Lessor shall keep this 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 (a) to prospective and permitted transferees of Lessor's,
Owner Participant's or Lessee's interests or their respective counsel or special
counsel, certified public accountants, independent insurance brokers or other
agents, (b) in connection with any administration or enforcement of any
provisions of this Agreement or any other Operative Document by Lessor, Owner
Participant or Lessee, (c) to its Affiliates, (d) to its advisors, insurance
brokers and accountants, or (e) as may be required by any statute, court or
administrative order or decree or governmental ruling or regulation, including
insurance regulatory bodies, banking examiners and other government officials;
provided, however, that any and all disclosures of all or any part of such
documents and provisions which are permitted by this Section 24 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.
SECTION 25. Governing Law and Jurisdiction.
(a) Governing Law. THIS 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
ILLINOIS. THIS LEASE IS BEING DELIVERED IN THE STATE OF ILLINOIS.
(b) Nonexclusive Jurisdiction in Illinois. Lessee hereby
irrevocably consents that any legal action or proceeding against it or any of
its assets arising out of or relating to this Agreement or any other Operative
Document may be brought in any jurisdiction where it or any of its assets may be
found and in the courts of the State of Illinois and U.S. Federal Courts for the
Northern District of Illinois and by execution and delivery of this Agreement
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 prevent any
party from bringing any legal action or proceeding or obtaining execution of
judgment in any other appropriate jurisdiction. Lessee, Owner Participant and
Lessor further agree that a final judgment in any action or proceeding arising
out of or relating to this Agreement or any other Operative Document shall be
conclusive and may be enforced in any other jurisdiction 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, Owner Participant 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 Agreement or any other
Operative Document brought in any court in Illinois, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any court in Illinois has been brought in an inconvenient forum. LESSEE, OWNER
PARTICIPANT 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.
SECTION 26. Miscellaneous.
(a) Amendments. No provision of this 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 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.
(b) 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 (i) all other provisions
hereof or thereof shall remain in full force and effect in such jurisdiction and
(ii) such invalidity, illegality or unenforceability shall not affect the
validity, legality or enforceability of such provision in any other
jurisdiction.
(c) Counterparts. This 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.
(d) Chattel Paper. To the extent, if any, that this 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
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.
(e) Time of the Essence. Subject to the periods of grace
referred to in Section 19, time shall be of the essence as regards the
performance by Lessee of its obligations under this Agreement and each other
Operative Document.
(f) Notices. All notices, requests and other communications to
Lessee, Lessor, Owner Participant 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 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, if any,
specified in Schedule 3 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.
(g) Entire Agreement. This Agreement constitutes the entire
agreement between the parties concerning the subject matter hereof, and
supersedes all previous proposals, agreements, understandings, negotiations and
other written and oral communications in relation hereto. The parties
acknowledge that there have been no representations, warranties, promises,
guarantees or agreements, express or implied, except as set forth herein.
(h) True Lease. Lessee, Owner Participant and Lessor agree
that this Lease is to be treated as a true operating lease for federal income
tax purposes, that Lessor is the owner of the Aircraft for federal income tax
purposes and all other purposes and that the interest of Lessee in the Aircraft
is that of a lessee only.
<PAGE>
IN WITNESS WHEREOF, Lessee, Owner Participant and Lessor have caused
this Agreement to be executed by their respective officers as of the day and
year first above written.
HELLER FINANCIAL LEASING, INC.,
Owner Participant
By:
Title:
FRONTIER AIRLINES, INC.,
Lessee
By:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its
individual
capacity, but solely as Owner Trustee,
Lessor
By:
Title:
<PAGE>
RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING LEASE AGREEMENT
IS HEREBY ACKNOWLEDGED ON THIS _____ DAY OF _______________, 1998.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual capacity,
but solely as Owner Trustee, Lessor
By:
Title:
<PAGE>
Exhibit A to
Lease Agreement
TECHNICAL ACCEPTANCE CERTIFICATE
Lessee hereby acknowledges to Lessor, in accordance with the terms and
conditions of the Lease Agreement, dated as of November 23, 1998 (the "Lease"),
between First Security Bank, National Association, not in its individual
capacity, but solely as Owner Trustee, Heller Financial Leasing, Inc. and
FRONTIER AIRLINES, INC., that the following Aircraft meets the delivery
conditions specified in the Lease and that we accept the condition of the
Aircraft for all purposes of the Lease (subject to the provisions of Section
2(b)(ii) of the Lease).
Aircraft:
Registration Mark: N308FL
Manufacturer's Serial Number: 28738
with two installed CFM56-3C-1 engines, Engine Manufacturer's Serial Numbers:
Position 1: 858766
Position 2: 858767
<PAGE>
IN WITNESS WHEREOF, Lessor, Owner Participant and Lessee have each
caused this receipt to be duly executed on the above date.
HELLER FINANCIAL LEASING, INC.
as Owner Participant
By:
Title:
FRONTIER AIRLINES, INC.,
as Lessee
By:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its
individual
capacity, but solely as Owner Trustee,
as Lessor
By:
Title:
<PAGE>
Exhibit C to
Lease Agreement
(MSN 28738)
FORM OF LEASE SUPPLEMENT NO. [___]
THIS LEASE SUPPLEMENT NO.[___], dated [___________], (this "Lease
Supplement"), is entered into between FRONTIER AIRLINES, INC., a Colorado
corporation having its principal place of business at 12015 E. 46th Avenue,
Denver, Colorado 80239 ("Lessee"), FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as Owner Trustee ("Lessor"), and
HELLER FINANCIAL LEASING, INC., ("Owner Participant").
WITNESSETH:
WHEREAS, Lessor, Owner Participant and Lessee have heretofore entered
into that certain Lease Agreement dated as of November __, 1998 (the "Lease"),
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, and shall be interpreted and construed in
the manner set forth or incorporated by reference in Section 1 of the Lease)
substantially in the form hereof for the purpose of leasing the Aircraft under
the Lease as and when delivered by Lessor to Lessee in accordance with the terms
thereof; [and]
1WHEREAS, the Lease relates to the airframe and engines described
below, and a counterpart of the Lease is attached to and made a part of this
Lease Supplement; [and]
This Lease Supplement No. [___] has been executed in several
counterparts. To the extent, if any, that this Lease Supplement No.[___]
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
Lease Supplement No.[___] 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.
2The Lease relates to the Airframe and Engines described below, and a
counterpart of the Lease, attached and made a party of Lease Supplement No. 1
dated ________________, to the Lease Agreement, has been recorded by the Federal
Aviation Administration on ________________, as one document and assigned
Conveyance No.
- ----------------.
AGREEMENT:
NOW, THEREFORE, 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] [13(c)] [__] of the Lease, Lessor and
Lessee hereby agree as follows:
3[1. Lessor hereby delivers and leases to Lessee, and Lessee hereby
accepts and leases from Lessor, under the Lease as hereby supplemented, the
Boeing Model 737-3U3 aircraft (the "Aircraft"), which consists of the following
components:
(a) Airframe: U.S. Registration No. N308FL; Manufacturer's Serial Number
28738
(b) Two CFM International, Inc. CFM56-3C-1 Engines, initially installed on
such airframe at delivery to Lessee, bearing Engine Manufacturer's
Serial Numbers 858766 and 858767 (each of which Engines has 750 or more
rated takeoff horsepower); and
(c) Garrett GT CP85-129 APU bearing Manufacturer's Serial Number P-200.
2. The "Delivery Date" for all purposes of the Lease is the date set
forth in the opening paragraph of this Lease Supplement.
3. The Lease Term shall commence on the Delivery Date.
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 and in accordance with the other provisions
of the Lease and the other Operative Documents.
5. Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof and of the Lease and the other Operative
Documents.
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:
[Describe property]
[6.][2.] A number of counterparts of this Lease Supplement have been
executed, each of which shall be deemed an original and all of which together
shall constitute but one and the same agreement. To the extent, if any, that
this Lease Supplement constitutes chattel paper (as defined in the Uniform
Commercial Code) no security interest in this Lease Supplement 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 or, if Lessor has assigned its rights to
any Person in accordance with the Lease, such Person on the signature page
thereof.
[7.][3.] All of the provisions of the Lease are hereby incorporated by
reference in this Lease Supplement on and as of the date of this Lease
Supplement, to the same extent as if fully set forth herein.
[8.][4.] 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 LAWS OF THE STATE OF ILLINOIS.
THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF ILLINOIS.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No. [____] to be duly executed on and as of the day and year first above
written.
HELLER FINANCIAL LEASING, INC.,
as Owner Participant
By:
Title:
FRONTIER AIRLINES, INC.,
as Lessee
By:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its
individual capacity, but solely as Owner Trustee,
as Lessor
By:
Title:
[THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.]
[RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING LEASE SUPPLEMENT
NO. [___] IS HEREBY ACKNOWLEDGED ON THIS ___ DAY OF _______________, 199_.]
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual capacity,
but solely as Owner Trustee, Lessor
By:
Title:
<PAGE>
Exhibit E to
Lease Agreement
(MSN 28738)
INSURANCE REQUIREMENTS
(a) At all times during the Lease Term, and until the Aircraft
is returned to Lessor in the condition and manner required by this Agreement,
Lessee shall maintain or cause to be maintained with respect to the Aircraft, at
its own expense, comprehensive airline liability (including, without limitation,
third-party and passenger, bodily injury, property damage, product liability,
cargo, mail, baggage (checked and unchecked), premises and hangar keepers'
liability) insurance (exclusive of the Airframe Manufacturer's product liability
insurance), (i) in an amount not less than the greater of (y) the amounts of
comprehensive airline liability insurance from time to time applicable to
aircraft owned or leased and operated by Lessee of the same type as the Aircraft
and (z) $400,000,000, 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
advisor may consider appropriate in the light of circumstances prevailing in the
commercial airline industry at that time, (ii) of the type and covering the same
risks usually carried by air carriers owning or operating similar aircraft and
engines and covering risks of the kind customarily insured against by such air
carriers, (iii) with insurers of recognized reputation and responsibility
reasonably acceptable to Lessor and (iv) that names each Indemnified 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 and a
report of the Insurance Broker.
(b) Insurance Against Expense or Damage to the Aircraft. At
all times during the Lease Term, and until the Aircraft is returned to Lessor in
the condition and manner required by this Agreement, Lessee shall maintain or
cause to be maintained, with respect to the Aircraft, at its own expense,
all-risk aircraft hull insurance covering the Aircraft, all-risk property damage
insurance covering Engines and Parts while temporarily removed from the Aircraft
and all-risk spares insurance (i) for an agreed value not less than the
Stipulated Loss Value for the Aircraft in respect of all-risk hull insurance,
(ii) for the full replacement value, in respect of all-risk property damage
insurance, (iii) of the type and covering the same risks usually carried by air
carriers owning or operating similar aircraft and engines and covering risks of
the kind customarily insured against by such air carriers, (iv) confirming that
the insurers shall not be entitled to replace the Aircraft or Airframe upon the
occurrence of an Event of Loss with respect thereto, (v) with insurers of
recognized reputation and responsibility reasonably acceptable to Lessor and
(vi) that names Lessor as the sole loss payee and otherwise complies with the
requirements set forth in, and is consistent with the issuance of a valid
certificate of insurance in form and substance reasonably satisfactory to
Lessor. Lessee agrees that it will not adjust or settle any claim with respect
to the insurances provided hereunder without the consent of Lessor (which
consent shall not be unreasonably withheld); provided that, so long as no Event
of Default shall have occurred and be continuing, such consent shall not be
required in respect of claims which do not exceed the Stipulated Deductible
Amount.
(c) War-Risk, Hijacking and Related Perils Insurance. At all
times during the Lease Term, and until the Aircraft is returned to Lessor in the
condition and manner required by this Agreement, and, for liability coverage,
Lessee shall maintain or cause to be maintained, with respect to the Aircraft,
at its own expense, worldwide (subject to standard insurance market geographical
limits) coverage of war-risk, hijacking and related perils insurance of the type
and in substantially the amounts carried by air carriers operating the same or
comparable models of aircraft in such areas (i) in no event in an amount less
than (x) $400,000,000 with respect to liability coverage and (y) the Stipulated
Loss Value with respect to hull coverage and (z) full replacement value with
respect to property damage coverage, (ii) in any event, covering the perils of
(u) 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, (v) strikes, riots, civil
commotions or labor disturbances, (w) 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, (x) any
malicious act or act of sabotage, (y) confiscation, nationalization, seizure,
restraint, detention, appropriation, requisition for title or use by or under
the order of any government (other than the government of the State of
Registration) (whether civil, military or de facto) or public or local
authority, and (z) 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), (iii) with insurers of
recognized reputation and responsibility reasonably acceptable to Lessor and
(iv) that names each Indemnified Party as an additional insured with respect to
liability insurance and, for hull coverage only, names Lessor or its designee as
the sole loss payee and otherwise complies with the requirements set forth in,
and is consistent with the issuance of a valid certificate of insurance and a
report of the Insurance Broker. Lessee agrees that it will not adjust or settle
any claim with respect to the insurances provided hereunder without the consent
of Lessor (which consent shall not be unreasonably withheld); provided that, so
long as no Event of Default shall have occurred and be continuing, such consent
shall not be required in respect of claims which do not exceed the Stipulated
Deductible Amount.
(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. $400,000,000 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) in the case of the insurance required by paragraph
(a), name each Indemnified Party as additional
assureds for their respective rights and interests,
warranted, each as to itself only, no operational
interest;
(ii) in the case of the insurance required by paragraph
(b), provide that any loss shall be settled with the
Lessee and shall for amounts in excess of the
Stipulated Deductible Amount be payable in Dollars to
the Lessor as Loss Payee;
(iii) in the case of the insurance required by paragraph
(a), 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) in the case of the insurance required by paragraph
(a), 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 Indemnified Party or
Lessee have the benefit so as to reduce the amount
payable to the Additional Insureds under such
policies;
(v) in the case of the insurance required by paragraph
(b), contain a 50/50% clause per AVS 103 or its
equivalent;
(vi) shall provide that in respect of the respective
interests of each Indemnified Party in such policies
the insurance shall not be invalidated or impaired by
any action or inaction of Lessee or any other
Indemnified Party and shall insure the respective
interests of each Indemnified Party, 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 Indemnified Party;
(xi) provide that an Indemnified Party 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 Indemnified Party;
(xii) provide that the Insurances shall continue unaltered
for the benefit of each Indemnified Party 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) in the case of the insurance required by paragraph
(a), accept and insure the indemnity provisions of
the Lease (Section 15(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.
<PAGE>
Exhibit I to
Lease Agreement
(MSN 28738)
FORM OF AIRCRAFT STATUS REPORT
REPORT FOR THE CALENDAR MONTH ENDED _______________,
Aircraft Type: B737-3U3 Actual Registration: _______
Lessor: First Security Bank, National Manufacturer Serial Number: 28738
Association, not in its individual
capacity but solely as Owner Trustee
AIRFRAME During Period Since New Since C/D
Flight Hours: ______ ______ ______
Cycles: ______ ______ ______
ORIGINAL ENGINES
Position 1 Position 2
Serial Number of Original Engine: ______ ______
Location of Original Engine: ______ ______
Flight Hours Since New: ______ ______
Cycles Since New: ______ ______
Flight Hours During Period: ______ ______
Cycles During Period: ______ ______
Flight Hours Since Last Shop Visit: ______ ______
Cycles Since Last Shop Visit: ______ ______
Engine Cycle Limit: ______ ______
Cycles Remaining for Limit: ______ ______
Serial Number of Engine Installed: ______ ______
LANDING GEAR
During Period Since New Since Overhaul
Landing Gear Cycles: ______ _______ _______
ORIGINAL APU
Serial Number of Original APU: ______
Location of Original APU: ______
Flight Hours During Period: ______
Flight Cycles During Period: ______
Flight Hours Since Last Shop Visit: ______
Cycles Since Last Shop Visit: ______
Serial Number of APU Installed: ______
TECHNICAL ACTIVITY
Engine/APU Removals (if any):______
Off On
Serial Number: ______ ______
Date: ______ ______
Flight Hours Since New: ______ ______
Flight Cycles Since New: ______ ______
Reason:
<PAGE>
LESSEE WILL DESCRIBE ANY MAJOR REPAIRS, MAJOR MODIFICATIONS, INCIDENTS OR
ACCIDENTS TO AIRCRAFT DURING PERIOD WITHIN THIRTY DAYS FOLLOWING THE PERIOD
We certify that the above information is true, correct and complete as of the
date hereof, _________, 19__.
FRONTIER AIRLINES, INC.
By:
Title:
<PAGE>
Schedule 1 to
Lease Agreement
(MSN 28738)
PERMITTED JURISDICTIONS
Anywhere in the world, other than (1) those areas excluded pursuant to Section
15(l) of the Lease Agreement, (2) Afghanistan, Chad, Ethiopia, Iran, Iraq,
Lebanon, Libya, Mali, Niger, Nigeria, Pakistan, Somalia, Sudan, Syria, Yemen
(North and South), Yugoslavia (as was) and Zaire and (3) any other jurisdiction
that shall become subject to a U.S. or United Nations sanction or prohibition.
<PAGE>
Schedule 2 to
Lease Agreement
(MSN 28738)
DELIVERY CONDITIONS
The Aircraft will be delivered in the condition required by the
Purchase Agreement.
<PAGE>
Annex A to Schedule 2
(Delivery Conditions)
DELIVERY RECEIPT
Lessee hereby accepts and acknowledges receipt from Lessor, in
accordance with the terms and conditions of the Lease Agreement (MSN 28738),
dated as of November 23, 1998 (the "Lease"), between FIRST SECURITY BANK,
NATIONAL ASSOCIATION, not in its individual capacity but solely as Owner
Trustee, HELLER FINANCIAL LEASING, INC.
and FRONTIER AIRLINES, INC. of one (1) Boeing Model B737-3U3.
Aircraft:
Manufacturer: The Boeing Company
Model: 737-3U3
Registration No.: N308FL
U.S. Manufacturer's Serial Number: 28738
with two installed CFM56-3C-1 engines, Engine Manufacturer's Serial Numbers:
Position 1: 858766
Position 2: 858767
in [place] on [Date], at /a.m.//p.m./
<PAGE>
IN WITNESS WHEREOF, Lessor, Owner Participant and Lessee have each
caused this receipt to be duly executed on the above date.
HELLER FINANCIAL LEASING, INC.,
as Owner Participant
By:
Title:
FRONTIER AIRLINES, INC.,
as Lessee
By:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its
individual capacity but solely as Owner Trustee,
as Lessor
By:
Title:
<PAGE>
Schedule 3 to
Lease Agreement
(MSN 28738)
ADDRESSES AND ACCOUNTS
(1) (2)
Addresses Accounts: As advised by Lessee
Lessee from time to time
FRONTIER AIRLINES, INC.
12015 E. 46th Avenue
Denver, Colorado 80239
Attention: General Counsel
Facsimile: (303) 371-7007 Account No: As advised by Lessee
Telephone: (303) 371-7400 from time to time
Principal place of business:
12015 E. 46th Avenue
Denver, Colorado 80239
<PAGE>
(1) (2)
Addresses Accounts
Lessor
FIRST SECURITY BANK, NATIONAL ASSOCIATION First Security Bank, N.A.
79 South Main Street ABA No. 124-0000-12
Salt Lake City, Utah 84111 Acct No. 051-0922115
Attn: Corporate Trust Department
Fax No.: 801-246-5053
Tel No.: 801-246-5826
Owner Participant
Heller Financial Leasing, Inc.
500 West Monroe Street First Chicago
Chicago, Illinois 60661 ABA No. 071000013
Attn: Managing Director-Aircraft Finance
Division
Fax No.: (312) 441-7378
Tel No.: (312) 441-7083
with a copy to:
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attn: Legal Services Division
Fax No.: (312) 441-7208
Tel No.: (312) 441-6798
with a further copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601
Attn: Dean N. Gerber
Telephone: (312) 609-7500
Facsimile: (312) 609-5005
<PAGE>
Schedule 4 to
Lease Agreement
(MSN 28738)
FILINGS AND RECORDINGS
Document Authority
Lease FAA
Lease Supplement No. 1 FAA
Application for Aircraft Registration FAA
UCC-1 Financing Statements Secretary of State of Colorado
<PAGE>
Schedule 5 to
Lease Agreement
(MSN 28738)
RETURN CONDITIONS
The Aircraft shall be returned in at least as good of operating condition,
ordinary wear and tear excepted, as on the Delivery Date, with all items of
equipment, Engines, APU's, systems and appliances fully functional and operating
in accordance with manufacturer specifications. At the time of return, the
Aircraft shall conform to the following standards:
A. The Aircraft shall be returned free and clear of all Liens (other than
Lessor Liens) and rights of third parties under pooling, exchange,
overhaul, repair or other similar agreements and arrangements.
B. The Aircraft shall not have been discriminated against whether by
reason of its leased status or otherwise in maintenance, use, operation
or in any other manner whatsoever, including, without limitation, as to
the type of maintenance program applicable to the Aircraft, any Engine
or as to compliance with Airworthiness Directives.
C. The Airframe shall have at least 3,500 hours or 12 months, whichever is
more limiting, remaining until the next scheduled inspection.
D. The Aircraft shall be returned fresh from the next due "C" Check.
During the accomplishment of the "C" Check, Lessee shall comply with
Lessor's reasonable requests, subject to availability of manpower and
materials, to accomplish work which is beyond the scope of that
required by the Return Conditions, provided that (i) the magnitude of
the work is not so large as to reasonably be expected to disrupt
Lessee's operation, (ii) Lessor provides at least 45 days advance
written notice for any significant maintenance or modification tasks,
(iii) work will be requested early enough to allow for the ordering and
delivery of any required parts, and (iv) Lessee's cost for such
additional work is reimbursed by Lessor at Lessee's reasonable cost.
If the requested work delays the return of the Aircraft beyond its
Expiry Date, the Lease shall continue to be in effect. Provided Lessee
is making all reasonable efforts to complete the work prior to return,
Lessee shall owe no additional rent for the delay period.
E Any deviations from Boeing MPD tasks shall be brought into compliance
with the MPD prior to return.
F. The Aircraft shall be returned with a valid and current Transport
Category Airworthiness Certificate issued by the Aviation Authority,
suitable for operation under 14 C.F.R. Part 121 of the FAA Regulations.
The Aircraft, Engine and Parts as well as their records shall meet all
regulatory requirements for continued airworthiness in compliance with
all Aviation Authority requirements.
G. The Aircraft shall have all temporary repairs replaced by permanent
repairs per the manufacturer's repair manual. The fuselage, wings and
empennage shall be free of significant dents, abrasions and loose or
pulled rivets.
H. There shall be no evidence of untreated, improperly treated or
noticeable corrosion. All CPCP inspections will be current and up to
date, in accordance with manufacturer specifications and Aviation
Authority requirements.
I. The Aircraft shall be in compliance with all Aviation Authority
requirements for operation as a transport category aircraft including
all Aviation Authority issued airworthiness directives ("AD's") and
manufacturer alert service bulletins that are issued prior to the
Expiry Date and are applicable to the Aircraft, without special
deferment, exemption or alternate means of compliance, with
terminating action accomplished for all AD's and manufacturer alert
service bulletins which require that the terminating action be
accomplished prior to one hundred eighty days after the Expiry Date.
The Aircraft shall conform to its Type Certificate Data Sheet. All
major modifications and repairs accomplished on the Aircraft shall
have been performed in accordance with FAA approved data that is to be
redelivered with the Aircraft Documentation. Any deficiencies with
respect to Aviation Authority requirements shall be corrected prior to
the return of the Aircraft at Lessee's cost.
J. There shall be no open, outstanding, or deferred maintenance items,
scheduled or unscheduled, routine or non-routine, against the Aircraft.
K. The Aircraft shall be clean, cosmetically acceptable, all compartments
reasonably free of foreign objects, accumulated dirt, grime, grease and
liquids, and be prepared for immediate placement into commercial
service. Any deterioration of paint or other protective coatings due to
leakage, impact damage or other presence of foreign materials or
liquids shall be repaired and replaced per manufacturer specifications.
L. Each Engine shall be returned in serviceable condition with maintenance
records that are satisfactory to Lessor.
M. Each Engine shall be returned with not more than 5,000 hours since its
last major shop visit and shall have at least 5,000 cycles remaining
until next scheduled shop visit based upon disk life limits or other
hard-time requirements. For purposes hereof, "major shop visit" shall
mean a full performance restoration in which all modules are inspected
and/or repaired and overhauled.
N. Each Engine shall pass power assurance performance tests without
operational limitations in accordance with the manufacturer's
maintenance manual. The Aircraft and its Engine's shall be capable of
certificated full rated performance without limitations throughout the
entire operating envelope as defined by the Aviation Authority approved
Aircraft Flight Manual.
O. Each Engine shall pass a complete video borescope inspection, conducted
by Lessor at Lessee's cost, of all accessible Engine sections
(accessible whether by borescope port or other means) in accordance
with manufacturer specifications. If any Engine fails to pass a
borescope inspection, Lessee must correct each found defect at its sole
expense. In the event Lessee shall cause any Engine to be removed from
any Aircraft to accomplish repairs by the above, Lessee shall bear all
costs associated with the installation and lease of a loaner engine and
reinstallation of the respective Engine.
P. No Engine shall be on engineering watch or on a reduced interval
inspection of any nature that could lead to premature removal of the
Engine. If Engine historical records, engine power assurance runs,
borescope inspection or trend monitoring data indicate a level of
performance deterioration or oil consumption, or acceleration in
performance deterioration or oil consumption, which based on Lessee's
specifications and/or experience, would require shop maintenance to be
performed prior to 5000 engine flying hours (assuming a l.5 hour to
cycle utilization) after return, Lessee shall correct or cause to be
corrected, such conditions as necessary to rectify all Engine
performance parameters in accordance with manufacturer specifications.
In the event Lessee shall cause any Engine to be removed from the
Aircraft to accomplish repairs by the above, Lessee shall bear all
costs associated with the installation and lease of a loaner engine
and reinstallation of the respective Engine.
Q. All Landing Gear shall have not less than 24 months or 25% of their
normal overhaul interval (whichever is greater) remaining before next
scheduled overhaul or replacement in accordance with Lessee's
maintenance program.
R. The APU shall have not more than 1,500 hours since its last hot section
inspection and shall be returned in serviceable condition.
S. The components that are controlled by calendar time, flight hours or
flight cycles shall be returned in serviceable condition. Each such
component shall have a minimum of 12 months, 3500 hours and 1200
cycles remaining until next scheduled overhaul, repair or replacement.
Controlled parts which have a scheduled maintenance interval of less
than 12 months, 3500 hours and 1200 cycles shall have the full
scheduled maintenance interval remaining until next scheduled
maintenance. All such components shall be supported by maintenance
records which satisfy all Aviation Authority requirements (including
records of last overhaul for those items requiring to be overhauled
per Lessee's maintenance program and/or per the Boeing MPD).
T. Complete and current maintenance records, as specified in Attachment 1
to Annex A, which comply with all Aviation Authority requirements
shall be returned with the Aircraft. Maintenance records required to
be maintained by the Aviation Authority shall be in the English
language and include complete documentation for all airworthiness
directives, life limited parts (including back-to-birth records for
all internal Engine life limited parts) and major repairs and
alterations in accordance with Aviation Authority requirements. For
each AD that is applicable to the Aircraft, the records shall include
the current status of the Aircraft, the date of compliance, and the
method of compliance with appropriate supporting documentation. Any
deficiencies with Aviation Authority requirements are to be corrected
prior to return of the Aircraft at Lessee's cost.
U. Any manufacturer no-charge service bulletin parts which Lessee has
received but not installed for the Aircraft shall be returned to Lessor
with the Aircraft.
V. All windows shall be free of delamination, blemishes, and crazing that
is beyond maintenance manual limits.
W. All doors shall be free moving, correctly rigged and fitted with
serviceable seals.
X. All ceiling, sidewall and bulkhead panels shall be clean and free from
significant or unserviceable damage. All seats shall be serviceable and
in good overall condition in accordance with international air carrier
standards.
Y. All flight control surfaces and wing leading edges shall be free from
damage that is beyond serviceable limits.
Z. All cargo compartment floor, sidewall and ceiling panels shall be in
serviceable condition in accordance with Boeing maintenance manual
limits.
AA. The entire fuselage, vertical stabilizer including wing to body
fairings, engine cowls and wheel well doors shall be prepared for
painting by sanding or stripping as needed (including stripping any
areas which have more than one layer of paint) and repainted in a paint
scheme as selected by Lessor.
<PAGE>
Annex A to Schedule 5
(Return Conditions)
Delivery Receipt
Lessor hereby accepts and acknowledges receipt from Lessee, in
accordance with the terms and conditions of the Lease Agreement dated as of
November __, 1998 (the "Lease"), between First Security Bank, National
Association, not in its individual capacity, but solely as Owner Trustee, Heller
Financial Leasing, Inc. and Frontier Airlines, Inc. of one (1) Boeing Model
737-3U3.
Aircraft:
Manufacturer: The Boeing Company
Model: 737-3U3
Registration Mark: N308FL
Manufacturer's Serial Number: 28738
with two installed General Electric CFM56-3C-1 engines, Engine Manufacturer's
Serial Numbers:
Position 1: 858766
Position 2: 858767
together with the Aircraft Documentation described in Attachment 1 hereto and
with the operating times and cycles as accumulated on the Aircraft up to the
time of redelivery as described in Attachment 2 hereto, in [place] on [Date], at
/a.m.//p.m./
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this receipt to
be duly executed on the above date.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual capacity,
but solely as Owner Trustee,
as Lessor
By:
Title:
FRONTIER AIRLINES, INC.,
as Lessee
By:
Title:
<PAGE>
Attachment 1
to Annex A to Schedule 5
(Return Conditions)
Aircraft Documentation
A. Certificates
1. Certificate of Airworthiness
2. Noise Certificate
3. Radio License Certificate
4. Export Statement of Airworthiness (on delivery only)
5. Original Export Certificate of Airworthiness from FAA delivered in
connection with original delivery of Aircraft from Boeing
6. Certificate of Sanitary Construction of Galleys
B. Aircraft Status Records
1. Technical Log Books
2. Airframe Maintenance Status Report
3. Manufacturer's Service Bulletin Status Report
4. Airworthiness Directive Compliance Report
(terminated and repetitive)
5. Local Modification Status Report List
6. Last Weighing Report
7. Last Compass Swing
C. Aircraft Maintenance Records
1. Test Flight Reports
2. All Boeing "C" Checks and last lower level maintenance check
3. WorkCards for each C-Check multiple (or segment)
4. Modification records including accomplishing documents
5. CPCP compliance report
6. Aging Aircraft compliance report
D. Aircraft History Records
1. Aircraft Structural Repair History (if applicable)
2. Service Difficulty Report (if applicable)
3. Accident or Incident Report (if applicable)
4. Damage Chart
E. Engine Records
1. Log Books
2. Last overhaul and repair documents for each module
3. Airworthiness Directive Compliance Report
(terminated and repetitive)
4. Manufacturer's Service Bulletin Status Report
5. Engine Disk Sheet
6. Engine Data Submittal Sheet
7. Condition Monitoring Status Report
F. APU Records
1. Log Book
2. Last overhaul and repair documents
3. Manufacturer's Service Bulletin Status Report
G. Component Records (including components installed on Engines and APU)
1. Time Monitored Component Status Report with installed part
numbers, serial numbers, remaining hours and cycles (if
applicable)
2. Serviceability tags or back-up documentation for components
replaced since delivery from Boeing
3. Serialized latest shop records on the JAR Form 1, as applicable,
including all serviceable tags, release to service, and repair
orders detailing maintenance checks, inspections, tests, repairs,
replacements, restorations, overhauls, modifications and
refurbishments
H. Manuals
1. Airplane Flight Manual
2. Quick Reference Handbook
3. Aircraft Operating Manual
4. Weight and Balance Manual Supplement
5. Wiring Diagram Manual (microfilm)
6. Illustrated Parts Catalog (microfilm)
7. Aircraft Maintenance Manual (microfilm)
8. CFMI Illustrated Parts Catalog
9. Systems Schematic Manual
10. Minimum Equipment List
I. Miscellaneous Technical Documents
1. Maintenance Program Specifications/Requirements/Schedule
2. Interior Configuration Drawings
3. Loose Equipment Inventory List
<PAGE>
Attachment 2
to Annex A to Schedule 5
(Return Conditions)
Aircraft Status
Aircraft Type: 737-3U3
Manufacturer Serial/Registration Number: 28738 / [REG#]
AIRFRAME
During Since
Period New
Airframe Flight Hours:
Airframe Cycles:
ENGINES
Position 1 Position 2
Serial Number of Original Engine*:
Present Location of Original Engine*:
Engine Flight Hours Since New:
Cycles Since New:
Engine Flight Hours Performed
During Period:
Engine Cycles Flown During Period:
Date of Last Basic Shop Visit:
Engine Flight Hours Since
Last Basic Shop Visit:
Engine Cycles Flown Since
Last Basic Shop Visit:
Serial Number of Installed Engine:
* or Replacement Engine, if applicable
LANDING GEAR During Since
Period New
Main
Main
Nose
APU
Serial Number of APU:
Present Location of APU:
Serial Number of Installed APU:
During Since
Period New
APU Flight Hours (Original APU):
APU Cycles (Original APU):
Date of Last Basic Shop Visit:
APU Flight Hours Since
Last Basic Shop Visit:
APU Cycles Since Last Basic Shop Visit:
TECHNICAL ACTIVITY
Engine Removals (if any)
APU
Serial Number:
Date:
Hours:
Cycles:
REASON
MAINTENANCE CHECKS COMPLETED
Number Date Hours Cycles
- -A Check
S-A Check
- - "C" Check
S - "C" Check
SI Check
NEXT CHECKS DUE
Number (E) Date (E)Hours (E) Cycles (E)
- - "C" Check*
S - "C" Check*
SI Check
AD's AND SB's INCORPORATED INCLUDED IN RETURN RECORDS
EXHIBIT B
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT B TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
_______________________________________________________________
Exhibit 10.36
AIRCRAFT SUBLEASE AGREEMENT
between
INDIGO PACIFIC AB
as Sublessor
and
FRONTIER AIRLINES, INC.
as Sublessee
Dated as of December 14, 1998
_____________________________________________________________________
Aircraft Make and Model: Boeing 737-3U3
Aircraft Manufacturer's Serial Number 28734
Aircraft Registration Number: N309FL
Make and Model of Engines: CFM INTERNATIONAL CFM 56-3C1
To the extent, if any, that this Agreement constitutes chattel paper under the
Uniform Commercial Code in any jurisdiction, no security interest in this
Agreement may be created through the transfer and possession of any counterpart
other than the original counterpart of this Agreement, so identified by the
signature of Sublessor's Lender on the receipt set forth on the signature page
of such original counterpart.
<PAGE>
TABLE OF CONTENTS
1. SUMMARY OF TRANSACTION.....................................................7
2. DEFINITIONS................................................................9
2.1 Definitions............................................................9
2.2 Construction..........................................................19
3. REPRESENTATIONS AND WARRANTIES............................................20
3.1 Sublessee's Representations and Warranties............................20
3.2 Sublessor's Representations and Warranties............................23
3.3 Survival of Representations and Warranties............................25
4. CONDITIONS PRECEDENT......................................................25
4.1 Sublessor's Conditions Precedent......................................25
4.2 Waiver................................................................27
4.3 Sublessee's Conditions Precedent......................................27
4.4 Waiver................................................................28
5. DELIVERY CONDITION AND INSPECTION OF AIRCRAFT.............................28
5.1 Sublessee Selection of Aircraft.......................................28
5.2 Conditions at Delivery................................................28
5.3 Sublessee Inspection of Aircraft at Delivery..........................28
5.4 Delivery of Aircraft to Sublessee.....................................29
5.5 Sublessee Acceptance of Aircraft......................................29
6. LEASE TERM................................................................29
6.1 Initial Lease Term....................................................29
6.2 Lease Extension Date..................................................29
6.3 Expiry Date...........................................................30
6.4 Risk..................................................................31
7. DELIVERY..................................................................31
7.1 Delivery..............................................................31
8. RENT......................................................................31
8.1 Rent Date.............................................................31
8.2 Time of Payment.......................................................32
8.3 Amount of Basic Rent..................................................32
8.4 Reserves..............................................................32
8.5 Increased Rent for Hour/Cycle Ratio...................................32
9. SECURITY DEPOSIT..........................................................32
9.1 Security Deposit......................................................32
9.2 Letter of Credit......................................................32
9.3 Sublessor's Rights....................................................32
10. MAINTENANCE RESERVES.....................................................33
10.1 Amount...............................................................33
10.2 Payments.............................................................33
10.3 Adjustment...........................................................33
10.4 Release of Maintenance Reserves......................................34
10.5 Costs in Excess of Reserves..........................................35
10.6 Reimbursement after Expiry Date......................................35
10.7 LLP Maintenance Reserve..............................................35
10.8 No Anticipated Draw-down.............................................36
11. PAYMENTS.................................................................36
11.1 Account for Sublessee Payments.......................................36
11.2 Default Interest.....................................................36
11.3 Absolute Obligations.................................................37
11.4 Application of Payments to Sublessor.................................37
11.5 Currency Indemnity...................................................37
11.6 Set-off..............................................................38
11.7 Time for Payments....................................................38
12. SUBLESSOR'S CONVENANTS...................................................38
12.1 Quiet Enjoyment......................................................38
12.2 Sublessor Obligations Following Expiry Date..........................38
13. SUBLESSEE'S COVENANTS....................................................39
13.1 Duration.............................................................39
13.2 Information..........................................................39
13.3 Sublessor visits.....................................................41
13.4 Periodic Estoppel Certificates.......................................41
13.5 Airport and Navigation Charges.......................................41
13.6 Operation of Aircraft................................................42
13.7 Areas of Operation...................................................42
13.8 Non-Prejudicial Action...............................................42
13.9 Non-Representation of Sublessor......................................42
13.10 Inspection..........................................................43
13.11 Registration........................................................43
13.12 Name Plates.........................................................44
13.13 Geneva Convention...................................................44
13.14 Merger and Shareholding.............................................44
13.15 Ownership...........................................................45
14. POSSESSION...............................................................46
14.1 No Relinquishment of Possession......................................46
14.2 Sublessee Primarily Liable...........................................49
14.3 Recognition of Rights................................................49
15. SECURITY INTERESTS.......................................................49
15.1 Title................................................................49
15.2 No Security Interests; Base of Aircraft..............................49
15.3 Notice to Sublessor..................................................50
15.4 Procure Release......................................................50
16. MAINTENANCE AND REPAIR...................................................50
16.1 General Obligations..................................................50
16.2 Specific Obligations.................................................51
17. REPLACEMENT OF PARTS.....................................................53
17.1 Replacement of Parts.................................................53
17.2 Title to Replacement Parts...........................................53
17.3 Pooling of Parts.....................................................53
17.4 Alterations..........................................................54
17.5 Removal of Parts.....................................................54
17.6 Substitution of Engine...............................................55
17.7 Temporary Removal of Parts...........................................56
18. MANUFACTURER'S WARRANTIES................................................57
18.1 Authorization........................................................57
18.2 Proceeds.............................................................58
18.3 Agreements with Manufacturers........................................58
19. DISCLAIMERS..............................................................58
19.1 As Is, where Is......................................................59
19.2 No Sublessor Liability for Losses....................................61
19.3 Exclusion............................................................61
19.4 Waiver...............................................................62
19.5 Confirmation.........................................................62
20. INDEMNITIES..............................................................62
20.1 General..............................................................62
20.2 Survival of Indemnification..........................................63
20.3 Notice to Sublessee..................................................63
21. TAXATION.................................................................63
21.1 Gross-up.............................................................63
21.2 Tax Indemnity........................................................64
21.3 Value Added Taxes....................................................65
21.4 Taxation of Indemnity Payments.......................................65
21.5 Benefit of Indemnities...............................................66
21.6 Sublessor Indemnification............................................66
21.7 Survival of Tax Indemnities..........................................66
21.8 Mitigation and Cooperation...........................................66
21.9 Furnishing Forms.....................................................66
22. INSURANCE................................................................67
22.1 Insurances...........................................................67
22.2 Requirements.........................................................67
22.3 Insurance Covenants..................................................67
22.4 Renewal of Insurances................................................69
22.5 AVN 2000.............................................................69
22.6 Failure to Insure....................................................69
22.7 Continuation of Insurances...........................................70
22.8 Application of Insurance Proceeds....................................70
22.9 Pursuit of Claims....................................................70
23. LOSS, DAMAGES AND REQUISITION............................................71
23.1 Total Loss Prior to Pre-Delivery Acceptance..........................71
23.2 Total Loss After Pre-Delivery Acceptance.............................71
23.3 Total Loss of Engines................................................72
23.4 Requisition..........................................................72
24. REDELIVERY...............................................................73
24.1 Redelivery of Aircraft; General Conditions...........................73
24.2 Final Inspection.....................................................74
24.3 Operational Ground Check; Demonstration Flight.......................74
24.4 Non-compliance.......................................................75
24.5 Acknowledgment.......................................................76
24.7 Return of the Letter of Credit.......................................76
25. EVENTS OF DEFAULT........................................................76
25.1 Events...............................................................76
25.2 Sublessor's Rights...................................................79
25.3 Default Payments.....................................................81
26. ASSIGNMENT AND TRANSFER..................................................82
26.1 By Sublessee.........................................................82
26.2 By Sublessor.........................................................82
26.3 Assignment to Lender.................................................82
26.4 Sublessor Includes Sublessor's Assignee and Sublessor's Lender.......83
27. MISCELLANEOUS PROVISIONS.................................................83
27.1 Rights Cumulative, Waivers...........................................83
27.2 Delegation...........................................................84
27.3 Expenses.............................................................84
27.4 Time of Essence......................................................84
27.5 Entire Agreement.....................................................84
27.6 Further Assurances...................................................84
27.7 Language.............................................................85
27.8 Variation............................................................85
27.9 Invalidity of any Provision..........................................85
27.10 Survival............................................................85
27.11 Reimbursement.......................................................85
27.12 Press Releases......................................................85
27.13 Power of Attorney...................................................86
27.14 Usury Laws..........................................................86
27.15 Confidentiality.....................................................86
27.16 Counterparts........................................................86
28. NOTICES..................................................................87
29. GOVERNING LAW AND JURISDICTION...........................................88
29.1 New York Law.........................................................88
29.2 Non-exclusive Jurisdiction in New York...............................88
29.3 Waiver...............................................................89
<PAGE>
SCHEDULES
Schedule 1 Aircraft Specification 96
Schedule 2 Delivery Conditions 99
Schedule 3 Acceptance Certificate 100
Schedule 4 Sublease Supplement 102
Schedule 5 Insurance Requirements 104
Schedule 6 Return Conditions 108
Schedule 7 Return Acceptance Certificate 111
Schedule 9 Monthly Aircraft Utilization and Status Report 119
Schedule 10 Power of Attorney 121
<PAGE>
THIS AGREEMENT is made on the 14th day of December, 1998.
BETWEEN:
(1) INDIGO PACIFIC AB, a company incorporated under the laws of Sweden
whose registered office is at Sodra Forstadsgatan 4, SE-21143
Maluno, Sweden ("Sublessor"); and
(2) FRONTIER AIRLINES, INC., a company incorporated under the laws of
Colorado whose chief executive office and principal place of
business is 12015 E. 46th Avenue, Denver, Colorado, 80239
("Sublessee").
WHEREAS:
Owner Trustee (as hereinafter defined) holds title to the Aircraft for the
benefit of Subessor (as hereinafter defined);
Owner Trustee leases the Aircraft to Sublessor;
Sublessor wishes to sublease the Aircraft (as hereinafter defined) to Sublessee
and Sublessee is willing to sublease the Aircraft from Sublessor on the terms of
this Agreement; therefore
IT IS AGREED as follows:
1. summary of transaction
The following is a summary of the lease transaction between Sublessor and
Sublessee. It is set forth for the convenience of the parties only and will not
be deemed in any way to amend, detract from or simplify the other provisions of
this Agreement.
(i) Description of the Aircraft
One Boeing 737-3U3
MSN 28734
Reg No. N309FL
(ii) Scheduled Delivery Date and Location
December 14, 1998, at Evergreen Air Center Marana,
Arizona.
(iii) Initial Lease Term
From Delivery Date to 1 May 2000.
(iv) Lease Extension Option
Sublessor has an option to extend until October 31,
2000, subject to six (6) month prior written notice.
(v) Security Deposit
US$ 100,000, payable as follows:
In cash upon signing of Letter of Intent; upon Delivery
the Security deposit will be set off against the first
month's Rent.
US$ 600,000
Irrevocable Letter of Credit to the value of
$600,000.00 provided 1 day prior to Delivery, in a form
acceptable to Sublessor.
(vi) Transaction Fee
Not applicable.
(vii) Rent During Initial Lease Term
US$ 258,000 per month, payable in advance.
(viii) Rent During Lease Extension Term
US$ 258,000 per month, payable in advance.
(ix) Reserves
Airframe Maintenance Reserve: US$ 70 per Flight Hour.
Engine Maintenance Reserve: US$ 80 per Flight Hour for
each Engine.
LLP Maintenance Reserve: US$20 per Flight Hour.
Landing Gear Maintenance Reserve: US$ 10 per Cycle.
APU Maintenance Reserve: US$6 per Flight Hour.
(x) Country of Aircraft Registration
United States of America.
(xi) Agreed Value of Aircraft
US$ 33,000,000
(xii) Damage Notification Threshold
US$ 250,000
(xiii) Sublessor's Bank Account
Proceeds Account
KBC New York
125 W 55th Street
NY 10019, New York
Accoutn Number: 21557003
SWIFT: KREDUS33 for credit to KBC Finance Ireland
quoting Indigo Proceeds Account #03/43824/77
(xiv) Indemnitees
Sublessor
Owner Trustee
Sublessor's Lender
2. DEFINITIONS
2.1 Definitions
In this Agreement the following words and expressions have the following
meanings unless the context otherwise requires:
Acceptance Certificate means a certificate substantially in the form set out in
Schedule 3;
Agreed Value means THIRTY THREE MILLION US DOLLARS (US$33,000,000);
Aircraft means the aircraft described in Schedule 1 (which term includes where
the context admits a separate reference to any or all Engines, Parts and
Aircraft Documents);
Aircraft Documents means the documents, data and records identified in Annex 1
to Schedule 3 of this Agreement and all additions, renewals, revisions and
replacements from time to time made to any of the foregoing in accordance with
this Agreement all of which shall be in the English language;
Airframe means the Aircraft, excluding the Engines and the Aircraft Documents;
Air Navigation Charges means all charges incurred with the furnishing, issue or
provision of information, directions and other facilities in connection with the
navigation or movement of the Aircraft (including the control or movement of
vehicles in any part of an airport used for the movement of aircraft);
Airport Charges means all charges incurred in connection with the landing,
parking or taking-off of aircraft at airports or for the use of, or for services
provided at, airports;
Airworthiness Directive means an airworthiness directive or other mandatory
requirement issued by the FAA or any other Aviation Authority or Government
Entity;
APU means the auxiliary power unit installed on the Aircraft on the Delivery
Date and any replacement auxiliary power unit installed in accordance with this
Agreement, title to which is transferred to Owner Trustee;
Assignment of Insurances means the assignment by Sublessee to Sublessor, or at
the request of Sublessor, to Sublessor's Lender, of all of Sublessee's rights,
title and interest in and to the Insurances with respect to the Aircraft (other
than the Insurances relating to liability) or any other form of Security
Interest in favor of Sublessor, Owner Trustee or Sublessor's Lender in and to
the Insurances with respect to the Aircraft;
Aviation Authority means all and any of the authorities, government departments,
committees or agencies which under the laws of the State of Registration shall
from time to time:
(a) have control or supervision of civil aviation in that state; or
(b) have jurisdiction over the registration, airworthiness or operation
of, or other matters relating to, the Aircraft;
Basic Rent means all amounts payable pursuant to Clause 8.3.
Business Day means any day (other than a Saturday or Sunday or holidays
scheduled by law) on which banks are open for foreign exchange business in
Dublin, London, Stockolm and New York;
"C" Check means a "C" check (a complete zonal and systems check and the
corresponding lower "A" and "B" checks or equivalent in accordance with the MPD)
in accordance with Sublessee's maintenance program approved by the Aviation
Authority that shall at least meet the requirements of the MPD;
Conditions Precedent means the conditions specified in Clause 4.1;
CPCP means corrosion protection control program;
Cycle means one take-off and landing of the Airframe or, in relation to an
Engine or Part, one take-off and landing of the airframe to which that Engine or
Part may be attached;
Damage Notification Threshold means US$250,000;
Default means any Event of Default and any event which with the passing of time
and/or giving of notice and/or making of any determination, would constitute an
Event of Default;
Default Rate means, for the relevant period, 3% above the rate of interest at
the start of that relevant period publicly quoted by The Chase Manhattan Bank
N.A. as its Prime Rate;
Delivery means delivery of the Aircraft by Sublessor to Sublessee pursuant to
Clause 7;
Delivery Date means the date on which Delivery occurs;
Delivery Location means Evergreen Air Center Marana, Arizona or such other
location as the parties may agree;
Delivery Work means the maintenance and modification work to be performed at
Sublessor's expense on the Aircraft just prior to Delivery as described in
Schedule 2 hereto;
Dollars and US$ means the lawful currency of the United States of America;
Engine means, whether or not for the time being installed on the Aircraft:
(a) each engine of the manufacture, model and serial number specified
in Schedule 1 which Sublessor elects to tender to Sublessee with
and whether or not installed on the Airframe on the Delivery Date,
such engines being described as to serial numbers on the
certificate of acceptance to be executed by Sublessee upon
Delivery; or
(b) any engine that has replaced that engine, title to which has, or
should have, passed to Owner Trustee in accordance with this
Agreement,
and in each case includes all modules and Parts from time to time belonging to
or installed in that engine but excludes any properly replaced engine title to
which has, or should have, passed to Sublessee pursuant to this Agreement;
Engine Agreed Value means six million Dollars (US$6,000,000);
Engine Performance Restoration Visit means any overhaul, refurbishment, hot
section inspection, replacement of internal life limited parts, disassembly,
assembly and testing required thereof during an engine shop visit which
requires, as a minimum, a major disassembly of an Engine and the removal and
reinstallation of internal rotating parts;
Engine Total Loss means the occurrence with respect to an Engine only, whether
or not installed on the Airframe, of any of those events described in the
definition of Total Loss;
Event of Default means any event specified in Clause 25.1;
Expiry Date means the date determined in accordance with Clause 6.3;
Extension Lease Expiry Date means October 31, 2000 or such other date as agreed
to between the parties;
Extension Lease Term means the period commencing on the day following the
Initial Lease Expiry Date and ending on the Extension Lease Expiry Date;
FAA means the Federal Aviation Administration of the United States of America
and any successor thereof;
Facility Agreement means the facility agreement entered into between Sublessor's
Lender and Sublessor in respect of the financing of Sublessor's acquisition of
the Aircraft;
FAR means the Federal Aviation Regulations set forth in Title 14 of the United
States Code of Federal Regulations, as amended, modified or replaced from time
to time;
Federal Aviation Act means 49 United States Code Subtitle VII, the former
Federal Aviation Act as amended, as further amended, modified or replaced from
time to time;
Final Inspection has the meaning given to it in Clause 24.2;
Financial Indebtedness means any indebtedness in respect of:
(a) money borrowed or raised;
(b) payments due under finance or operating leases;
(c) any guarantee or indemnity in respect of obligations of the type
referred to in paragraphs (a) or (b);
Flight Hour means each hour or part thereof (rounded up to two decimal places)
elapsing from the moment the wheels of the Aircraft leaves the ground on the
tarmac before take off until the wheels of the Aircraft next touch ground;
Geneva Convention means the Convention on the International Recognition of
Rights in Aircraft signed at Geneva, Switzerland on 19 June 1948, and amended
from time to time, but excluding the terms of any adhesion thereto or
ratification thereof containing reservations to which the State of Registration
does not accede;
Government Entity means:
(a) any national government, political subdivision thereof, or local
jurisdiction therein;
(b) any instrumentality, board, commission, court, or agency of any
thereof, however constituted including, for the avoidance of
doubt, the Aviation Authority; and
(c) any association, organization, or institution of which any of the
above is a member or to whose jurisdiction any thereof is subject
or in whose activities any of the above is a participant;
Head Lease Agreement means the aircraft lease agreement entered into between
Owner Trustee and Sublessor dated as of even date herewith which is being filed
with the FAA simultaneously herewith;
Indemnitees means Sublessor, Owner Trustee, Sublessor's Lender or any other
person identified by Sublessor prior to the Delivery Date or, with the consent
of Sublessee, after the Delivery Date to have an interest in the Transaction
Documents and their respective successors and assigns, shareholders,
subsidiaries, affiliates, partners, contractors, directors, officers, servants,
agents and employees;
Initial Lease Expiry Date means 1 May, 2000;
Initial Lease Term means the period commencing on the Delivery Date and ending
on the Initial Lease Expiry Date;
Insurances bears the meaning ascribed to it in Clause 22.1 (a);
Landing Gear means the landing gear assembly of the Aircraft, including all life
limited parts;
Lease Term means the Initial Lease Term and, if the lease is extended in
accordance with Clause 6.2, the Extension Lease Term;
Letter of Credit bears the meaning ascribed to it in Clause 9.2;
Loss means any and all loss, liability, obligation, action, claim, suits,
proceeding, judgment, penalty, fine, damages, fee, cost, disbursement and
expense and Losses shall be construed accordingly;
Maintenance Facility means, prior to Delivery, Evergreen Air Center Marana,
Arizona and, after Delivery, such FAA approved maintenance facility as the
Sublessor may approve in writing;
Maintenance Reserves means all amounts payable pursuant to Clause 10;
Manufacturer means The Boeing Company, a Delaware corporation with its principal
office in Seattle, State of Washington, U.S.A.;
Minimum Liability Coverage means US$500,000,000 on each occurrence;
Monthly Report means a report substantially in the form of Schedule 9;
Mortgage means a mortgage over the Aircraft created for the benefit of
Sublessor's Lender;
MPD mean the Maintenance Planning Data published by the Manufacturer and
applicable to the Aircraft;
Other Agreements means any other aircraft lease or sublease agreement or other
agreement from time to time entered into between Sublessor (or any partner,
subsidiary, associate or affiliate of Sublessor) and Sublessee (or any
subsidiary, associate or affiliate of Sublessee);
Owner Trustee means First Security Bank, National Association, not in its
individual capacity but solely as owner trustee pursuant to a trust agreement
dated on or about the date hereof with Indigo Pacific AB as beneficiary;
Part means, whether or not for the time being installed on the Aircraft:
(a) any component, furnishing or equipment (other than a complete
Engine) furnished with the Aircraft on the Delivery Date; and
(b) any other component, furnishing or equipment (other than a
complete Engine) title to which has, or should have, passed to
Owner Trustee pursuant to this Agreement;
but excludes any such items title to which has, or should have, passed to
Sublessee pursuant to this Agreement;
Permitted Lien means:
(a) any lien for Taxes not assessed or, if assessed, not yet due and
payable, or being contested in good faith by appropriate
proceedings;
(b) any inchoate liens of a repairer, materialman, workman, employee,
mechanic, carrier, hangar keeper or other similar lien arising in
the ordinary course of business in respect of obligations which
are not overdue or are being contested in good faith by
appropriate proceedings;
(c) liens arising out of judgments or awards with respect to which at
the time (i) an appeal proceedings for review is being contested
diligently and in good faith and (ii) a stay of execution shall
have been secured (and remains in force);
(d) any Sublessor Lien; and
(e) any Security Interest created by Sublessee with the written
consent of Sublessor,
but only if (in the case of (a), (b) and (c)) (i) adequate resources are
available for the payment of those Taxes or obligations and (ii) such
proceedings, or the continued existence of the lien, do not involve any danger
(in the reasonable opinion of Sublessor) of the sale, forfeiture or other loss
of the Aircraft or any interest therein;
Physical Redelivery Location means Long Beach Airport or such other location as
the parties may agree;
Redelivery Date means the Expiry Date or the earlier date of termination of the
leasing of the Aircraft in accordance with the terms of this Agreement;
Rent means all amounts payable pursuant to Clause 8.3;
Rent Date means the first day of each Rent Period;
Rent Period means each period ascertained in accordance with Clause 8.1;
Replacement Engine means an engine complying with Clause 17.6;
Reserves means the Airframe Maintenance Reserve, the Engine Maintenance
Reserves, the LLP Maintenance Reserve, the Landing Gear Maintenance Reserve and
the APU Maintenance Reserve as specified in Clause 10;
Return Conditions means the conditions specified in Schedule 6;
Scheduled Delivery Date means December 14, 1998, or such other date as the
parties may mutually agree and Sublessor may be able to deliver the Aircraft to
Sublessee;
Security Deposit means the amount payable pursuant to Clause 9.1 as it may be
adjusted from time to time (upwards or downwards) pursuant to Clause 9;
Security Interest means any mortgage, charge, pledge, lien, encumbrance,
assignment, hypothecation or any other agreement or arrangement conferring
security;
State of Incorporation means Colorado, United States of America;
State of Registration means in relation to the Aircraft, the United States of
America or any other state or territory in which the Aircraft is, in accordance
with the provisions hereof, registered from time to time;
Sublease Supplement means the Sublease Supplement, substantially in the form of
Schedule 4 hereto, entered into between Sublessor and Sublessee;
Sublessor's Lender means KBC Finance Ireland and the Banks (as defined in the
Facility Agreement) or any person or persons notified by Sublessor to Sublessee
under Clause 26 as providing financing to Owner Trustee in respect of the
acquisition, ownership or leasing of the Aircraft from time to time (including
any successors in title or assignees of any such persons);
Sublessor Lien means:
(a) any Security Interest from time to time created by or through
Sublessor in connection with the financing of the Aircraft;
(b) any other Security Interest in respect of the Aircraft that
results from acts of or claims against Sublessor not related to
the transactions contemplated by or permitted under this
Agreement;
(c) any Security Interest in respect of the Aircraft for Sublessor
Taxes;
(d) any Security Interest in respect of the Aircraft existing prior to
Delivery; or
(e) any Security Interest arising as a result of any act or omission
of Sublessor that constitutes a breach of this Agreement;
(f) any Security Interest that results from any indebtedness,
liability or other obligation arising by, through or under
Sublessor or any of the Indemnitees and that is not indemnified
against by Sublessee under this Agreement;
Sublessee's Maintenance Program means the maintenance program adopted by the
Sublessee for its 737-300 aircraft that shall at least meet the requirements of
the Aviation Authority in the State of Registration and of the MPD;
Sublessor Taxes means Taxes:
(a) imposed as a result of activities of Sublessor in the jurisdiction
imposing the liability unrelated to this Agreement or the
operation of the Aircraft by Sublessee;
(b) imposed on the net income, profits or gains of Sublessor; or
(c) imposed with respect to (i) any event occurring prior to the
Delivery Date or after the Expiry Date or (ii) any period
commencing and ending prior to Delivery Date or any period
commencing after the Expiry Date;
Supplemental Rent means any and all amounts, liabilities and obligations (other
than Basic Rent) which Sublessee assumes, agrees or is otherwise obligated to
pay Sublessor hereunder including Reserves, Total Loss Proceeds, payment of
Indemnity, interest or Default Interest;
Taxes means all present and future taxes, imports, levies, duties or charges,
deductions, withholdings of any nature (including without limiting the foregoing
any value added, franchise, transfer, sales, gross receipts, business, excise,
personal property, stamp, documentary, registration or other tax of whatsoever
nature) together with any assessments, fines, additions to tax or interest
thereon included and Tax and Taxation shall be construed accordingly;
Technical Redelivery Location means Sublessee's facilities in Denver Colorado or
such other location as the parties may agree;
Total Loss means with respect to the Aircraft (including for the purposes of
this definition the Airframe):
(a) the actual, constructive, compromised, arranged or agreed total
loss of the Aircraft; or
(b) the Aircraft being destroyed, damaged beyond economic repair or
permanently rendered unfit for normal use for any reason
whatsoever; or
(c) the requisition of title, confiscation, sequestration restraint,
detention, forfeiture or any compulsory acquisition or seizure or
requisition for hire (other than a requisition for hire for a
temporary period not exceeding One Hundred Twenty (120) days or by
the U.S. Government or any agency thereof) by or under the order
of any government (whether civil, military or de facto) or public
or local authorities or courts ; or
(d) the hi-jacking, theft or disappearance of the Aircraft or any
other occurrence resulting in loss of possession by Sublessee
and/or operation thereof for a period of sixty (60) consecutive
days or longer;
(e) any sale of the Aircraft in connection with a Sublessee bankruptcy
whether by an administrator, trustee or court;
(f) any other occurrence not permitted under this Agreement that
deprives Sublessee of use and possession for a period of sixty
(60) consecutive days or longer;
For the avoidance of doubt, a Total Loss of the Aircraft will be deemed to have
occurred when a Total Loss of the Airframe occurs even if there has not been a
Total Loss of an Engine or Engines;
Total Loss Date means:
(a) in the case of an actual total loss or destruction, damage beyond
repair, or being rendered permanently unfit, the date on which
such loss, destruction, damage or rendition occurs (or, if the
date of loss or destruction is not known, the date on which the
Aircraft or the relevant part thereof was last heard of);
(b) in the case of a constructive, compromised, arranged or agreed
total loss, whichever shall be the earlier of (i) the date being
sixty (60) days after the date on which notice claiming such total
loss is issued to the insurers or brokers, and (ii) the date on
which such loss is agreed or compromised by the insurers;
(c) in the case of requisition for title, sequestration, confiscation,
restraint, detention, forfeiture, compulsory acquisition or
seizure, the date on which the same takes effect;
(d) in the case of requisition for hire by a person other than the
U.S. Government or an agency thereof, the expiration of a period
of One Hundred Twenty (120) days from the date on which such
requisition commenced (or, if earlier, the date on which the
insurers make payment on the basis of a total loss);
(e) in the case of paragraph (d) in the definition of Total Loss, the
final day of the said period of sixty (60) consecutive days;
(f) in the case of paragraph (e) in the definition of Total Loss, the
date on which the Aircraft is sold; and
(g) in case of paragraph (f) above the definition of Total Loss, the
final day of the said period of sixty (60) consecutive days;
Total Loss Proceeds means the proceeds of any insurance, or any compensation or
similar payment, arising in respect of a Total Loss;
Transaction Documents means
(a) this Agreement;
(b) the Assignment of Insurances;
(c) the acknowledgement by Sublessee of the security assignment and/
or the pledge of, inter alia, this Agreement in favor of the
Sublessor's Lender and any documents duly executed pursuant to any
of the foregoing by Sublessee or Sublessor;
(d) the Sublease Supplement;
(e) the Acceptance Certificate.
"US Air Carrier" means an air carrier (a) operating under (i) a certificate of
public convenience and necessity issued under 49 U.S.C 41102(a) and of the type
referred to in U.S.C section 1110, which is in full force and effect and (ii) an
air carrier operators certificate issued pursuant to chapter 447 of the FAA for
aircraft capable of carrying ten or more individuals or 6,000 pounds or more of
cargo which is in full force and effect; and (b) qualifying as a debtor subject
to 11 U.S.C section 1110.
2.2 Construction
2.2.1 References in this Agreement to:
(i) Clauses or Schedules are, unless otherwise specified,
references to Clauses of, and Schedules to, this
Agreement;
(ii) any statutory or other legislative provision shall be
construed as including any statutory or legislative
modification or re-enactment thereof, or any provision
enacted in substitution therefor;
(iii) the Aircraft includes any part of the Aircraft, and,
where the context so admits, any of the Aircraft
Documents, and references to any part of the Aircraft
include any part of any Engine;
(iv) the word person or persons or to words importing
persons include individuals, partnerships, limited
liability companies, corporations, government agencies,
committees, departments, authorities and other bodies,
corporate or unincorporated, whether having distinct
legal personality or not;
(v) Sublessor or Sublessee include any assignee or
successor in title to the Sublessor or the Sublessee
respectively (subject to the provisions of Clause 26);
(vi) any agreement or instrument shall include such
agreement or instrument as it may from time to time be
amended, supplemented or substituted;
(vii) an agreement shall also include a concession, contract,
deed, franchise, license, treaty or undertaking (in
each case, whether oral or written);
(viii) the assets of any person shall be construed as a
reference to the whole or any part of its business,
undertaking, property, assets and revenues (including
any right to receive revenues);
(ix) law includes common or customary law and any
constitution, decree, judgement, legislation, order,
ordinance, regulation, statute, treaty or other
legislative measure in any jurisdiction or any present
or future directive, regulation, request or requirement
in each case, whether or not having the force of law
but, if not having the force of law, the compliance
with which is in accordance with the general practice
of persons to whom the directive, regulation, request
or requirement is addressed;
(x) month are references to a period starting on one day in
a calendar month and ending on the day preceding the
numerically corresponding day in the next calendar
month (and references to months shall be construed
accordingly) save that, where any such period would
otherwise end on a non-Business Day, it shall end on
the next preceding Business Day.
(xi) any statute or other legislative provision or
regulation shall be read to include any statutory or
legislative or administrative modification or
re-enactment thereof, or any substitution therefor;
(xii) the words "including" or "include" are used herein
without limitation to mean by way of example;
(xiii) the words "Agreement", "hereof", "herein" and
"hereinafter" refer to this entire Agreement; and
(xiv) the word "or" is used inclusively to mean "and/or".
2.2.2 Headings are for ease of reference only.
2.2.3 Where the context so admits, words importing the singular number
only shall include the plural and vice versa, and words importing
neuter gender shall include the masculine or feminine gender.
3. REPRESENTATIONS AND WARRANTIES
3.1 Sublessee's Representations and Warranties
Sublessee represents and warrants to Sublessor as of execution of this Agreement
and each other Transaction Document 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):
(a) Corporate Status: Sublessee is a corporation
duly incorporated, validly existing and in
good standing under the laws of the State of
Incorporation and has the corporate power and
authority to carry on its business as
presently conducted and to perform its
obligations hereunder.
(b) Government Approvals. No authorization,
approval, consent, license or order of, or
registration with, or the giving of notice to
the Aviation Authority or any other Government
Entity is required for the valid
authorization, execution, delivery and
performance by Sublessee of the Transaction
Documents or to make the Transaction Documents
admissible in evidence in the State of
Incorporation except as will have been duly
effected as of the Delivery Date.
(c) Binding. Sublessee's Board of Directors has
authorized Sublessee to enter into the
Transaction Documents and perform its
obligations under the Transaction Documents.
This Agreement and the other Transaction
Documents have been duly executed and
delivered by Sublessee and represent the
valid, enforceable and binding obligations of
Sublessee except as enforceability may be
limited by bankruptcy, insolvency,
reorganization or other laws of general
application affecting the enforcement of
creditors' rights. When executed by Sublessee
at Delivery, the same will apply to the
Acceptance Certificate.
(d) No Breach. The execution and delivery of the
Transaction Documents, the consummation by
Sublessee of the transactions contemplated
herein and by the other Transaction Documents
and compliance by Sublessee with the terms and
provisions hereof do not and will not
contravene any law applicable to Sublessee, or
result in any breach of or constitute any
default under or result in the creation of an
Security Interest upon any property of
Sublessee, pursuant to any indenture,
mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or
credit agreement, corporate charter, by-law or
other agreement or instrument to which
Sublessee is a party or by which Sublessee or
its properties or assets may be bound or
affected. When executed by Sublessee at
Delivery, the same will apply to the
Acceptance Certificate.
(e) Filings. Except for the filing or recording of
this Agreement with the FAA and the filing of
a UCC-1 at the location of Sublessee's
executive offices, no other filing or
recording of any instrument or document
(including the filing of any financial
statement) is advisable under the laws of the
State of Colorado to evidence the interests of
Owner Trustee, Sublessor's Lender and
Sublessor in the Aircraft or any Transaction
Document.
(f) Licenses. Sublessee holds, all licenses,
certificates and permits (including a US
airworthiness certificate, registration
certificate and radio licence) from all
applicable Government Entities for the conduct
of its business as a certificated air carrier
and performance of its obligations under the
Transaction Documents, including but not
limited to a current certificate of public
convenience and necessity and a current
operating certificate for the operation of
Boeing 737-300 aircraft.
(g) No Suits. There are no suits, arbitrations or
other proceedings pending or threatened
against Sublessee before any court or
administrative agency against or affecting
Sublessee that, if adversely determined, would
have a material adverse effect on the
financial condition or business of Sublessee
or its ability to perform its obligations
under this Agreement or any other Transaction
Document.
(h) General Obligations. The obligations of
Sublessee under this Agreement are direct,
general and unconditional obligations of
Sublessee and rank or will rank at least pari
passu with all other present and future
unsecured and unsubordinated obligations
(including contingent obligations) of
Sublessee, with the exception of such
obligations as are mandatorily preferred by
law.
(i) Tax Returns. All necessary returns have been
delivered by Sublessee to all relevant
taxation authorities in the jurisdiction of
its incorporation and Sublessee is not in
default in the payment of any taxes due and
payable.
(j) No Material Adverse Effect. Sublessee is not
in default under any agreement to which it is
a party or by which it may be bound that would
have a material adverse effect on its
business, assets or condition and no material
litigation or administrative proceedings
before any Government Entity is presently
pending or to the knowledge of Sublessee
threatened against it or its assets that would
have a material adverse effect on the
business, assets or condition (financial or
otherwise) of Sublessee.
(k) No Default under this Sublease. At the time of
execution of this Agreement , no Default has
occurred and is continuing and the balance
sheet and other financial statements for
Sublessee for the year ended March 31, 1998
were prepared in accordance with accounting
principles generally accepted and consistently
applied in the State of Incorporation.
(l) No Winding Up. No meeting has been convened or
other action taken for winding up or
dissolution, or for the appointment of any
receiver or similar officer, in relation to
Sublessee or any of its assets.
(m) Continuation of Business. Sublessee will
continue to operate substantially the same
business as it is presently engaged in, will
preserve its corporate existence, conduct its
business in an orderly and efficient manner,
satisfy its debts and obligations as they fall
due and keep and maintain all of its assets
and properties in good working order and
condition.
(n) No immunity: in any proceedings taken in the
State of Incorporation in relation to the
Transaction Documents it would not be entitled
to claim for itself or any of its assets any
immunity from suit, execution, attachment or
other legal process.
(o) Information: all information furnished by or
on behalf of the Sublessee in connection with
all transactions contemplated by the
Transaction Documents is complete, true and
correct in all material respects and all
relevant facts concerning the business and
affairs of the Sublessee have been disclosed
to the Sublessor.
(p) Status: Sublessee is a US Air Carrier and a
"citizen of the United States as defined in
49 U.S.C Section 40102. Sublessee shall
operate the Aircraft under Part 121 of the
FAR and shall at all times remain a duly
certified US Air Carrier;
(q) Principal Place of Business: Sublessee's
principal place of business and chief
executive office as such terms are used in
Article 9 of the Uniform Commercial Code are
located at 12015 E. 46th Avenue, Denver,
Colorado, 80239;
(r) Flight Records: Sublessee's flight records are
located at 12015 E. 46th Avenue, Denver,
Colorado, 80239;
3.2 Sublessor's Representations and Warranties
Sublessor represents and warrants to Sublessee as of the Delivery Date that:
(a) Title to Aircraft. Sublessor warrants that
title to the Aircraft will be vested in Owner
Trustee and the Aircraft shall be free and
clear of any and all Security Interests except
for the Security Interests of Owner Trustee
and Sublessor under the Head Lease Agreement
and of Sublessor's Lender.
(b) Organizational Status. Sublessor is a company
created and validly existing under the laws of
Sweden and has the organizational power and
authority to carry on its business as
presently conducted and to perform its
obligations under this Agreement and each
other Transaction Document to which it is
party.
(c) Trust Agreement. The Trust Agreement dated as
of even date herewith, 1998, by and between
Owner Trustee and Sublessor (the "Trust
Agreement"), has been duly authorized, validly
executed and delivered on the part of
Sublessor, is legally binding upon the
Sublessor, and creates a legally enforceable
trust (as hereinafter referred to as the
"Trust"). Owner Trustee, in its capacity as
Trustee of the Trust, has legal power and
authority to take legal title to the Aircraft
and has legal authority and is qualified as
the holder of legal title to the Aircraft to
register the Aircraft in accordance with the
terms of the Federal Aviation Act.
(d) Government Approvals. No authorization,
approval, consent, license or order of, or
registration with, or the giving of notice to
any Government Entity is required for the
valid authorization, execution, delivery and
performance by Sublessor of this Agreement,
except as will have been duly effected as of
the Delivery Date.
(e) Binding. This Agreement and the other
Transaction Documents to which it is a party
have been duly executed and delivered by
Sublessor and represent the valid, enforceable
and binding obligations of Sublessor except as
enforceability may be limited by bankruptcy,
insolvency, reorganization or other laws of
general application affecting the enforcement
of creditors' rights.
(f) No Breach. The execution and delivery of the
Transaction Documents, the consummation by
Sublessor of the transactions contemplated
herein and compliance by Sublessor with the
terms and provisions hereof do not and will
not contravene any law applicable to
Sublessor, or result in any breach of or
constitute any default under or result in the
creation of any Security Interest upon any
property of Sublessor, pursuant to any
indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan
or credit agreement, corporate charter, by-law
or other agreement or instrument to which
Sublessor is a party or by which Sublessor or
its properties or assets may be bound or
affected.
Sublessor has no permanent establishment of business in the United States as
defined by or interpreted pursuant to the Convention between the Government of
New Zealand and the Government of the United States of America for Avoidance of
Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on
Income.
3.3 Survival of Representations and Warranties
All of the foregoing representations and warranties shall survive the execution
and delivery of this Sublease and the Delivery of the Aircraft.
4. CONDITIONS PRECEDENT
4.1 Sublessor's Conditions Precedent
Sublessor's obligation to deliver and Sublease the Aircraft to Sublessee under
this Agreement is subject to satisfaction of each of the following conditions:
4.1.1 receipt by Sublessor from Sublessee on or prior to the Delivery
Date of the following, each in form and substance reasonably
satisfactory to Sublessor:
(i) Constitutional Documents. Copies of the Sublessees
articles of incorporation and Bylaws, certified as
true, complete and up-to-date by an officer of
Sublessee.
(ii) Resolutions. A copy, duly certified as a true copy by
an officer of Sublessee of a board resolution of
Sublessee approving the execution, delivery and
performance of the Transaction Documents and naming the
person or persons authorized to sign the Transaction
Documents on behalf of Sublessee and authorized to sign
on behalf of Sublessee any documents to be delivered by
Sublessee pursuant hereto or contemporaneously
herewith;
(iii) Specimen signatures. A certificate of an officer of
Sublessee setting out the names and signatures of the
persons authorized to sign on behalf of Sublessee the
Transaction Documents and any documents to be delivered
by Sublessee pursuant hereto contemporaneously
herewith;
(iv) Consents. Evidence that all governmental or other
consents, licenses, approvals and authorizations
required for the execution, delivery and performance by
Sublessee of the Transaction Documents have been
obtained or made and are in full force and effect
including, without limitation, a FAA certificate of
airworthiness, FAA certificate of registration in the
State of Registration and a radio licence;
(v) Accounts. The balance sheet and other financial
statements of Sublessee for the year ended March 31
1998;
(vi) Licences. Copies of Sublessee's Certificate of Public
Convenience and Necessity and operating certificate
covering its operation of 737-300 aircraft issued by
the US Department of Transportation and FAA,
respectively;
(vii) Transaction Documents. Originals of the Transaction
Documents (duly executed by all parties other than
Sublessor);
(viii) Insurances. A certificate from the Insurer's confirming
that the Insurances are in place together with an
insurance broker's letter of undertaking (in a form
acceptable to Owner Trustee, Sublessor's Lender and
Sublessor) addressed to Owner Trustee, Sublessor's
Lender and Sublessor;
(ix) Opinions. Legal opinions from:
(a) Counsel to Sublessee addressed to Owner
Trustee, Sublessor's Lender and Sublessor
confirming the representations (except for
3.1(d)) made by Sublessee hereunder in a form
and substance acceptable to Owner Trustee,
Sublessor's Lender and Sublessor;
(b) Special FAA counsel to Sublessee addressed to
Owner Trustee, Sublessor's Lender and
Sublessor confirming that this Sublease and
other appropriate documents including
Sublessor's Lender's mortgage have been filed
with the FAA;
(x) Security Deposit and Rent. Receipt by Sublessor of the
Security Deposit to the extent set forth in Clause 9,
the first monthly instalment of Rent and the Letter of
Credit;
(xi) Others. Any other documents, approvals, consents,
certificates that Sublessor may reasonably require;
(a) the representations and warranties of
Sublessee under Clause 3.1 shall be correct
and would be correct if repeated on Delivery;
and
(b) no Default shall have occurred and be
continuing.
4.2 Waiver
The Sublessor's Conditions Precedent are for the sole benefit of Sublessor and
may be waived or deferred by Sublessor in whole or in part and with or without
conditions. If any of the Conditions Precedent are not satisfied on the Delivery
Date and Sublessor (in its absolute discretion) nonetheless agrees to deliver
the Aircraft to Sublessee, Sublessee shall ensure that such Conditions Precedent
are fulfilled within 15 days after the Delivery Date, and Sublessor may treat
the failure of Sublessee to do so as an Event of Default.
4.3 Sublessee's Conditions Precedent
Sublessee's obligation to accept and Sublease the Aircraft from Sublessor under
this Agreement is subject to satisfaction of each of the following conditions:
4.3.1 The Aircraft is substantially and materially in the condition set
forth in Schedule 2.
4.3.2 The receipt by Sublessee from Sublessor on or prior to the
Delivery Date of the following, each in form and substance
reasonably satisfactory to Sublessee:
(i) Evidence of Authority. Certified copies of evidence of
appropriate action approving the execution, delivery
and performance of the Transaction Documents by
Sublessor and of the person or persons authorized to
sign the Transaction Documents on behalf of Sublessor
or any other documents to be delivered to Sublessee by
Sublessor;
(ii) Specimen signatures. A certificate of an officer of
Sublessor setting out the names and signatures of the
persons authorized to sign on behalf of Sublessor the
Transaction Documents and any documents to be delivered
by Sublessor pursuant hereto contemporaneously
herewith;
(iii) Transaction Documents. Originals of the following
documents (duly executed by Sublessor):
(a) this Agreement; and
(b) The Sublease Supplement.
(iv) the representations and warranties of Sublessor under
Clause 3.2 shall be correct and would be correct if
repeated on Delivery; and
(v) no Default by Sublessor shall have occurred and be
continuing.
4.4 Waiver
The Sublessee's Conditions precedent are for the sole benefit of Sublessee and
may be waived or deferred by Sublessee in whole or in part and with or without
conditions.
5. DELIVERY CONDITION AND INSPECTION OF AIRCRAFT
5.1 Sublessee Selection of Aircraft
IN ADDITION TO THE DISCLAIMER AT CLAUSE 19, SUBLESSEE REPRESENTS AND WARRANTS TO
SUBLESSOR THAT SUBLESSEE HAS USED ITS OWN JUDGMENT IN SELECTING THE AIRCRAFT AND
HAS DONE SO BASED ON ITS SIZE, DESIGN AND TYPE. SUBLESSEE ACKNOWLEDGES THAT
SUBLESSOR IS NOT A MANUFACTURER OF THE AIRCRAFT NOR A DEALER IN THE AIRCRAFT.
5.2 Conditions at Delivery
In addition to the disclaimer at Clause 19, Sublessor has advised Sublessee that
at Delivery the Aircraft will be substantially and materially in the condition
set forth in Schedule 2 provided that this confirmation expires as at Delivery.
5.3 Sublessee Inspection of Aircraft at Delivery
Sublessee will have the right to perform such ground inspection of the Aircraft
as it deems appropriate. After completion of the ground inspection, if the
Aircraft is acceptable to Sublessee ("Preliminary Acceptance") (subject to the
results of the acceptance flight), Sublessee will technically accept the
Aircraft (subject to the results of the acceptance flight) and will provide
insurance coverage for the Aircraft, including the acceptance flight. Sublessee
may, subject to having technically accepted the Aircraft and having provided for
insurance coverage reasonably acceptable to Sublessor, have up to two observers
on board the Aircraft during Air New Zealand Limited's acceptance flight from
Manufacturer with respect to the Aircraft. Sublessee acknowledges that, as
between it and Sublessor, in accepting the Aircraft it is relying on its own
inspection and knowledge of the Aircraft in determining whether it meets the
requirements of this Agreement.
5.4 Delivery of Aircraft to Sublessee
Subject to Sublessee having performed all of the conditions precedent to
Delivery or waiver by the Sublessor set forth herein, Sublessor will deliver the
Aircraft to Sublessee at the Delivery Location. Provided that the Aircraft is in
the condition required by Clause 5.2 hereof, upon the tender of the Aircraft by
Sublessor to Sublessee, Sublessee will accept the Aircraft and the date of
tender by Sublessor to Sublessee will be deemed to be the Delivery Date for all
purposes under this Agreement, including, but not limited to, the commencement
of Sublessee's obligation to pay Rent hereunder. Sublessee shall execute and
deliver the Acceptance Certificate to Sublessor
5.5 Sublessee Acceptance of Aircraft
So long as the Aircraft is in the condition, specified in Clause 5.2 hereof,
Sublessee will accept the Aircraft when tendered for delivery by Sublessor. If
Sublessee fails to (i) comply with the conditions contained in Clauses 4.1 so as
to allow Delivery to take place upon tender or (ii) take delivery of the
Aircraft when properly tendered for Delivery by Sublessor in the condition
required hereunder, Sublessee will indemnify Sublessor for all reasonable costs
and expenses incurred by Sublessor as a result thereof including (but without
limitation) any payments that Sublessor or affiliates or related companies to
Sublessor become obliged to make to any third party to put the Aircraft in the
condition set forth in Schedule 2.
5.6 Post Delivery Obligations
Promptly following Delivery the Sublessor and Sublessee shall remove any
components or parts on the Aircraft at Delivery which Sublessor and Sublessee
agree to be surplus. In addition, Sublessee acknowledges that Sublessor intends
to replace certain parts and components on the Aircraft. If requested by
Sublessor Sublessee will on reasonable notice and at reasonable times make the
Aircraft available to Sublessor, at the expense of Sublessor, to enable
Sublessor to make such replacements.
6. LEASE TERM
6.1 Initial Lease Term
Sublessor shall Sublease the Aircraft to Sublessee and Sublessee shall take the
Aircraft on Sublease in accordance with this Agreement for the duration of the
Initial Lease Term and, subject to Clause 6.2, the Extension Lease Term.
6.2 Lease Extension Date
6.2.1 Sublessor shall have the option to extend the Initial Lease Term
under this Agreement for the period of the Extension Lease Term.
6.2.2 In order to exercise the option set out in Clause 6.2.1, Sublessor
must give written notice to Sublessee not less than six (6) months
prior to the Initial Lease Expiry Date.
6.3 Expiry Date
The Expiry Date shall be the Initial Lease Expiry Date or where Sublessor has
served notice under Clause 6.2.2, the Extension Lease Expiry Date subject to the
following provisions:
(a) If Sublessor, acting in accordance with Clause
4.2, notifies Sublessee that it is terminating
this Agreement, Sublessee shall immediately
redeliver the Aircraft in accordance with
Clause 24 and the Expiry Date shall be the
date upon which the Aircraft is redelivered
and Sublessee has complied with its
obligations hereunder;
(b) If Sublessor, acting in accordance with Clause
25.2, terminates the leasing of the Aircraft
to Sublessee under this Agreement, Sublessee
shall immediately redeliver the Aircraft in
accordance with Clause 24 and the Expiry Date
shall be the date upon which the Aircraft is
redelivered and Sublessee has complied with
all its obligations hereunder;
(c) If the Aircraft or Airframe suffers a Total
Loss, the Expiry Date shall be the date on
which Sublessee pays to Sublessor the Agreed
Value and all other sums due from Sublessee to
Sublessor hereunder.
(d) If Clause 24.4 becomes applicable, the Expiry
Date shall be the date when any non-compliance
referred to in Clause 24.4 has been fully
rectified and Sublessor shall have accepted
redelivery of the Aircraft and Sublessee shall
have complied with all its obligations
hereunder;
(e) Under any circumstances, the Expiry Date shall
be the date upon which the Aircraft is
redelivered in accordance with Clause 24 and
the Return Acceptance Receipt executed and
delivered in accordance with that clause; and
For the avoidance of doubt in respect of Clauses 6.3(a), (b), (d) and (e) the
obligations of Lessee in respect of payment of Rent and all other obligations
shall continue to be payable in respect of those days prior to the redelivery to
Sublessor of the Aircraft in the Return Conditions, and in respect of Clause
6.3(c) such obligations shall continue until payment of the Total Loss Proceeds.
The obligations of Sublessee set forth in Clauses 13.17, 20, 21, 25 (b), (f) or
(g) and any other obligations of Sublessee that were due to have been performed
but have not been fully performed prior to the termination of the Agreement
pursuant to this Clause 6.3, will survive the Expiry Date.
6.4 Risk
6.4.1 Throughout the Lease Term and until redelivery of the Aircraft in
accordance with Clause 24, Sublessee shall bear all risks of loss,
theft, damage, confiscation and destruction of or to the Aircraft
and every part thereof.
6.4.2 If the Aircraft is lost, stolen, confiscated, damaged, destroyed
or otherwise rendered unfit and unavailable for use, Sublessor
shall not be liable to repair the same or supply any equipment in
substitution therefor unless caused by the intentional act or
gross negligence of Sublessor, its employees or agents.
7. DELIVERY
7.1 Delivery
Sublessor will deliver the Aircraft to Sublessee at the Delivery Location on or
about the Scheduled Delivery Date and Sublessee will accept Delivery on that
Date. Sublessor will notify Sublessee from time to time and in a timely manner
of any changes to the Scheduled Delivery Date. Sublessee and Sublessor expressly
acknowledge that Delivery of the Aircraft to Sublessee is subject to and
conditioned upon delivery of the Aircraft by Manufacturer. Sublessor will not be
liable for any loss or expense, or any loss of profit, arising from any delay or
failure in Delivery to Sublessee unless such delay or failure arises as a direct
consequence of the gross negligence or wilful default of Sublessor, and in no
event will Sublessor be liable for any delay or failure that is caused by any
failure, breach or delay on the part of the Manufacturer. If a delay, not caused
by Sublessors or Sublessees breach of this Agreement, causes Delivery to be
delayed beyond thirty (30) days after the Scheduled Delivery Date this Agreement
shall, at the option of either party hereto, terminate and in such event,
neither party will have any further obligation or liability under this
Agreement, except that Sublessor will repay to Sublessee the amount of Security
Deposit paid under this Agreement. So long as the Aircraft is in the condition
specified in clause 5.2 hereof, Sublessee acknowledges its obligations to take
Delivery on the Scheduled Delivery Date notwithstanding that pre-Delivery
modifications requested by Sublessee are not complete on the Scheduled Delivery
Date.
8. RENT
8.1 Rent Date
The first Rent payment date shall be one (1) day prior to the Delivery Date, and
each subsequent Rent payment date shall be on the monthly anniversary of the
Delivery Date.
8.2 Time of Payment
Sublessee shall pay Rent to Sublessor or to its order in advance on each Rent
Date. Sublessee shall initiate payment adequately in advance of each Rent Date
to ensure that Sublessor receives credit for the payment on such Rent Date. If a
Rent Date is a day which is not a Business Day, the Rent payable in respect of
that Rent Period shall be paid on the Business Day immediately preceding the
Rent Date. Each payment will be in accordance with clause 11.1 and accompanied
by the annotation "[ ] Rent for month of [ ]".
8.3 Amount of Basic Rent
The Basic Rent payable on each Rent Date shall be the amount determined in
accordance with Schedule 8.
8.4 Reserves
Sublessee will pay to Sublessor as Supplemental Rent, based on Sublessee's use
of the Aircraft during the Lease Term, Reserves in accordance with Clause 10.
9. SECURITY DEPOSIT
9.1 Security Deposit
Sublessee has paid to Sublessor a cash Security Deposit in the amount of
$100,000 which amount shall be credited to the Basic Rent payable on the first
Rent payment date.
9.2 Letter of Credit
The Sublessee shall provide the Sublessor with an additional security deposit in
the form of an irrevocable, assignable standby letter of credit in favor of the
Sublessor in the amount set forth in Schedule 8 in form and substance reasonably
acceptable to Sublessor issued by a major commercial bank reasonably acceptable
to Sublessor (the "Letter of Credit") on or prior to the Delivery Date. The
Letter of Credit will serve as security for the performance by Sublessee of its
obligations under this Agreement or the Other Agreements.
9.3 Sublessor's Rights
9.3.1 If an Event of Default shall have occurred and be continuing, in
addition to all rights and remedies accorded to Sublessor
elsewhere in this Agreement or under applicable law in respect of
the or Letter of Credit Sublessor may immediately, or at any time
thereafter, without prior notice to Sublessee, apply all or part
of the Letter of Credit in or towards the payment or discharge of
any matured obligation owed by Sublessee under the Transaction
Documents or the Other Agreements, in such order as Sublessor sees
fit, and/or exercise any of the rights of set-off described in
Clause 11.6 against all or part of the Security Deposit or Letter
of Credit.
9.3.2 If Sublessor exercises the rights described in Clause 9.3.1,
Sublessee shall, following a demand in writing from Sublessor,
immediately restore the Letter of Credit to the level at which it
stood immediately prior to such exercise.
9.3.3 Sublessee acknowledges that Sublessor may commingle all or any
part of the Reserves with its general funds and that no interest
shall accrue in favor of Sublessee in respect of the Letter of
Credit or the Reserves (except as provided herein).
9.3.4 Sublessor's obligations in respect of return of the Maintenance
Reserves and Letter of Credit shall be those of debtor and not
those of a trustee or other fiduciary.
10. Maintenance reserves
10.1 Amount
Sublessee shall during the Lease Term pay Reserves to Sublessor in respect of
(i) the Airframe, in the amount set forth in Schedule 8 for each Flight Hour
operated by the Aircraft during the Lease Term ("Airframe Maintenance Reserve")
and (ii) each of the Engines, in the amount set forth in Schedule 8 per Engine
for each Flight Hour operated by such Engine ("Engine Maintenance Reserves") and
(iii) the Engine Life Limited Parts ("LLP's"), in the amount set forth in
Schedule 8 for each Flight Hour operated by each of the Engines ("LLP
Maintenance Reserve") and (iv) the Landing Gears, in the amount set forth in
Schedule 8 for each Cycle operated by the Aircraft ("Landing Gear Maintenance
Reserve") and (v) the APU, in the amount set forth in Schedule 8 for each Flight
Hour ("APU Maintenance Reserve").
10.2 Payments
Sublessee shall pay the Reserves in respect of each calendar month during which
Reserves accrue on the tenth (10) day immediately following the end of that
calendar month on the basis of the information contained in the applicable
Monthly Report. Each payment will be made in accordance with clause 11 and
accompanied by the annotation "[ ] Maintenance Reserve Payment for month of [
]".
10.3 Adjustment
The amount payable by Sublessee to the Reserves shall be subject to escalation
on each anniversary of this Agreement in respect of the increase, if any, in the
costs for which the Reserves are maintained. The parties shall agree upon such
reasonable escalation to apply for each payment to the Reserves that becomes
payable thereafter. Such escalation shall not exceed the increase in the Boeing
Index and the other relevant manufacturer's index.
10.4 Release of Maintenance Reserves
10.4.1 Sublessor will reimburse Sublessee from the actual Airframe
Maintenance Reserves paid by Sublessee, provided that no Default
has occurred and is continuing, for the actual cost of the
structural inspection portion of completed scheduled checks as
described in the MPD and the rectification of any structural
deficiencies resulting from such inspection whenever such
inspections and rectification work is performed (provided that
such inspection and rectification extends the available life of
the Aircraft). Work performed for all other causes is excluded
from such reimbursement, including the charges set forth in
Section 10.4.5 below.
10.4.2 Sublessor will reimburse Sublessee provided that no Default has
occurred and is continuing from the Engine Maintenance Reserves
and LLP Maintenance Reserves for the actual cost of completed
Engine Performance Restoration Visits and LLP Replacements to the
extent the work performed during such Engine Performance
Restoration Visit and LLP Replacements consisted of the
replacement of life/time limited components resulting in
performance restoration, with work performed for all other causes
excluded, including those causes set forth in Clause 10.4.5 below.
Reimbursement will be made up to the amount in the Engine
Maintenance Reserve and LLP Maintenance Reserve applicable to such
Engine.
10.4.3 Sublessor will reimburse Sublessee provided that no Default has
occurred and is continuing from the Landing Gear Maintenance
Reserves for the actual cost associated with the completed Landing
Gear overhauls, with work performed for all other causes excluded,
including those causes set forth in Clause 10.4.5. Reimbursement
will be made up to the amount in the Landing Gear Maintenance
Reserve at the time for the Landing Gear Overhaul.
10.4.4 Sublessor will reimburse Sublessee provided that no Default has
occurred and is continuing from the APU Maintenance Reserves for
the actual cost associated with the completed APU performance
restoration, with work performed for all other causes excluded,
including those causes set forth in Clause 10.4.5. Reimbursement
will be made up to the amount in the APU Maintenance Reserve at
the time for the APU performance restoration.
10.4.5 Each of the following causes shall be excluded from this Clause
10.4: accomplishment of Airworthiness Directives and FAR's,
accident, faulty maintenance or installation, incident, improper
operations, abuse, neglect, misuse, optional parts replacement
(where such replacement does not increase operational life) or
work covered by manufacturer's service bulletins or which is
reimbursed by a claim under manufacturer's warranties or by
insurance (with deductibles being treated as reimbursable by
insurance for this exclusion).
For the avoidance of doubt, Sublessee has no right to payment of
any amount from the Reserves not paid in cash by Sublessee and,
subject to Clause 26.1, any remaining balances of the Reserves on
the Expiry Date, after application of the foregoing provisions,
shall be retained by Sublessor as its sole property unless
otherwise set out in Clause 10.7.
10.5 Costs in Excess of Reserves
Sublessee will be responsible for payment of all costs in excess of the amounts
reimbursed hereunder. If on any occasion the balance in the relevant Reserve is
insufficient to satisfy a claim for reimbursement in respect of the Airframe, an
Engine, the Landing Gears or the APU, as the case may be, the shortfall may not
be carried forward or made the subject of any further claim for reimbursement.
10.6 Reimbursement after Expiry Date
Sublessee may not submit any invoice for reimbursement from the Reserves after
the Expiry Date unless on or prior to such date Sublessee has notified Sublessor
in writing that such outstanding invoice will be submitted after the Expiry Date
and the anticipated amount of such invoice. So long as Sublessee has provided
such notice to Sublessor, Sublessee may then submit such outstanding invoice at
any time within three (3) months after the Expiry Date; provided, however, if
Sublessee contests any such invoice and provides Sublessor with notice of such
contest and periodic updates of the progress of such contest, the time for
submitting an invoice shall be extended until the resolution of such contest.
10.7 Engine LLP Maintenance Reserve
Upon redelivery of the Aircraft by Sublessee in accordance with the terms of
this Agreement and subject to Sublessee having complied with its obligations
hereunder the parties hereto shall make a financial settlement in respect of
amounts paid by Sublessee to the Engine LLP Maintenance Reserve in accordance
with the following:
(i) Sublessee shall be debited an amount equal to (a) the
actual number of Flight Hours consumed in respect of
each of the LLP's during the Lease Term divided by (b)
the approved life and flight hours of each relevant
LLPand multiplied by (c) the current cost of LLP
replacement as published by the Engine Manufacturer and
totalled for all the LLPs in each Engine; and
(ii) Sublessee shall be credited an amount equal to the
total amount remaining in the Engine LLP Maintenance
Reserve.
Any positive difference between (i) and (ii) shall be due and payable by
Sublessee to Sublessor and any negative difference shall be due and payable by
Sublessor to Sublessee.
10.8 No Anticipated Draw-down
Without prejudice to Sublessee's reimbursement rights under this clause 10,
based on the age of the Aircraft, the fact the Aircraft will not have operated
at Delivery and on the length of the Lease Term, it is not anticipated that
Sublessor will be obliged to reimburse Sublessee from any of the Reserves.
11. Payments
11.1 Account for Sublessee Payments
All payments (except in respect of Maintenance Reserves) by Sublessee to
Sublessor under this Agreement will be made for value on the due date in dollars
and in same day funds to:
KBC New York
125 W 55th Street
NY 10019, New York
Accoutn Number: 21557003
SWIFT: KREDUS33 for credit to KBC Finance Ireland
quoting Indigo Proceeds Account #03/43824/77
All payments in respect of Maintenance Reserves shall be made for value on the
due date in dollars and the same day funds to:
KBC New York
125 W 55th Street
NY 10019, New York
Account Number: 21557003
SWIFT: KREDUS33 for credit to KBC Finance Ireland
quoting reference Indigo Maintenance Account
#03/43832/81
or to such other account as Sublessor may from time to time notify to Sublessee
in writing.
11.2 Default Interest
If Sublessee fails to pay any amount payable under this Agreement on the due
date, Sublessee shall pay to Sublessor on demand from time to time interest both
before and after judgment on that amount, from the due date or, in the case of
amounts expressed to be payable on demand, from the date of receipt of such
demand to the date of payment in full by Sublessee to Sublessor, at the Default
Rate (subject to applicable law). All such interest will be compounded weekly
and calculated on the basis of the actual number of days elapsed and a 360 day
year. Interest payable pursuant to this Clause 11.2 that is unpaid at the end of
such period thereafter shall itself bear interest, to the extent legally
permissible, at the rate provided in this Clause 11.2.
11.3 Absolute Obligations
Sublessee's obligations to make payments under this Agreement are absolute and
unconditional, irrespective of any contingency or circumstance whatsoever,
including:
11.3.1 any right of set-off, counterclaim, recoupment, reimbursement,
defense or other right which Sublessor or Sublessee may have
against the other or against any other person;
11.3.2 any unavailability of the Aircraft for any reason, including, but
not limited to, requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against
Sublessee's use, operation or possession of the Aircraft;
11.3.3 any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose,
condition, design, or operation of any kind or nature of the
Aircraft for any particular use or trade, or for registration or
documentation under the laws of any relevant jurisdiction, or any
Total Loss in respect of or any damage to the Aircraft;
11.3.4 any insolvency, bankruptcy, reorganisation, arrangement,
readjustment of debt, dissolution, liquidation or similar
proceedings by or against Sublessor or Sublessee or any other
person;
11.3.5 any invalidity, illegality, unenforceability or lack of due
authorization of, or other defect in, this Agreement; and
11.3.6 any other cause or circumstance that, but for this provision,
would or might otherwise have the effect of terminating or in any
way affecting any obligation of Sublessee under this Agreement.
11.4 Application of Payments to Sublessor
If any sum paid to Sublessor or recovered by Sublessor in respect of the
liabilities of Sublessee under this Agreement is less than the amount then due,
Sublessor may apply that sum to amounts due under this Agreement in such
proportions and order and generally in such manner as Sublessor may determine.
11.5 Currency Indemnity
If, under any applicable law, whether as a result of judgement against Sublessee
or the liquidation of Sublessee or for any other reason, any payment under or in
connection with this Agreement is made or is recovered in a currency ("other
currency") other than United States dollars, the currency ("contractual
currency") in which it is payable pursuant to this Agreement then, to the extent
that the payment (when converted into the contractual currency at the rate of
exchange on such date or, in the case of a liquidation, the latest date for the
determination of liabilities permitted by the applicable law) falls short of the
amount payable under this Agreement, Sublessee shall, as a separate and
independent obligation, fully indemnify Sublessor against the amount of the
shortfall. For the purposes of this sub-Clause "rate of exchange" means the rate
at which the Sublessor is able on the relevant date to purchase the contractual
currency in London or any other place Sublessor may reasonably choose with the
other currency.
11.6 Set-off
Sublessor may set off any matured obligation owed by Sublessee under the
Transaction Documents or any Other Agreement against any obligation, whether or
not matured, owed by Sublessor to Sublessee.
11.7 Time for Payments
If any payment due under this Agreement other than a payment of Rent would
otherwise be due on a day that is not a Business Day, it shall be due on the
next preceding Business Day.
12. Sublessor's Convenants
12.1 Quiet Enjoyment
Provided no Default has occurred and is continuing, Sublessor shall not, and no
one claiming by or through the acts or omissions of Sublessor or Owner Trustee
shall, interfere with the quiet use, possession and enjoyment of the Aircraft by
Sublessee during the Lease Term.
12.2 Sublessor Obligations Following Expiry Date
Within five (5) Business Days after:
12.2.1 redelivery of the Aircraft to Sublessor (or, if applicable, the
Owner Trustee) in accordance with and in the condition required by
this Agreement; or
12.2.2 payment received by Sublessor of the Agreed Value following a
Total Loss after the Delivery Date;
or in each case such later time as Sublessor is reasonably satisfied Sublessee
has irrevocably paid to Sublessor all amounts that may then be outstanding or
become payable under the Transaction Documents and the Other Agreements,
Sublessor shall (provided that no Default has occurred and is continuing) pay or
deliver to Sublessee, as the case may be:
(i) an amount equal to the balance of the Security Deposit,
if any, paid by Sublessee under this Agreement and then
held by Sublessor;
(ii) the amount of any Rent received in respect of any
period falling after the date of redelivery of the
Aircraft or payment of the Agreed Value, as the case
may be; provided, however, if there is a dispute
between Sublessor and Sublessee as to the amount due to
Sublessee, Sublessor shall nevertheless pay to
Sublessee such amount as in Sublessor's reasonable
judgement is not in dispute or is in excess of the
amount Sublessor claims is due; and
(iii) the Letter of Credit.
13. Sublessee's covenants
13.1 Duration
Sublessee shall perform and comply with its undertakings and covenants in this
Agreement and the other Transaction Documents at all times during the Lease
Term. All such undertakings and covenants shall, except where expressly
otherwise stated, be performed at the expense of Sublessee.
13.2 Information
Sublessee shall:
13.2.1 notify Sublessor forthwith of the occurrence of a Default or an
Event of Default and the steps it is taking to cure such Default
or Event of Default;
13.2.2 furnish to Sublessor:
(i) as soon as available, but not in any event later than
ninety (90) days after the last day of each financial
year of Sublessee, its audited consolidated balance
sheet as of such day and its audited consolidated
profit and loss statement for the year ending on such
day prepared in accordance with generally accepted
accounting principles in the State of Incorporation;
(ii) as soon as available, but not in any event later than
forty-five (45) days after the last day of each quarter
of Sublessee, its unaudited consolidated balance sheet
as of such day and its unaudited consolidated profit
and loss statement for the quarter ending on such day
prepared in accordance with generally accepted
accounting principles in the State of Incorporation;
(iii) such information as may reasonably be requested by
Sublessor to fulfil its Tax filing or other information
reporting requirements with respect to the transactions
contemplated by this Agreement;
(iv) within ten (10) days following the term of each month a
Monthly Report in the form of Schedule 9, detailed
technical reports following completion of each "C"
Check and other information reasonably requested by
Sublessor concerning the location, condition, use and
operation of the Aircraft; and
(v) such other information and documents regarding
Sublessee's business and financial condition as
Sublessor may from time to time reasonably request;
13.2.3 promptly notify Sublessor of any loss, theft, damage or
destruction to the Aircraft, any Engine or any Part if the cost of
the repair or replacement thereof may exceed the Damage
Notification Threshold, or any modification to the Aircraft if the
potential cost of repair or of such modification may exceed the
Damage Notification Threshold.
13.2.4 promptly notify Sublessor in writing of any suit, arbitration or
proceeding before any court, administrative agency or Government
Entity which, if adversely determined, would materially adversely
affect Sublessee's financial condition, affairs, operations or its
ability to perform under this Agreement.
13.2.5 promptly notify Sublessor in the event Sublessee is made aware of
or determines that any computer application (including those of
its suppliers, customers and vendors) that is material to the
business and operation of Sublessee will not be Year 2000
Compliant on a timely basis, except to the extent that such
failure could not reasonably be expected to have a materially
adverse effect.
13.2.6 promptly notify Sublessor in writing of any Total Loss to the
Aircraft or any damage caused to the Aircraft that is expected to
be in excess of the Damage Notification Threshold and the amount
of the deductible under the Insurance or equivalent in any
currency.
13.2.7 promptly notify Sublessor in writing of any loss, arrest,
hijacking, confiscation, seizure, requisitioning, impounding,
taking in execution, or forfeiture of the Aircraft or any Engine
or any major part thereof.
13.2.8 promptly notify Sublessor in writing of any substantial injury or
damage to a third party causes by, or in connection with, the
Aircraft which is expected to give rise to any loss or liability
on the part of the Sublessor or to a loss or liability in excess
of the Damage Notification Threshold.
13.2.9 as soon as available provide Sublessor with a copy of any
Engineering Order in respect of the Aircraft together with any
documentary supplements to such Engineering Order.
13.2.10 promptly notify Sublessor in writing of any other event in respect
of the Aircraft which in the reasonable opinion of the Sublessee
might reasonably be expected to involve the Sublessor in any loss
or liability.
13.3 Sublessor visits
Sublessor may visit, upon reasonable notice, Sublessee's premises to discuss
Sublessee's general affairs and finances with Sublessee's principal officers.
13.4 Periodic Estoppel Certificates
Sublessee will, within ten (10) Business Days after receipt of written notice
from Sublessor (which will not occur more often than four (4) times in any
calendar year), execute, acknowledge and deliver to Sublessor a written
statement as to each of the following:
13.4.1 certifying that this Agreement is unmodified and in full force and
effect (or, if modified, stating the nature of such modification
and certifying that this Agreement, as so modified, is in full
force and effect) and the date to which the Rent and other charges
are paid in advance, if any.
13.4.2 acknowledging that there are not, to Sublessee's knowledge, any
uncured defaults on the part of Sublessor hereunder, or specifying
such defaults if there are any claimed by Sublessee.
13.4.3 acknowledging that Sublessee has no claims against Sublessor by
reason of the condition of the Aircraft as of the Delivery Date or
arising subsequent thereto to the date of such statement.
If Sublessee does not deliver such statement within such timeframe, the
statements set forth in this Clause 13.4 will be deemed correct and binding upon
Sublessee.
13.5 Airport and Navigation Charges
Sublessee will promptly pay and discharge when due all landing fees and other
similar Airport Charges imposed by the authorities of any airport from or to
which the Aircraft may operate and any charges (including without limitation,
all Air Navigation Charges) imposed by virtue of any regulations made by any
relevant authority or any other charges in respect of air navigation incurred,
in each case in respect of all aircraft of which it is the operator. Sublessee
will ensure that all such charges are paid on a regular basis and that invoices
are received (and, if not received, are specifically requested) by it from the
relevant authorities no more than three (3) months after the event to which the
charges relate.
13.6 Operation of Aircraft
Sublessee shall not maintain, use or operate the Aircraft in violation of any
law or any mandatory rule, regulation or order of any Government Entity having
jurisdiction in any country, state, province or other political subdivision in
or over which the Aircraft is flown or in violation of any airworthiness
certificate, license or registration relating to the Aircraft issued by the
Aviation Authority or any similar authority or any jurisdiction in or over which
the Aircraft is flown. If any such law, rule, regulation or order requires
alteration of the Aircraft, Sublessee shall conform or procure conformance
thereto at its own expense and maintain or procure maintenance of the Aircraft
in proper operating condition under such laws, rules, regulations and orders;
provided that Sublessee may in good faith contest, or procure the contest of,
the validity or application of any such law, rule, regulation or order in any
reasonable manner that does not adversely affect Sublessor or its interest in
the Aircraft. In particular, Sublessee will ensure that the Aircraft at all
times during the Lease Term is operated by duly qualified pilots and aircrew
employees, and is not used to transport contraband or illegal narcotics or
hazardous or perilous cargo (other than pursuant to applicable FAA and carrier
regulations). The Aircraft may be used or operated in flight crew conversion,
training for Sublessee's own employees and for experimental flights; provided,
however, prior to any such flights Sublessee shall notify Sublessor and shall
deliver to Sublessor evidence that insurance coverage is in effect for such
flights. At all times the Aircraft will be operated in passenger configuration.
13.7 Areas of Operation
Sublessee shall not operate or locate the Airframe or any Engine or Part or
suffer the Airframe or any Engine or Part to be operated or located, (i) in any
area or for carriage of any goods excluded from coverage by any insurance
required by the terms of this Agreement, (ii) in any recognized or threatened
area of hostilities unless fully covered by war risk insurance; or (iii) outside
the United States of America, Mexico or Canada.
13.8 Non-Prejudicial Action
Sublessee shall not do anything that, or omit to do anything the omission of
which, prejudices any right Sublessor may have against either the Manufacturer
or against the manufacturer or supplier of any part of the Aircraft in respect
of the Aircraft or any part thereof.
13.9 Non-Representation of Sublessor
Sublessee shall not at any time represent Sublessor Owner Trustee or Sublessor's
Lender as carrying goods or passengers in the Aircraft or as being in any way
connected or associated with any operation or carriage (whether for hire or
reward or gratuitously) being undertaken by Sublessee or as having any
operational interest in or responsibility for the Aircraft.
13.10 Inspection
Sublessor and its agents (including Sublessor's Lender) may at all reasonable
times on reasonable notice inspect, or appoint an inspector on its behalf to
inspect, the Aircraft or any part thereof, provided that if no Default or Event
of Default has occurred and is continuing Sublessee shall not be obliged
hereunder to permit, or procure permission for, any such inspection that would
result in an unreasonable disruption of the operation of the Aircraft or the
operation of the business of Sublessee as an airline. Sublessee agrees to
reimburse the out-of-pocket expenses of Sublessor for such inspector incurred in
making any such inspection when such inspection shows that the Aircraft is not
materially in the condition required by the terms of this Agreement provided
that Sublessee shall in all cases pay or reimburse Sublessor for the costs of
such inspection or survey if Sublessor is required by law or change of law to
make an inspection or survey. Sublessor shall have no duty to make any such
inspection and shall not incur any liability or obligation by reason of not
making any such inspection. Sublessee shall provide Sublessor with such
information regarding the present and anticipated location and regarding the
condition of the Aircraft as Sublessor may reasonably require. For the purposes
mentioned in this Clause 13.10 and subject to the limitations herein contained,
Sublessor and any inspector may gain access to the Aircraft, including the
Aircraft Documents. Sublessee shall forthwith effect such repairs to the
Aircraft as such inspection may reasonably show are required for the terms of
this Agreement to be complied with but if it fails to do so after receipt of
notice requiring it to do so from Sublessor, Sublessor may at the cost and
expense of Sublessee, itself arrange for such repairs to be carried out.
Sublessee shall on demand reimburse the costs and expenses incurred by Sublessor
in effecting such repairs.
13.11 Registration
Sublessee shall at its own expense:
13.11.1 provide that the Aircraft and the interests of the parties set out
below is duly registered, recorded or filed with the Aviation
Authority (to the extent that the Aviation Authority permits
registration in that manner) as follows:
(i) Owner Trustee as owner;
(ii) the first priority security interest of Sublessor's
Lender;
(iii) Sublessor's interest, by filing the Sublease
Supplement;
and maintain or provide the maintenance of such registration throughout the
Lease Term. Sublessee shall further provide that the interests of any successors
and assigns to the parties referred to in this paragraph will be filed and
recorded with the FAA and that such recordation will be maintained in the same
manner as required herein. Sublessee will not take any action or omit to take
any action that will invalidate any such registration or recordation. Sublessee
shall not change the State of Registration without Sublessor's prior written
consent.
13.11.2 provide that at all times during the Lease Term, the Aircraft
possesses a valid current FAA Certificate of Airworthiness (or if
the Aircraft is registered with an Aviation Authority other than
the FAA, the equivalent for the time being of such a certificate),
and all such other certificates, licenses, permits and
authorizations as are from time to time required for the use and
operation of the Aircraft for the public transport of passengers
or cargo from any Government Entity having jurisdiction in any
country, state, province or other political subdivision in or over
which the Aircraft is flown including without limitation any
Aviation Authority. Sublessee shall, prior to the Delivery Date,
provide Sublessor with certified true copies of its current
Certificate of Public Convenience and Necessity and its Operating
Certificate, the latter of which shall include reference to the
Aircraft.
13.12 Name Plates
On the Delivery Date or as soon thereafter as is reasonably practicable,
Sublessee shall affix and thereafter maintain, or procure the affixation and
maintenance of, in a prominent position in the cockpit of the Aircraft and on
each Engine a fireproof metal nameplate bearing a legible inscription in a form
reasonably required by Sublessor, denoting the name of (i) First Security Bank,
National Association as Owner Trustee; (ii) Indigo Pacific, AB. as Sublessor of
the Aircraft; and (iii) Sublessor's Lender as mortgagee and stating the Aircraft
type, manufacturer's serial number and current registration letters of the
Aircraft. Except as above provided Sublessee will not allow the name of any
person to be placed on the Airframe or on any Engine as a designation that
constitutes a claim of ownership or a claim of any Security Interest; provided
that nothing herein contained shall prohibit Sublessee (or any person to which
possession of the Airframe or any Engine is delivered or transferred in
accordance with Clauses 14 and 15) from placing its customary colors and
insignia on the Airframe.
13.13 Geneva Convention
Whenever the State of Registration is a signatory state that has ratified the
Geneva Convention, Sublessee shall, at its own cost, do any and all things
necessary in the State of Registration to perfect recognition of the interests
of Owner Trustee and Sublessor's Lender to the Aircraft by every other signatory
state that has ratified such Convention.
13.14 Merger and Shareholding
Sublessee will not sell its business to or operate its business in any other
corporate form or entity (the new entity) unless (a) such new entity is solvent
and duly organised and existing under the Law of the State of Incorporation or
any state of the United States of America and the new entity has executed and
delivered to Sublessor an agreement in form and substance acceptable to
Sublessor assuming the due and punctual performance and observance of each of
the terms of this Agreement and the other Transaction Documents, and (b)
immediately after such sale or the giving effect to such operation as that new
entity, the tangible net worth of such new entity is equal to or greater than
that of Sublessee and the creditworthiness of such new entity does not, in
Sublessor's reasonable opinion, adversely affect the ability of such new entity
to perform its obligations under this Agreement and the other Transaction
Documents or any Other Agreements and (c) the new entity is a US Air Carrier
authorised to transport passengers in common carriage. Sublessee will give
Sublessor prior written notice of any such proposed sale or change in operation
together with a request of Sublessors approval. Sublessee shall reimburse
Sublessor within ten (10) days of Sublessor's invoice for all reasonable
out-of-pocket expenses incurred by Sublessor as a result of such proposed merger
whether or not Sublessor approves and whether or not it actually occurs.
13.15 Ownership
Sublessee shall not hold itself out as owner of the Aircraft and, on all
occasions when the ownership of the Aircraft or any part of it is relevant, will
make clear to third parties that title to the same is held by Owner Trustee
subject to the Mortgage in favour of Sublessor's Lender.
13.16 Maintenance of Principal Business Place
Sublessee shall maintain its principal place of business and chief executive
office and the office where it keeps its business and financial records and
files concerning the Transaction Documents at the location specified in the
opening paragraph hereof. Sublessee shall hold and preserve such records and
files concerning the Transaction Documents and shall permit representatives of
Sublessor at any time during normal business hours to inspect and make abstracts
from such records and files. Sublessee shall give Sublessor at least 30 days'
prior written notice of any change in Sublessee's principal place of business
and chief executive office, and shall co-operate with Sublessor in executing and
delivering all such documents as Sublessor may reasonably request which are
required or desirable as a result of such change of principal place of business
of Sublessee.
13.17 Maintenance of Flight Records
Sublessee shall maintain flight records pertaining to the Aircraft required to
be maintained pursuant to section 47.9(e) of the FAR at the address given in
Clause 3.1(t) hereof and shall hold and preserve such records at such address
and permit inspection of such records by the FAA, the Sublessor, the Owner
Trustee and Sublessor's Lender. Sublessor shall give Sublessee at least 30 days
prior written notice of change in location of the flight records of the
Aircraft.
13.18 Substitution of Aircraft
Sublessee and Sublessor shall use reasonable endeavours to agree within 90 days
of the date of this Agreement the basis whereby Sublessor may substitute a
737-200 aircraft for the Aircraft.
13.19 UCC Finance Statement.
Sublessee undertakes to file, within 2 Business Days of the date of this
Agreement, a UCC-1 financing statement with the Colorado Division of
Corporations and Commercial Code executed by Sublessee for precautionary
purposes under Section 9-408 of the UCC.
14. Possession
14.1 No Relinquishment of Possession
Sublessee shall not sub-lease or otherwise deliver, transfer or relinquish
possession of the Airframe or any Engine or install any Engine or permit any
Engine to be installed, on any airframe other than the Airframe, provided that,
(i) so long as no Default shall have occurred and be continuing, (ii) Sublessee
continues to be fully responsible to Sublessor for all its obligations hereunder
and (iii) Sublessee in advance, obtains written acknowledgement(s) of
Sublessor's Lender's Security Interest in the Airframe and/or any Engines from
any person who will be in possession of the Airframe and/or any Engine in the
form and substance requested by Sublessor, Sublessee may;
14.1.1 subject any Engine to normal interchange or pooling agreements or
arrangements in each case customary in the airline industry and
entered into by Sublessee in the ordinary course of its business
with a commercial air operator which is approved by Sublessor in
writing and on terms and conditions that Sublessor has approved
(such approval not to be unreasonably withheld) (any such
commercial air operator being hereinafter called a Permitted Air
Carrier) provided THAT the terms of this Agreement shall be
observed and if either:
(i) Owner Trustee's title to the Engine shall be divested
under the terms of any such agreement or arrangement,
or
(ii) any Permitted Air Carrier shall have possession of any
such Engine under any such agreement or arrangement for
more than ninety (90) days,
Sublessee shall forthwith substitute, or procure the substitution
of, a Replacement Engine therefor in accordance with and which
satisfies the conditions of Clause 17.6;
14.1.2 deliver possession of the Airframe or any Engine to the
manufacturer thereof for testing or other similar purposes or to
any organisation for service, repair, maintenance or overhaul work
on the Airframe or such Engine or any part thereof or for
alterations or modifications in or additions to the Airframe or
such Engine to the extent required or permitted by the terms of
Clauses 17.4 and 17.5;
14.1.3 install an Engine on an airframe owned by Sublessee and operated
by and under the operating control of flight crew engaged by
Sublessee which is free and clear of all Security Interests,
except (i) Permitted Liens, (ii) Security Interests that apply
only to the engines (other than Engines), appliances, parts,
instruments, appurtenances, accessories, furnishings and other
equipment (other than Parts) installed on such airframe but not to
the airframe as an entirety and (iii) the rights of Permitted Air
Carriers under normal interchange agreements which are customary
in the airline industry and do not contemplate, permit or require
the transfer of title to the airframe or engines installed
thereon;
14.1.4 install an Engine on an airframe operated by Sublessee that is
owned by or leased or subleased to Sublessee and/or subject to any
security agreement, provided that (i) such airframe is free and
clear of all Security Interests except the rights of the parties
to any security agreement covering such airframe and except
Permitted Liens and any Security Interests or rights of the type
permitted by sub-paragraphs (ii) and (iii) of Clause 14.1.3 and
(ii) Sublessee shall have obtained from the Sublessor or secured
party, as relevant, of such airframe a written agreement, which
may be in the Sublease agreement or security agreement in respect
of such airframe, in form and substance satisfactory to Sublessor
(it being understood that an agreement from such Sublessor or
secured party to substantially the same effect as the agreement of
Sublessor set forth in the final sentence of Clause 14.3 shall be
deemed to be satisfactory to Sublessor), whereby such Sublessor or
secured party expressly agrees that neither it nor its successors
or assignees will acquire or claim any right, title or interest in
any Engine by reason of such Engine being installed on such
airframe at any time while such Engine is subject to this
Agreement;
14.1.5 install an Engine on an airframe owned by Sublessee, leased or
subleased to Sublessee, or purchased by Sublessee, subject to any
security agreement under circumstances where neither Clause 14.1.1
nor 14.1.2 can be fulfilled in the circumstances, provided that it
would otherwise have resulted in an unreasonable disruption of the
operation of the Aircraft or the business of the Sublessee and in
such event Sublessee shall, as promptly as possible and in any
event within fifteen (15) days substitute a Replacement Engine
therefor in accordance with Clause 17.6 and which satisfies the
conditions specified in Clause 17.6;
14.1.6 sub-lease the Aircraft or Airframe to any person provided that the
Aircraft or Airframe is operated by, and remains throughout the
term of such sub-lease under the operational control of, flight
crew engaged by Sublessee, and provided further that:
(i) no Default has occurred and is continuing;
(ii) any such sublease will not result in any change in the
State of Registration;
(iii) the length of any such sublease does not extend beyond
twelve months (including any renewals);
(iv) the sub-Sublessee shall acknowledge that its rights are
subordinate to Sublessor's rights under this Agreement
and the rights Sublessor's Lender under any finance
document or security document entered into by Owner
Trustee or Sublessor in relation to the Aircraft;
(v) the conditions in clause 14.1.7 are satisfied in
respect of that sub-lease;
14.1.7 sublease the Aircraft or Airframe to any wholly-owned subsidiary
of Sublessee on terms that the Aircraft or Airframe is not
operated by, and does not remain under the operational control of,
flight crew engaged by Sublessee provided that the following
conditions are satisfied in relation to any such sublease
hereunder:
(i) no Default has occurred and is continuing;
(ii) the sub-lease shall acknowledge that its rights are
subordinated to the rights of Sublessor, Owner Trustee
and Sublessor's Lender under any finance or security
document entered into between Sublessor and/or Owner
Trustee and Sublessor's Lender in relation to the
Aircraft.
(iii) the proposed sub-Sublessee and the proposed form of the
sublease is approved by Sublessor and Sublessor's
Lender in writing, including any proposed right to
sub-sub-lease the Aircraft which must be approved by
Sublessor and Sublessor's Lender at its absolute
discretion;
(iv) the sublease shall terminate on or before termination
of this Agreement and the terms and conditions of the
sublease are not inconsistent with those contained in
this Agreement or any finance or security document
entered into between Sublessor and/or Owner Trustee
and/or Sublessor's Lender and the sub-Sublessee shall
acknowledge that its rights are subordinate to
Sublessor's rights under this Agreement (provided that
the sublease shall not permit further sub-leasing);
(v) the Insurances are in full force and effect in
accordance with the terms of this Agreement and, if the
sub-Sublessee is to maintain such insurances during the
term of such sub-lease, it shall have furnished to
Sublessor all such documents, evidence and information
relating to such insurances which Sublessee is required
to furnish or cause to be provided to Sublessor under
this Agreement;
(v) if the Aviation Authority for the duration of the
sublease is to be other than the FAA, Sublessor and
Sublessor's Lender approves the change of registration
and Sublessor receives (x) an opinion of counsel in the
State of Registration in form and substance reasonably
satisfactory to Sublessor and the Sublessor's Lender
which opinion must, at least, address the satisfactory
recognition of Owner Trustee's ownership of, and
Sublessor's Lender's Security Interest in the Aircraft
and (y) evidence that all actions recommended in such
opinion have been or will be duly taken;
(vi) the proposed Sublessee is a US Air Carrier authorised
to transport passengers in common carriage.
No less than three (3) Business Days after the
execution of any sub-lease entered into by Sublessee
under Clause 14.1.6 or Clause 14.1.7 Sublessee shall
provide Sublessor with a copy of such executed
sub-lease.
14.2 Sublessee Primarily Liable
Notwithstanding anything contained in Clause 14.1, Sublessee shall remain
primarily liable hereunder for the performance of all of the terms of this
Agreement to the same extent as if such sublease or transfer had not occurred.
No interchange agreement, sublease or other relinquishment of possession of the
Airframe or any Engine permitted by this Clause 14 shall in any way discharge or
diminish any of Sublessee's obligations hereunder.
14.3 Recognition of Rights
If Sublessee shall have obtained from the sublessor or secured party of any
engine subleased to Sublessee or owned by Sublessee subject to any Security
Interest, a written agreement complying with the terms of sub-paragraph (ii) of
Clause 14.1.4, Sublessor hereby agrees for the benefit of such sublessor or
secured party that Sublessor shall not acquire or claim, as against such
sublessor or secured party, any right, title or interest in any such engine as a
result of such engine being installed on the Airframe at any time while such
engine is subject to such sublease or security agreement and owned by such
sublessor or subject to a Security Interest in favour of such secured party and
Sublessor shall, at the request of Sublessee, confirm such agreement in writing
for any such sublessor or secured party.
15. Security interests
15.1 Title
Sublessee shall not do, or permit to be done, any act which might reasonably be
expected to jeopardise the interest of Owner Trustee, Sublessor or Sublessor's
Lender. Sublessee shall make clear to all third parties that legal title to the
Aircraft is owned by Owner Trustee, subject tothe Mortgage or the relevant title
holder advised by Sublessor.
15.2 No Security Interests; Base of Aircraft
Sublessee shall not create, incur or permit to subsist over the Aircraft or any
part thereof any Security Interest other than Permitted Liens.
15.3 Notice to Sublessor
Sublessee shall notify Sublessor:
(i) as and when it becomes aware of the same, of any
Security Interest (x) (excluding Permitted Liens)
arising over the Aircraft or any Engine or other major
part thereof or (y) (in the case of all Security
Interests including Permitted Liens) exercised over the
Aircraft or any Engine or other major part thereof or
(z) of any arrest or detention or purported or
attempted arrest or detention of the Aircraft; and
(ii) promptly on request of Sublessor of the location of the
Airframe and each Engine including an Engine that is
not for the time being installed on the Airframe.
15.4 Procure Release
Sublessee shall as soon as possible and in any event within five (5) Business
Days of becoming aware of the same procure the release of any Security Interest
(other than Permitted Liens) arising over the Aircraft or any part thereof and
procure the release of the Aircraft from any arrest or detention to which it is
subject.
16. Maintenance and repair
16.1 General Obligations
16.1.1 Sublessee shall at its own expense at all times during the Lease
Term:
(a) maintain, service, repair, overhaul and test
the Aircraft and all Parts thereon and
equipment thereon and Parts and equipment
therein (whether or not such Parts and
equipment are the property of Sublessor), or
procure the same, in accordance with the
applicable requirements of the Aviation
Authority and the Insurances and comply with
all Airworthiness Directives and alert service
bulletins issued by the Manufacturer (unless
to do so would be in breach of the Aviation
Authority's requirements, in which case the
Aviation Authority's requirements shall
prevail) and the MPD so as to keep the
Aircraft in good operating condition, ordinary
wear and tear excepted, and in accordance with
sound international aviation industry practice
and in such condition as may be necessary to
enable (i) the airworthiness certification of
the Aircraft with the Aviation Authority to be
maintained in good standing at all times
during the Lease Term (ii) the issuance of a
standard certificate of airworthiness for
transport category aircraft issued by the
Aviation Authority in accordance FAR Part 21
and, (iii) the Aircraft to be placed on the
operations specifications of a U.S. airline in
accordance with Part 121 of the FARs.
(b) maintain, service, repair, overhaul and test
the Aircraft, in the same manner and with the
same care as used by Sublessee with respect to
similar aircraft and engines operated by
Sublessee and without in any way adversely
discriminating against the Aircraft;
(c) maintain, or procure the maintenance of, the
Aircraft Documents including technical records
and any other records, logs and other
materials required by the FAA to be maintained
in respect of the Aircraft in the English
language and permit Sublessor or its agent to
examine such records, logs and other materials
at any reasonable time upon reasonable notice.
16.1.2 The maintenance programme and performer shall be approved by the
Sublessor with such approval not to be unreasonably withheld.
16.2 Specific Obligations
Without limiting Clause 16.1, Sublessee agrees that the performance by Sublessee
of such maintenance and repairs will include but will not be limited to each of
the following specific items:
(i) performance in accordance with the Maintenance Program
of all routine and non-routine maintenance work;
(ii) incorporation in the Aircraft of all applicable
Airworthiness Directives or equivalent, all alert
service bulletins of Manufacturer, Engine manufacturer
and other vendors or manufacturers of Parts
incorporated on the Aircraft and any service bulletins
which must be performed in order to maintain the
warranties on the Aircraft, Engines and Parts;
(iii) incorporation in the Aircraft of all other service
bulletins of Manufacturer, the Engine Manufacturer and
other vendors which Sublessee schedules to adopt within
the Lease Term for the major part of its Boeing
aircraft fleet. It is the intent of the parties that
the Aircraft will not be discriminated from the rest of
Sublessee's fleet in service bulletin compliance
(including method of compliance) or other maintenance
matters. Sublessee will not discriminate against the
Engines with respect to Overhaul build standards and
life limited part replacements;
(iv) incorporation into the Maintenance Program for the
Aircraft of a corrosion prevention and control program
as recommended by Manufacturer, the Aviation Authority
and the FAA and the correction of any discrepancies in
accordance with the recommendations of Manufacturer and
the Structural Repair Manual. In addition, all
inspected areas will be properly treated with corrosion
inhibitor as recommended by Manufacturer;
(v) incorporation into the Maintenance Program of an
anti-fungus/biological growth and contamination
prevention, control and treatment program of all fuel
tanks in accordance with Manufacturer's approved
procedures;
(vi) providing without delay written summaries of all
sampling programs and amendments thereof involving or
affecting the Aircraft;
(vii) maintaining in English and keeping in an up-to-date
status all relevant records and historical documents;
(viii) maintaining historical records, in English, for
condition-monitored, hard time and life limited Parts
(including tags from the manufacturer of such Part or a
repair facility which evidence that such Part is new or
overhauled and establish authenticity, total time in
service and time since overhaul for such Part), the
hours and cycles the Aircraft and Engines operate and
all maintenance and repairs performed on the Aircraft;
(ix) properly documenting all repairs, modifications and
alterations and the addition, removal or replacement of
equipment, systems or components in accordance with the
rules and regulations of the Aviation Authority and
reflecting such items in the Aircraft Documentation. In
addition, all repairs, to the Aircraft will be
accomplished in accordance with Manufacturer's
Structural Repair Manual, where possible, or approved
data from the Manufacturer accepted by the Aviation
Authority;
(x) ensuring that Overhauls are accomplished utilising
maintenance and quality control procedures approved by
the Aviation Authority and that the repair agency
provides a complete record of all work performed during
the course of such Overhaul and certifies that such
Overhaul was accomplished, that the equipment is
airworthy and released for return to service and that
the Overhaul was in conformity with the original type
design.
17. replacement of parts
17.1 Replacement of Parts
Sublessee shall, at its own expense, promptly replace, or procure the
replacement of, all Parts that become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond economical repair or permanently rendered unfit for
use for any reason whatsoever, except as otherwise provided in Clause 17.4 or
17.5. In addition, Sublessee may at its own cost and expense, remove, or permit
the removal of any Parts including Engines , whether or not worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use, provided that Sublessee shall, except as otherwise
provided in Clause 17.7, at its own cost and expense, immediately replace, or
procure the replacement of, such Parts. Title to all replacement Parts shall be
vested in Owner Trustee, subject to the Mortgage free and clear of all Security
Interests except Permitted Liens and shall, except as otherwise provided in
Clause 17.7, be in as good operating condition as, and shall have a value, age,
configuration 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 shall have a current "serviceable tag" of the manufacturer or
maintenance facility providing such items to Sublessee.
17.2 Title to Replacement Parts
All Parts at any time removed from the Airframe or any Engine shall remain the
property of Owner Trustee and subject to the terms of this Agreement, no matter
where located, until such time as such Parts shall be replaced by parts that
have been incorporated or installed in or attached or added to the 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 or added to the Airframe or any Engine as above provided, without
further act, (a) title to the replaced Part shall thereupon vest in Sublessee,
free and clear of all rights of Owner Trustee, shall cease to be subject to this
Agreement and shall no longer be deemed a Part hereunder and (b) title to such
replacement part shall pass to Owner Trustee, subject to the Mortgage free and
clear of all Security Interests except Permitted Liens and such replacement part
shall become subject to this Sublease Agreement and be deemed part of the
Airframe or Engine for all purposes hereof to the same extent as the Parts
originally incorporated or installed in or attached or added to such Airframe or
Engine and shall become a Part hereunder.
17.3 Pooling of Parts
Any Part removed from the Airframe or any Engine as provided in Clause 17.1 or
17.2 may be subjected to a normal pooling arrangement customary in the airline
industry entered into in the ordinary course of Sublessee's business, provided
that the part replacing such removed Part shall be incorporated or installed in
or attached to the Airframe or such Engine in accordance with Clause 17.1 and
17.2 as soon as practicable after the removal of such removed Part. Without
prejudice to the generality of the foregoing sentence, any replacement part when
incorporated or installed in or attached to the Airframe or any Engine may be
owned by a third person subject to such a normal pooling arrangement, provided
that Sublessee, at its own expense, as promptly thereafter as possible, either
(a) causes title to such replacement part to vest in Owner Trustee in accordance
with Clause 17.1 and 17.2 free and clear of all Security Interests except
Permitted Liens, or (b) replaces or procures the replacement of such replacement
part by the incorporation or installation in or attachment to such Airframe or
Engine of a further replacement part (which meets the requirements of this
clause 17) free and clear of all Security Interests except Permitted Liens and
by causing title to such further replacement part to vest in the Owner Trustee
subject to the Mortgage in accordance with Clause 17.1 and 17.2 and such further
replacement part shall forthwith be deemed part of the Airframe or Engine to the
same extent as the Part originally incorporated or installed in or attached to
the Airframe or such Engine and shall become a Part hereunder.
17.4 Alterations
Sublessee shall at its own expense, make, or procure the making of, such
alterations and modifications in and additions to the Airframe and Engines as
may be required from time to time to meet the standards of the Aviation
Authority or any Government Entity having jurisdiction in any country, state,
county or other political subdivision in or over which the Aircraft is flown or
the FAA and any mandatory service bulletins of the Manufacturer. In addition,
Sublessee may, at its own expense, from time to time, make, or procure the
making of, such alterations and modifications in and additions including the
making of any improvements to the Airframe or any Engine as Sublessee may deem
desirable in the proper conduct of its business, including, removal of Parts
(for purposes of this Clause, "Obsolete Parts") which Sublessee deems obsolete
or no longer suitable or appropriate for use in the Airframe or such Engine,
provided that no such alteration, modification, addition or removal shall cost
over US$ 200,000, or alter the fundamental nature of the Aircraft as a passenger
carrying aircraft, or change its original type design or configuration, or
materially diminish the value or utility of the Airframe or any such Engine, or
impair the condition or airworthiness thereof, below the value, utility,
condition and airworthiness thereof immediately prior to such alteration,
modification, addition or removal assuming such Airframe or Engine was then in
the condition and repair required to be maintained by the terms of this
Agreement. Title to all Parts incorporated or installed in or attached or added
to the Airframe or any such Engine as the result of such alteration,
modification or addition shall be vested in Owner Trustee, subject to the
Mortgage and shall forthwith be deemed part of the Airframe or such Engine.
Neither Owner Trustee, Sublessor's Lender nor Sublessor shall be required under
any circumstances to pay directly for any alteration, modification or addition
to the Aircraft or to reimburse Sublessee for the cost thereof. Any other
alterations other than those permitted according to Clause 17.5 require
Sublessors prior written consent, which consent shall not be unreasonably
withheld or delayed.
17.5 Removal of Parts
Notwithstanding the foregoing, so long as no Default shall have occurred and be
continuing, Sublessee may remove, or permit the removal of, at any time during
the Lease Term, any Part, provided that (a) such Part 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 to Sublessee or in replacement of, or substitution for, any such Part,
(b) such Part is not required to be incorporated or installed in or attached or
added to the Airframe or such Engine pursuant to the terms of Clause 17.4 or
17.5, and (c) such Part can be removed from the Airframe or such Engine without
causing damage to the Airframe or such Engine or if it causes any such damage is
to be repaired and promptly thereafter is repaired and without diminishing or
impairing the value, utility, condition or airworthiness required to be
maintained by the terms of this Agreement that the Airframe or such Engine would
have had at such time had such alteration, modification or addition not occurred
assuming it was in the condition and repair required to be maintained under this
Agreement. Upon the removal of any Part as provided in the immediately preceding
sentence and the removal of any Obsolete Part, title thereto shall, without
further act, vest in Sublessee, free and clear of all rights of Owner Trustee,
Sublessor's Lender and Sublessor and such Part shall no longer be deemed part of
the Airframe or Engine from which it was removed. Any Part not so removed shall
remain the property of Owner Trustee subject to the Mortgage.
17.6 Substitution of Engine
In addition to its rights under Clause 14, Sublessee shall have the right at its
option at any time, on at least thirty (30) days' prior written notice to Owner
Trustee, Sublessor's Lender and Sublessor, to substitute or procure the
substitution of a CFM INTERNATIONAL CFM 56-3C1 engine or an engine of an
improved model suitable for installation and use on the Airframe for any such
Engine not then installed or held for use on the Airframe. Any such engine that
is substituted in accordance with the provisions of this Clause 17.6 and that
complies with the requirements of this Clause 17.6 being a "Replacement Engine"
provided that title to the Replacement Engine shall be vested in Owner Trustee,
subject to the Mortgage free and clear of all Security Interests, other than
Permitted Liens, and the Replacement Engine shall have a value and utility and
maintenance status, including time since last Engine Performance Restoration
Visit, at least equal to the replaced Engine and time since new no greater than
the replaced Engine as reasonably determined by Sublessor, assuming that such
Engine was in the condition and repair required to be maintained by the terms of
this Agreement and Sublessee shall deliver such documents including a bill of
sale, Sublease Supplement, and opinion of counsel as to title and recordation
with the FAA, as Sublessor may reasonably request to evidence the foregoing. In
such event, immediately upon the effectiveness of such substitution on the date
set forth in such notice and without further act:
(a) title to the replaced Engine shall thereupon
vest in Sublessee free and clear of all rights
of Owner Trustee, Sublessor's Lender and
Sublessor, and the replaced Engine shall cease
to be subject to this Agreement and shall no
longer be deemed an Engine hereunder; and
(b) title to such Replacement Engine shall vest in
Owner Trustee subject to the Mortgage free and
clear of all Security Interests except
Permitted Liens and such Replacement Engine
shall become subject to this Agreement and an
Engine hereunder and be deemed part of the
Aircraft for all purposes hereof.
17.7 Temporary Removal of Parts
Sublessee shall be entitled, so long as no Default shall have occurred which has
not been remedied or waived to the reasonable satisfaction of Sublessor, to
substitute, replace or renew any Part with a part that does not satisfy the
requirements of Clause 17.1 or 17.2 provided that:
(a) there shall not have been available to
Sublessee, at the time and in the place that
such substitute or replacement part was
required to be installed on the Airframe or
Engines a substitute or replacement part
complying with the requirements of Clause 17.1
and 17.2;
(b) it would have resulted in an unreasonable
disruption of the operation of the Aircraft or
the business of Sublessee as an airline to
have grounded the Aircraft until such time as
a substitute or replacement part complying
with the requirements of Clause 17.1 and 17.2
became available for installation in or on the
Aircraft;
(c) Sublessee shall have notified Sublessor prior
to or, in the case of an extreme urgency as
soon as possible after, the making of such
substitution, replacement or renewal of any
material Part;
(d) as soon as possible after installation of the
same in or on the Airframe or Engine (and in
any event no later than fifteen (15) days
thereafter) Sublessee shall remove any such
part not complying with the requirements of
Clause 17.1 and 17.2 and replace or substitute
the same with a Part complying with such
requirements.
17.8 If any replacement Part is incapable of becoming the property of
the Sublessor free of all Security Interests (other than Permitted
Liens) as required by clause 17 the part which is has replaced
shall, unless the Sublessor shall otherwise agree in writing be
kept and maintained by the Sublessee until the last day of the
Lease Term and replaced on the Aircraft in working order before
the Aircraft is re-delivered to the Sublessor on the termination
or expiry of the hiring of the Aircraft hereunder.
17.9 Re-delivery
Notwithstanding any term hereof, unless Sublessor consents in
writing, the Aircraft when re-delivered shall contain the Engines
and Parts installed on the Aircraft at Delivery.
18. manufacturer's warranties
18.1 Authorization
(a) With effect from Delivery, Sublessor
authorizes Sublessee to exercise such rights
as Sublessor may have in relation to any
warranty with respect to the Aircraft, any
Engine or any Part made by any manufacturer,
vendor, subcontractor, maintenance facility,
including the maintenance facility that
performed the Delivery Work, or supplier
subject to Sublessee notifying Sublessor in
writing of any warranty claim of a material
nature and keeping Sublessor continuously
informed of the development of such warranty
claim. To the extent that the same may not be
exercised by Sublessee, Sublessor agree to,
at the sole cost and expense of Sublessee,
enforce such rights as Sublessor may have with
respect thereto for the benefit of Sublessee.
Sublessor shall also have the right, rather
than enforcing or making such claim on behalf
of Sublessee under such warranties, to appoint
Sublessee as its agent for such purpose, and
in such instance, Sublessee agrees to accept
such appointment and make such claims and
enforce such warranties at its sole cost and
expense. This authorization shall cease on the
Expiry Date. Sublessee shall not be entitled
to exercise its authorisation hereunder, while
a Default is continuing (during which time all
such rights shall revert to Sublessor and
Sublessor hereby agrees to exercise and
enforce such rights during such period).
(b) Sublessee shall give Sublessor prompt written
notice of any warranty claim that is settled
with Sublessee on the basis of a total or
partial cash payment. Any cash payments shall
be applied to remedy the defect subject to
such warranty claim unless Sublessor otherwise
consents in writing. Any cash payments to
Sublessee in respect of warranty claims that
(either with Sublessor's written consent or
because the defect can not be remedied) are
not applied to the repair or remedy of defects
in the Aircraft or to compensate Sublessee for
the costs incurred for any such repair or
remedy, and which are not in respect of
compensation for loss of use of the Aircraft,
an Engine or Part during the Lease Term due to
a defect covered by such warranty, shall be
for Sublessor's account.
18.2 Proceeds
So long as no Default has occurred and is continuing, Sublessor agrees subject
to Clause 18.1(b) to co-operate with Sublessee to cause any proceeds from any
rights assigned by Sublessor to Sublessee under Clause 18.1 to be paid directly
to Sublessee, and, if any such proceeds are nonetheless paid to Sublessor,
Sublessor agrees to remit promptly such proceeds to Sublessee. However, while a
Default is continuing, Sublessor may immediately:
(a) retain for its own account any such proceeds
previously paid to Sublessor which would have
been remitted to Sublessee under this Clause
18.2 in the absence of such Default or Event
of Default; and
(b) cause any proceeds of any pending claims to be
paid to Sublessor, rather than to Sublessee.
Once the Default is cured, Sublessor shall reimburse Sublessee to the extent
that it would have been obliged to under this Clause 18.2 had no such Default
occurred.
18.3 Agreements with Manufacturers
To the extent that any warranties relating to the Aircraft are made available
under an agreement between any manufacturer, vendor, subcontractor or supplier
and Sublessee, Sublessee will:
(a) apply the proceeds of any claim under such
agreement in accordance with Clause 18.2; and
(b) take all such steps as are necessary at the
end of the Lease Term to ensure that the
benefit of any of those warranties that have
not expired is vested in Sublessor.
18.4 Operation Contrary to Warranties
Sublessee shall not operate the Aircraft contrary to the terms of any warranty
referred to in Clause 18.1(a) (provided that Sublessor advises Sublessee of the
terms of such warranty).
19. Disclaimers
SUBLESSOR AND SUBLESSEE AGREE THAT THE DISCLAIMERS, WAIVERS AND CONFIRMATIONS
SET FORTH IN CLAUSES 19.1 THROUGH 19.5 BELOW SHALL APPLY AT ALL TIMES DURING THE
LEASE TERM WITH EFFECT FROM SUBLESSEE'S ACCEPTANCE OF THE AIRCRAFT BY EXECUTION
OF THE CERTIFICATE OF ACCEPTANCE, WHICH SHALL BE CONCLUSIVE EVIDENCE THAT
SUBLESSEE HAS FULLY INSPECTED THE AIRCRAFT AND EVERY PART THEREOF AND THAT THE
AIRCRAFT, THE ENGINES, THE PARTS AND THE AIRCRAFT DOCUMENTS ARE IN ALL RESPECTS
ACCEPTABLE TO SUBLESSEE (SAVE AS EXPRESSLY NOTED ON THE ACCEPTANCE CERTIFICATE)
AND ARE IN SUITABLE CONDITION FOR DELIVERY TO AND ACCEPTANCE BY SUBLESSEE.
19.1 As Is, where Is
AS BETWEEN SUBLESSOR AND SUBLESSEE:
(a) PRIOR TO DELIVERY HEREUNDER, SUBLESSEE HAD THE
OPPORTUNITY TO INSPECT THE AIRCRAFT,
ACCORDINGLY, SUBLESSEE UNCONDITIONALLY
ACKNOWLEDGES AND AGREES THAT EXCEPT AS
SPECIFICALLY SET FORTH IN ANY OF THE
TRANSACTION DOCUMENTS NEITHER OWNER TRUSTEE,
SUBLESSOR'S LENDER, OR SUBLESSOR, NOR ANY OF
THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES AND/OR REPRESENTATIVES HAVE MADE OR
WILL BE DEEMED TO HAVE MADE ANY TERM,
CONDITION, REPRESENTATION, WARRANTY OR
COVENANT EXPRESSED OR IMPLIED (WHETHER
STATUTORY OR OTHERWISE) AS TO (i) THE
CAPACITY, AGE, AIRWORTHINESS, VALUE, QUALITY,
DURABILITY, DESCRIPTION, CONDITION (WHETHER OF
THE AIRCRAFT, ANY ENGINE, ANY PART THEREOF OR
THE AIRCRAFT DOCUMENTATION), DESIGN,
WORKMANSHIP, MATERIALS, INCLUDING DELIVERY
WORK AS DEFINED IN SCHEDULE 2, MANUFACTURE,
CONSTRUCTION, OPERATION, DESCRIPTION, STATE,
MERCHANTABILITY, PERFORMANCE, FITNESS FOR ANY
PARTICULAR USE OR PURPOSE (INCLUDING THE
ABILITY TO OPERATE OR REGISTER THE AIRCRAFT OR
USE THE AIRCRAFT DOCUMENTATION IN ANY OR ALL
JURISDICTIONS) OR SUITABILITY OF THE AIRCRAFT
OR ANY PART THEREOF, AS TO THE ABSENCE OF
LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT OR
CONCEALED, EXTERIOR OR INTERIOR, (ii) THE
ABSENCE OF ANY INFRINGEMENT OF ANY PATENT,
TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL
PROPERTY RIGHTS, OR (iii) ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS
OR IMPLIED WITH RESPECT TO THE AIRCRAFT OR ANY
PART THEREOF, ALL OF WHICH ARE HEREBY
EXPRESSLY EXCLUDED AND EXTINGUISHED.
(b) Waiver of Warranty of Description.
EXCEPT AS SPECIFICALLY OTHERWISE SET FORTH IN
ANY OF THE TRANSACTION DOCUMENTS, SUBLESSEE
HEREBY AGREES THAT ITS ACCEPTANCE OF THE
AIRCRAFT AT DELIVERY AND ITS EXECUTION AND
DELIVERY OF THE ACCEPTANCE CERTIFICATE WILL
RE-AFFIRM AND INDEPENDENTLY CONSTITUTE ITS
WAIVER OF THE WARRANTY OF DESCRIPTION AND ANY
CLAIMS IT MAY HAVE, AND OF ANY RIGHT TO MAKE
ANY CLAIM AGAINST OWNER TRUSTEE, SUBLESSOR'S
LENDER, OR SUBLESSOR BASED UPON THE FAILURE OF
THE AIRCRAFT TO CONFORM WITH SUCH DESCRIPTION
OR ANY AIRCRAFT SPECIFICATIONS AND ITS
AGREEMENT NOT TO LOOK TO OWNER TRUSTEE,
SUBLESSOR'S LENDER, OR SUBLESSOR FOR DAMAGES
OR RELIEF ARISING OUT OF THE FAILURE OF THE
AIRCRAFT TO CONFORM TO SUCH DESCRIPTIONS OR
SPECIFICATIONS, NOTWITHSTANDING ANY ASSURANCES
FROM SUBLESSOR, THE DIFFICULTY OF DISCOVERING
ANY DEFECT OR ITS ASSUMPTION THAT ANY
NONCONFORMITY WOULD BE CURED.
(c) With All Faults. Sublessee agrees that it is
leasing the Aircraft "AS IS, WHERE IS AND WITH
ALL FAULTS".
(d) Sublessee Waiver. Except as specifically
permitted in any of the Transaction Documents,
sublessee hereby waives as between itself and
Owner Trustee and Sublessor and agrees not to
seek to establish or enforce any rights and
remedies, express or implied (whether
statutory or otherwise) against Owner Trustee,
Sublessor or the Aircraft relating to any of'
the matters mentioned in Clause 19.1 and the
leasing thereof by Sublessor to Sublessee.
(e) Sublessee Examination of Aircraft. DELIVERY BY
SUBLESSEE TO SUBLESSOR OF THE ACCEPTANCE
CERTIFICATE IS CONCLUSIVE PROOF AS BETWEEN
SUBLESSOR AND SUBLESSEE THAT SUBLESSEE'S
TECHNICAL EXPERTS HAD EXAMINED AND
INVESTIGATED THE AIRCRAFT, ENGINES AND EACH
PART THEREOF AND DETERMINED THAT (1) EACH WAS
AIRWORTHY AND IN GOOD WORKING ORDER AND REPAIR
AND (II) THE AIRCRAFT, ENGINES, EACH PART
THEREOF AND THE AIRCRAFT DOCUMENTATION WERE
WITHOUT DEFECT (WHETHER OR NOT DISCOVERABLE AT
DELIVERY) AND IN EVERY WAY SATISFACTORY TO
SUBLESSEE.
19.2 No Sublessor Liability for Losses
Sublessee agrees that Sublessor will not be liable to Sublessee, any
sub-Sublessee or any Person, whether in contract or tort or otherwise and
however arising, for any unavailability, loss of use or service, cost, loss
(consequential or otherwise), liability, damage or delay of or to or in
connection with the Aircraft, any Person or property whatsoever, whether on
board the Aircraft or elsewhere and irrespective of whether such occurrences
arise from any act or omission or the active or passive negligence of Sublessor
or Owner Trustee or their agents or representatives excepting only Sublessor's
or Owner Trustee or their respective agents or representatives gross negligence
or wilful misconduct.
19.3 Exclusion
Neither Owner Trustee, Sublessor's Lender or Sublessor shall have any obligation
or liability whatsoever to Sublessee, any sub-Sublessee or any other person
whether arising in contract, in tort or otherwise and whether arising by
reference to negligence or strict liability of Sublessor, Owner Trustee or
Sublessor's Lender or otherwise for:
(a) any liability, loss or damage (consequential
or otherwise) caused or alleged to be caused
directly or indirectly by the Aircraft or any
Engine or by any inadequacy thereof or
deficiency or defect therein or by any other
circumstance in connection therewith;
(b) the use, operation or performance of the
Aircraft or any risks relating thereto;
(c) any interruption of service, loss of business
or anticipated profits or any other direct,
indirect or consequential loss or damage; or
(d) the delivery, operation, servicing,
maintenance, repair, improvement or
replacement of the Aircraft, any Engine or any
Part except as otherwise expressly provided
under this Agreement.
19.4 Waiver
Except as may be specifically permitted by any of the Transaction Documents
sublessee hereby waives, as between itself and Owner Trustee, Sublessor's Lender
and Sublessor, all its rights in respect of any warranty or representation,
express or implied, on the part of Owner Trustee, Sublessor's Lender or
Sublessor and all claims against Owner Trustee, Sublessor's Lender or Sublessor
howsoever and whenever arising at any time in respect of or out of the matters
referred to in Clause 19.1 and waives its rights under Section 2A-517 of the New
York Uniform Commercial Code.
19.5 Confirmation
Sublessee confirms that the foregoing provisions of this Clause 19 and the
following provisions in Clause 20 have been taken into account by both parties
in negotiating the rent and other amounts payable under this Agreement.
20. indemnities
20.1 General
Sublessee agrees to defend, indemnify and hold harmless on an after Tax basis
each of the Indemnitees on demand from and against any and all Losses arising
from events occurring during the Lease Term:
20.1.1 that may at any time be suffered or incurred directly or
indirectly as a result of or in connection with the possession,
delivery, performance, management, ownership, registration,
import, control, maintenance, condition, service, repair,
overhaul, leasing, subleasing, deregistration, export,
manufacture, storage, transportation, design, testing,
replacement, use, operation or redelivery of the Aircraft, any
Engine or Part (either in the air or on the ground) whether or no
such Losses may be attributable to any defect in the Aircraft, any
Engine or any Part or to its design, testing or use or otherwise,
and regardless of when the same arises (but excluding any injuries
or claims which arise prior to Predelivery Acceptance) or whether
it arises out of or is attributable to any act or omission,
negligent (active or passive) or otherwise, of any Indemnitee
(including without limitation claims for death, personal injury,
property damage, other loss or harm to any person and claims
relating to any Laws, including without limitation environmental
control, noise and pollution laws rules or regulations);
20.1.2 that may at any time be suffered or incurred as a consequence of
any breach of the Transaction Documents by the Sublessee or by
misrepresentation of or breach of warranty by Sublessee;
20.1.3 that may at any time be suffered or incurred as a consequence of
any design, article or material in the Aircraft, any Engine or any
Part or its operation or use constituting an infringement of
patent, copyright, trademark, design or other proprietary right or
a breach by Sublessee, or anyone acting by or through Sublessee,
of any obligation of confidentiality owed to any person in respect
of any of the matters referred to in this Clause 20.1.3,
but excluding any Loss in relation to a particular Indemnitee to
the extent that such Loss:
(i) arises as a direct result of the gross negligence or
wilful misconduct of such Indemnitee; or
(ii) arises as a direct result of Sublessor Taxes, a
Sublessor Lien or a wilful breach by Sublessor of its
obligations under any of the Transaction Documents; or
(iii) constitutes a Tax or liability for Taxes;
20.2 Survival of Indemnification
Notwithstanding anything in this Agreement to the contrary, the provisions of
Clause 20.1 shall survive the Expiry Date for one (1) year and continue in full
force and effect notwithstanding any breach by Sublessor or Sublessee of the
terms of this Agreement, the termination of the Sublease of the Aircraft to
Sublessee under this Agreement or the repudiation by Sublessor or Sublessee of
this Agreement.
20.3 Notice to Sublessee
Sublessor shall promptly after obtaining actual knowledge thereof notify the
Sublessee of any claim as to which indemnification is sought; provided that a
failure to so notify will not diminish or relieve Sublessee of any obligations
hereunder, unless such failure materially adversely affects Sublessees defense
of such claim and directly results in a material increase in liability of the
Sublessee in respect of such claim or prevents it from materially reducing
liability therefor, in which case the Sublessee shall not be required to
indemnify such Indemnitee for the amount by which such liability was increased
or not reduced.
21. taxation
21.1 Gross-up
21.1.1 All payments by Sublessee under or in connection with this
Agreement shall be made without set-off or counterclaim, free and
clear of and without deduction for or on account of all Taxes,
except Sublessor Taxes, unless Sublessee is required by law to
make any such deduction or withholding;
21.1.2 If any Taxes, except Sublessor Taxes, are required to be deducted
or withheld from any amount payable hereunder, Sublessee shall pay
to Sublessor by way of supplemental Rent such additional amounts,
in the same currency as such payment as may be necessary in order
that the amount of such payment received by Sublessor on the date
of such payment, after deduction or withholding for all such
Taxes, will be equal to the amount that Sublessor would have
received if such Taxes had not been deducted or withheld.
21.1.3 If any payment is made by Sublessee under Clause 21.1.2 and
Sublessor in good faith determines that it is entitled to receive
a credit against, or relief or remission for, or repayment of, any
Tax paid or payable by Sublessor in respect of or calculated with
reference to the deduction or withholding giving rise to such
payment, Sublessor shall, to the extent that it can do so without
prejudice to the retention of the amount of such credit, relief,
remission or repayment and without leaving Sublessor in any worse
net after tax position than that in which it would have been had
such deduction or withholding not been required to be made,
promptly pay to Sublessee such amount as Sublessor shall
reasonably have determined to be attributable to the relevant
deduction or withholding.
21.2 Tax Indemnity
21.2.1 Sublessee shall indemnify Sublessor on demand against all Taxes
(other than Sublessor Taxes) levied or imposed against or upon
Sublessor or Sublessee or the Aircraft directly or indirectly in
connection with the importation, exportation, registration,
ownership, leasing, sub-leasing, purchase, delivery, sale,
possession, use, operation, repair, maintenance, overhaul,
transportation, landing, storage, presence or redelivery of the
Aircraft or any part thereof or any rent, receipts, insurance
proceeds, income or other amounts arising therefrom except to the
extent that such liability for such Taxes:
(i) arises as a result of a Sublessor Lien; or
(ii) is directly attributable to Sublessors gross negligence
or wilful misconduct; or
(iii) relates to any deduction or withholding on any payment
to be made to Sublessor that is covered by Clause 21.1;
or
(iv) imposed as a direct result of the, sale, transfer or
assignment or other disposition of the Aircraft or this
Agreement by Sublessor, or by any party claiming by or
through Sublessor and except (i) any sale, transfer,
assignment or other disposition that is made solely as
a result of the occurrence of an Event of Default or
Total Loss of the Aircraft or any part thereof or
interest therein and (ii) any Taxes imposed by the
State of Registration.
21.2.2 If Sublessor becomes aware of any claim against Sublessor for any
Loss that Sublessee is required to pay or indemnify against
pursuant to this Clause 21.2, Sublessor shall as soon as is
reasonably practicable notify Sublessee in writing of such claim.
If requested in writing by Sublessee that it wishes Sublessor to
contest such claim, Sublessor will consult with Sublessee with a
view to determining whether there are grounds for contesting such
claim. Sublessor will consider in good faith any representation
made by Sublessee in this respect. Sublessor shall not be under
any obligation to bring any proceedings in respect of any such
claim in any court of law or other relevant forum except that
Sublessor shall bring such proceedings in the event that tax
counsel reasonably acceptable to Sublessor in the relevant
jurisdiction provides Sublessor with a legal opinion to the effect
that there are legitimate grounds for contesting such claim. Any
costs and expenses of any such contest shall be fully indemnified
by Sublessee. Further Sublessor shall be under no obligation to
take any action in respect of any claim unless it shall previously
have been provided with security in an amount equal to the amount
of such claim and reasonable costs and otherwise satisfactory in
its absolute discretion for any such costs. Any amount payable
under this Clause 21.2 shall be paid to or on behalf of Sublessor
or, if so directed by Sublessor, directly to the relevant taxing
authority, promptly after receipt by Sublessee of a written demand
therefor.
21.3 Value Added Taxes
The Rent and other amounts payable by Sublessee under this Agreement are
exclusive of any value added tax, turnover tax or similar tax or duty. If a
value added tax or any similar tax or duty is payable in any jurisdiction in
respect of any Rent or other amounts as aforesaid, Sublessee will pay all such
tax or duty and indemnify Sublessor against any claims for the same and any
related claims, losses or liabilities.
21.4 Taxation of Indemnity Payments
21.4.1 Notwithstanding any other provision of this Agreement, if and to
the extent that any sums payable to any Indemnitee by Sublessee
under this Agreement by way of indemnity are insufficient, by
reason of any Taxes payable in respect of those sums, for such
Indemnitee to discharge the corresponding liability to the
relevant third party (including any taxation authority), or to
reimburse such Indemnitee for the cost incurred by it to a third
party (including any taxation authority) Sublessee shall pay to
such Indemnitee such sum as will after the tax liability has been
fully satisfied leave that Indemnitee with the same amount as it
would have been entitled to receive in the absence of that
liability.
21.4.2 If and to the extent that any sums constituting (directly or
indirectly) an indemnity to an Indemnitee but paid by Sublessee to
any person other than such Indemnitee are treated as taxable in
the hands of such Indemnitee, Sublessee shall pay to such
Indemnitee such sum as will, after the tax liability has been
fully satisfied, indemnify such Indemnitee to the same extent as
it would have been indemnified in the absence of such liability.
21.5 Benefit of Indemnities
All rights expressed to be granted to each Indemnitee (other than Sublessor)
under this Agreement are given to Sublessor on behalf of that Indemnitee.
21.6 Sublessor Indemnification
Without prejudice to Clause 21.5, Sublessor shall be entitled (but not obliged)
to indemnify Indemnitees (other than Sublessor) on terms equivalent to the
indemnities given by Sublessee under this Agreement and the obligations of
Sublessee to Sublessor shall extend to reimbursement of Sublessor of any amount
properly paid by Sublessor to such other Indemnitee provided always that nothing
in this Clause 21.6 shall operate to increase the obligations or liabilities of
Sublessee.
21.7 Survival of Tax Indemnities
Notwithstanding anything in this Agreement to the contrary, the provisions of
Clause 20 shall survive the Expiry Date and continue in full force and effect
notwithstanding any breach by Sublessor or Sublessee of the terms of this
Agreement, the termination of the Sublease of the Aircraft to Sublessee under
this Agreement or the repudiation by Sublessor or Sublessee of this Agreement.
21.8 Mitigation and Cooperation
In any case where Sublessee would be obliged to bear Taxes or make additional
payment on account of Taxes pursuant to the provisions of this Agreement as a
result of any change in applicable laws or regulations or practice, Sublessor
shall at the written request of Sublessee, without limiting, reducing or
otherwise qualifying the rights of the Sublessor and the Security Interest of
Sublessor's Lender, consult with Sublessee in good faith as to such steps which
Sublessor and Sublessee can mutually accept and agree upon in order to mitigate
or avoid the effects of such circumstances. In case Sublessor and Sublessee can
not agree within a period of thirty (30) days after Sublessee has made a written
request, Sublessor shall not have any further obligation towards Sublessee.
21.9 Furnishing Forms
Sublessor agrees to furnish, and to procure that any other Indemnitee furnishes
to Sublessee, or to such other person as Sublessee may designate, at Sublessees
sole cost and expense, such duly executed and properly completed forms as such
Indemnitee may be permitted and legally able to deliver and as may be necessary
or appropriate in order to claim any reduction of, or exemption from any Tax
which Sublessee may be required to indemnify against hereunder, unless such
Indemnitee reasonably determines that furnishing such forms may have an adverse
effect on either the business, tax status, tax liability or operations of such
Indemnitee.
22. insurance
22.1 Insurances
22.1.1 Sublessee shall, at its own expense, maintain in full force during
the Lease Term insurances in respect of the Aircraft that, subject
to this Clause 22, comply with the requirements set out in
Schedule 5 (the "Insurances").
22.1.2 The Insurances shall be effected through brokers of international
standing and repute in the London or New York aviation insurance
markets and which are approved by Sublessor's Lender.
22.1.3 The Insurance shall be effected either:
(i) on a direct basis with insurers of recognised standing
who normally participate in aviation insurances in the
leading international insurance markets and led by
reputable underwriter(s) approved by Sublessor and
Sublessor's Lender; or
(ii) with a single insurer or group of insurers approved by
Sublessor or Sublessor's Lender who does not fully
retain the risk but effects substantial reinsurance
with reinsurers in the leading international insurance
markets and through brokers each of recognised standing
and acceptable to the Sublessor and Sublessor's Lender
for a percentage acceptable to the Sublessor and
Sublessor's Lender of all risks insured (the
Reinsurances);
22.2 Requirements
The current requirements of Sublessor and Sublessor's Lender as to the
Insurances are as specified in this Clause 22 and in Schedule 5. Sublessor and
Sublessor's Lender may from time to time stipulate other requirements for the
Insurances so that (a) the scope and level of cover are maintained in line with
best industry practice; and (b) the interests of the Sublessor and Sublessor's
Lender continue to be fully protected and Sublessee will procure that such
changes are effected.
22.3 Insurance Covenants
Sublessee shall:
22.3.1 ensure that all requirements as to insurance of the Aircraft, any
Engine or any Part which may from time to time be imposed by the
laws of the State of Registration or any state to, from or over
which the Aircraft may be flown, in so far as they affect or
concern the operation of the Aircraft, are complied with;
22.3.2 comply with the terms and conditions of each policy of the
Insurances and not do, consent or agree to any act or omission
which:
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any
part of any of the Insurances; or
(iii) brings any particular insured liability within the
scope of an exclusion or exception to the Insurances;
22.3.3 not make any modification or alteration to the Insurances material
and adverse to the interests of any of the Indemnitees;
22.3.4 be responsible for any deductible under the Insurances;
22.3.5 provide any other information and assistance in respect of the
Insurances that Sublessor may from time to time reasonably require
including, for the avoidance of doubt, lists of the underwriters
and the exposures of each of those underwriters which may carry
the Insurances from time to time;
22.3.6 not create any Security Interests over the Insurances except
pursuant to the Assignment of Insurances;
22.3.7 not use or keep or permit the Aircraft or any part thereof to be
used or kept for any purpose, in any manner or in any place not
covered by the required policies;
22.3.8 not cause or permit the Aircraft or any part thereof to be
employed in any place or in any manner or for any purpose
inconsistent with the terms or outside the cover provided by any
required policy;
22.3.9 not knowingly effect or authorise the placement of insurance
covering the same subject matter as that covered by the Insurances
(except on a contingent or other secondary basis); and
22.3.10 furnish to the Sublessor:
(i) on the date hereof and thereafter within seven (7) days
after each renewal date of each policy a certificate or
certificates signed by the insurers or the insurance
broker providing evidence of insurance coverage
pursuant to this Agreement;
(ii) on request, confirmation of payment by, or at the
direction of the Sublessor of each sum payable under
or in connection with any required policy;
(iii) on request, such evidence as the Sublessor may require
of the Sublessee's compliance with its obligations
under this Agreement; and
(iv) any notice received from the insurers or the
insurance brokers (within three Business Days of
receipt) relating to or in connection with any
cancellation of the Insurances or any material
alteration of the Insurances.
22.4 Renewal of Insurances
Sublessee shall commence renewal procedures at least thirty (30) days prior to
expiry of any of the Insurances, and provide to Sublessor:
22.4.1 confirmation of completion of renewal at least 15 days prior to
each expiry date of any of the Insurances;
22.4.2 certificates of insurance and a brokers' letter of undertaking in
a form acceptable to Sublessor and in English, detailing the
coverage and confirming the insurers' agreement to the specified
insurance requirements of this Agreement within seven (7) days
after each renewal date; and
22.4.3 any other information as Sublessor may reasonable request be
provided by the insurance broker at least fifteen (15) days before
such expiry;
22.5 AVN 2000
22.6 Failure to Insure
If Sublessee fails to maintain the Insurances in compliance with this Agreement,
Sublessee shall:
22.6.1 forthwith ground or cause to be grounded the Aircraft and shall
keep or procure that the Aircraft be kept grounded until such time
as all the Insurances shall again be in full force and effect; and
22.6.2 immediately notify Sublessor of the non-compliance of the
Insurances and provide Sublessor with full details of any steps
which Sublessee is taking or proposes to take, in order to remedy
such non-compliance;
and each of the Indemnitees will be entitled but not bound, without prejudice to
any other rights of Sublessor under this Agreement:
(i) to pay the premiums due or to effect and maintain
insurances satisfactory to Sublessor and substantially
the same as the Insurances required hereunder or
otherwise remedy Sublessee's failure in such manner,
including to effect and maintain an "owner's interest"
policy, as Sublessor considers appropriate. Any sums so
expended by Sublessor will become immediately due and
payable by Sublessee to Sublessor together with
interest thereon at the Default Rate, from the date of
expenditure by Sublessor up to the date of
reimbursement by Sublessee; and
(ii) at any time while such failure is continuing to require
the Aircraft to remain at any airport or to proceed to
and remain at any airport designated by Sublessor until
the failure is remedied to Sublessor's satisfaction.
22.7 Continuation of Insurances
Sublessee agrees to effect and maintain at Sublessee's cost airline general
third party liability insurances in the form required by this Agreement for two
(2) years after the Expiry Date whether or not Sublessee or Sublessor continues
to have any interest in the Aircraft.
22.8 Application of Insurance Proceeds
As between Sublessor and Sublessee:
22.8.1 all insurance payments received as the result of a Total Loss
occurring during the Lease Term will be paid to Sublessor or to
Sublessor's Lender pursuant to the terms of any security given by
Owner Trustee;
22.8.2 all insurance proceeds of any damage or loss to the Aircraft, any
Engine or any Part occurring during the Lease Term not
constituting a Total Loss and in excess of the Damage Notification
Threshold will be paid to Sublessor and applied in payment (or to
reimburse Sublessee) for repairs or replacement property, upon
Sublessor being satisfied that the repairs or replacement have
been effected in accordance with this Agreement; and
22.8.3 notwithstanding clause 22.8.1 and 22.8.2 above, if at the time of
the payment of any such insurance proceeds a Default has occurred
and is continuing, all such proceeds will be paid to or retained
by Sublessor to be applied toward payment of any amounts which may
be or become payable by Sublessee in such order as Sublessor sees
fit or as Sublessor may elect.
22.9 Pursuit of Claims
The parties shall cooperate in the pursuit of any claims under the Insurances.
In pursuing any such claims, the parties shall take account of each others
interests but, if there is any material disagreement between the parties in
respect of how any such claim shall be pursued, the interests of Sublessor shall
be paramount.
23. loss, damages and requisition
23.1 Total Loss Prior to Pre-Delivery Acceptance
If a Total Loss occurs prior to Pre-Delivery Acceptance of the Aircraft to
Sublessee, this Agreement shall immediately terminate, and except as expressly
stated in this Agreement neither party will have any further obligation or
liability under this Agreement, except that Sublessor will repay to Sublessee
the amount of Security Deposit paid under this Agreement.
23.2 Total Loss After Pre-Delivery Acceptance
23.2.1 If a Total Loss occurs after Pre-Delivery Acceptance of the
Aircraft to Sublessee, Sublessee shall pay the Sublessor on or
prior to the earlier of:
(i) Sixty (60) days after the Total Loss Date; and
(ii) the date of receipt of insurance proceeds in respect of
that Total Loss,
the aggregate of (x) the Agreed Value and (y) Rent to the date of payment.
23.2.2 Subject to the rights of any insurers or other third parties,
including Sublessor's Lender upon irrevocable payment in full to
Sublessor of the Agreed Value and all other amounts which may be
or become payable to Sublessor under this Agreement, Sublessor
shall direct Owner Trustee to transfer to Sublessee all of Owner
Trustee's and Sublessor's rights (if any) to (x) the Airframe or
any Engines and Parts whether or not installed when the Total Loss
occurred, on an as-is where-is basis and without recourse or
warranty (save as to freedom from Sublessor Liens), and Sublessor
shall procure the execution and delivery of such bills of sale and
other instruments as Sublessee may reasonably request to evidence
such transfer, free and clear of all rights of Owner Trustee and
Sublessor and (y) any other rights in respect of the Aircraft or
any part thereof or any further requisition or insurance proceeds
in respect thereof. Sublessee shall indemnify Owner Trustee and
Sublessor for all fees, expenses and Taxes incurred by Sublessor
in connection with any such transfer.
23.2.3 If a Total Loss of the Aircraft or the Airframe occurs during the
Lease Term, Rent shall continue until the date of payment of the
Agreed Value and all other amounts due under the Sublease and upon
payment of the Agreed Value and all other sums due under this
Agreement, the leasing of the Aircraft shall immediately
terminate, but without prejudice to the continuing obligations of
the Sublessee (as to indemnity or otherwise) under this Agreement;
and Sublessor and, if not already recovered, Sublessee shall
proceed diligently and co-operate fully with each other in the
recovery of the Total Loss Proceeds.
23.3 Total Loss of Engines
23.3.1 Upon an Engine Total Loss of any Engine not installed on the
Aircraft, or an Engine Total Loss of an Engine installed on the
Airframe not involving a Total Loss of the Airframe (in either
case, a "Destroyed Engine"), Sublessee shall give Sublessor prompt
written notice thereof and Sublessee shall replace the Destroyed
Engine as soon as reasonably possible by procuring that Owner
Trustee acquires, at Sublessee's expense, title to another engine
complying with the requirements of Clause 17.6. Such Replacement
Engine shall upon acquisition by the Sublessor be an Engine as
defined herein;
23.3.2 Sublessee agrees to take such action as Sublessor may reasonably
request in order that any such Replacement Engine shall be the
property of Owner Trustee, and subleased hereunder on the same
terms as the Destroyed Engine. Sublessee's obligation to pay Rent
shall continue in full force and effect, but an amount equal to
the Total Loss Proceeds received by Sublessor or, as the case may
be, Sublessor's Lenders with respect to the Destroyed Engine, less
any cost, expenses, Taxes or duties incurred in connection with
the collection thereof, shall, subject to Sublessor's right to
deduct therefrom any amounts then due and payable by the Sublessee
under this Agreement, be paid to Sublessee;
23.3.3 Immediately upon the effectiveness of such substitution, and
without further act, title to the replaced Engine shall thereupon
vest in Sublessee, in an as-is, where-is condition, free and clear
of all rights and Security Interests of Owner Trustee, Sublessor's
Lender and Sublessor and shall no longer be deemed an Engine
hereunder.
23.4 Requisition
23.4.1 During any requisition for use or hire of the Aircraft, any Engine
or Part that does not constitute a Total Loss:
(i) the Rent and other amounts payable under this Agreement
will not be suspended or abated either in whole or in
part, and Sublessee will not be released from any of
its other obligations under the Agreement (other than
operational obligations with which Sublessee is unable
to comply solely by virtue of the requisition);
(ii) so long as no Default or Event of Default has occurred
and is continuing, Sublessee shall be entitled to any
hire paid by the requisitioning authority in respect of
the Lease Term;
(iii) Sublessee shall, as soon as practicable after the end
of any such requisition, cause the Aircraft to be put
into the condition required by this Agreement.
23.4.2 If the Aircraft is under requisition for hire at the Expiry Date
the leasing of the Aircraft under this Agreement shall continue
until the earlier of (x) when the Aircraft becomes a Total Loss
and Sublessor receives the Agreed Value together with any other
amounts then due and unpaid under this Agreement and (y) when the
Aircraft is returned prior to becoming a Total Loss, and Sublessee
satisfies the Return Conditions PROVIDED THAT:
(i) the obligations of Sublessee including in respect of
payment of Rent, including Reserves, shall continue in
full force and effect until the leasing ends except
that during the continuation of the requisition for
hire while it does not constitute a Total Loss,
Sublessee shall be released from those of its
obligations that it is prevented from performing as a
result of the requisition of the Aircraft;
(ii) unless a Total Loss has occurred (in which case Clause
23.2 shall apply), Sublessee shall be obliged to
redeliver the Aircraft to Sublessor in accordance with
Clause 24;
(iii) provided no Default or Event of Default is continuing
Sublessee shall be entitled to receive and retain any
requisition payments made in respect of the Aircraft.
(iv) Sublessee shall indemnify Sublessor for any Losses
which Sublessor suffers (Sublessor undertakes to use
its reasonable best efforts to mitigate such Losses) as
a result of Sublessee returning the Aircraft to
Sublessor after the Expiry Date.
24. redelivery
24.1 Redelivery of Aircraft; General Conditions
On the Redelivery Date, Sublessee shall unless a Total Loss has occurred
redeliver the Aircraft and the Aircraft Documents to Sublessor at Sublessee's
expense at the Redelivery Location. If the Aircraft has been damaged and is
being repaired in a timely manner, then the term of the Sublease will be
extended and Sublessee's obligations under this Agreement shall continue in full
force and effect and during the course of such repair and, so long as no Default
or Event of Default shall have occurred and be continuing, the Sublessor will
make insurance proceeds available to accomplish such repairs as provided in
Clause 23. When the repairs are completed, the Aircraft shall be redelivered to
Sublessor. At the time of the redelivery of the Aircraft:
24.1.1 the Aircraft shall be free and clear of all Security Interests
other than Sublessor Liens;
24.1.2 all maintenance to the Aircraft due for performance on or before
the Expiry Date shall have been completed in accordance with this
Agreement;
24.1.3 the Aircraft shall be in compliance with the Return Conditions;
24.1.4 the Aircraft shall comply with such other reasonable requirements
to which Sublessor and Sublessee have agreed and that Sublessor
has agreed to pay for; provided, however, that if compliance with
Sublessor's request is the sole cause of a delay in the return of
the Aircraft beyond the Expiry Date, then Rent shall abate for the
period of such delay solely attributable to Sublessee's compliance
with Sublessor's request;
24.1.5 any service bulletin kits which are allocated to the Aircraft at
no charge by the Manufacturer and not delivered to Sublessor as at
the Expiry Date will be shipped to a location specified by
Sublessor at Sublessee's cost.
For the avoidance of doubt, Sublessee will not be responsible for any inaccuracy
or incompleteness in the Aircraft Documents that pertains to any period
preceding Delivery, provided always that the foregoing shall not in any way be
construed as waiver by Sublessor of Sublessees obligations to keep, maintain and
update Aircraft Records during the Lease Term in accordance with the other
provisions of this Agreement.
24.2 Final Inspection
Immediately prior to redelivery of the Aircraft, Sublessee shall make the
Aircraft available to Sublessor for inspection (Final Inspection) at the
Technical Redelivery Location in order to verify that the condition of the
Aircraft complies with the Return Conditions. The Final Inspection shall be long
enough to permit Sublessor to:
(i) inspect the Aircraft Documents;
(ii) inspect the Aircraft and uninstalled Parts;
(iii) inspect the Engines, including without limitation (i) a
video boroscope inspection of (A) the low pressure and
high pressure compressors and (B) turbine area and (ii)
engine condition runs.
24.3 Operational Ground Check; Demonstration Flight
24.3.1 Promptly after completion of any corrections required under Clause
24.2, Sublessee shall conduct an operations ground check in
accordance with the applicable Return Conditions and with
Sublessee's maintenance manual criteria for the purpose of
demonstrating to Sublessor the satisfactory operation of the
systems that are normally ground checked by Sublessee, including a
full fuel tank leak stand test, hydraulic internal leak check and
pitot static systems check. Sublessee shall promptly correct any
discrepancies required to be corrected in order to comply with the
maintenance manual criteria or the provisions of this Agreement.
24.3.2 The Aircraft shall have at least a two hour demonstration flight
performed by and at the expense of Sublessee (with Sublessor's
representatives as on-board observers) using the manufacturer's
acceptance test flight procedure or any other procedure used by
Sublessee and acceptable to Sublessor in its reasonable
discretion.
24.3.3 Sublessee shall repair all discrepancies discovered during the
final inspection and demonstration flight, which exceed
maintenance manual allowable limits, and shall correct all
discrepancies in the Aircraft Documents.
24.3.4 When Sublessee has complied with the provisions of Clause 24.3.3
Sublessee shall deliver the Aircraft at the Physical Redelivery
Location.
24.4 Non-compliance
To the extent that, at the time of Final Inspection, the condition of the
Aircraft does not comply with this Agreement (except Clause 24.1.4), Sublessee
shall at Sublessor's option:
24.4.1 immediately rectify the non-compliance and to the extent the
non-compliance extends beyond the Redelivery Date, the Lease Term
will be automatically extended until the non-compliance has been
rectified and Sublessee shall be required to pay Rent to Sublessor
during that period at the rate equal to two (2) times the daily
Rent (Rent per month divided by 30) per day payable monthly or, if
earlier, on the date on which the non-compliance is rectified and
the return of the Aircraft is accepted by Sublessor; or
24.4.2 redeliver the Aircraft to Sublessor and indemnify Sublessor, and
provide cash to Sublessor in an amount reasonably satisfactory to
Sublessor as security for that indemnity, against the cost of
putting the Aircraft into the condition required by this
Agreement.
Sublessor's option in Clause 24.4 is not available to Sublessor provided that
(i) Sublessee has notified Sublessor of its intent to rectify the non-compliance
prior to the Expiry Date and (ii) Sublessee will in the reasonable opinion of
Sublessor be able to rectify such non-compliance on or before Expiry Date.
For the avoidance of doubt, Sublessor shall not be entitled to exercise its
option under this Clause 24.4 and Sublessee shall suffer no loss or penalty to
the extent that the Aircraft does not, on Final Inspection, comply with Clause
24.1.4 but is otherwise in compliance with the Return Conditions.
24.5 Acknowledgment
Provided Sublessee has complied with its obligations under this Agreement,
following redelivery of the Aircraft by Sublessee to Sublessor at the Redelivery
Location, the parties shall execute an acknowledgement confirming that Sublessee
has redelivered the Aircraft to Sublessor in accordance with this Agreement
substantially in the form of Schedule 6.
24.6 Return of the Letter of Credit
Upon compliance by Sublessee with all its obligations under this Agreement
(including reconciliation of all maintenance reserves and any carried over
deficiency at re-delivery) and the execution of the acknowledgement set out in
Clause 24.5, Sublessor shall return to Sublessee the Letter of Credit.
25. events of default
25.1 Events
Each of the following events will constitute an Event of Default and a material
breach of this Agreement:
(a) Non-payment: Sublessee fails to pay any amount
payable by it under the Transaction Documents
or Other Agreements in the currency in which
such sum fell due in respect of payments of
Rent or Maintenance Reserves, within three (3)
Business Days of the due date for payment
thereof and, in respect of any other payments,
within five (5) Business Days of the date of
receipt of written notice for payment thereof;
(b) Insurance: insurance cover on or with respect
to the Aircraft for the benefit of Sublessor
(and any additional insured) is not maintained
in accordance with the provisions of this
Agreement or the Aircraft is operated outside
the scope of such insurance coverage; or
(c) Delivery: Sublessee fails to take Delivery of
the Aircraft when obligated to do so under the
terms of this Agreement; or
(d) Redelivery: Sublessee fails to return the
Aircraft to Sublessor on the Redelivery Date
in accordance with Clause 24; or
(e) Breach: Sublessee defaults in the due
performance and observance of any other
obligations contained in the Transaction
Documents and such default is not remedied
within twenty (20) days of becoming aware of
such default; or
(f) Representation: any representation, warranty
or statement made or deemed to be made by
Sublessee in the Transaction Documents or in
any certificate, statement or opinion
delivered by it hereunder or in connection
herewith is incorrect, inaccurate or
misleading in any respect which is material
when made or deemed to be made or if the
effects or consequences of such incorrect,
inaccurate or misleading representation,
warranty or statement are capable of cure and
Sublessee fails to cure such effects or
consequences within twenty (20) days after
becoming aware of such default; or
(g) Approvals: any governmental or other consent,
license or authorization required by law for
the validity or legality of the Transaction
Documents or the performance hereof or thereof
(other than any such which may be required to
be obtained by Sublessor) is withdrawn or
ceases, for any reason, to be in full force
and effect or is not renewed or obtained when
required and such withdrawal, cessation,
non-renewal or non-obtaining in the opinion of
Sublessor may prejudice the rights of
Sublessor under this Agreement or in the
reasonable opinion of Sublessor may have a
material adverse effect on Sublessees
obligation to perform its obligations under
this Agreement; or
(h) Registration:
(i) the registration of the Aircraft is
cancelled other than as a result of
an act or omission of Sublessor or
another Indemnitee including the
Owner Trustee and Sublessor or an
affiliate of the Owner Trustee and
Sublessor; or
(ii) Sublessee ceases to be a US Air
Carrier authorised to transport
passengers in common carriage; or
(iii) the Aircraft ceases to be "based
and primarily used in the United
States" within the meaning of 14
Code of Federal Regulations 47.9.
(i) Possession: Sublessee abandons the Aircraft or
the Engines, or Sublessee or any Permitted Air
Carrier no longer has unencumbered control
(other than Permitted Liens) or possession of
the Aircraft or Engines, except as otherwise
permitted by this Agreement; or
(j) Discontinuation: Sublessee threatens to or
temporarily or permanently discontinues
business or sells or otherwise disposes of all
or substantially all of its assets; or
(k) Adverse change: A material adverse change
occurs in the financial condition of Sublessee
which in the reasonable opinion of Sublessor
may have a material negative impact on
Sublessees ability to perform its obligations
hereunder; or
(l) Cross Default: any Financial Indebtedness of
Sublessee (in an aggregate amount in excess of
US$1,000,000 or its equivalent in other
currencies) becomes due and payable, or may be
declared due and payable, prior to its stated
maturity by reason of default by Sublessee
(having regard to any applicable grace period)
or any such Financial Indebtedness is not paid
on the due date for payment thereof (as
extended by any applicable grace period); or
(m) Insolvency: Sublessee is declared bankrupt or
becomes insolvent or is unable to pay its
debts as and when the same fall due or
declares a moratorium on the payment of its
indebtedness or makes an assignment for the
benefit of creditors generally or is subject
to bankruptcy, liquidation, debt negotiations
or any analogous proceedings; or
(n) Proceedings: Any proceedings, resolutions,
filings or other steps are instituted or
threatened with respect to the Sublessee or a
substantial part of Sublessees property
relating to the bankruptcy, liquidation,
reorganisation or protection from creditors of
Sublessee. If instituted by Sublessee or done
by the Sublessee, the same will be an
immediate Event of Default. If instituted by
another Person, the same will be an Event of
Default if not dismissed, remedied or
relinquished within twenty (20) days; or
(o) Judgments: Any order, judgement or decree is
entered by any court of competent jurisdiction
appointing a receiver, trustee or liquidator
of Sublessee or a substantial part of its
property or if a substantial part of its
property is to be sequestered. If instituted
by Sublessee or done by the Sublessee, the
same will be an immediate Event of Default. If
instituted by another Person, the same will be
an Event of Default if not dismissed, remedied
or relinquished within twenty (20) days; or
(p) Air Navigation Charges: Any competent
authority has unpaid Air Navigation Charges
due from Sublessee (unless such charges are
being contested in good faith and by
appropriate proceedings and such proceedings
do not involve any danger of the detention,
interference with the use or operation, sale,
forfeiture or loss of the Aircraft) and such
charges remain outstanding of a period of ten
(10) days from the due date thereof; provided
that such 10 day grace period will not apply
if there is a danger of detention,
interference with the use or operation, sale,
forfeiture or loss of the Aircraft; or
(q) Airport Charges: any airport has unpaid
Airport Charges due from Sublessee (unless
such charges are being contested in good faith
and by appropriate proceedings and such
proceedings do not involve any danger of the
detention, interference with the use or
operation, sale, forfeiture or loss of the
Aircraft) and such charges remain outstanding
for a period of ten (10) days from the due
date thereof; provided that such 10 day grace
period will not apply if there is a danger of
detention, interference with the use or
operation, sale, forfeiture or loss of the
Aircraft; or
(r) Other Default: an Event of Default is
continuing unremedied under any Other
Agreement between Sublessee and Sublessor or
another lessor or sublessor that either (i)
shares the same general partner or controlling
shareholder with Sublessor or (ii) whose
beneficiary shares the same general partner or
controlling shareholder with Sublessor.
25.2 Sublessor's Rights
25.2.1 If an Event of Default occurs, without prejudice, and in all cases
addition to any other rights of Sublessor under this Agreement or
under applicable law (to the extent permitted by and subject to
compliance with any mandatory requirement, of law):
(i) in the case of a default under Clause 25.1(m) or (o),
without the need for notice or demand, this Agreement
will automatically terminate together with any and all
other rights of Sublessee with respect to the Aircraft
but without prejudice to the continuing obligations of
Sublessee under this Agreement, whereupon all rights of
Sublessee under this Agreement shall cease; or
(ii) in all other cases Sublessor may at any time thereafter:
(aa) by notice to Sublessee and with immediate
effect terminate the leasing of the Aircraft
and any and all other rights of Sublessee
with respect to the Aircraft but without
prejudice to the continuing obligations of
Sublessee under this Agreement, whereupon all
rights of Sublessee under this Agreement
shall cease; or
(bb) proceed by appropriate court action or
actions to enforce performance of this
Agreement or to recover damages for the
breach of this Agreement provided that
damages recoverable under UCC 2-A sections
527 through 530 and 532 shall be recoverable
in the case of any Event of Default
hereunder; or
(cc) for Sublessees account do anything that may
reasonably be required to cure any default
and recover from Sublessee all reasonable
costs, including reasonable legal fees and
expenses incurred in doing so and interest
thereon at the Default Rate; or
(dd) either:
(A) at its option, may enter upon the
premises where the Airframe or any
or all Engines are located or
believed to be located and take
immediate possession of and remove
such Airframe or Engines without
the necessity for first instituting
proceedings, or by summary
proceedings or otherwise, and
Sublessee shall comply therewith,
all without liability to Sublessor
for or by reason of such entry or
taking possession, whether for the
restoration or damage to property
caused by such taking or otherwise;
(B) by serving notice require Sublessee
to redeliver the Aircraft to
Sublessor at the Redelivery
Location or such other location as
Sublessor may require.
(ee) Whether or not Subessor shall have exercised,
or shall thereafter at any time exercise, any
of its rights under clause 25.2.1(dd) above
with respect to all or any part of the
Aircraft, Sublessor, by written notice to
Sublessee specifying a payment date not
earlier than ten (10) days from the date of
such notice, may demand that the Sublessee
pay to Sublessor, and Sublessee shall pay
Sublessor, on the payment date specified in
such notice as liquidated damages and not as
a penalty (in lieu of the instalments of Rent
due for periods commencing on or after the
payment date in such notice), any unpaid
instalments of Rent due for periods prior to
the period commencing with the payment date
specified in such notice plus the present
value of the remaining instalments of Rent
during the Initial Lease Term and Extension
Lease Term, if any (together, the "Term")
using in each case a discount rate of the
amount of interest then paid on U.S. Treasury
Bills of similar maturity. In addition,
Sublessee shall be liable for the amounts set
forth in Clause 25.3(ii) and (iii).
25.2.2 If an Event of Default occurs, Sublessor may sell or re-lease or
otherwise deal with the Aircraft at such time and in such manner
as Sublessor considers appropriate in a commercially reasonable
manner, free and clear of any interest of Sublessee as if this
Agreement had never been entered into and as if Sublessee had
never made any payments hereunder. While an Event of Default is
continuing, Sublessee will not operate the Aircraft without the
consent of Sublessor.
25.3 Default Payments
Sublessee shall be liable for:
(i) any and all unpaid Rent due hereunder before or after
any termination hereof;
(ii) any and all unpaid Supplemental Rent due hereunder
before or after any termination hereof;
(iii) all costs and expenses (including reasonable attorney's
fees and disbursements) incurred by Sublessor in
connection with or as a result of any Event of Default
or exercise of remedies hereunder, including, but not
limited to, (i) all costs and expenses incurred in
connection with recovering possession of the Aircraft
and in carrying out any works or modifications required
to place the Aircraft in the condition specified in
Clause 24.1 and remarketing the Aircraft, (ii) interest
at the Default Rate on any amount not paid when due
under this Agreement and (iii) an amount sufficient to
fully compensate Sublessor for any loss or damage to
Sublessor's residual interest in the Aircraft. All
costs and expenses referred to in the preceding
sentence shall be payable by Sublessee upon demand by
the Sublessor unless otherwise specified in this
Agreement. All such obligations shall survive any
termination of this Agreement or the leasing of the
Aircraft or any portion thereof hereunder.
Expect as otherwise expressly provided above, no remedy referred
to in this Clause 25 is intended to be exclusive, but each shall
be cumulative and in addition to any other remedy referred to
above or otherwise available to Sublessor at law or in equity. The
exercise or beginning of exercise by Sublessor of any one or more
of such remedies shall not preclude the simultaneous or later
exercise by Sublessor of any or all such other remedies. No
express or implied waiver by Sublessor of any Event of Default
hereunder shall in any way be, or be construed to be, a waiver of
any future or subsequent Event of Default.
26. assignment and transfer
26.1 By Sublessee
No assignment, novation, transfer, mortgage or other change may be made by
Sublessee in any of its rights with respect to the Aircraft, Engine, or Parts or
this Agreement.
26.2 By Sublessor
Subject to Sublessees rights pursuant to this Agreement, Sublessor may at its
expense and at any time and without Sublessees consent sell, assign or transfer
its rights and interest hereunder to a third party, ("Sublessors's Assignee"),
provided that such sale, transfer, or assignment shall not increase Sublessees
obligations. Sublessor will cooperate with Sublessee to ensure minimum practical
disturbance or cost in connection with such assignment or transfer of rights and
interest hereunder and Sublessor shall reimburse Sublessee for any expense
incurred by Sublessee in connection with such assignment or transfer. Sublessee
agrees to cooperate in good faith with Sublessor in such sale, assignment or
transfer and provide Sublessor and Sublessor's Assignee with such reasonable
assistance as Sublessor may require, including but not limited to assisting in
any of Sublessor's and Sublessors Assignee's efforts to minimize or eliminate
any Taxes related to such assignment or transfer. For a period of two (2) years
after any such sale or assignment and at Sublessee's cost, Sublessee will
continue to name Owner Trustee, Sublessor and Sublessor's Lender as additional
insureds in accordance with the insurance requirements set out in Clause 22.
26.3 Assignment to Lender
26.3.1 Subject to Sublessee's rights under this Agreement, Owner Trustee
may at any time grant Security Interests over the Aircraft and the
benefit of this Agreement and any other agreement related to the
Aircraft to any Sublessor's Lender as security for Owner Trustee's
obligations to such Sublessor's Lender, provided by doing so the
obligations of Sublessee under this Agreement shall not materially
increase. Owner Trustee's rights to grant any such Security
Interests shall be subject only to receipt by Sublessee of an
acknowledgement, in form and substance reasonably satisfactory to
Sublessee, from or on behalf of Sublessor's Lender relating to
quiet enjoyment and other related rights.
26.3.2 On Sublessor's request, Sublessee will execute all such documents
as Owner Trustee or Sublessor's Lender may reasonably require
(including an Estoppel Certificate) to confirm Sublessee's
obligations under this Agreement and for the purpose of perfecting
and ensuring and maintaining the perfection of any Security
Interest granted by Owner Trustee over the Aircraft or this
Agreement and obtain Sublessee's confirmation that no Event of
Default is outstanding. Sublessee, at Sublessors expense, will
provide all other reasonable assistance and cooperation to
Sublessor, Owner Trustee or Sublessor's Lender in connection with
any of the matters referred to in this Clause 26 or the perfection
and maintenance of any related Security Interest, the making of
any necessary changes to the Insurances, the making of any
necessary filings and registrations in the State of Incorporation
or the provision of any appropriate counsel's opinions in relation
to Sublessee's obligations. Except with respect to the initial
documentation and filings to be done in connection with this
Agreement or at the time of Delivery of the Aircraft hereunder,
Sublessor will reimburse Sublessee for its reasonable
out-of-pocket costs including reasonable legal fees and expenses
in reviewing documents required by Sublessor or Sublessor's Lender
26.3.3 Sublessor will obtain for the benefit of Sublessee an
acknowledgement from any Sublessors Assignee or Sublessor's
Lender that, so long as no Default has occurred and is continuing
hereunder, such Person will not interfere with Sublessees
quiet, peaceful use and enjoyment of the Aircraft.
26.4 Sublessor Includes Sublessor's Assignee and Sublessor's Lender
Wherever the term "Sublessor" is used in this Agreement in relation to any of
the provisions relating to registration, title, disclaimer, indemnity and
insurance contained in Clauses 12, 20, and 22 respectively, the term "Sublessor"
will be deemed to include Sublessors Assignee and Sublessor's Lender, if
applicable.
27. miscellaneous provisions
27.1 Rights Cumulative, Waivers
The rights of Sublessor under this Agreement are cumulative, may be exercised as
often as Sublessor considers appropriate and are in addition to Sublessor's
rights under the general law. The rights of Sublessor against Sublessee or in
relation to the Aircraft, whether arising under this Agreement or the general
law, shall not be capable of being waived or varied otherwise than by an express
waiver or variation in writing; and in particular any failure to exercise or any
delay in exercising any of such rights shall not operate as a waiver or
variation of that or any other such right; any defective or partial exercise of
any of such rights shall not preclude any other or further exercise of that or
any other such right; and no act or course of conduct or negotiation on
Sublessor's part or on its behalf shall in any way preclude it from exercising
any such right or constitute a suspension or any variation of any such right.
27.2 Delegation
Sublessor may delegate to any person or persons all or any of its rights, powers
or discretions vested in it by this Agreement, and any such delegation may be
made upon such terms and conditions and subject to such regulations (including
power to sub-delegate) as Sublessor in its absolute discretion thinks fit.
27.3 Expenses
27.3.1 So long as the Aircraft is tendered for Delivery to Sublessee
pursuant to this Agreement, Sublessee shall pay to Sublessor on
demand:
(i) all reasonable expenses including legal, professional,
and out-of-pocket expenses incurred or payable by
Sublessor in connection with any amendment to or
extension of or other documentation requested by
Sublessee in connection with, or the granting of any
waiver or consent under this Agreement or the
monitoring of compliance by Sublessee with this
Agreement, but in the case of such monitoring of
compliance, only if upon such monitoring Sublessee is
found to be in Default under this Agreement; and
(ii) all expenses including legal and other costs payable or
incurred by Sublessor following a Default in connection
with the enforcement of or preservation of any of
Sublessor's rights under this Agreement, or in respect
of the repossession of the Aircraft.
All expenses payable pursuant to this Clause 27.3 shall be paid in the currency
in which they are incurred by Sublessor.
27.4 Time of Essence
The time stipulated in this Agreement for all payments by Sublessee to Sublessor
and for the prompt performance of Sublessee's other obligations under this
Agreement will be of the essence for this Agreement.
27.5 Entire Agreement
The Transaction Documents are the sole and entire agreements between Sublessor
and Sublessee in relation to the leasing of the Aircraft, and supersede all
previous agreements in relation to that leasing.
27.6 Further Assurances
The parties shall take such action as Sublessor and Sublessee reasonably
consider to be in furtherance of the commercial intent of the parties under the
Transaction Documents including, without limitation, such action as may be
required properly to transfer title to engines and parts as contemplated in this
Agreement in compliance with the laws of the lex situs of the relevant engine or
part at the relevant time.
27.7 Language
All notices to be given under this Agreement will be in English. All documents
delivered to Sublessor pursuant to this Agreement will be in English or, if not
in English, will be accompanied by a certified English translation. If there is
any inconsistency between the English version of this Agreement and any version
in any other language, the English version will prevail.
27.8 Variation
The provisions of this Agreement shall not be varied or amended otherwise than
by an instrument in writing executed by or on behalf of Sublessor and Sublessee.
27.9 Invalidity of any Provision
If any provision of this Agreement becomes invalid, illegal or unenforceable in
any respect under any law, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired.
27.10 Survival
All indemnities and other obligations of Sublessee which arise or are
attributable to circumstances occurring during the Lease Term shall survive, and
remain in full force and effect, notwithstanding the expiration or other
termination of this Agreement or the leasing of the Aircraft hereunder.
27.11 Reimbursement
If Sublessee defaults in the performance of any of its obligations under this
Agreement that can be rectified by the spending of money, Sublessor shall be
entitled (but not obliged) to expend money to rectify such matter and Sublessee
shall reimburse Sublessor on demand the money so expended. Any expenditure by
Sublessor pursuant to this Clause 27.11 shall not prejudice the rights of
Sublessor in respect of any Default or Event of Default.
27.12 Press Releases
The parties will give copies to one another, in advance if possible, of all
news, articles and other releases provided to the public media regarding this
Agreement or the Aircraft.
27.13 Power of Attorney
Sublessee hereby irrevocably appoints Sublessor as its attorney for the purpose
of putting into effect the intent of this Sublease following an Event of
Default, including without limitation, the return, repossession, deregistration
and exportation of the Aircraft. To evidence this appointment, Sublessee has
executed the Power of Attorney in the form of Schedule 10. Sublessee will take
all steps required under the laws of the State of Registration to provide such
power of attorney to Sublessor.
27.14 Usury Laws
The parties intend to contract in strict compliance with the usury laws of the
State of New York and, to the extent applicable, the United States.
Notwithstanding anything to the contrary in the Transaction Documents, Sublessee
will not be obligated to pay Default Interest or other interest in excess of the
maximum non-usurious interest rate, as in effect from time to time, which may by
applicable law be charged, contracted for, reserved, received or collected by
Sublessor in connection with the Transaction Documents.
27.15 Confidentiality
The Transaction Documents and all non-public information obtained by either
party about the other are confidential and are between Sublessor and Sublessee
only and the commercial terms and other material provisions of this Sublease
will not be disclosed by a party to third parties (other than to such party's
auditors, lenders and legal advisors) without the prior written consent of the
other party except in connection with enforcement of rights hereunder. If
disclosure is required as a result of applicable law, Sublessee and Sublessor
will cooperate with one another to obtain confidential treatment as to the
commercial terms and other material provisions of this Sublease; provided,
however, if they are unable to obtain such confidential treatment and disclosure
is required by applicable law, then such disclosure may be made in accordance
with such law.
27.16 Counterparts
This Agreement may be executed in any number of identical counterparts, each of
which will be deemed to be an original, and all of which together will be deemed
to be one and the same instrument when each party has signed and delivered one
such counterpart to the other party. Delivery of an executed counterpart of this
Agreement by telefacsimile will be deemed effective as delivery of an originally
executed counterpart. Any party delivering an executed counterpart of this
Agreement by telefacsimile will also deliver an originally executed counterpart;
provided, however, the failure of any party to deliver an originally executed
counterpart of this Agreement will not affect the validity or effectiveness of
this Agreement.
27.17 Bankruptcy
It is the intention of the parties that the Sublessor shall be entitled to the
benefits of 11 U.S.C 1110 with respect to the right to repossess the Airframe,
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. To the extent consistent with the provisions of 11 U.S.C 1110 or any
analogous section of the Federal bankruptcy laws, as amended from time to time,
it is hereby expressly agreed and provided that, notwithstanding any other
provisions of the Federal bankruptcy laws, as amended from time to time , any
right of the Sublessor to take possession of the Aircraft in compliance with the
provisions of this Agreement shall not be affected by the provisions of 11 U.S.C
362 or 363, as amended from time to time, or any analogous provisions of any
superseding statute or any power of the bankruptcy court to enjoin such taking
of possession. This Agreement is a true lease and not one intended as security.
28. notices
Any notice or other communication under or in connection with this Agreement
shall be in writing and shall be delivered personally, by reputable overnight
courier or express service or by post or facsimile transmission to the
respective addresses or facsimile numbers given below or such other address or
facsimile number as the recipient may have notified to the sender in writing.
Proof of posting or despatch shall be deemed to be proof of receipt. Notice
shall be deemed received:
(i) in the case of a letter, on the fifth Business Day after
posting; and
(ii) in the case of a facsimile, on the Business Day
immediately following the date of despatch or
transmission.
In the case of a notice sent by expedited delivery, notice will be deemed
received on the date of delivery set forth in the records of the person which
accomplished the delivery. If any notice is sent by more than one of the above
listed methods, notice will be deemed received on the earliest possible date in
accordance with the above provisions. Notices will be addressed as follows:
Sublessor: Indigo Pacific AB.
Address: Sodra Forstudsgatan
SE-21143 Maluno
Sweden
Attention: Legal Department
Telephone: 46406603001
Facsimile: 4640302350
Sublessee: FRONTIER AIRLINES, INC.
Address: 12015 E. 46th Avenue
Denver, Colorado 80239
Attention: General Counsel
Facsimile: (303) 371 9669
29. governing law and jurisdiction
29.1 New York Law
THIS SUBLEASE WILL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE BUT EXCLUDING SECTION 7-101 OF THE GENERAL OBLIGATIONS
LAW (NOTWITHSTANDING THE CONFLICT LAWS OF THE STATE OF NEW YORK).
29.2 NON-EXCLUSIVE JURISDICTION IN NEW YORK
EACH OF SUBLESSOR AND SUBLESSEE (A) IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK CITY
COUNTY, AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK FOR THE PURPOSES OF ANY SUIT, ACTION, OR OTHER PROCEEDING ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTION DOCUMENTS OR THE SUBJECT MATTER HEREOF OR
THEREOF OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY BROUGHT BY THE OTHER
PARTY OR ITS SUCCESSOR OR ASSIGN AND (B) TO THE EXTENT PERMITTED BY APPLICABLE
LAW, IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE
OR OTHERWISE ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
THE ABOVENAMED COURTS; THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT VENUE IS IMPROPER OR THAT THIS AGREEMENT OR THE OTHER
TRANSACTION DOCUMENTS OR THE SUBJECT MATTER HEREOF OR THEREOF MAY NOT BE
ENFORCED IN OR BY SUCH COURT. NOTHING HEREIN CONTAINED SHALL PREVENT EITHER
PARTY FROM BRINGING SUIT IN ANY OTHER APPROPRIATE JURISDICTION.
29.3 SERVICE OF PROCESS
WITH RESPECT TO ACTIONS, SUITS AND PROCEEDINGS BROUGHT IN THE COURTS NAMED IN
29.2, EACH OF SUBLESSOR AND SUBLESSEE HEREBY WAIVES PERSONAL SERVICE OF PROCESS
AND AGREES THAT SERVICE OR PROCESS MAY BE MADE UPON IT BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT THE ADDRESSED SPECIFIED IN CLASUE
28 AND THAT SUCH SERVICE SHALL BE DEEMED COMPLETED ON THE FIFTH BUSINESS DAY
AFTER SERVICE IS DEPOSITED IN THE MAIL. NOTHING HEREIN SHALL AFFECT THE RIGHT TO
SERVICE PROCESS IN ANY OTHER MANNER PROVIDED BY APPLICABLE LAW OR ACCORDANCE
WITH THE HAGUE CONVENTION IF APPLICABLE.
29.4 WAIVER
SUBLESSEE AND SUBLESSOR HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY.
<PAGE>
SIGNATURE PAGE
IN WITNESS whereof the parties hereto have executed this Agreement on the date
shown at the beginning of this Agreement.
SIGNED on behalf of INDIGO PACIFIC AB
By: ___________________________
Name: ___________________________
Title: ___________________________
SIGNED on behalf of FRONTIER AIRLINES, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
Receipt of the "original" counterpart of this Agreement is hereby acknowledged.
<PAGE>
SCHEDULE 1
AIRCRAFT SPECIFICATION
Model Boeing 737-3U3
Serial Number 28734
Current Registration N309FL
Line Number 2974
Date of Manufacture December 1997
Engines CFM INTERNATIONAL MODEL CFM 56-3C1,
ENGINE SERIAL NUMBERS 858670 AND
858673
APU Garrett GTCP85-129K
Present Operator N/A
WEIGHTS Lbs
Max Taxi Weight 140,000
Max Take Off Weight 139,500
Max Landing Weight 116,600
Max Zero Fuel Weight 109,600
Basic Empty Weight 69,721
Max Fuel capacity 5,311 US Gallons
INTERIOR CONFIGURATION
Seating 136 Y Burus Airest 2000
Galleys G1, G2, G4B WEBER
Lavatories Three
1 Forward, 2 Aft
<PAGE>
NAVIGATIONAL, COMMUNICATION, ELECTRONIC SYSTEMS,
FURNISHING & EQUIPMENT LIST
DESCRIPTION MANUFACTURER MODEL OR PART NUMBER QTY
Flight Control Computer Honeywell 10-62038 2
AFDS Controller Honeywell 10-62038-239 1
Yaw Damper System Honeywell 10-60447 1
Autothrottle Computer Smiths Industries 10-62017 1
VHF Com TRX Collins 822-0693-004 3
VHF Comm. Cntrl Panel Collins 622-6831-022 3
PA Amplifier Collins 346D-2B 1
Boarding Music System Matsushita RD-AX7351 1
Selcal decoder Team SC2253AD01 1
CVR Fairchild A 100A 1
HF Communication Collins 622-5272-001 2
ACARS Management Unit Allied Signal 965-0728-003 1
Video Monitors 14" Transcom Various 9
Video Tape Reproducer VHS Transcom 743-0238-001 1
Control Distr Monitor Unit Transcom 743-0313-005 1
Cabin Info Video I/face unit Sony Transcom 700-1388-001 1
Audio Tape Reproducer Matsushita RD-AX7002-01 1
Audio System - PES Matsushita Various
Digital Flight Recorder Allied Signal 980-4700-001 1
DFDAU Allied Signal 967-0202-001 1
Electric Altimeter Smiths 10-61826-8 1
Digital Air Data Computer Smiths 10-62153-1 2
EHSI Colour Collins S242T404-611 2
EADI Colour Collins S242T404-511 2
EFIS Control Panel Collins 622-8001-001 2
IRU Honeywell S242T101-112 2
GPWS Allied Signal S220T102 1
VHF Nav Collins 822-0761-001 2
ATC Transponder Allied Signal 066-01127-1301 2
DME Collins 622-4540-122 2
<PAGE>
NAVIGATIONAL, COMMUNICATION, ELECTRONIC SYSTEMS,
FURNISHING & EQUIPMENT LIST
ADF Collins 777-1492-005 2
Marker Collins 522-2996-011 1
FMC Smiths 10-62225-002 1
Radio Altimeter Thompson 9599-607-14931 2
WX-Radar Allied Signal 066-50008-0102 1
TCAS Processor Allied Signal 066-50000-1508 1
EFIS Symbol Generator Collins 622-8000-101 2
Wheels/Brakes Allied Signal MW 10-61819-28
NW 10-61063-22
<PAGE>
SCHEDULE 2
DELIVERY CONDITIONS
The Aircraft will be delivered "AS IS, WHERE IS" at Delivery Location and with a
valid and effective Certificate of Airworthiness in the Standard Category.
The following agreed Delivery Work shall have been performed:
1. Configuration: The Aircraft will be delivered with a standard
class 136 passenger configuration with seats to be procured by
Sublessee.
2. Paint: The existing markings will be removed and the Aircraft will
be delivered in a Frontier paint scheme, using the currently
existing base white color and Frontier provided tail decal.
3. TCAS: Installed, as agreed to between Air New Zealand and the Manufacturer.
<PAGE>
SCHEDULE 3
ACCEPTANCE CERTIFICATE
This Acceptance Certificate is delivered, on the date set out below by FRONTIER
AIRLINES, INC. (Sublessee), to INDIGO PACIFIC AB (Sublessor), pursuant to the
Aircraft Sublease Agreement dated November [ ], 1998 between Sublessor and
Sublessee (the Sublease). Capitalized terms used in this Certificate shall have
the meanings given to such terms in the Sublease.
1. Sublessee has this [ ] day of [ ] (Time: [ ]) at [ ]
received from Sublessor possession of:
(a) one (1) Boeing 737-3U3 Aircraft, bearing manufacturer's serial
number 28734, registration mark[ ] together with two (2) CFM
INTERNATIONAL CFM 56-3C1 engines bearing manufacturer's serial
numbers [ ] and [ ], all Parts attached thereto and thereon in an
airworthy condition; and
(b) all Aircraft Documents as listed in the Document Receipt attached hereto.
2. The Airframe, Engines and Parts had the following Flight Hours/Cycles at
delivery:
(a) Airframe:
Total hours Total landings Flight Hours/ Cycles Flight Hours/ Cycles
since last "C" Check since last "A" Check
[ ] [ ] [ ] Flight Hour [ ] Flight Hour
[ ] Cycles [ ]Cycles
(b) Engines:
Position Serial No. Total Total Cycles Flight Hours/ Flight Hours/
Flight Cycles since Cycles since
Hours last shop visit last Engine
Performance
Restoration
Visit
[ ] [ ] [ ] [ ] [ ] Flight [ ] Flight
Hours Hours
[ ] Cycles [ ] Cycles
Position Serial No. Total Total Cycles Flight Hours/ Flight Hours/
Flight Cycles since Cycles since
Hours last shop visit last Engine
Performance
Restoration
Visit
[ ] [ ] [ ] [ ] [ ] Flight [ ] Flight
Hours Hours
[ ] Cycles [ ] Cycles
Time Remaining to next life limited part removal
Flight Hours Cycles
MSN [ ] [ ] [ ]
MSN [ ] [ ] [ ]
(c) APU:
MSN Total Flight Hours Flight Hours/ Cycles Flight Hours/Cycles
remaining until next HSI remaining on turbine
inspection and compressor life
limited parts
[ ] [ ] [ ] [ ]
(d) Landing Gears:
Position Serial No. Total Flight Flight Hours/ Cycles Flight Hours/
Hours/Cycles since last overhaul Cycles to next
sched. Removal
Nose [ ] [ ] Flight Hours [ ] Flight Hours [ ] Flight Hours
[ ] Cycles [ ] Cycles [ ] Cycles
Right Main [ ] [ ] Flight Hours [ ] Flight Hours [ ] Flight Hours
[ ] Cycles [ ] Cycles [ ] Cycles
Left Main [ ] [ ] Flight Hours [ ] Flight Hours [ ] Flight Hours
[ ] Cycles [ ] Cycles [ ] Cycles
(e) Status of components or Parts with time/Cycle and calendar limits (see
attached sheet);
(f) Fuel on board at Delivery: [ ] kilos ([ ] gallons)
3. Other technical information regarding the Aircraft and its
components and any damage thereto are correctly set forth on the
Aircraft report and damage chart attached hereto.
4. Place of Acceptance:
5. Sublessee confirms to Sublessor that as at the time indicated
above, being the Delivery Date:
(a) the representations and warranties contained in Article 2 of the
Sublease are hereby repeated;
(b) the Aircraft is insured as required by the Lease; and
(c) Sublessee's authorised technical experts have inspected the
Aircraft and the Aircraft Documents to ensure the Aircraft and the
Aircraft Documents conform to Sublessee's requirements. The
Aircraft and the Aircraft Documents are in accordance with the
specifications of the Lease and satisfactory in all respects.
6. This Acceptance Certificate is executed and delivered by the
parties in [ ].
IN WITNESS WHEREOF, the parties hereto have caused this Acceptance Receipt to be
executed in their respective corporate names by their duly authorised
representatives as of the day and year first above written.
INDIGO PACIFIC AB
By:
- ----------------------------------
FRONTIER, INC
By:
- ----------------------------------
<PAGE>
SCHEDULE 4
SUBLEASE SUPPLEMENT
SUBLEASE SUPPLEMENT NO. ______ dated November ___, 1998, between Indigo Pacific
AB ("Sublessor") and FRONTIER AIRLINES, INC. ("Sublessee").
Sublessor and Sublessee have previously entered into that certain Aircraft
Sublease Agreement dated as of November [ ], 1998 (herein called the "Sublease"
and the defined terms therein being hereinafter used with the same meaning). The
Sublease provides for the execution and delivery from time to time of a Sublease
Supplement substantially in the form hereof for the purpose of leasing the
aircraft described below under the Sublease as and when delivered by Sublessor
to Sublessee in accordance with the terms thereof.
The Sublease relates to the Aircraft, Parts and Engines as more precisely
described below. A counterpart of the Sublease is attached hereto and this
Sublease Supplement and the Sublease shall form one document.
In consideration of the premises and other good and sufficient consideration,
Sublessor and Sublessee hereby agree as follows:
1. Sublessor hereby delivers and subleases to Sublessee under the
Sublease and Sublessee hereby accepts and subleases from Sublessor
under the Sublease, that certain used Boeing Model 737-3U3
Aircraft bearing FAA Registration Mark N309FL, including the
Airframe bearing manufacturers serial number 28734 and the two (2)
CFM INTERNATIONAL CFM 56-3C1 Engines bearing manufacturer's serial
numbers 858670 and 858673 (each of which Engines has in excess of
750 rated takeoff horsepower or the equivalent of such horsepower)
described in Schedule 1 herewith ("Delivered Aircraft").
2. The Delivery Date of the Delivered Aircraft is the date of this
Sublease Supplement set forth in the opening paragraph hereof.
3. The Lease Term for the Aircraft shall commence on the Delivery
Date and shall end on the Expiry Date.
4. The amount of Rent for the Delivered Aircraft is set forth in the
Sublease and is payable as provided in the Sublease.
5. Sublessee hereby confirms to Sublessor that (i) the Aircraft and
each Engine installed thereon or belonging thereto have been duly
marked in accordance with the terms of Clause 13.12 of the
Sublease, (ii) Sublessee has accepted the Aircraft for all
purposes hereof and of the Sublease, and (iii) Sublessee has
inspected the Aircraft and the Aircraft satisfies the conditions
set forth in the Sublease.
6. All of the terms and provisions of the Sublease are hereby
incorporated by reference in this Sublease Supplement to the same
extent as if fully set forth herein.
7. This Sublease Supplement may be executed in any number of
counterparts, each of such counterparts, except as provided in
Clause ___ of the Sublease, shall for all purposes be deemed to be
an original; and all such counterparts shall together constitute
but one and the same Sublease Supplement.
8. This Lease Supplement has been delivered in New York.
IN WITNESS WHEREOF, Sublessor and Sublessee have caused this Sublease Supplement
No. __ to the Sublease to be duly executed as of the day and year first above
written.
SUBLESSOR,
INDIGO PACIFIC AB
By:
Title:
SUBLESSEE,
FRONTIER AIRLINES, INC.
By:
Title:
<PAGE>
SCHEDULE 5
INSURANCE REQUIREMENTS
1.1 Types of Insurance
The Insurances required to be maintained are as follows:
(a) an All Risks Hull Insurance Policy on the Aircraft on an agreed
value basis in an amount not less than the Agreed Value with
insurers not entitled to replace the Aircraft in the event of an
insured Total Loss and All Risk Hull Insurance Policy on each
Engine when not installed no the Aircraft on an agreed value basis
not less than the Engine Agreed Value;
(b) insurance covering all risks of physical loss or damage howsoever
occasioned in respect of engines, spare parts and equipment
forming part of the Aircraft but which for the time being are
removed from the Aircraft, and are not insured by the Aircraft's
hull and war risk insurance in an agreed value of not less than
their replacement cost;
(c) a War Risks Insurance Policy on the Aircraft covering all of those
risks which are currently enumerated in Lloyds Form AVN.48B War,
Hi-jacking and Other Perils Exclusion Clause (Aviation), other
than paragraph (b) thereof to the fullest extent possible and any
additional risks which may hereafter be included therein or in any
form succeeding to any of its functions on an agreed value basis
in any amount not less than the Agreed Value;
(d) Liability Insurance, being Aircraft Third Party Legal Liability,
Passenger, Contractual Legal Liability, Baggage Legal Liability,
Cargo and Mail Legal Liability and Airline General Third Party
Legal Liability including war and allied perils to the fullest
extent available for a combined single limit of liability bodily
injury/property damage of not less than the Minimum Liability
Coverage any one accident provided that if the Sublessor on the
basis of advice received from an independent insurance adviser
believe that such limit should be revised upwards, it shall be
replaced by such higher limit as may be appropriate in the light
of circumstances prevailing in the international airline industry
at the time and provided further that the Sublessor shall not be
obliged by this Clause to effect and maintain insurance in respect
of any inability to recover from any manufacturer of the Airframe,
Engines or any Part, losses and liabilities incurred as a result
of negligent manufacture.
1.2 Terms of Hull and Spares Insurance
All required hull and spares insurance, so far as it relates to the Aircraft,
will:
(a) Settlement of Losses: provided that any loss will be payable in
Dollars to Sublessor's Lender, if none, to Sublessor or at the
request of Sublessor to Sublessor's Lender. In respect of any
other claim, the relevant policy shall provide that settlement
(net of any relevant policy deductible) shall be made with such
parties as may be necessary to repair the Aircraft or as otherwise
agreed after consultation between the Sublessor's Lender, the
Owner Trustee, the Sublessor and the Sublessee. The relevant
policy shall provide that such payments shall only be made
provided the same are in compliance with all applicable laws and
regulations;
(b) 50/50 Provision: if separate hull "all risks" and "war risks"
insurances are arranged, include a 50/50 provision in accordance
with market practice AVS. 103A is the current market language;
(c) Deductibles: provide for deductibles in respect of the Aircraft
All Risks Hull Insurance Policy or War Risks Insurance Policy of
no more than US$250,000 or such other limit as the parties may
from time to time agree.
(d) Customary Risks: cover at least such risks as are customarily
insured against in the airline industry for an amount not less
that the Agreed Value;
(e) Sound Practice: be in accordance with sound international airline
practice.
1.3 Terms of Liability Insurance
All required liability insurances will:
(a) cover at least such risks as are customarily insured against in
the airline industry and names the additional assured as
additional named insured for their respective rights and interest;
(b) be in form and substance in accordance with sound international
airline practice (having regard to the type of aircraft or engines
involved);
(c) provide that upon payment of any loss or claim by the insurers
in accordance with the endorsement relating to the relevant policy
naming the additional assured as additional assureds, the insurers
shall to the extent and in respect of such payment be thereupon
subrogated to all legal and equitable rights of the additional
assured indemnified under such endorsement relating to the
Insurances (but not against any additional assured) and further
provides that the insurers shall not exercise such rights without
the consent of those additional assured such consent not to be
unreasonably withheld and at the expense of the insurers such
additional assured shall do all things reasonably necessary to
assist the insurers to exercise the said rights;
(d) provide that except in respect of any provision for automatic
termination or cancellation specified in the policy or any
endorsement thereof, cover for the interests added by the
endorsement relating to the relevant policy may only be cancelled
or materially altered in a manner adverse to the additional
assured by the giving of not less than thirty (30) days (but seven
(7) days or such lesser period as may be customarily available in
respect of War risks) notice in writing to the insurance brokers
and that notice shall be deemed to commence from the date such
notice is given by the insurers and that such notice will not be
given at the normal expiry date of the policy or any endorsement;
(e) is primary without right of contribution from any other insurance
which may be available to the additional assured;
(f) subject to the provisions naming the additional assured as
additional assured, operates in all respects as if a separate
policy had been issued covering each additonal assured;
(g) provides that none of the additional assured shall be responsible
for any premiums in respect thereof, and that the insurers shall
waive any right of set-off or counterclaim against the additional
assured (except in respect of any outstanding premiums in respect
of the Aircraft);
(h) provides that the insurance thereunder shall not be invalidated by
any act or omission, including misrepresentation and
non-disclosure, of any other person which results in breach of any
term, condition or warranty of the relevant policy provided that
the additional assured so protected has not caused or contributed
to or knowingly condoned the said act or omission;
(i) has a deductible in respect of passenger baggage and cargo of an
amount which, at any time, is customary in the international
aviation market at that time for Boeing 737-300 aircraft in each
case in respect of any one claim;
(j) contains a provision insuring (to the extent of the risks covered
by the policy) the indemnity provisions of security document
entered into in favour of the Sublessor's Lender; and
(k) specifically refers to any security document entered into in
favour of the Sublessor's Lender or any loan agreement,
1.4 Terms of All Insurances
All Insurances will:
(a) Dollars: provide cover denominated in dollars;
(b) Worldwide: operate on a worldwide basis subject to such
limitations and exclusions as the parties and the insurance market
may agree;
(c) Acknowledgment: acknowledge the insurer is aware and has seen a
copy of this Agreement, that the Aircraft is owned by Owner
Trustee for the benefit of and the existence of any financing or
security documents to which Sublessor's Lenders may be party;
(d) Breach of Warranty: provide that, in relation to the interests of
each of the additional assureds, the Insurances will not be
invalidated by any act or omission, including misrepresentation
and non-disclosure, by Sublessee, or any other person provided
that such additional assureds regardless of any breach or
violation by Sublessee, or any other person other than the
respective additional assured seeking protection of any warranty,
declaration or condition, contained in such Insurances has not
caused or contributed to or knowingly condoned the said act or
omission;
(e) Subrogation: provide that upon payment of any loss or claim by the
insurers in accordance with the endorsement relating to the
relevant policy naming the additional assured as additional
assureds, the insurers shall to the extent and in respect of such
payment be thereupon subrogated to all legal and equitable rights
of the additional assured indemnified under such endorsement
relating to the Insurances (but not against any additional
assured) and further provides that the insurers shall not exercise
such rights without the consent of those additional assured such
consent not to be unreasonably withheld and at the expense of the
insurers such additional assured shall do all things reasonably
necessary to assist the insurers to exercise the said rights;
(f) Premiums: provide that the additional assureds will have no
obligation or responsibility for the payment of any premiums due
but reserve the right to pay the same should any of them elect so
to do and that the insurers will not exercise any right of set-off
or counter-claim in respect of any premium due against the
respective interests of the additional assureds other than
outstanding premiums relating to the Aircraft, any Engine or Part
the subject of the relevant claim;
(g) Cancellation/Change: provide that the Insurances will continue
unaltered for the benefit of the additional assureds for at least
thirty (30) days after written notice by registered mail or telex
of any cancellation, change, event of non-payment of premium or
instalment thereof has been sent to Sublessor, except in the case
of war risks for which 7 days or such lesser period as is or may
be customarily available in respect of war risks or allied perils
will be given and that notice shall be deemed to commence from the
date such notice is given by the insurers and that such notice
will not be given at the normal expiry date of the policy or any
endorsement; and
(h) Indemnities: accept and insure the indemnity provisions of this
Agreement to the extent of the risks covered by the policies (it
being understood that certain matters listed in Clause 20.1.1:
registration, import, overhaul, deregistration, export,
manufacture, design and testing and (c) are not covered).
(i) Endorsement: contains an endorsement naming:
(i) the Sublessor's Lender as loss payee in the case of a Total
Loss;
(ii) the Sublessor's Lender as loss payee in the case where the
amount payable by the insurers upon any claim other than in
respect of Total Loss is greater than US$5,000,000; and
(iii) the Sublessor as loss payee in the case where the amount
payable by the Insurers upon any claim other than in
respect of a Total Loss is less than US$5,000,000 unless
and until the Sublessor's Lender notifies the insurance
brokers or the insurers that an Event of Default has
occurred, in which event the loss payee shall be the
Sublessor's Lender;
(j) specifically refers to each loan agreement or charge between the
Owner Trustee and/or the Sublessor and/or any Sublessor's Lender.
1.5 Deductibles
Sublessee shall be responsible for any and all deductibles under the Insurances.
1.6 AVN 67B
Notwithstanding the foregoing, if Sublessee provides insurance certificates in
compliance with AVN 67B it shall be regarded as having satisfied those of the
insurance provisions set out above that are covered by that endorsement.
1.7 AVN 2000 (or similar)
If AVN 2000 or similar "Date Recognition Exclusion Clause" applies in respect of
the Insurances then:
(a) the Insurance certificate shall state that this is the case; and
(b) the Insurances must provide for AVN 2001 (aircraft exposures) and
AVN 2002 (non-aircraft exposures) or similar "Date Recognition
Limited Coverage Clauses" and the insurance certificates must
state that this is the case.
<PAGE>
SCHEDULE 6
RETURN CONDITIONS
On the Redelivery Date, the Aircraft, the Aircraft Documents and all other
documents listed in Annex 1 to Schedule 7 will be redelivered to Sublessor by
Sublessee in accordance with the procedures and in the condition set out below:
1. the Aircraft shall be returned with a current FAA standard
Certificate of Airworthiness and shall meet the requirements of
the FAA under Part 121 of the Federal Aviation Regulations or with
a FAA Certificate of Airworthiness, if requested by Sublessor;
2. the appearance of the Aircraft shall be clean and cosmetically
acceptable by domestic commercial airline standards that will
allow immediate placement into commercial passenger service. All
passenger windows will be free of crazing;
3. the Aircraft shall have installed the full complement of Engines
and other equipment, parts, components, accessories and loose
equipment as required by the Agreement to be installed on the
Aircraft at Delivery (by serial number), unless agree otherwise by
Sublessor in writing, each such item functioning in accordance
with manufacturers' specifications and the aircraft maintenance
manual provided the passengers seats shall be removed and shall
remain the sole property of the Sublessee;
4. the Aircraft shall have been maintained in accordance with Clauses
16 and 17 of the Agreement with the same care and consideration
for the technical condition of the Aircraft as if it were to have
been kept in continued regular service by Sublessee. The Aircraft
will be returned either:
(a) fresh from the next due C-Check at a FAA approved
repair station.; or
(b) "as is where is" with an appropriate payment of
US$35.00 per hour for each flight hour flown since
the last most recent C-Check.
5. there shall be no open, outstanding or deferred maintenance items,
scheduled or unscheduled, routine or non-routine, against the
Aircraft with no evidence of untreated or noticeable corrosion;
6. all major modifications and repairs to the Aircraft will have been
accomplished in accordance with current FAA approved data or the
Manufacturer's Structural Repair Manual ("SRM" and have been
properly documented);
7. each landing gear assembly of the Aircraft will be the same as of
Delivery unless otherwise agreed between Sublessee and Sublessor;
8. the Engines will not have been discriminated against, whether by
reason of it being Subleased by Sublessee or otherwise, during any
shop visit with respect to Sublessee's disk replacement and
performance restoration policies for CFM INTERNATIONAL CFM 56-3C1
engines it owns or operates;
9. each engine will be in good working condition with no acceleration
in performance deterioration based on the engine trend monitoring
data and will pass complete borescope inspections and power
assurance runs;
10. the auxiliary power unit (APU) shall be in serviceable condition
and meet the same conditions as were met at Delivery (as evidenced
by the Acceptance Certificate);
11. Sublessee shall return the Aircraft with the paint restored to
original and all logos and markings removed either painted in grey
or white or (as Sublessor's option) without any change from
Sublessee's livery with the intent that Sublessor repaints the
Aircraft, in either case at the sole cost and expense of
Sublessee;
12. the Aircraft shall be free and clear of all Security Interests
(other than Sublessor Liens) and shall have no components or parts
installed which are loaned, borrowed or are subject to rights of
third parties under pooling, exchange, overhaul, repair or other
similar arrangements;
13. the Aircraft shall be duly registered with the FAA;
14. neither the Aircraft nor any Engine or Part shall have been
discriminated against whether by reason of it being Subleased by
Sublessee or otherwise in maintenance, operation, use or in any
other manner whatsoever, including, without limitation as to the
type of maintenance program applicable to the Aircraft, any Engine
or as to compliance with Airworthiness Directives;
15. the Aircraft will be in full compliance with all Airworthiness
Directives (AD) issued prior to the Expiry Date and applicable to
the Aircraft including operation under FAR Part 121 and which
require terminating action or modification by a date (or date
based upon projected Flight Hours or Cycles based on average
utilization of the Aircraft by Sublessee during the Sublease
Period) on or before twelve (12) months after the Expiry Date;
16. any FAA AD's applicable to the Aircraft (including, but not
limited to, ageing aircraft and corrosion prevention and control
program type) which allow sampling of tasks to be accomplished on
other aircraft shall have 100% accomplishment of tasks on the
Aircraft, as specified in the relevant FAA AD;
17. the Aircraft will be returned with one (1) complete shipset of
Sublessee's galley equipment (containers, waste bins, trolleys and
beverage containers);
18. all Manufacturer's free of charge service bulletin kits delivered
to Sublessee for the Aircraft will be on board;
19. all Aircraft Documents, and other current and historical records
acquired, delivered to or prepared by Sublessee, shall be returned
with the Aircraft including, without limitation, time logs showing
Aircraft and Engine Flight Hours and Cycles on any given date,
documents, manuals (revised up to and including the most current
revisions issued by the manufacturer), data, overhaul records,
time controlled part traceability to overhaul and "zero time since
new" for time controlled parts that have life limits as determined
by the manufacturer, the FAA, log books, original Aircraft and
Engine delivery documents, serviceable parts tags (including
teardown reports for time controlled parts that have been
overhauled during the Sublease Period), the FAA forms,
modification records, inspection records (including NDT
documentation such as x-ray, eddy current, etc.), and all other
documentation pertaining to the Aircraft, Engines and Parts. All
records discrepancies shall be corrected, and any missing records
shall be reconstructed, by Sublessee at Sublessee's sole cost and
expense prior to the return of the Aircraft. Records for major
alterations (or modifications) shall include FAA approved data,
such as supplemental type certificates (STC's), technical standar
orders (TSO's) and service bulletin documentation;
<PAGE>
SCHEDULE 7
RETURN ACCEPTANCE CERTIFICATE
1. FRONTIER AIRLINES, INC. (Sublessee) and INDIGO PACIFIC AB
(Sublessor) have entered into an Aircraft Sublease Agreement dated
November [ ], 1998 (Sublease). Unless otherwise defined,
capitalised terms used herein will have the meanings set forth in
the Sublease.
2. Sublessor has this [ ] day of [ ] (Time: [ ]) at [ ]
received from Sublessee possession of:
(a) one (1) Boeing 737-3U3 Aircraft, bearing manufacturer's serial
number 28734, registration mark[ ] together with two (2) CFM
INTERNATIONAL CFM 56-3C1 engines bearing manufacturer's serial
numbers 85716 and 85717, all Parts attached thereto and thereon in
an airworthy condition; and
(b) all Aircraft Documents as listed in the Document Receipt attached hereto.
3. The Airframe, Engines and Parts had the following Flight Hours/Cycles at
return:
(a) Airframe:
Total hour Total landings Flight Hours/ Cycles Flight Hours/ Cycles
since last "C" Check since last "A" Check
[ ] [ ] [ ] Flight Hour [ ] Flight Hour
[ ] Cycles [ ] Cycles
(b) Engines:
Position Serial Total Total Flight Hours/ Flight Hours/
No. Flight Cycles Cycles since Cycles since
Hours last shop visit last Engine
Performance
Restoration
Visit
[ ] [ ] [ ] [ ] [ ] Flight [ ] Flight
Hours Hours
[ ] Cycles [ ] Cycles
Position Serial Total Total Flight Hours/ Flight Hours/
No. Flight Cycles Cycles since Cycles since
Hours last shop visit last Engine
Performance
Restoration
Visit
[ ] [ ] [ ] [ ] [ ] Flight [ ] Flight
Hours Hours
[ ] Cycles [ ] Cycles
Time Remaining to next life limited part removal
Flight Hours Cycles
MSN [ ] [ ] [ ]
MSN [ ] [ ] [ ]
(c) APU:
MSN Total Flight Flight Hours/ Cycles Flight Hours/Cycles
Hours remaining until next HSI remaining on turbine
inspection and compressor life
limited parts
[ ] [ ] [ ] [ ]
(d) Landing Gears:
Position Serial Total Flight Flight Hours/ Cycles Flight Hours/
No. Hours/Cycles since last overhaul Cycles to next
sched. Removal
Nose [ ] [ ] Flight [ ] Flight [ ] Flight
Hours Hours Hours
[ ] Cycles [ ] Cycles [ ] Cycles
Right Main [ ] [ ] Flight [ ] Flight [ ] Flight
Hours Hours Hours
[ ] Cycles [ ] Cycles [ ] Cycles
Left Main [ ] [ ] Flight [ ] Flight [ ] Flight
Hours Hours Hours
[ ] Cycles [ ] Cycles [ ] Cycles
(e) Status of components or Parts with time/Cycle and calendar limits (see
attached sheet);
(f) Fuel on board at return: [ ] kilos ([ ] gallons)
4. Other technical information regarding the Aircraft and its
components including damage are correctly set forth on the
Aircraft report and damage chart attached hereto.
5. The above specified Aircraft, Engines and documents are hereby
accepted by Sublessor subject to:
(a) the provisions of the Sublease; and
(b) correction by Sublessee of the discrepancies specified in Annexure
2 hereto (which correction Sublessee hereby undertakes to perform
as soon as reasonably possible).
6. Subject to Paragraph 7, the leasing of the Aircraft by Sublessor
to Sublessee pursuant to the Sublease is hereby terminated without
prejudice to Sublessee's continuing obligations under the Sublease
including, without limitation, Clauses 19 and 20.
7. Sublessee represents and warrants that during the term of the
Sublease all maintenance and repairs to the Airframe and Engines
were performed in accordance with the requirements contained in
the Sublease. Sublessee further confirms that all of its
obligations under the Sublease whether accruing prior to the date
hereof or which survive the termination of the Sublease by their
terms and accrue after the date hereof, will remain in full force
and effect until all such obligations have been satisfactorily
completed. Sublessee represented that the documents delivered and
listed in Annexure 1 are true and accurate.
8. This Return Acceptance Certificate is executed and delivered by
the parties in [ ].
IN WITNESS WHEREOF, the parties hereto have caused this Return Acceptance
Receipt to be executed in their respective corporate names by their duly
authorised representatives as of the day and year first above written.
INDIGO PACIFIC AB
By:
Title:
FRONTIER AIRLINES, INC.
By:
Title:
ATTACHMENTS:
1. Aircraft Documents
2. List of Discrepancies
Annexure 1
Aircraft Documents
The (a) manuals and (b) Aircraft Documents set forth below are to be returned
with the Aircraft in a current, up-to-date and correct status.
List
Quantity Required
1. Specific List of all Records and Documents transferred with the
equipment
2. Cross Reference List; Operator/Manufacturer Part Number and Serial
Number
Documents
Quantity Required
1. Aircraft Description and Status Summary in the form of Schedule 1 to
the Sublease Agreement.
2. Emergency Equipment Installation Drawings
3. Aircraft Readiness log (revised to Expiry Date)
4. FAA approved Airplane Flight Manual (AFM)
5. Manufacturer's Flight Crew Operating Manual
6. Weight and Balance Control and Loading Manual; last weighing
7. Minimum Equipment List (MEL)
8. MEL Procedures Manual
9. Maintenance Manual (Manufacturer and Sublessee) (Tape)
10. Wiring Diagram Manual
11. System Schematics
12. Fault Isolation Manuals
13. Non-Destructive Test (NDT) Manual (if Sublessee unique)
14. Structural Repair Manual (SRM)
15. Illustrated Parts Catalog (IPC) (Manufacturer and Sublessee)
16. A copy of galley drawings and galley manuals
17. Scheduled Maintenance Program
18. Maintenance Requirement Items List
19. Ageing Aircraft Programmes:
(a) Ageing Aircraft Service Action Requirements;
(b) Corrosion Prevention and Control;
(c) Supplemental Inspection Program (SID);
(d) Ageing Aircraft Repair Assessment Program;
(e) Ageing Aircraft Maintenance Planning
(f) Aircraft Detail Specification
Records
Quantity Required
1. Current Component Inventory List (updated to the date of Redelivery)
-----------------------------------
2. Service Bulletin (SB) Accomplishment List
3. Record of last Compass Swing
4. List of Oils and Fluids
5. Aircraft/Cockpit Log Books (current and file copies)
6. Engine Log Books
7. Auxiliary Power Unit (APU) Log Book
8. All applicable Modification Records
9. All applicable Forms 337's, Major Repair and Alteration
10. All applicable Major and Minor Repair Records
11. Airworthiness Directive (AD) Compliance Summary
12. All applicable Airworthiness Directive Records and Documentation
13. Quality Control Statements:
(a) List of Supporting FAR 145 Repair Stations;
(b) Accidents and Incidents Statements;
(c) Assistance, as required, in acquiring outstanding records;
14. Time Controlled Component List, history and status
15. Life Limited Part (LLP) List, history and status
16. Maintenance Check Status and Summary
17. Total Time and Cycle Justification
18. All other applicable Maintenance Records including:
(a) All records including the most recent of all Aircraft checks (service
checks, A Checks, B Checks, C Checks, D Checks, etc);
(b) All Engine and APU shop repair/overhaul records including the most
recent restoration of each engine module and last overhaul and HSI for
the APU;
(c) All Landing Gear overhaul records including the most recent overhaul of
each Landing Gear.
Certificates
Quantity Required
1. Current Airworthiness Certificate
2. Current Noise Certificate
3. Current Registration
4. Current Radio License
5. Supplemental Type Certificates and back up data
Confirmation
1. At Sublessor's request, confirmation that the Aircraft has been deregistered.
Receipt of the foregoing documents, except as noted, is hereby acknowledged.
<PAGE>
Annexure 2
Discrepancies
<PAGE>
SCHEDULE 9
MONTHLY AIRCRAFT UTILIZATION AND STATUS REPORT
To: INDIGO PACIFIC AB
From: FRONTIER
Aircraft type: Boeing 737-300
Registration:
Serial number: Month of:
- --------------------------------------------------------------------------------
Aircraft Total Time Since New Flight Hours:
- --------------------------------------------------------------------------------
Aircraft Total Cycles Since New Cycles:
- --------------------------------------------------------------------------------
Airframe Flight Hours Flown During Month Flight Hours:
- --------------------------------------------------------------------------------
Airframe Cycles/Landing During Month Cycles:
- --------------------------------------------------------------------------------
Time Remaining to C7 Check
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Engine Serial Number: Engine Serial Number
Original Position: Original Position:
- --------------------------------------------------------------------------------
Actual Location: Actual Location:
- --------------------------------------------------------------------------------
Total Time Since New Total Time Since New
- --------------------------------------------------------------------------------
Total Cycles Since New Total Cycles Since New
- --------------------------------------------------------------------------------
Flight Hours Flown During Month Flight Hours Flown During Month
- --------------------------------------------------------------------------------
Cycles During Month Cycles During Month
- --------------------------------------------------------------------------------
Time since last Borescope Time since last Borescope
- --------------------------------------------------------------------------------
Time remaining until next Borescope
- --------------------------------------------------------------------------------
Time remaining until next Borescope
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Landing Gear: TSN CSN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RH Main
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LH Main
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Nose
- --------------------------------------------------------------------------------
Note: If an Engine is removed or installed on another Aircraft (subject to the
provisions of the Agreement) it must be reported monthly on this form.
Any service bulletins, Airworthiness Directives, engineering modifications or
changes: .......................................................................
................................................................................
- --------------------------------------------------------------------------------
Hours/Cycles Flown x US$ Per Flight = Reserve payment
During Month Hour/Cycle
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Airframe Hrs. x $70.00 =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Original Engine Serial Hrs x =
Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Original Engine Serial Hrs. x =
Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Engines: Hrs. x $80,00 =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LLP Hrs. x $20,00 =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Landing Gear Cycles: x $10,00 =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APU Hrs. x $6,00 =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 10
POWER OF ATTORNEY
The undersigned, [ ] (the Sublessee) refers to the Aircraft Lease Agreement
dated as of [ ], as amended and supplemented from time to time (the Lease)
between, among others [ ] (the Sublessor) and the Company with respect to one
(1) Aircraft bearing manufacturer's serial number [ ] and registration mark [ ]
(the Aircraft).
In consideration of the sum of US$ 1 paid by the Sublessor to the Sublessee (the
receipt and sufficiency of which is hereby acknowledged). The Sublessee
irrevocably appoints each of the Sublessor and [ ] (severally each an Attorney)
its true and lawful attorney to execute and to do an perform upon its behalf and
in its name or otherwise to deliver any documents, instruments or certificates
with such amendments thereto (if any) which may be required to obtain
deregistration of the Aircraft from the register of aircraft maintained by the
Federal Aviation Administration of the United States of America and the export
of the Aircraft from the [ ] upon the lawful termination of the Lease of the
Aircraft.
AND generally to do any and all such acts and things and to execute under seal
or hand (as appropriate) and deliver any and all documents under seal or under
hand (as appropriate) as may be requested or required for such deregistration
and export.
AND the Sublessee hereby undertakes from time to time and at all times to
indemnify the Attorney against all costs, claims, expenses and liabilities
howsoever incurred by all such Attorney in connection herewith and further
undertakes to ratify and confirm whatsoever the Attorney shall lawfully do or
cause to be done in or by virtue of this Power of Attorney.
AND for the better doing, performing and executing of the matters and things
aforesaid the Sublessee hereby further grants unto the Attorney full power and
authority to substitute and appoint in its place one or more attorney or
attorneys to exercise for them as attorney or attorneys of the Sublessee any or
all the powers and authorities hereby conferred and to revoke any such
appointments from time to time and to substitute or appoint any other or others
in the place of such attorney or attorneys as each attorney shall from time to
time think fit.
This Power of Attorney shall be subject to, governed by and construed in
accordance with the laws of the State of New York.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1999
<CASH> 25,322,423
<SECURITIES> 0
<RECEIVABLES> 10,356,266
<ALLOWANCES> 191,834
<INVENTORY> 1,192,077
<CURRENT-ASSETS> 59,881,832
<PP&E> 11,052,921
<DEPRECIATION> 4,152,515
<TOTAL-ASSETS> 82,121,500
<CURRENT-LIABILITIES> 51,600,232
<BONDS> 0
0
0
<COMMON> 15,316
<OTHER-SE> 24,633,523
<TOTAL-LIABILITY-AND-EQUITY> 82,121,500
<SALES> 150,434,054
<TOTAL-REVENUES> 150,434,054
<CGS> 0
<TOTAL-COSTS> 137,988,535
<OTHER-EXPENSES> (979,149)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 661,870
<INCOME-PRETAX> 12,762,798
<INCOME-TAX> 12,762,798
<INCOME-CONTINUING> 12,762,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,762,798
<EPS-PRIMARY> .93
<EPS-DILUTED> .86
</TABLE>
