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 September 30, 1999
[ ] 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 (I.R.S. Employer Identification No.)
of incorporated or organization)
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 November 8,
1999 was 17,582,709.
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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 5
Item 3: Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FRONTIER AIRLINES, INC.
Condensed Balance Sheets
(Unaudited)
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September 30, March 31,
1999 1999
--------------- ----------------
Assets
Current assets:
Cash and cash equivalents $ 47,683,727 $ 47,289,072
Short-term investments 33,466,704 -
Restricted investments 4,000,000 4,000,000
Trade receivables 12,620,673 16,930,038
Maintenance deposits 16,092,758 13,018,466
Prepaid expenses and other assets 6,886,878 5,439,834
Inventories 2,051,421 1,203,916
Deferred tax assets 999,921 6,041,576
Deferred lease expenses 219,027 285,636
--------------- ----------------
Total current assets 124,021,109 94,208,538
Security, maintenance and other deposits 10,854,170 11,834,457
Property and equipment, net 11,687,957 8,733,778
Deferred lease and other expenses 186,006 267,762
Restricted investments 6,185,760 4,575,760
=============== ================
$ 152,935,002 $ 119,620,295
=============== ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 13,979,947 $ 14,011,238
Air traffic liability 32,191,368 28,887,692
Other accrued expenses 14,611,403 10,781,509
Accrued maintenance expense 19,480,769 14,933,568
Current portion of obligations under capital leases 107,261 106,833
--------------- ----------------
Total current liabilities 80,370,748 68,720,840
Accrued maintenance expense 5,575,898 6,042,958
Deferred tax liability 30,928 30,928
Obligations under capital leases, excluding current portion 382,167 434,920
--------------- ----------------
Total liabilities 86,359,741 75,229,646
--------------- ----------------
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; 17,582,209 and 16,141,172 shares
issued and outstanding at September 30, 1999 and March 31, 1999 17,582 16,141
Additional paid-in capital 63,201,482 58,054,844
Unearned ESOP shares (203,125) (609,375)
Retained earnings (accumulated deficit) 3,559,322 (13,070,961)
--------------- ----------------
Total stockholders' equity 66,575,261 44,390,649
--------------- ----------------
$ 152,935,002 $ 119,620,295
=============== ================
See accompanying notes to financial statements.
</TABLE>
1
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FRONTIER AIRLINES, INC.
Statements of Income
(Unaudited)
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Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
--------------- ---------------- --------------- ----------------
Revenues:
Passenger $ 83,412,784 $ 55,502,301 $ 159,387,697 $ 97,062,888
Cargo 1,477,492 967,071 2,918,576 1,971,819
Other 562,989 383,541 1,033,189 705,759
--------------- ---------------- --------------- ----------------
Total revenues 85,453,265 56,852,913 163,339,462 99,740,466
--------------- ---------------- --------------- ----------------
Operating expenses:
Flight operations 30,376,247 18,778,648 56,260,630 36,632,354
Aircraft and traffic servicing 11,914,874 8,453,991 22,620,604 15,591,813
Maintenance 12,347,293 9,410,480 25,897,545 18,138,348
Promotion and sales 12,646,049 8,296,433 24,476,968 15,422,893
General and administrative 4,170,915 1,758,020 7,858,538 3,036,579
Depreciation and amortization 633,441 377,525 1,207,652 715,974
--------------- ---------------- --------------- ----------------
Total operating expenses 72,088,819 47,075,097 138,321,937 89,537,961
--------------- ---------------- --------------- ----------------
Operating income 13,364,446 9,777,816 25,017,525 10,202,505
--------------- ---------------- --------------- ----------------
Nonoperating income (expense):
Interest income 1,122,479 344,403 1,947,122 619,972
Interest expense (26,115) (217,842) (48,016) (458,081)
Other, net 136,587 (34,819) 15,021 (61,129)
--------------- ---------------- --------------- ----------------
Total nonoperating income, net 1,232,951 91,742 1,914,127 100,762
--------------- ---------------- --------------- ----------------
Income before income tax expense 14,597,397 9,869,558 26,931,652 10,303,267
Income tax expense 5,583,517 - 10,301,369 -
=============== ================ =============== ================
Net income $ 9,013,880 $ 9,869,558 $ 16,630,283 $ 10,303,267
=============== ================ =============== ================
Earnings per share:
Basic $ 0.52 $ 0.71 $ 0.98 $ 0.78
=============== ================ =============== ================
Diluted $ 0.47 $ 0.64 $ 0.89 $ 0.71
=============== ================ =============== ================
Weighted average shares of
common stock outstanding
Basic 17,452,641 13,955,031 16,998,582 13,238,367
=============== ================ =============== ================
Diluted 19,090,549 15,354,381 18,637,440 14,483,683
=============== ================ =============== ================
See accompanying notes to financial statements.
</TABLE>
2
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FRONTIER AIRLINES, INC.
Condensed Statements of Cash Flows
For the Six Months Ended September 30, 1999 and 1998
(Unaudited)
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1999 1998
--------------- ----------------
Cash flows from operating activities:
Net income $ 16,630,283 $ 10,303,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Employee stock option plan compensation expense 406,250 322,875
Depreciation and amortization 1,356,016 1,438,249
Loss on sale of equipment - 6,793
Deferred tax expense 5,041,655 -
Changes in operating assets and liabilities:
Restricted investments - (819,354)
Trade receivables 4,309,365 2,075,169
Security, maintenance and other deposits (3,927,921) (4,228,192)
Prepaid expenses and other assets (1,447,044) (1,639,725)
Inventories (847,505) 78,010
Accounts payable (31,291) (2,895,972)
Air traffic liability 3,303,676 (608,327)
Other accrued expenses 3,829,894 704,576
Accrued maintenance expense 4,080,141 3,495,732
--------------- ----------------
Net cash provided by operating activities 32,703,519 8,233,101
--------------- ----------------
Cash flows used by investing activities:
Increase in short-term investments (33,466,704) -
Aircraft lease deposits refunded (paid) 1,833,916 (284,000)
Increase in restricted investments (1,610,000) -
Capital expenditures (4,161,830) (1,259,468)
--------------- ----------------
Net cash used by investing activities (37,404,618) (1,543,468)
--------------- ----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 5,148,079 13,395,477
Proceeds from short-term borrowings - 179,664
Principal payments on short-term borrowings - (58,778)
Principal payments on obligations under capital leases (52,325) (23,793)
--------------- ----------------
Net cash provided by financing activities 5,095,754 13,492,570
--------------- ----------------
Net increase in cash and cash equivalents 394,655 20,182,203
Cash and cash equivalents, beginning of period 47,289,072 3,641,395
--------------- ----------------
Cash and cash equivalents, end of period $ 47,683,727 $ 23,823,598
=============== ================
See accompanying notes to financial statements.
</TABLE>
3
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FRONTIER AIRLINES, INC.
Notes to Financial Statements
September 30, 1999
(1) Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-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 Company's 1999 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
six months ended September 30, 1999 are not necessarily indicative of the
results that will be realized for the full year.
(2) Income Tax Expense
Income tax expense for the three and six months ended September 30, 1999
consists of:
Three months Six months
ended ended
----------------- -----------------
Current expense - 5,259,714
Deferred expense 5,583,517 5,041,655
================= =================
5,583,517 10,301,369
================= =================
4
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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. ("Frontier" or the "Company") and the
expectations of our Company and management. All statements, other than
statements of historical facts, included in this report that address activities,
events or developments that we expect, believe, intend or anticipate will or may
occur in the future, are forward-looking statements. When used in this document,
the words "estimate," "anticipate," "project" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. These risks and
uncertainties include, but are not limited to: the timing of, and expense
associated with, expansion and modification of our operations in accordance with
our business strategy or in response to competitive pressures or other factors
such as our commencement of passenger service and ground handling operations at
several airports and assumption of maintenance and ground handling operations at
DIA with our own employees; general economic factors and behavior of the
fare-paying public, increased federal scrutiny of low-fare carriers generally
that may increase our operating costs or otherwise adversely affect us; actions
of competing airlines, such as increasing capacity and pricing actions of United
Airlines and other competitors; the availability of suitable aircraft, which may
inhibit our ability to achieve operating economies and implement our business
strategy; and uncertainties regarding aviation fuel prices. Because our
business, like that of the airline industry generally, is characterized by high
fixed costs relative to revenues, small fluctuations in our yield per RPM or
expense per ASM can significantly affect operating results. See "Risk Factors"
in our 1999 Form 10-K as they may be modified by the disclosures contained in
this report.
General
We are a scheduled airline based in Denver, Colorado. We currently
operate routes linking our Denver hub to 20 cities in 17 states spanning the
nation from coast to coast. At present, we use up to eight gates at Denver
International Airport ("DIA") for approximately 94 daily flight departures and
arrivals. During the six months ended September 30, 1999, we added Portland,
Oregon to our route system on June 14, 1999 and Orlando, Florida on September 9,
1999, respectively, and added frequencies to certain markets. On November 4,
1999 we added an additional daily nonstop flight to Orlando, Florida. On
November 1, 1998, we initiated complimentary shuttle service between Boulder,
Colorado and DIA.
Organized in February 1994, we commenced flight operations as a regional
carrier in July 1994 with two leased Boeing 737-200 jet aircraft. We currently
operate 19 leased jets as of November 8, 1999, including 6 Boeing 737-200s and
13 larger Boeing 737-300s.
As a result of the expansion of our operations during the six months
ended September 30, 1999, our results of operations are not necessarily
indicative of future operating results or comparable to the prior period ended
September 30, 1998.
Small fluctuations in our yield per RPM or expense per ASM can
significantly affect operating results because we, like other airlines, have
high fixed costs 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 our liquidity, cash flows
and results of operations.
Results of Operations
We had net income of $16,630,000 or 89(cent) per diluted share for the
six months ended September 30, 1999 as compared to net income of $10,303,000 or
71(cent) per diluted share for the six months ended September 30, 1998. We had
net income of $9,014,000 or 47(cent) per diluted share for the three months
ended September 30, 1999 as compared to net income of $9,870,000 or 64(cent) per
diluted share for the three months ended September 30, 1998. During the three
and six months ended September 30, 1999, we reported a provision for income
taxes which totaled $5,584,000 and $10,301,000 or 29(cent) and 55(cent) per
diluted share, respectively. During the three and six months ended September 30,
1998, we had the benefit of tax loss carryforwards that offset tax expense for
the period. During the three and six months ended September 30, 1999 as compared
to the prior comparable periods, we experienced higher fares as a result of
5
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increases in business travelers and a general increase in fare levels. Our cost
per ASM increased to 8.06(cent) during the six months ended September 30, 1999
from 7.76(cent) for the prior comparable period principally as a result of an
unanticipated engine repair expense due to a premature failure, which accounted
for .08(cent) of expense per ASM, our accrual for potential employee performance
bonuses, which accounted for .11(cent) of expense per ASM, and an overall
increase in the cost of fuel which accounted for .13(cent) per ASM.
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 six months ended
September 30, 1999, our break-even load factor was 52.4% compared to the
passenger load factor achieved of 63.0%. For the six months ended September 30,
1998, our break-even load factor was 56.2% compared to the achieved passenger
load factor of 62.9%. Our break-even load factor decreased from the prior
comparable period largely as a result of an increase in our average fare to $131
during the six months ended September 30, 1999 from $117 during the six months
ended September 30, 1998, an increase in our total yield per RPM from
13.75(cent) for the six months ended September 30, 1998 to 15.10(cent) for the
six months ended September 30, 1999 offset by an increase in our expense per ASM
to 8.06(cent) for the six months ended September 30, 1999 from 7.76(cent) for
the six months ended September 30, 1998.
The following table sets forth certain of our quarterly financial and
operating data for the 15 months of operations ended September 30, 1999.
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Selected Financial and Operating Data
Quarter Ended
----------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30,
1998 1998 1999 1999 1999
Passenger revenue (1) $55,502,000 $49,113,000 $68,135,000 $75,975,000 $83,413,000
Revenue passengers carried 420,000 373,000 503,000 553,000 617,000
Revenue passenger
miles (RPMs)(2) 387,810,000 338,691,000 442,541,000 506,247,000 575,476,000
Available seat miles
(ASMs)(3) 609,111,000 632,754,000 751,081,000 815,961,000 900,524,000
Passenger load factor (4) 63.7% 53.5% 58.9% 62.0% 63.9%
Break-even load factor (5) 52.3% 50.8% 48.3% 52.0% 52.7%
Block hours (6) 12,543 13,325 15,666 16,785 17,987
Average daily block hour
utilization (7) 10.27 9.57 10.24 10.80 10.80
Yield per RPM (cents) (8) 14.31 14.50 15.40 15.01 14.49
Total yield per RPM (cents) (9) 14.66 14.97 15.86 15.38 14.85
Total yield per ASM (cents) (10) 9.33 8.01 9.34 9.55 9.49
Expense per ASM (cents) 7.73 7.66 7.71 8.12 8.01
Expense per ASM (excluding 6.81 6.73 6.91 7.14 6.83
fuel) (cents)
Passenger revenue per
block hour $4,424.94 $3,685.78 $4,349.23 $4,526.36 $4,637.40
Average fare (11) $125 $124 $131 $133 $130
Average aircraft in service 14.0 14.4 17.0 18.0 19.1
EBITDAR (12) $17,713,000 $10,886,132 $21,923,000 $22,479,000 $25,779,000
EBITDAR as a % of revenue 31.2% 21.5% 31.2% 28.9% 30.2%
Operating income $9,778,000 $2,243,000 $12,234,000 $11,653,000 $13,364,000
Net income $9,870,000 $2,460,000 $17,802,000 $7,616,000 $9,014,000
</TABLE>
6
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(1) "Passenger revenue" includes revenues for non-revenue passengers,
administrative fees, and revenue recognized for unused tickets that are
greater than one year from issuance date.
(2) "Revenue passenger miles,"or RPMs, are determined by multiplying the number
of fare-paying passengers carried by the distance flown. (3)"Available seat
miles,"or ASMs, are determined by multiplying the number of seats available
for passengers by the number of miles flown.
(4) "Passenger load factor" is determined by dividing revenue passenger miles
by available seat miles.
(5) "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
(6) "Block hours" represent the time between aircraft gate departure and
aircraft gate arrival.
(7) "Average daily block hour utilization" represents the total block hours
divided by the weighted average number of aircraft days in service.
(8) "Yield per RPM" is determined by dividing passenger revenues by revenue
passenger miles.
(9) "Total Yield per RPM" is determined by dividing total revenues by revenue
passenger miles.
(10) "Total Yield per ASM" is determined by dividing total revenues by available
seat miles.
(11) "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.
(12) "EBITDAR", or "earnings before interest, income taxes, depreciation,
amortization and aircraft rentals," is a supplemental financial measurement
many airline industry analysts and we use in the evaluation of our
business. However, EBITDAR should only be read in conjunction with all of
our 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 our operating performance or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as
a measure of liquidity.
The following table provides our operating revenues and expenses
expressed as cents per total available seat miles ("ASM") and as a percentage of
total operating revenues, as rounded, for the three and six months ended
September 30, 1999 and 1998.
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For the three months ended September 30, For the six months ended September 30,
1999 1998 1999 1998
-------------------- -------------------- -------------------- --------------------
Per % Per % Per % Per %
total of total of total of total of
ASM Revenue ASM Revenue ASM Revenue ASM Revenue
Revenues:
Passenger 9.26 97.6% 9.11 97.6% 9.29 97.6% 8.41 97.3%
Cargo 0.16 1.7% 0.16 1.7% 0.17 1.8% 0.17 2.0%
Other 0.06 0.7% 0.06 0.7% 0.06 0.6% 0.06 0.7%
========= ========= ========= ========= ========== ======== ========== ========
Total revenues 9.48 100.0% 9.33 100.0% 9.52 100.0% 8.64 100.0%
========= ========= ========= ========= ========== ======== ========== ========
Operating expenses:
Flight operations 3.37 35.6% 3.08 33.0% 3.28 34.4% 3.18 36.7%
Aircraft and traffic
servicing 1.32 13.9% 1.39 14.9% 1.32 13.9% 1.35 15.6%
Maintenance 1.37 14.5% 1.55 16.5% 1.51 15.9% 1.57 18.2%
Promotion and sales 1.41 14.8% 1.36 14.6% 1.42 15.0% 1.34 15.5%
General and adminstrative 0.47 4.9% 0.29 3.1% 0.46 4.8% 0.26 3.0%
Depreciation and
amortization 0.07 0.7% 0.06 0.7% 0.07 0.7% 0.06 0.7%
========= ========= ========= ========= ========== ======== ========== ========
Total operating expenses 8.01 84.4% 7.73 82.9% 8.06 84.7% 7.76 89.7%
========= ========= ========= ========= ========== ======== ========== ========
Total ASMs (000s) 900,524 609,111 1,716,485 1,153,668
</TABLE>
Revenues
Our revenues are highly sensitive to changes in fare levels. Fare pricing
policies have a significant impact on our revenues. Because of the elasticity of
passenger demand, we believe that increases in fares will result in a decrease
in passenger demand in many markets. We 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 our markets, we believe that
we must, in most cases, match those competitive fares in order to maintain our
market share. Passenger revenues are seasonal in leisure travel markets
depending on the markets' locations and when they are most frequently
patronized.
7
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Our average fare for the six months ended September 30, 1999 and 1998 was
$131 and $117, respectively. We believe that the increase in the average fare
during the six months ended September 30, 1999 over the prior comparable periods
was largely a result of our focus on increasing the number of business travelers
and a general increase in fare levels. Additionally, during the six months ended
September 30, 1998, we honored certain Western Pacific Airlines flight coupons
at a significantly reduced fare, which depressed the average fare for the
period. Western Pacific Airlines operated out of DIA until it ceased operations
on February 4, 1998. Our average fare for the three months ended September 30,
1999 was $130 compared to $125 for the three months ended September 30, 1998.
During the three months ended September 30, 1998, we experienced higher average
fares in certain of our markets as a result of accommodating Northwest Airlines
passengers during that carrier's pilot strike during a portion of August and
September 1998.
Passenger Revenues. Passenger revenues totaled $159,388,000 for the six
months ended September 30, 1999 compared to $97,063,000 for the six months ended
September 30, 1998, or an increase of 64.2%. The number of revenue passengers
carried was 1,170,000 for the six months ended September 30, 1999 compared to
788,000 for the six months ended September 30, 1998 or an increase of 48.5%. We
had an average of 18.5 aircraft in our fleet during the six months ended
September 30, 1999 compared to an average of 14 aircraft during the six months
ended September 30, 1998, an increase of 32.1%, and an increase in ASMs of
562,817,000 or 48.8%. RPMs for the six months ended September 30, 1999 were
1,081,723,000 compared to 725,369,000 for the six months ended September 30,
1998, an increase of 49.1%. We believe that our passenger revenues were
adversely effected by late deliveries of aircraft during the three months ended
September 30, 1999.
Cargo revenues, consisting of revenues from freight and mail service,
totaled $2,919,000 and $1,972,000 for the six months ended September 30, 1999
and 1998, respectively, representing 1.8% and 2.0%, respectively of total
operating revenues and an increase of 48.0%. 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 $1,033,000 and $706,000, or .6% and .7%
of total operating revenues for the six months ended September 30, 1999 and
1998, respectively, and an increase of 46.4%
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
$138,322,000 and $89,538,000 for the six months ended September 30, 1999 and
1998 and represented 84.7% and 89.7% of revenue, respectively. Operating
expenses decreased as a percentage of revenue during the six months ended
September 30, 1999 as a result of the 64.2% increase in passenger revenues
attributable to a 48.5% increase in passengers and an 12.0% increase in the
average fare offset by an increase in the cost of fuel and an accrual for
potential employee performance bonuses. Total operating expenses for the three
months ended September 30, 1999 and 1998 were $72,089,000 and $47,075,000 and
represented 84.4% and 82.8% of revenue, respectively. Operating expenses
increased as a percentage of revenue during the three months ended September 30,
1999 principally as a result of an increase in the cost of fuel and the accrual
for potential employee performance bonuses.
Flight Operations. Flight operations expenses of $56,261,000 and
$36,632,000 were 34.4% and 36.7% of total revenue for the six months ended
September 30, 1999 and 1998, respectively. Flight operations expenses of
$30,376,000 and $18,779,000 were 35.6% and 33.0% of total revenue for the three
months ended September 30, 1999 and 1998, 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.
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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
expense of $18,512,000 for 27,404,000 gallons used and $10,807,000 for
18,621,000 gallons used resulted in an average fuel cost of 67.6(cent) and
58.0(cent) per gallon, for the six months ended September 30, 1999 and 1998,
respectively. Aircraft fuel expense represented 32.9% and 29.5% of total flight
operations expenses or 11.3% and 10.8% of total revenue for the six months ended
September 30, 1999 and 1998, respectively. Aircraft fuel expense of $10,557,000
for 14,275,000 gallons used and $5,617,000 for 9,954,000 gallons used resulted
in an average fuel expense of 74.0(cent) and 56.4(cent) per gallon for the three
months ended September 30, 1999 and 1998, respectively. Aircraft fuel costs
represented 34.8% and 29.9% of total flight operations expenses for the three
months ended September 30, 1999 and 1998, respectively, or 12.4% and 9.9% of
total revenue. The average fuel cost per gallon increased for the six months
ended September 30, 1999 from the comparable prior period due to an overall
increase in the cost of fuel. Fuel prices are subject to change weekly as we do
not purchase supplies in advance for inventory. Fuel consumption for the six
months ended September 30, 1999 and 1998 averaged 788 and 782 gallons per block
hour, respectively. Fuel consumption increased over the prior comparable period
because of increased flap speed settings mandated by the FAA which required more
fuel to maintain air speed at normal operating levels as well as the need to
carry additional fuel because of increased storm activity, offset by fuel
efficiencies with the increase in more fuel efficient aircraft. The requirement
for increased flap speed settings will be lifted when a fleet modification is
completed, which is required to be completed by August 1, 2000.
Aircraft lease expenses totaled $22,019,000 (13.5% of total revenue) and
$15,181,000 (15.2% of total revenue) for the six months ended September 30, 1999
and 1998, respectively, or an increase of 45%. The increase is largely due to
higher lease expenses for larger Boeing 737-300 aircraft added to the fleet and
an increase in the average number of aircraft to 18.5 from 14, or 32.1%, for the
six months ended September 30, 1999 and 1998, respectively.
Aircraft insurance expenses totaled $1,317,000 (.8% of total revenue) for
the six months ended September 30, 1999. Aircraft insurance expenses for the six
months ended September 30, 1998 were $1,235,000 (1.2% of total revenue).
Aircraft insurance expenses were .12(cent) and .17(cent) per RPM for the six
months ended September 30, 1999 and 1998, respectively. Aircraft insurance
expenses decreased per RPM as a result of competitive pricing in the aircraft
insurance industry, our favorable experience rating since we began flight
operations in July 1994 and economies of scale due to the increase in fleet
size.
Pilot and flight attendant salaries before payroll taxes and benefits
totaled $7,230,000 and $4,787,000 or 4.5% and 4.9% of passenger revenue for each
of the six months ended September 30, 1999 and 1998, or an increase of 51%.
Pilot and flight attendant compensation increased principally as a result of a
32.1% increase in the average number of aircraft in service, general wage rate
increases, and an increase of 46.1% in block hours. We pay 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 we are not in the process of adding
aircraft to our system, pilot and flight attendant expense per aircraft
normalizes. With a scheduled passenger operation, and with salaried rather than
hourly crew compensation, our expenses for flight operations are largely fixed,
with flight catering and fuel expenses the principal exceptions.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses
were $22,621,000 and $15,292,000 (an increase of 45.1%) for the six months ended
September 30, 1999 and 1998, respectively, and represented 13.9% and 15.6% of
total revenue. Aircraft and traffic servicing expenses include all expenses
incurred at airports served by us including landing fees, facilities rental,
station labor, ground handling expenses, and interrupted trip expenses
associated with delayed or cancelled flights. Interrupted trip expenses are
amounts paid to other airlines to protect passengers as well as hotel, meal and
other incidental expenses. Aircraft and traffic servicing expenses will increase
with the addition of new cities to our route system. During the six months ended
September 30, 1999 we served 20 cities compared to 15 cities during the six
months ended September 30, 1998, or an increase of 33.3%. Aircraft and traffic
servicing expenses were $1,381 and $1,324 per departure for the six months ended
September 30, 1999 and 1998, respectively, or an increase of $57. During the six
months ended September 30, 1998, an additional DIA revenue credit above amounts
estimated and accrued, totaling $371,000 for the calendar year ended December
31, 1997, was recorded which approximated $32 per departure. After adjusting the
cost per departure for this credit for the six months ended September 30, 1998,
the cost per departure would have been $1,356 and the cost per departure for the
six months ended September 30, 1999 would have been a $25 increase over the
prior comparable period. Aircraft and traffic servicing expenses increased as a
result of a drop in the completion factor for the six months ended September 30,
1999 to 98.9% from 99.2% for the six months ended September 30, 1998 and
expenses associated with the Boulder, Colorado-DIA shuttle bus service, which is
complimentary to our passengers. The increase in aircraft and traffic expenses
was offset by savings as a result of conducting our own ground operations at DIA
beginning September 1, 1998, rather than having them performed by a third party
contractor.
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Maintenance. Maintenance expenses of $25,898,000 and $18,138,000 were
15.9% and 18.2% of total revenue for the six months ended September 30, 1999 and
1998, 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 $745 and $762 per block hour for the six months ended September 30, 1999 and
1998, respectively. During the six months ended September 30, 1999, we incurred
an unanticipated engine repair expense as a result of a premature failure
totaling $1,340,000. Maintenance cost per block hour would have been $706
excluding this engine repair expense, and we would have experienced a 7.4%
decrease in the cost per block hour. Also, during the six months ended September
30, 1999 we incurred higher than usual borrowed parts fees. During the six
months ended September 30, 1999 these fees were approximately $1,118,000
compared to $146,000 during the six months ended September 30, 1998. We are in
the process of increasing our spare parts inventory in an effort to mitigate
this expense in the future. During the six months ended September 30, 1998 we
were outsourcing certain aircraft heavy maintenance checks. Effective March
1999, we began to conduct the majority of these checks in-house which we expect
will continue to reduce maintenance expenses in future periods. Additionally,
maintenance costs per block hour have decreased as certain fixed costs are
spread over a larger fleet.
Promotion and Sales. Promotion and sales expenses totaled $24,477,000 and
$15,423,000 and were 15.0% and 15.5% of total revenue for the six months ended
September 30, 1999 and 1998, 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.
During the six months ended September 30, 1999, promotion and sales
expenses per passenger increased to $20.92 from $19.56 for the six months ended
September 30, 1998. Promotion and sales expenses increased largely as a result
of increases in travel agency commissions and credit card fees associated with
the increase in our average fare from $117 for the six months ended September
30, 1998 to $131 for the six months ended September 30, 1999. We had an increase
in computer reservations costs associated with the expansion of our travel
agency electronic ticketing capabilities, an increase in reservation costs as a
result of outsourcing more of our reservation requirements, offset by a decrease
in advertising costs per passenger. We are hopeful that this expansion for
travel agent electronic ticketing capability will increase travel agency sales.
General and Administrative. General and administrative expenses for the
six months ended September 30, 1999 and 1998 totaled $7,859,000 and $3,037,000.
General and administrative expenses include the wages and benefits for several
of our executive officers and various other administrative personnel including
legal, accounting, MIS, aircraft procurement, corporate communications, and
human resources and other expenses associated with these departments. Employee
health benefits, accrued vacation and bonus expenses, and general insurance
expenses are also included in general and administrative expenses. Included in
general and administrative expenses for the six months ended September 30, 1999
was an accrual of $1,875,000 for potential employee performance bonuses. We also
experienced increases in our human resources and MIS expenses as a result of an
increase in employees from approximately 1,124 in September 1998 to
approximately 1,763 in September 1999. In addition to the usual increases in
crew and station personnel associated with additional aircraft and cities, we
had significant increases in maintenance personnel as a result of bringing
certain heavy maintenance checks in-house which began in March 1999. Because of
the increase in personnel, our health insurance benefit expenses and accrued
vacation expense increased accordingly.
Depreciation and Amortization. Depreciation and amortization expenses of
$1,208,000 and $716,000 were approximately .7% of total revenue for the six
months ended September 30, 1999 and 1998. These expenses include depreciation of
office equipment, ground station equipment, and other fixed assets of the
Company.
Nonoperating Income (Expense). Net nonoperating income totaled $1,914,000
for the six months ended September 30, 1999 compared to $101,000 for the six
months ended September 30, 1998. Interest income increased from $620,000 to
$1,947,000 during the six months ended September 30, 1999 from the prior period
due to an increase in cash balances as a result of an increase in cash provided
by operating activities and proceeds from stock option and warrant exercises.
Interest expense decreased to $48,000 from $458,000 during the six months ended
September 30, 1999 from the prior period. In December 1997, we sold $5,000,000
of 10% senior notes. In connection with this transaction, we issued warrants to
purchase 1,750,000 shares of Common Stock to the lender. Interest expense paid
in cash and the accretion of the warrants and deferred loan expenses associated
with the senior secured notes totaled $380,000 during the six months ended
September 30, 1998. In January 1999, we paid the note in full.
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Income Tax Expense: We accrued income taxes of $10,301,000 at 38.25% of
pre-tax income during the six months ended September 30, 1999. During the six
months ended September 30, 1998, we had the benefit of tax loss carryforwards
that offset tax expense for the period.
Expenses per ASM. Our expenses per ASM for the six months ended September
30, 1999 and 1998 were 8.06(cent) and 7.76(cent), respectively, or an increase
of 3.9%. Our cost per ASM increased during the six months ended September 30,
1999 principally as a result of an unanticipated engine repair expense due to a
premature failure which accounted for .08(cent) of expense per ASM, our accrual
for potential employee performance bonuses, which accounted for .11(cent) of
expenses per ASM, and an overall increase in the cost of fuel which accounted
for .13(cent) per ASM. Our expense per ASM for the six months ended September
30, 1999 adjusted for these items would have been 7.74(cent). Expenses per ASM
excluding fuel for the six months ended September 30, 1999 and 1998 were
6.98(cent) and 6.82(cent), respectively, or an increase of 2.3%.
Liquidity and Capital Resources
Our balance sheet reflected cash and cash equivalents and short-term
investments of $81,150,000 and $47,289,000 at September 30, 1999 and March 31,
1999, respectively. At September 30, 1999, total current assets were
$124,021,000 and total current liabilities were $80,371,000, resulting in
working capital of $43,650,000. At March 31, 1999, total current assets were
$94,209,000 and total current liabilities were $68,721,000, resulting in working
capital of $25,488,000. The increase in our working capital is largely a result
of cash flows provided by operating activities and proceeds from exercises of
common stock options and warrants during the six months ended September 30,
1999.
Cash provided by operating activities for the six months ended September
30, 1999 was $32,704,000. This is attributable to our net income for the period,
the utilization of deferred tax assets, decreases in trade receivables,
increases in our air traffic liability, other accrued expenses, and accrued
maintenance expenses, offset by increases in security, maintenance and other
deposits, prepaid expenses and inventories. Cash provided by operating
activities for the six months ended September 30, 1998 was $8,233,000. This was
attributable to our net income for the period, a decrease in trade receivables
and increases in other accrued expenses and accrued maintenance expenses, offset
by increases in security, maintenance and other deposits and prepaid expenses
and other assets, and decreases in accounts payable and air traffic liability.
Cash used in investing activities for the six months ended September 30,
1999 was $37,405,000. We invested $33,467,000 in short-term investments, net of
maturities, comprised of government-backed agencies with maturities of one year
or less. During the six months ended September 30, 1999, cash security deposits
for aircraft totaling $1,834,000 were returned to us. We had issued to certain
of our aircraft lessors warrants to purchase 395,000 shares of our Common Stock
at an aggregate purchase price of $2,391,600. During May 1999 and June 1999,
aircraft lessors exercised all of these warrants and we received $2,391,600. To
the extent that the aircraft lessors were able to realize certain profit margins
on their subsequent sale of our Common Stock, they were required to refund a
portion of the cash security deposits they were holding. As a result of their
sales of our Common Stock, $1,024,000 in cash security deposits were returned to
us during the six months ended September 30, 1999. Other cash security deposits
were replaced with letters of credit and these deposits were returned to us. We
also received $500,000 in cash security deposits for aircraft returned to the
lessor during the six months ended September 30, 1999. Additionally, we secured
five aircraft delivered during the six months ended September 30, 1999 with
letters of credit totaling $1,610,000. Our restricted investments increased
$1,610,000 to collateralize the letters of credit. We used $4,162,000 for
capital expenditures for rotable aircraft components, maintenance equipment and
tools, aircraft leasehold costs and improvements, and computer equipment during
the six months ended September 30, 1999. Cash used in investing activities for
the six months ended September 30, 1998 was $1,543,000. We used $1,259,000 for
capital expenditures for ground handling equipment, rotable aircraft components
and aircraft leasehold costs and improvements. We used cash of $284,000 for
initial lease acquisition security deposits for a Boeing 737-200 aircraft that
was delivered in October 1998.
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Cash provided by financing activities for the six months ended September
30, 1999 and 1998 was $5,096,000 and $13,493,000, respectively. During the six
months ended September 30, 1999, we received $5,148,000 from the exercise of
Common Stock options and warrants. During the six months ended September 30,
1998, we sold 4,363,001 shares of its common stock through a private placement
to an institutional investor. We received gross proceeds from the transaction of
approximately $14,180,000, of which we received net proceeds of approximately
$13,677,000. We issued a warrant to this investor to purchase 716,929 shares of
our Common Stock of us at a purchase price of $3.75 per share. This warrant
expires in April 2002.
We operate 19 Boeing 737 type aircraft under operating leases with
expiration dates ranging from 2000 to 2006. Under these leases, we were required
to make cash security deposits or issue letters of credit to secure the lease
obligations. At September 30, 1999, we had made cash security deposits and had
outstanding letters of credit totaling $3,715,000 and $5,254,000, respectively.
Our restricted cash balance includes $5,254,000 that collateralizes the
outstanding letters of credit. Additionally, we make deposits for maintenance of
these aircraft. At September 30, 1999, we had maintenance deposits of
$22,605,000.
In October 1999, we signed a letter of intent to purchase 11 new Airbus
aircraft, with options to purchase an additional nine new Airbus aircraft. This
order contemplates a fleet replacement plan by which we will phase out our
Boeing 737 aircraft and replace them with a combination of Airbus A319 and A318
aircraft. As of November 8, 1999, we have made deposits totaling $2,550,000 to
secure these aircraft. As a complement to this purchase, in November 1999, we
signed two letters of intent to lease 16 new Airbus aircraft. When combined with
the purchase agreement and upon completion of our fleet transition, we expect
our fleet to be comprised of approximately two-thirds A319 aircraft and
one-third A318 aircraft. We expect to take delivery of our first Airbus aircraft
during the latter part of calendar 2001 and plan to complete our fleet
transition by the end of 2004. The A319 and A318 aircraft will be configured
with 132 and 114 passenger seats, respectively, with a 32-inch seat pitch. We
believe that operating newer Airbus aircraft will result in significant cost
savings and an improved product for our customers. In order to complete the
purchase of the Airbus aircraft, it will be necessary for us to secure
acceptable aircraft financing. While we believe that such financing will be
available to us, there can be no assurance that the same will be available when
required, or on acceptable terms. The inability to secure such financing could
have a material adverse effect on us.
In November 1998, our pilots voted to be represented by an independent
union, the Frontier Airlines Pilots Association. In September 1999 our
dispatchers elected to be represented by the Transport Workers Union of America.
The resulting impact of these unions on labor costs is unknown at this time as
the first bargaining agreements have not been negotiated.
We are exploring various means to increase revenues and reduce expenses.
We have added electronic ticketing capabilities for travel agencies which we
anticipate will increase travel agency sales. We have performed ad hoc charters
and will consider them in the future depending on the availability of our fleet.
We are considering revenue enhancement initiatives with new marketing alliances.
We began our own ground handling operations at DIA effective September 1, 1998,
a function that had previously been provided by an independent contractor.
Ground handling equipment required to perform these operations necessitated
capital expenditures of approximately $800,000. Effective March 1, 1999, we
began to conduct certain aircraft heavy maintenance checks in-house that we
expect will reduce maintenance expenses. Effective November 5, we reduced travel
agency commissions from 8% to 5% in response to our competitors. Another
potential expense reduction program includes the installation of an upgraded
flight operations, maintenance, and parts inventory management information
system which we expect will be fully operational by the end of the fiscal year
ending March 31, 2000.
We currently sublease from Continental Airlines, on a preferential-use
basis, four departure gates on Concourse A at DIA. In addition, we use, on a
non-preferential use basis, another three gates under the direct control of the
City and County of Denver ("CCD"). Our sublease with Continental expires on
February 29, 2000, as does Continental's lease with CCD for these four gates and
an additional six gates it leases on Concourse A. Continental has an option to
renew its lease for five years and reduce its lease obligation to three gates
and related space. United Airlines, which occupies all of DIA's Concourse B
gates, has a right of first refusal on any of the ten Continental gates for
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which Continental does not renew its lease, and has stated its intention to
occupy at least eight gates on Concourse A. Continental's lease and lease
renewal option for gates on Concourse A, as well as United's right of first
refusal on Continental's Concourse A gates, are provided for in a 1995 agreement
between CCD, Continental and United (the "1995 Agreement"). We have requested of
CCD a lease, effective March 1, 2000, for the four gates we currently sublease
from Continental and an additional five gates contiguous to those we now use.
However, our request is contingent upon the implementation of a rate making
methodology for DIA terminal facilities that remedies what we consider to be
unfair and discriminatory aspects of the current methodology, as established by
the 1995 Agreement. Under the present methodology costs related to a
non-functioning Concourse A automated baggage system and associated equipment
and space ("AABS") are allocated exclusively to Concourse A, causing rental
rates on Concourse A to be higher than those on DIA's Concourse C. Our sublease
for Concourse A gates with Continental, which expires in February 2000, provides
that Continental pays, on our behalf, a significant portion of the AABS costs
that would otherwise be payable by us under the current rate-making methodology.
CCD has indicated that it is considering alternative means of treating
AABS costs upon expiration of the Continental lease in February 2000. CCD and
the signatory airlines at DIA, including us, are discussing possible changes to
the rate-making methodology to deal with the AABS costs, although CCD has stated
that absent an agreement with a majority-in-interest of the DIA signatory
airlines, CCD will unilaterally impose a solution to the issue. Unless the issue
is resolved by agreement of all or at least a majority in interest of the
affected parties, there is a possibility that the 1995 Agreement, or any
rate-making methodology unilaterally imposed by CCD, could be subject to
litigation. In these circumstances, there is uncertainty as to the rates and
charges that we will be required to pay for Concourse A facilities after
February 2000. If the rate-making methodology is not amended or the rates are
increased, it could have a material adverse effect on our business and results
of operations.
Our goal is to continue to lease or purchase additional aircraft to serve
additional cities and to add flights on existing routes from Denver. We added
routes to San Diego, California, Atlanta, Georgia, Dallas/Ft. Worth, Texas and
Las Vegas, Nevada during the year ended March 31, 1999. During the six months
ended September 30, 1999 we added routes to Portland, Oregon and Orlando,
Florida. We believe that expanding our 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 our 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 our business, and competition within the airline
industry that often requires quick reaction by management to changes in market
conditions, we may require additional capital to further expand our business.
In October 1999, the U.S. Senate approved the Air Transportation
Improvement Act. Among other matters, this Act calls for additional slot
allocations (one slot is one take-off or landing right) at Washington's Ronald
Reagan National Airport ("DCA"), New York's LaGuardia Airport and Chicago's
O'Hare International Airport. In addition, the bill calls for exemptions to the
perimeter rule at DCA, which currently limits non-stop flights into or out of
DCA to a maximum of 1,250 miles. Our present intent is to request permission to
provide service between Denver and DCA should access become available to us.
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
we provide service, in addition to other markets where United Airlines provides
flights. We 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 our revenues
and results of operations.
Except for the year ended March 31, 1999 and the six months ended
September 30, 1999, we have incurred substantial operating losses since our
inception. In addition, we have substantial contractual commitments for leasing
and maintaining aircraft. We believe that our existing cash balances coupled
with improved operating results are and will be adequate to fund our operations
at least through March 31, 2000. However as discussed above, we will require
financing in order to fund our intended purchase of Airbus A319 and A318
aircraft.
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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.
We began operations in July 1994, and our operations depend predominantly
on third party computer systems. Because of our limited resources during our
start-up, the most cost effective way to establish our computer systems was to
outsource or to use manual systems. Internal systems we developed and any
software we acquired are limited and were designed or purchased with the Year
2000 taken into consideration.
We have 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.
All internal systems have been tested and remediated; however, we rely on
third party business and government agencies to provide goods and services which
are critical to our operations, including the FAA, the DOT, local airport
authorities including DIA, utilities, communication providers, financial
institutions including credit card companies and fuel suppliers. We are
reviewing, and have initiated formal communications with, these critical third
party service providers to determine their Year 2000 readiness. We have received
positive Year 2000 compliancy and readiness responses from many of our
mission-critical vendors and we continue to follow up to ensure readiness
statements are received. We cannot reasonably estimate the extent of the impact
on us of the Year 2000 problems that may be experienced by any of these parties.
There can be no assurance that the systems of such third parties on which we
rely will be modified on a timely basis.
We have initial contingency plans developed that are presently going
through review processes. We have hired an outside risk management consultant
who has been involved with developing and reviewing other airlines' contingency
plans to perform a review of our plans. We anticipate completing this process
mid-November 1999. The remainder of the year will be devoted to enhancing and
testing contingency plans for those scenarios within our control.
On December 31, 1999, all flights will terminate no later than 11:00 P.M.
Eastern Standard Time (9:00 P.M. Mountain Time) and the first scheduled flight
on January 1, 2000, departs at 7:20 A.M. Mountain Time. We believe that this
will give us adequate time to assess the operational status of our airline,
critical third party suppliers, and the cities we serve.
We have utilized existing resources with the exception of four temporary
personnel and have incurred approximately $160,000 of expenses to implement our
Year 2000 project as of September 30, 1999. The total remaining costs of the
Year 2000 project are expected to be insignificant and will be funded through
cash from operations. The costs and the dates on which we anticipate completion
of the Year 2000 project are based on our best estimates. There can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated.
Despite our efforts to address Year 2000 issues and due to the complexity
and pervasiveness of the Year 2000 issue, and in particular the uncertainty
regarding the compliancy of third parties, no assurance can be given that our
compliancy plan will be achieved. We could potentially experience suspension of
flights to certain cities, delayed flights, or otherwise ceased operations, a
degraded level of safety, increased costs, delayed cash flows, and customer
inconvenience. Our business, financial condition or results of operations could
be materially adversely affected by the failure of our systems or those operated
by third parties upon which our business relies.
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Item 3: Quantitative and Qualitative Disclosures About Market Risk
The significant risk inherent in our market risk sensitive position is
the potential loss arising from an adverse change in the price of fuel as
described below. The sensitivity analysis presented does not consider either the
effects that such an adverse change may have on overall economic activity or
additional action management may take to mitigate our exposure to such a change.
Actual results may differ from the amounts disclosed. At the present time, we do
not utilize fuel price hedging instruments to reduce our exposure to
fluctuations in fuel prices.
Our earnings are affected by changes in the price and availability of
aircraft fuel. Market risk is estimated as a hypothetical 10 percent increase in
the average cost per gallon of fuel for the fiscal year ended March 31, 1999.
Based on fiscal year 1999 actual fuel usage, such an increase would have
resulted in an increase to aircraft fuel expense of approximately $2,300,000 in
fiscal year 1999. Comparatively, based on projected fiscal year 2000 fuel usage,
such an increase would result in an increase to aircraft fuel expense of
approximately $3,100,000 in fiscal year 2000. The increase in exposure to fuel
price fluctuations in fiscal year 2000 is due to our plan to increase our
average aircraft fleet size and related gallons purchased.
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PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held on
September 9, 1999, at which a quorum for the transaction of
business was present. One matter was voted upon, as described
below.
Members of the Company's Board of Directors elected at the
meeting were Samuel D. Addoms, B. Ben Baldanza, D. Dale Browning,
Paul S. Dempsey, B. Larae Orullian, William B. McNamara, and James
B. Upchurch. The votes cast with respect to each nominee were as
follows:
14,646,607 "For" Mr. Addoms; 32,037 "Withheld"
14,646,210 "For" Mr. Baldanza; 32,434 "Withheld"
14,647,319 "For" Mr. Browning; 31,325 "Withheld"
14,646,828 "For" Mr. Dempsey; 31,816 "Withheld"
14,645,584 "For" Ms. Orullian; 33,060 "Withheld"
14,639,710 "For" Mr. McNamara; 39,934 "Withheld"
14,639,460 "For" Mr. Upchurch; 39,184 "Withheld"
Item 5: Other Information
On October 11, 1999, B. Ben Baldanza, after having been appointed
as an executive officer of US Airways, resigned his position from
our Board of Directors.
Item 6: Exhibits and Reports on Form 8-K
Exhibit
Numbers
(a) Exhibits
3.1 Restated Articles of Incorporation of the Company (1)
3.2 Amended and Restated Bylaws of the Company (September 9,
1999) (1)
4.4(c) Third Amendment to Rights Agreement dated September 9,
1999 (2)
10.10(a)Aircraft Lease Extension and Amendment Agreement dated as
of October 1, 1999. Portions of this exhibit have been
excluded from the publicly available document and an
application for an order granting confidential treatment
of the excluded material has been made.(1)
10.11(a)Aircraft Lease Extension and Amendment Agreement dated as
of October 1, 1999. (1)
10.46 Aircraft Sublease Agreement (MSN 26442) dated as of
October 11, 1999 between Indigo Aviation AB (publ),
Lessor, and Frontier Airlines, Inc., Lessee. Portions of
this exhibit have been excluded from the publicly
available document and an application for an order
granting confidential treatment of the excluded material
has been made. (1)
27.1 Financial Data Schedule (1)
(1) Filed herewith.
(2) Incorporated by reference from the Company's Report on Form 8-A/A filed
on October 14, 1999.
(b) Reports on Form 8-K
None.
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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: November 8, 1999 By: /s/ Steve B. Warnecke
-----------------------------------
Steve B. Warnecke, Vice President
and Chief Financial Officer
Date: November 8, 1999 By: /s/ Elissa A. Potucek
-----------------------------------
Elissa A. Potucek, Vice President,
Controller, Treasurer and Principal
Accounting Officer
RESTATED
ARTICLES OF INCORPORATION
OF
FRONTIER AIRLINES, INC.
Pursuant to Section 7-110-107 of the Colorado Business
Corporation Act ("Act"), Frontier Airlines, Inc., a Colorado corporation (the
"Corporation"), hereby restates the Articles of Incorporation of the Corporation
as follows:
These Restated Articles of Incorporation of the Corporation
(these "Restated Articles") (i) consolidate the Amended and Restated Articles of
Incorporation filed October 11, 1994, the Articles of Amendment to the Articles
of Incorporation filed December 16, 1997, and Articles of Correction filed
substantially concurrently herewith with the office of the Colorado Secretary of
State; (ii) were adopted by the board of directors of the Corporation without
shareholder action, which shareholder action was not required; and (iii)
supersede all Articles of Incorporation of the Corporation, any amendments
thereto and restatements thereof, as filed with the Secretary of State of
Colorado.
Article I
NAME
The name of the corporation is Frontier Airlines, Inc.
Article II
Capital; Shareholders
2.1 Authorized Capital. The total number of shares that the Corporation will
have authority to issue is forty-one million (41,000,000), of which forty
million (40,000,000) shares will be common stock without par value, and one
million (1,000,000) shares will be preferred stock without par value.
2.2 Common Stock. Each holder of common stock is entitled to one vote for each
share of common stock held on all matters as to which holders of common stock
are entitled to vote. Except for and subject to those preferences, rights, and
privileges expressly granted to the holders of preferred stock, and except as
may be provided by the laws of the State of Colorado, the holders of common
stock have exclusively all other rights of stockholders of the Corporation,
including, but not by way of limitation, (i) the right to receive dividends,
when, as and if declared by the board of directors out of assets lawfully
available therefor, and (ii), in the event of any distribution of assets upon
the dissolution and liquidation of the Corporation, the right to receive ratably
and equally all of the assets of the Corporation remaining after the payment to
the holders of preferred stock of the specific amounts, if any, which they are
entitled to receive as may be provided herein or pursuant hereto.
2.3 Preferred Stock. The board of directors of the Corporation is authorized to
provide by resolution or resolutions for the issuance of the shares of preferred
stock as a class or in a series and to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of the class or of each such series and
the qualifications, limitations and restrictions thereof. The authority of the
board of directors with respect to the class or each series includes, but is not
limited to, determination of the following:
(i) The number of shares constituting any series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of the class or of any series, whether
dividends shall be cumulative and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on
share of the class or of that series;
(iii) Whether the class or any series shall have voting rights, in addition
to the voting rights provided by law and, if so, the terms of such
voting rights;
(iv) Whether the class or any series shall have conversion privileges and,
if so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events as the
board of directors shall determine;
(v) Whether or not the shares of the class or of any series shall be
redeemable and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates;
(vi) Whether the class or any series shall have a sinking fund for the
redemption or purchase of shares of the class or of that series and, if
so, the terms and amount of such sinking fund;
(vii) The rights of the shares of the class or of any series in the event of
voluntary or involuntary dissolution or winding up of the Corporation
and the relative rights of priority, if any, of payment of shares of
the class or of that series; and
(viii) Any other powers, preferences, rights, qualifications, limitations, and
restrictions of the class or of any series.
2.4 Quorum; Manner of Acting. At all meetings of shareholders, a majority of the
shares entitled to vote at such meeting represented in person or by proxy, shall
constitute a quorum. At any meeting at which a quorum is present the affirmative
vote of a majority of the shares represented at such meeting and entitled to
vote on the subject matter shall be the act of the shareholders, unless the vote
of a greater proportion or number is required by the laws of Colorado and except
that in each case where the Colorado Business Corporation Act requires a
two-thirds vote of all of the outstanding shares of the Corporation entitled to
vote, and such required vote is hereby reduced, as permitted by such Act, to a
majority of all of the outstanding shares of the Corporation entitled to vote on
the subject matter thereof.
2.5 Voting of Shares. Each shareholder of record entitled to vote shall have one
vote for each share of stock standing in his name on the books of the
Corporation, except that in the election of directors he shall have the right to
vote such number of shares for as many persons as there are directors to be
elected. Cumulative voting shall not be allowed in the election of directors or
for any other purpose.
Article III
PREEMPTIVE RIGHTS
No shareholder of the Corporation shall have any preemptive or
similar right to acquire or subscribe for any additional unissued or treasury
shares of stock, or other securities of any class, or rights, warrants or
options to purchase stock or scrip, or securities of any kind convertible into
stock or carrying stock purchase warrants or privileges.
Article IV
BOARD OF DIRECTORS
The number of directors of the Corporation shall be fixed and
may be altered from time to time as provided in the bylaws of the Corporation.
Article V
LIMITATION ON LIABILITY
To the fullest extent permitted by the Colorado Business
Corporation Act, as the same exists or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this Article by the shareholders of the Corporation shall be
prospective only and shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
Article VI
OFFICES
6.1 Registered Agent. The address of the registered office of the Corporation is
12015 East 46th Avenue, Suite 200, Denver, Colorado 80239. The name of its
registered agent at such address is Arthur T. Voss.
6.2 Principal Office. The address of the Corporation's principal office is 12015
East 46th Avenue, Denver, Colorado 80239.
IN WITNESS WHEREOF, the Corporation has caused these Restated
Articles to be signed by its duly authorized officer this ___ day of September,
1999.
Arthur T. Voss, Secretary
<PAGE>
The undersigned hereby consents to the appointment as the
registered agent for the corporation.
Arthur T. Voss
AMENDED AND RESTATED
BYLAWS
OF
FRONTIER AIRLINES, INC.,
a Colorado corporation
(as amended and restated September 9, 1999)
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
FRONTIER AIRLINES, INC.,
a Colorado corporation
(as amended and restated September 9, 1999)
Article 1
OFFICES
Section 1.1. Business Offices. Frontier Airlines, Inc., a Colorado corporation
(the "Corporation"), may have such offices, either within or outside the state
of Colorado, as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
Section 1.2. Registered Office. The registered office of the Corporation
required by the Colorado Business Corporation Act (the "Act") to be maintained
in Colorado shall be as set forth in the Articles of Incorporation, unless
changed as provided by law.
Article 2
SHAREHOLDERS
Section 2.1. Annual Meeting. An annual meeting of the shareholders shall be
held for the purpose of electing directors and for the transaction of such other
business as may come before the meeting on such date and at such time as the
Board of Directors shall fix in the notice of meeting; the first annual meeting
subsequent to the date of these amended and restated bylaws shall be held not
later than November 9, 2000, and subsequent annual meetings shall be held within
14 months of the annual meeting prior thereto. Failure to hold an annual meeting
as required by these bylaws shall not invalidate any action taken by the Board
of Directors or officers of the Corporation.
Section 2.2. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the president or by the Board of Directors, and shall be called by the president
at the request of the holders of not less than 10% of all the outstanding shares
of the Corporation entitled to vote at the meeting.
Section 2.3. Place of Meeting. Any meeting of the shareholders shall be held
at such place, either within or outside Colorado, as may be designated in the
notice of meeting, or, if no place is designated in the notice, at the principal
office of the Corporation if in Colorado, or if the principal office is not
located in Colorado, at the registered office of the Corporation in Colorado.
Section 2.4. Notice of Meeting. Except as otherwise required by law, written
notice of each meeting of the shareholders stating the place, day, and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called shall be given, either personally (including
delivery by private courier) or by first class, certified or registered mail, to
each shareholder of record entitled to notice of such meeting, not less ten (10)
nor more than sixty (60) days before the date of the meeting, except that if the
authorized shares of the Corporation are to be increased, at least thirty (30)
days' notice shall be given, and if the sale, lease, exchange or other
disposition of all or substantially all of the property and assets of the
Corporation not in the usual and regular course of business is to be voted on,
at least twenty (20) days notice shall be given. Such notice shall be deemed to
be given, if personally delivered, when delivered to the shareholder, and, if
mailed, when deposited in the United States mail, addressed to the shareholder
at his address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid, but if three successive notices mailed to the last
known address of any shareholder of record are returned as undeliverable no
further notices to such shareholder shall be necessary until another address for
such shareholder is made known to the Corporation. If a meeting is adjourned to
another time or place, notice need not be given if the time and place thereof
are announced at the meeting, unless the adjournment is for more than one
hundred twenty (120) days or if after the adjournment a new record date is
fixed, in either of which case notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting in accordance with
the foregoing provisions of this Section 2.4.
Section 2.5. Waiver of Notice. Whenever notice is required by law, the
Articles of Incorporation or these Bylaws, to be given to any shareholder, a
waiver thereof signed by the shareholder entitled to such notice, whether
before, at or after the time stated therein, shall be equivalent to the giving
of such notice. By attending a meeting, a shareholder (a) waives objection to
lack of notice or defective notice of such meeting unless the shareholder, at
the beginning of the meeting, objects to the holding of the meeting or the
transacting of business at the meeting, and (b) waives objection to
consideration at such meeting of a particular matter not within the purpose or
purposes described in the notice of such meeting unless the shareholder objects
to considering the matter when it is presented.
Section 2.6. Closing of Transfer Books; Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of the
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors may provide that the stock
transfer books shall be closed for any stated period not exceeding seventy (70)
days. In lieu of closing the stock transfer books the Board of Directors may fix
in advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than seventy (70) days prior to the date on
which the particular action, requiring such determination of shareholders, is to
be taken. If the stock transfer books shall be closed or a record date fixed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of the shareholders, such books shall be closed for at least, or such
record shall be fixed not less than, ten (10) days immediately preceding such
meeting (30 days if the authorized stock is to be increased, 20 days if the
sale, lease, exchange or other disposition of all or substantially all of the
property and assets of the Corporation not in the usual and regular course of
business is to be considered). If the stock transfer books are not so closed or
no record date is so fixed, the date on which notice of the meeting is mailed or
the date on which the resolution of the Board of Directors declaring the
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of the shareholders has been made as provided in this
Section, such determination shall apply to any adjournment thereof except where
the determination has been made through the closing of the stock transfer books
and the stated period of the closing has expired. Notwithstanding the foregoing
provisions of this Section, the record date for determining shareholders
entitled to take action without a meeting as provided in Section 2.12 below
shall be the date specified in such Section.
Section 2.7. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at the earlier of at
least ten (10) days before each meeting of the shareholders or two (2) business
days after notice of the meeting has been given, a complete record of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. For the period beginning the earlier of ten (10) days prior to the
meeting or two (2) business days after notice of the meeting is given and
continuing through the meeting and any adjournment thereof, this list shall be
kept on file at the principal office of the Corporation, whether within or
outside of Colorado, and shall be subject to inspection by any shareholder for
any purpose germane to the meeting at any time during usual business hours. Such
record shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder for any purpose
germane to the meeting during the whole time of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine such record or transfer books or to vote at any meeting of
shareholders.
Section 2.8. Proxies. At any meeting of the shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or his duly authorized
attorney-in-fact. Such proxy shall be filed with the secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy.
Section 2.9. Quorum and Manner of Acting. At all meetings of shareholders, a
majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum. If a quorum is
present, the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater proportion or number or voting by
classes is otherwise required by the laws of the state of Colorado, the Articles
of Incorporation or these Bylaws. In the absence of a quorum, a majority of the
shares so represented may adjourn the meeting from time to time for period not
to exceed one hundred twenty (120) days at any one adjournment. At any such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting.
Section 2.10. Voting of Shares. Subject to the provisions of Section 3.6, each
outstanding share of record, regardless of class, is entitled to one vote, and
each outstanding fractional share of record is entitled to a corresponding
fractional vote, on each matter submitted to a vote of the shareholders either
at a meeting thereof or pursuant to Section 2.12, except to the extent that the
voting rights of the shares of any class or classes are limited or denied by the
Articles of Incorporation as permitted by the Act. In the election of directors,
each record holder of stock entitled to vote at such election shall have the
right to vote the number of shares owned by him for as many persons as there are
directors to be elected, and for whose election he has the right to vote.
Cumulative voting shall not be allowed.
Section 2.11. Voting of Shares by Certain Holders.
(a) Shares Held or Controlled by the Corporation. Neither treasury shares nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation is held by this
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.
(b) Shares Held by Another Corporation. Shares standing in the name of another
corporation may be voted by such officer, agent or proxy as the bylaws of such
corporation may prescribe or, in the absence of such provision, as the board of
directors of such corporation may determine.
(c) Shares Held by More Than One Person. Shares standing of record in the names
of two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares,
voting with respect to the shares shall have the following effects: (i) if only
one person votes, his act binds all; (ii) if two or more persons vote, the act
of the majority so voting binds all; (iii) if two or more persons vote, but the
vote is evenly split on any particular matter, each faction may vote the shares
in question proportionally, or any person voting the shares of a beneficiary, if
any, may apply to any court of competent jurisdiction in the state of Colorado
to appoint an additional person to act with the persons so voting the shares, in
which case the shares shall be voted as determined by a majority of such
persons; and (iv) if a tenancy is held in unequal interests, a majority or even
split for the purposes of subparagraph (iii) shall be a majority or even split
in interest. The foregoing effects of voting shall not be applicable if the
secretary of the Corporation is given written notice of alternative voting
provisions and is furnished with a copy of the instrument or order wherein the
alternative voting provisions are stated.
(d) Shares Held in Trust or by a Personal Representative. Shares held by an
administrator, executor, guardian, conservator or other personal representative
may be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name.
(e) Shares Held by a Receiver. Shares standing in the name of a receiver may be
voted by such receiver and shares held by or under the control of a receiver may
be voted by such receiver without the transfer thereof into his name if
authority so to do is contained in an appropriate order of the court by which
such receiver was appointed.
(f) Pledged Shares. A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(g) Redeemable Shares Called for Redemption. Redeemable shares that have been
called for redemption shall not be entitled to vote on any matter and shall not
be deemed outstanding shares on and after the date on which written notice of
redemption has been mailed to shareholders and a sum sufficient to redeem such
shares has been deposited with a bank or trust company with irrevocable
instruction and authority to pay the redemption price to the holders of the
shares upon surrender of certificates therefor.
Section 2.12. Action Without a Meeting. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the subject matter thereof. Such consent (which may be signed in
counterparts) shall have the same force and effect as a unanimous vote of the
shareholders and may be stated as such in any document. Unless the consent
specifies a different effective date, action taken without a meeting pursuant to
a consent in writing as provided herein shall be effective when all shareholders
entitled to vote have signed the consent. The record date for determining
shareholders entitled to take action without a meeting is the date the first
shareholder signs the consent. All consents signed pursuant to this Section 2.12
shall be delivered to the secretary of the Corporation for inclusion in the
minutes or for filing with the corporate records.
Article 3
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the Corporation shall
be managed by its Board of Directors, except as otherwise provided in the Act,
the Articles of Incorporation or these Bylaws.
Section 3.2. Number, Qualifications and Tenure. The number of directors of the
Corporation shall be not less than three (3) nor more than thirteen (13), with
the actual number being set or changed , from time to time, by resolutions of
the then existing Board of Directors. Except as provided in Sections 2.1 and
3.5, directors shall be elected at each annual meeting of the shareholders. Each
director shall hold office until the next annual meeting of the shareholders and
thereafter until his successor shall have been elected and qualified, or until
his earlier death, resignation or removal. Directors must be a natural person at
least 18 years old but need not be residents of the state of Colorado or
shareholders of the Corporation.
Section 3.3. Resignation. Any director may resign at any time by giving
written notice to the president or to the Board of Directors. A director's
resignation shall take effect at the time specified in the notice and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3.4. Removal. At a meeting called expressly for that purpose, the
entire Board of Directors or any lesser number may be removed, with or without
cause, by a vote of the holders of a majority of shares then entitled to vote at
an election of directors, except that if the holders of shares of any class of
stock are entitled to elect one or more directors by the provisions of the
Articles of Incorporation, the provisions of this Section 3.4 shall apply, with
respect to the removal of a director or directors so elected by such class, to
the vote of the holders of the outstanding shares of that class and not to the
vote of the outstanding shares as a whole. Any reduction in the authorized
number of directors shall not have the effect of shortening the term of any
incumbent director unless such director is also removed from office in
accordance with this Section 3.4.
Section 3.5. Vacancies. Unless otherwise required in the Articles of
Incorporation, any vacancy occurring in the Board of Directors, including
vacancies due to an increase in the number of directors, may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum, or by the affirmative vote of two directors if there are only two
directors remaining, or by a sole remaining director, or by the shareholders if
there are no directors remaining.
Section 3.6. Regular Meetings. A regular meeting of the Board of Directors
shall be held immediately after and at the same place as the annual meeting of
shareholders, or as soon thereafter as conveniently may be, at the time and
place, either within or outside the state of Colorado, determined by the Board
of Directors, for the purpose of electing officers and for the transaction of
such other business as may come before the meeting. Failure to hold such
meeting, however, shall not invalidate any action taken by any officer then or
thereafter in office. The Board of Directors may provide, by resolution, the
time and place, either within or outside the state of Colorado, for the holding
of additional regular meetings without other notice than such resolution.
Section 3.7. Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the president or any two directors. The person
or persons authorized to call special meetings of the Board of Directors may fix
any convenient place, either within or outside the state of Colorado, as the
place for holding any special meeting of the Board of Directors called by them.
Section 3.8. Meetings by Telephone. Unless otherwise provided by the Articles
of Incorporation, one or more members of the Board of Directors may participate
in a meeting of the Board of Directors by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other at the same time. Such participation shall
constitute presence in person at the meeting.
Section 3.9. Notice of Meetings. Notice of each meeting of the Board of
Directors (except those regular meetings for which notice is not required),
stating the place, day and hour of the meeting shall be given to each director
at least five (5) days prior thereto by the mailing of written notice by first
class, certified or registered mail, or at least two days prior thereto by
personal delivery (including delivery by private courier) of written notice or
by telephone, telegram, telex, cablegram or other similar method, except that in
the case of a meeting to be held pursuant to Section 3.8, notice may be given by
telephone not less than five (5) hours prior thereto. The method of notice need
not be the same to each director. Notice shall be deemed to be given when
deposited in the United States mail, with postage thereon prepaid, addressed to
the director at his business or residence address, when delivered or
communicated to the director or when the telegram, telex, cablegram or other
form of notice is personally delivered to the director or delivered to the last
address of the director furnished by him to the Corporation for such purpose.
Neither the business to be transacted at nor the purpose of any meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting unless otherwise required by statute.
Section 3.10. Waiver of Notice. Whenever notice is required by law, the
Articles of Incorporation or these Bylaws to be given to the directors, a waiver
thereof in writing signed by the director entitled to such notice, whether
before, at or after the time stated therein, shall be equivalent to the giving
of such notice. By attending or participating in a meeting, a director waives
any required notice of such meeting unless, at the beginning of the meeting, he
objects to the holding of the meeting or the transacting of business at the
meeting.
Section 3.11. Presumption of Assent. A director who is present at a meeting of
the Board of Directors at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless he objects at the beginning
of the meeting to the holding of the meeting or the transacting of business at
the meeting, contemporaneously requests that his dissent to the action taken be
entered in the minutes of such meeting or gives written notice of his dissent to
the presiding officer of such meeting before its adjournment or to the secretary
of the Corporation immediately after adjournment of such meeting. The right of
dissent as to a specific action taken at a meeting of the Board of Directors is
not available to a director who votes in favor of such action.
Section 3.12. Quorum and Manner of Acting. Except as otherwise may be required
by law, the Articles of Incorporation or these Bylaws, a majority of the number
of directors fixed in accordance with these Bylaws, present in person, shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, and the vote of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors. If less
than such majority is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice other than an
announcement at the meeting, until a quorum shall be present. No director may
vote or act by proxy or power of attorney at any meeting of directors.
Section 3.13. Action Without a Meeting. Any action required or permitted to be
taken at a meeting of the directors may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by all of the directors. Such consent (which
may be signed in counterparts) shall have the same force and effect as a
unanimous vote of the directors and may be stated as such in any document.
Unless the consent specifies a different effective date, action taken without a
meeting pursuant to a consent in writing as provided herein is effective when
all directors have signed the consent. All consents signed pursuant to this
Section 3.13 shall be delivered to the secretary of the Corporation for
inclusion in the minutes or for filing with the corporate records.
Section 3.14. Executive and Other Committees. The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an executive committee and one or more other committees,
each of which, to the extent provided in the resolution establishing such
committee, shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Corporation,
except that no such committee shall have the power or authority to (i) declare
dividends or distributions, (ii) approve, recommend or submit to the
shareholders actions or proposals required by law to be approved by the
shareholders; (iii) fill vacancies on the Board of Directors or any committee
thereof; including any committee authorized by this Section 3.14, (iv) amend the
Articles of Incorporation (v) adopt, amend or repeal the Bylaws; (vi) approve a
plan of merger not requiring shareholder approval; (vii) reduce earned or
capital surplus, (viii) authorize or approve the reacquisition of shares of the
Corporation, unless pursuant to a general formula or method specified by the
Board of Directors, or (ix) authorize or approve the issuance or sale of, or any
contract to issue or sell, shares of the Corporation's stock or designate the
terms of a series of a class of shares. The delegation of authority to any
committee shall not operate to relieve the Board of Directors or any member of
the Board of Directors from any responsibility imposed by law. Subject to the
foregoing, the Board of Directors may provide such powers, limitations and
procedures for such committees as the Board of Directors deems advisable. To the
extent the Board of Directors does not establish other procedures, each
committee shall be governed by the procedures set forth in Sections 3.6 (except
as they relate to an annual meeting) and 3.7 through 3.13 as if the committee
were the Board of Directors. Each committee shall keep regular minutes of its
meetings, which shall be reported to the Board of Directors when required and
submitted to the secretary of the Corporation for inclusion in the corporate
records.
Section 3.15. Compensation. By resolution of the Board of Directors,
notwithstanding any personal interest of a director in such action, a director
may be paid his expenses, if any, of attendance at each meeting of the Board of
Directors and each meeting of any committee of the Board of Directors of which
he is a member and may be paid a fixed sum for attendance at each such meeting
or a stated salary, or both a fixed sum and a stated salary. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor.
Article 4
OFFICERS
Section 4.1. Number and Qualifications. The officers of the Corporation shall
consist of a president, a secretary and a treasurer and such other officers,
including a chairman of the board, one or more vice presidents and a controller,
as may from time to time be elected or appointed by the Board of Directors. In
addition, the Board of Directors or the president may elect or appoint such
assistant and other subordinate officers, including assistant vice presidents,
assistant secretaries and assistant treasurers, as it or he shall deem necessary
or appropriate. One person may hold more than one office. All officers must be
at least 18 years old.
Section 4.2. Election and Term of Office. Except as provided in Sections 4.1
and 4.6, the officers of the Corporation shall be elected by the Board of
Directors annually at the first meeting of the Board of Directors held after
each annual meeting of the shareholders as provided in Section 3.6. If the
election of officers shall not be held as provided herein, such election shall
be held as soon thereafter as conveniently may be. Each officer shall hold
office until his successor shall have been duly elected and shall have
qualified, or until the expiration of his term in office if elected or appointed
for a specified period of time, or until his earlier death, resignation or
removal.
Section 4.3. Compensation. Officers shall receive such compensation for their
services as may be authorized or ratified by the Board of Directors and no
officer shall be prevented from receiving compensation by reason of the fact
that he is also a director of the Corporation. Election or appointment as an
officer shall not of itself create a contract or other right to compensation for
services performed as such officer.
Section 4.4. Resignation. Any officer may resign at any time, subject to any
rights or obligations under any existing contracts between the officer and the
Corporation, by giving written notice to the president or to the Board of
Directors. An officer's resignation shall take effect at the time specified in
such notice, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4.5. Removal. Any officer may be removed at any time by the Board of
Directors, or, in the case of assistant and other subordinate officers, by the
Board of Directors or the president (whether or not such officer was appointed
by the president) whenever in its or his judgment, as the case may be, the best
interests of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer shall not in itself create contract
rights.
Section 4.6. Vacancies. A vacancy in any office, however occurring, may be
filled by the Board of Directors, or, if such office may be filled by the
president as provided in Section 4.1, by the president, for the unexpired
portion of the officer's term.
Section 4.7. Authority and Duties. The officers of the Corporation shall have
the authority and shall exercise the powers and perform the duties specified
below and as may be additionally specified by the president, the Board of
Directors or these Bylaws (and in all cases where the duties of any officer are
not prescribed by the Bylaws or by the Board of Directors, such officer shall
follow the orders and instructions of the president), except that in any event
each officer shall exercise such powers and perform such duties as may be
required by law.
(a) President. The president shall, s ubject to the direction and supervision of
the Board of Directors, (i) be the chief executive officer of the Corporation,
and have general and active control of its affairs and business and general
supervision of its officers, agents and employees; (ii) unless there is a
chairman of the board, preside at all meetings of the shareholders and the Board
of Directors; (iii) see that all orders and resolutions of the Board of
Directors are carried into effect; and (iv) perform all other duties incident to
the office of president and as from time to time may be assigned to him by the
Board of Directors.
(b) Vice Presidents. The vice president, if any (or if there is more than one
then each vice president), shall assist the president and shall perform such
duties as may be assigned to him by the president or by the Board of Directors.
The vice president, if there is one (or if there is more than one then the vice
president designated by the Board of Directors, or if there be no such
designation then the vice presidents in order of their election), shall, at the
request of the president, or in his absence or inability or refusal to act,
perform the duties of the president and when so acting shall have all the powers
of and be subject to all the restrictions upon the president. Vice presidents
may be designated as "Senior," "Executive," or "Assistant" vice presidents, at
the election of the Board of Directors, and shall have such powers and perform
such duties as may be assigned to them by the president or by the Board of
Directors.
(c) Secretary. The secretary shall (i) keep the minutes of the proceedings of
the shareholders, the Board of Directors and any committees of the Board of
Directors; (ii) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (iii) be custodian of the
corporate records and of the seal of the Corporation; (iv) keep at the
Corporation's registered office or principal place of business within or outside
the state of Colorado a record containing the names and addresses of all
shareholders and the number and class of shares held by each, unless such record
shall be kept at the office of the Corporation's transfer agent or registrar;
(v) have general charge of the stock books of the Corporation, unless the
Corporation has a transfer agent; and (vi) in general, perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the president or by the Board of Directors. Assistant
secretaries, if any, shall have the same duties and powers, subject to
supervision by the secretary.
(d) Treasurer. The treasurer shall: (i) be the principal financial officer of
the Corporation and have the care and custody of all its funds, securities,
evidences of indebtedness and other personal property of the Corporation and
shall deposit the same in accordance with the instructions of the Board of
Directors; (ii) receive and give receipts and acquittances for moneys paid in on
account of the Corporation, and shall pay out of the Corporation's funds on hand
all bills, payrolls and other just debts of the Corporation of whatever nature
upon maturity; (iii) unless there is a controller, be the principal accounting
officer of the Corporation and as such prescribe and maintain the methods and
systems of accounting to be followed, keep complete books and records of
account, prepare and file all local, state and federal tax returns, prescribe
and maintain an adequate system of internal audit and prepare and furnish to the
president and the Board of Directors statements of account showing the financial
position of the Corporation and the results of its operations; (iv) upon request
of the Board of Directors, make such reports to it as may be required at any
time; and (v) perform all other duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the Board of
Directors or the president. Assistant treasurers, if any, shall have the same
powers and duties, subject to the supervision by the treasurer.
Section 4.8. Surety Bonds. The Board of Directors may require any officer or
agent of the Corporation to execute to the Corporation a bond in such sums and
with such sureties as shall be satisfactory to the Board of Directors,
conditioned upon the faithful performance of his duties and for the restoration
to the Corporation of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Article 5
STOCK
Section 5.1. Issuance of Shares. The issuance or sale by the Corporation of
any shares of its authorized capital stock of any class, including treasury
shares, shall be made only upon authorization by the Board of Directors, except
as otherwise may be provided by law. No shares shall be issued until full
consideration has been received therefor. Every issuance of shares shall be
recorded on the books maintained for such purpose by or on behalf of the
Corporation.
Section 5.2. Stock Certificates; Uncertificated Shares. The shares of stock of
the Corporation shall be represented by certificates, except that the Board of
Directors may authorize the issuance of any class or series of stock of the
Corporation without certificates as provided by law. If shares are represented
by certificates, such certificates shall be signed in the name of the
Corporation by the chairman or vice chairman of the Board of Directors or by the
president or a vice president and by the treasurer or an assistant treasurer or
by the secretary or an assistant secretary and sealed with the seal of the
Corporation or with a facsimile thereof. The signatures of the Corporation's
officers on any certificate may also be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar. In case any
officer who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issue. Certificates of stock shall be in such
form consistent with law as shall be prescribed by the Board of Directors.
Section 5.3. Consideration for Shares. Shares shall be issued for such
consideration expressed in dollars (but not less than the par value thereof, if
any) as shall be fixed from time to time by the Board of Directors. Treasury
shares shall be disposed of for such consideration expressed in dollars as may
be fixed from time to time by the Board of Directors. Such consideration may
consist, in whole or in part, of money, other property, tangible or intangible,
or labor or services actually performed for the Corporation, but neither the
promissory note of a subscriber or direct purchaser of shares from the
Corporation, nor the unsecured or nonnegotiable promissory note of any other
person, nor future services shall constitute payment or part payment for shares.
Section 5.4. Lost Certificates. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the Board of Directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as the Board of Directors may prescribe. The Board of
Directors may in its discretion require a bond in such form and amount and with
such surety as it may determine before issuing a new certificate.
Section 5.5. Transfer of Shares. Upon presentation and surrender to the
Corporation or to the Corporation's transfer agent of a certificate of stock
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, payment of all transfer taxes, if any, and the
satisfaction of any other requirements of law, including inquiry into and
discharge of any adverse claims of which the Corporation has notice, the
Corporation or the transfer agent shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transfer on the
books maintained for such purpose by or on behalf of the Corporation. No
transfer of shares shall be effective until it has been entered on such books.
The Corporation or the Corporation's transfer agent may require a signature
guaranty or other reasonable evidence that any signature is genuine and
effective before making any transfer. Transfers of uncertificated shares shall
be made in accordance with applicable provisions of law.
Section 5.6. Holders of Record. The Corporation shall be entitled to treat the
holder of record of any share of stock as the holder in fact thereof, and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof, except as may be required by the laws of
the state of Colorado.
Section 5.7. Shares Held for Account of Another. The Board of Directors, in
the manner provided by the Act, may adopt a procedure whereby a shareholder of
the Corporation may certify in writing to the Corporation that all or a portion
of the shares registered in the name of such shareholder are held for the
account of a specified person or persons. Upon receipt by the Corporation of a
certification complying with such procedure, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth therein, to
be the holders of record of the number of shares specified in place of the
shareholder making the certification.
Section 5.8. Transfer Agents, Registrars and Paying Agents. The Board of
Directors may at its discretion appoint one or more transfer agents, registrars
or agents for making payment upon any class of stock, bond, debenture or other
security of the Corporation. Such agents and registrars may be located either
within or outside of the state of Colorado. They shall have such rights and
duties and shall be entitled to such compensation as may be agreed.
Article 6
INDEMNIFICATION
Section 6.1. Definitions. For purposes of this Article 6, the following terms
shall have the meanings set forth below:
(a) Act. The term "Act" means the Colorado Business Corporation Act as it exists
on the date of the adoption of this Article and as it may hereafter be amended
from time to time, but in the case of any amendment, only to the extent that the
amendment permits the Corporation to provide broader indemnification rights than
the Act permitted the Corporation to provide at the date of the adoption of this
Article and prior to the amendment.
(b) Corporation. The term "Corporation" means the Corporation and, in addition
to the resulting or surviving corporation, any domestic or foreign predecessor
entity of the Corporation in a merger, consolidation or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
(c) Expenses. The term "expenses" means the actual and reasonable expenses
(including but not limited to expenses of investigation and preparation and fees
and disbursements of counsel, accountants or other experts) incurred by a party
in connection with a proceeding.
(d) Liability. The term "liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to an
employee benefit plan) or expense incurred with respect to a proceeding.
(e) Party. The term "party" means any individual who was, is, or is threatened
to be made, a named defendant or respondent in a proceeding by reason of the
fact that he is or was a director, officer or employee of the Corporation and
any individual who, while a director, officer or employee of the Corporation is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee, fiduciary or agent of any other foreign or domestic
corporation or of any partnership, joint venture, trust, other enterprise or
employee benefit plan. A party shall be considered to be serving an employee
benefit plan at the Corporation's request if his duties to the Corporation also
impose duties on or otherwise involve services by him to the plan or to
participants in or beneficiaries of the plan.
(f) Proceeding. The term "proceeding" means any threatened, pending or completed
action, suit or proceeding, or any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (including an action by or in the
right of the Corporation), and whether formal or informal.
Section 6.2. Right to Indemnification. The Corporation shall indemnify any
party to a proceeding against liability incurred in, relating to or as a result
of the proceeding to the fullest extent permitted by law (including without
limitation in circumstances in which, in the absence of this Section 6.2,
indemnification would be (a) discretionary under the Act or (b) limited or
subject to particular standards of conduct under the Act).
Section 6.3. Advancement of Expenses. In the event of any proceeding in which
a party is involved or which may give rise to a right of indemnification under
this Article, following written request to the Corporation by the party, the
Corporation shall pay to the party, to the fullest extent permitted by law
(including without limitation in circumstances in which, in the absence of this
Section 6.2, advancement of expenses would be (a) discretionary under the Act or
(b) limited or subject to particular standards of conduct under the Act),
amounts to cover expenses incurred by the party in, relating to or as a result
of such proceeding in advance of its final disposition.
Section 6.4. Burden of Proof. If under applicable law the entitlement of a
party to be indemnified or advanced expenses hereunder depends upon whether a
standard of conduct has been met, the burden of proof of establishing that the
party did not act in accordance with such standard shall rest with the
Corporation. A party shall be presumed to have acted in accordance with such
standard and to be entitled to indemnification or the advancement of expenses
(as the case may be) unless, based upon a preponderance of the evidence, it
shall be determined that the party has not met such standard. Such determination
and any evaluation as to the reasonableness of amounts claimed by a party shall
be made by the Board of Directors of the Corporation or such other body or
persons as may be permitted by the Act. Subject to any express limitation of the
Act, if so requested by the party, such determination and evaluation as to the
reasonableness of the amounts claimed by the party shall be made by independent
counsel who is selected by the party and approved by the Corporation (which
approval shall not be unreasonably withheld). For purposes of this Article,
unless otherwise expressly stated, the termination of any proceeding by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
create a presumption that a party did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
Section 6.5. Notification and Defense of Claim. Promptly after receipt by a
party of notice of the commencement of any proceeding, the party shall, if a
claim in respect thereof is to be made against the Corporation under this
Article, notify the Corporation in writing of the commencement thereof;
provided, however, that delay in so notifying the Corporation shall not
constitute a waiver or release by the party of any rights under this Article.
With respect to any such proceeding: (a) the Corporation shall be entitled to
participate therein at its own expense; (b) any counsel representing the party
to be indemnified in connection with the defense or settlement thereof shall be
counsel mutually agreeable to the party and to the Corporation; and (c) the
Corporation shall have the right, at its option, to assume and control the
defense or settlement thereof, with counsel satisfactory to the party. If the
Corporation assumes the defense of the proceeding, the party shall have the
right to employ its own counsel, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense of
such proceeding shall be at the expense of the party unless (i) the employment
of such counsel has been specifically authorized by the Corporation, (ii) the
party shall have reasonably concluded that there may be a conflict of interest
between the Corporation and the party in the conduct of the defense of such
proceeding, or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such proceeding. Notwithstanding the foregoing, if an
insurance carrier has supplied directors' and officers' liability insurance
covering a proceeding and is entitled to retain counsel for the defense of such
proceeding, then the insurance carrier shall retain counsel to conduct the
defense of such proceeding unless the party and the Corporation concur in
writing that the insurance carrier's doing so is undesirable. The Corporation
shall not be liable under this Article for any amounts paid in settlement of any
proceeding effected without its written consent. The Corporation shall not
settle any proceeding in any manner that would impose any penalty or limitation
on a party without the party's written consent. Consent to a proposed settlement
of any proceeding shall not be unreasonably withheld by either the Corporation
or the party.
Section 6.6. Enforcement. The right to indemnification and advancement of
expenses granted by this Article shall be enforceable in any court of competent
jurisdiction if the Corporation denies the claim, in whole or in part, or if no
disposition of such claim is made within 90 days after the written request for
indemnification or advancement of expenses is received. If successful in whole
or in part in such suit, the party's expenses incurred in bringing and
prosecuting such claim shall also be paid by the Corporation. Whether or not the
party has met any applicable standard of conduct, the court in such suit may
order indemnification or the advancement of expenses as the court deems proper
(subject to any express limitation of the Act). Further, the Corporation shall
indemnify a party from and against any and all expenses and, if requested by the
party, shall (within 10 business days of such request) advance such expenses to
the party, which are incurred by the party in connection with any claim asserted
against or suit brought by the party for recovery under any directors' and
officers' liability insurance policies maintained by the Corporation, regardless
of whether the party is unsuccessful in whole or in part in such claim or suit.
Section 6.7. Proceedings by a Party. The Corporation shall indemnify or
advance expenses to a party in connection with any proceeding (or part thereof)
initiated by the party only if such proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
Section 6.8. Subrogation. In the event of any payment under this Article, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnified party, who shall execute all papers and do
everything that may be necessary to assure such rights of subrogation to the
Corporation.
Section 6.9. Other Payments. The Corporation shall not be liable under this
Article to make any payment in connection with any proceeding against or
involving a party to the extent the party has otherwise actually received
payment (under any insurance policy, agreement or otherwise) of the amounts
otherwise indemnifiable hereunder. A party shall repay to the Corporation the
amount of any payment the Corporation makes to the party under this Article in
connection with any proceeding against or involving the party, to the extent the
party has otherwise actually received payment (under any insurance policy,
agreement or otherwise) of such amount.
Section 6.10. Insurance. So long as any party who is or was an officer or
director of the Corporation may be subject to any possible proceeding by reason
of the fact that he is or was an officer or director of the Corporation (or is
or was serving in any one or more of the other capacities covered by this
Article during his tenure as officer or director), if the Corporation maintains
an insurance policy or policies providing directors' and officers' liability
insurance, such officer or director shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
applicable to any then current officer or director of the Corporation, or the
Corporation shall purchase and maintain in effect for the benefit of such
officer or director one or more valid, binding and enforceable policy or
policies of directors' and officers' liability insurance providing, in all
respects, coverage at least comparable to that provided to any then current
officer or director at the Corporation.
Section 6.11. Other Rights and Remedies. The rights to indemnification and
advancement of expenses provided in this Article shall be in addition to any
other rights to which a party may have or hereafter acquire under any law,
provision of the Articles of Incorporation, any other or further provision of
these bylaws, vote of the shareholders or directors, agreement or otherwise. The
Corporation shall have the right, but shall not be obligated, to indemnify or
advance expenses to any agent of the Corporation not otherwise covered by this
Article in accordance with and to the fullest extent permitted by the Act.
Section 6.12. Applicability; Effect. The rights to indemnification and
advancement of expenses provided in this Article shall be applicable to acts or
omissions that occurred prior to the adoption of this Article, shall continue as
to any party during the period such party serves in any one or more of the
capacities covered by this Article, shall continue thereafter so long as the
party may be subject to any possible proceeding by reason of the fact that he
served in any one or more of the capacities covered by this Article, and shall
inure to the benefit of the estate and personal representatives of each such
person. Any repeal or modification of this Article or of any Section or
provision hereof shall not affect any rights or obligations then existing. All
rights to indemnification under this Article shall be deemed to be provided by a
contract between the Corporation and each party covered hereby.
Section 6.13. Severability. If any provision of this Article shall be held to
be invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Article
(including without limitation, all portions of any Sections of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby, and (b) to the fullest extent possible, the
provisions of this Article (including, without limitation, all portions of any
Section of this Article containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent of this
Article that each party covered hereby is entitled to the fullest protection
permitted by law.
Article 7
MISCELLANEOUS
Section 7.1. Voting of Securities by the Corporation. Unless otherwise
provided by resolution of the Board of Directors, on behalf of the Corporation
the president or any vice president shall attend in person or by substitute
appointed by him, or shall execute written instruments appointing a proxy or
proxies to represent the Corporation at, all meetings of the shareholders of any
other corporation, association or other entity in which the Corporation holds
any stock or other securities, and may execute written waivers of notice with
respect to any such meetings. At all such meetings and otherwise, the president
or any vice president, in person or by substitute or proxy as aforesaid, may
vote the stock or other securities so held by the Corporation and may execute
written consents and any other instruments with respect to such stock or
securities and may exercise any and all rights and powers incident to the
ownership of said stock or securities, subject, however, to the instructions, if
any, of the Board of Directors.
Section 7.2. Seal. The corporate seal of the Corporation shall be in such form
as adopted by the Board of Directors, and any officer of the Corporation may,
when and as required, affix or impress the seal, or a facsimile thereof, to or
on any instrument or document of the Corporation.
Section 7.3. Fiscal Year. The fiscal year of the Corporation shall be as
established by the Board of Directors.
Section 7.4. Amendments. The Board of Directors may amend or repeal these
bylaws unless the Articles of Incorporation reserve such power exclusively to
the shareholders in whole or in part or the shareholders, in amending or
repealing a particular bylaw provision, provide expressly that the Board of
Directors may not amend or repeal such bylaw. The shareholders may amend or
repeal the bylaws even though the bylaws may also be amended or repealed by the
Board of Directors.
Section 7.5. Gender. The masculine gender is used in these bylaws as a matter
of convenience only and shall be interpreted to include the feminine and neuter
genders as the circumstances indicate.
Section 7.6. Conflicts. In the event of any irreconcilable conflict between
these bylaws and either the Corporation's Articles of Incorporation or
applicable law, the latter shall control.
Section 7.7. Definitions. Except as otherwise specifically provided in these
bylaws, all terms used in these bylaws shall have the same definition as in the
Act.
* * * * *
<PAGE>
TABLE OF CONTENTS
Page
Article 1 OFFICES...................................................1
Section 1.1. Business Offices....................................1
Section 1.2. Registered Office...................................1
Article 2 SHAREHOLDERS..............................................1
Section 2.1. Annual Meeting......................................1
Section 2.2. Special Meetings....................................1
Section 2.3. Place of Meeting....................................1
Section 2.4. Notice of Meeting...................................1
Section 2.5. Waiver of Notice....................................2
Section 2.6. Closing of Transfer Books; Record Date..............2
Section 2.7. Voting Lists........................................3
Section 2.8. Proxies.............................................3
Section 2.9. Quorum and Manner of Acting.........................3
Section 2.10. Voting of Shares....................................3
Section 2.11. Voting of Shares by Certain Holders.................4
Section 2.12. Action Without a Meeting............................5
Article 3 BOARD OF DIRECTORS........................................5
Section 3.1. General Powers......................................5
Section 3.2. Number, Qualifications and Tenure...................5
Section 3.3. Resignation.........................................5
Section 3.4. Removal.............................................6
Section 3.5. Vacancies...........................................6
Section 3.6. Regular Meetings....................................6
Section 3.7. Special Meetings....................................6
Section 3.8. Meetings by Telephone...............................6
Section 3.9. Notice of Meetings..................................6
Section 3.10. Waiver of Notice....................................7
Section 3.11. Presumption of Assent...............................7
Section 3.12. Quorum and Manner of Acting.........................7
Section 3.13. Action Without a Meeting............................7
Section 3.14. Executive and Other Committees......................8
Section 3.15. Compensation........................................8
Article 4 OFFICERS..................................................8
Section 4.1. Number and Qualifications...........................8
Section 4.2. Election and Term of Office.........................9
Section 4.3. Compensation........................................9
Section 4.4. Resignation.........................................9
Section 4.5. Removal.............................................9
Section 4.6. Vacancies...........................................9
Section 4.7. Authority and Duties................................9
(a) President...........................................9
(b) Vice Presidents....................................10
(c) Secretary..........................................10
(d) Treasurer..........................................10
Section 4.8. Surety Bonds.......................................11
Article 5 STOCK....................................................11
Section 5.1. Issuance of Shares.................................11
Section 5.2. Stock Certificates; Uncertificated Shares..........11
Section 5.3. Consideration for Shares...........................11
Section 5.4. Lost Certificates..................................11
Section 5.5. Transfer of Shares.................................12
Section 5.6. Holders of Record..................................12
Section 5.7. Shares Held for Account of Another.................12
Section 5.8. Transfer Agents, Registrars and Paying Agents......12
Article 6 INDEMNIFICATION..........................................12
Section 6.2. Right to Indemnification...........................13
Section 6.3. Advancement of Expenses............................13
Section 6.4. Burden of Proof....................................14
Section 6.5. Notification and Defense of Claim..................14
Section 6.6. Enforcement........................................15
Section 6.7. Proceedings by a Party.............................15
Section 6.8. Subrogation........................................15
Section 6.9. Other Payments.....................................15
Section 6.10. Insurance..........................................15
Section 6.11. Other Rights and Remedies..........................16
Section 6.12. Applicability; Effect..............................16
Section 6.13. Severability.......................................16
Article 7 MISCELLANEOUS............................................16
Section 7.1. Voting of Securities by the Corporation............16
Section 7.2. Seal...............................................17
Section 7.3. Fiscal Year........................................17
Section 7.4. Amendments.........................................17
Section 7.5. Gender.............................................17
Section 7.6. Conflicts..........................................17
Section 7.7. Definitions........................................17
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Table of Contents/Authorities.
AIRCRAFT LEASE EXTENSION AND AMENDMENT AGREEMENT
Dated as of October 1, 1999
between
AIRPLANES HOLDINGS LIMITED
(formerly known as GPA II Limited)
as Lessor
and
FRONTIER AIRLINES, INC.
as Lessee
in respect of
Aircraft Lease Agreement dated as
of October 20, 1995 relating to Boeing 737-301
aircraft bearing manufacturer's serial number 23177
(Portions of this exhibit have been excluded from the publicly available
document and an application for an order granting confidential treatment of the
excluded material has been made. These items are maked with (*).)
THIS AGREEMENT is made as of October 1, 1999 BETWEEN:
AIRPLANES HOLDINGS LIMITED (formerly known as GPA II Limited), a company
incorporated under the laws of Ireland whose registered office is at Aviation
House, Shannon, County Clare, Ireland ("Lessor"); and
FRONTIER AIRLINES, INC., a company incorporated under the laws of the State of
Colorado whose headquarters are at 12015 East 46th Avenue, Denver, Colorado
80239, U.S.A. ("Lessee").
WHEREAS:
(A) By an Aircraft Lease Agreement dated as of October 20, 1995 (the
"Lease"), Lessor leased to Lessee and Lessee took on lease one Boeing
737-301 aircraft with manufacturer's serial number 23177 (the
"Aircraft") on the terms and subject to the conditions contained
therein.
(B) Lessor and Lessee wish to enter into this Agreement for the purpose of
extending the term of the Lease and making certain further amendments
to the Lease.
IT IS AGREED as follows:
1. INTERPRETATION
1.1 Definitions: Capitalised terms used herein but not defined shall have
the respective meanings ascribed to such terms in the Lease. In this
Agreement "Extended Lease" means the Lease as amended by this
Agreement.
1.2 Construction: The provisions of Clause 1.2 (Construction) of the Lease
shall apply to this Agreement as if the same were set out in full
herein.
2. REPRESENTATIONS AND WARRANTIES
Lessee hereby repeats the representations and warranties in Clause 2.1
of the Lease as if made with reference to the facts and circumstances
existing as at the date hereof and as if the references in such
representations and warranties to "this Agreement" referred to the
Lease as amended by this Agreement.
3. LEASE EXTENSION
Lessor and Lessee hereby agree (subject to satisfaction of the
conditions specified in Clause 5) to extend the period for which the
Aircraft is leased to Lessee pursuant to the Lease from the current
Expiry Date to and including February 28, 2003. Accordingly, the Lease
is hereby amended (subject to satisfaction of the conditions specified
in Clause 5) by deleting the words "the day preceding the numerically
corresponding day" through the words "following an Event of Loss" in
the definition of "Expiry Date" in Clause 1.1 and replacing them with
the words "February 28, 2003".
4. OTHER AMENDMENTS TO LEASE
4.1 Other Amendments: The Lease shall be further amended (subject to
satisfaction of the conditions specified in Clause 5) as follows:
4.1.1 The definition of "Adjustment Date" in Clause 1.1 shall be amended by
deleting the current language and replacing it with the following:
"March 28, 1996".
4.1.2 The definition of "Deposit"in Clause 1.1 shall be amended by deleting
the current language and replacing it with the following: "(*).",
and Clause 5.1 shall be amended by deleting the current language and
replacing it with the following: "Deposit: Lessee has paid to Lessor
the Deposit.".
4.1.3 The definition of "Owner" in Clause 1.1 shall be amended by deleting
the words "GPA Finance (Bermuda) Limited" and replacing them with the
words "Airplanes (Bermuda) Limited".
4.1.4 The amount of Rent for each Rental Period during the extended Term,
from February 29, 2000 through February 28, 2003, shall be (*).
Accordingly, with effect from February 29, 2000, (i) Clause 5.3(a)
shall be amended by deleting the current language in its entirety and
replacing it with the following: "Rent: Lessee will pay to Lessor or
its order on each Rent Date Rent in the amount of (*)." and (ii)
Clause 5.3(b) shall be amended by deleting the current language in
its entirety and replacing it with the following: "[Intentionally
Omitted.]".
4.1.5 The word "or" at the end of Clause 16.7(a) shall be deleted and the
following shall be added at the end of Clause 16.7(a):
"The U.N. Convention on Contracts for the International Sales of Goods
is not applicable to this Agreement and all of its terms must be
construed in accordance with the Governing Law applicable to domestic
transactions in the jurisdiction to which the Governing Law pertains;
and".
4.1.6 Clause 16.11 shall be amended by deleting the Lessor and Owner contact
information and replacing it with the following:
"Lessor: Address: c/o GE Capital Aviation Services, Limited, Aviation
House, Shannon, County Clare, Ireland, Attn.: Contracts Leader;
Facsimile: 353 61 706867; Telephone: 353 61 706784.
Owner: Address: c/o GE Capital Aviation Services, Limited, Aviation
House, Shannon, County Clare, Ireland, Attn.: Contracts Leader;
Facsimile: 353 61 706867; Telephone: 353 61 706784.".
4.1.7 In Clause 17.1(a), the words "DATE PROCESSING," shall be added after
the word "DURABILITY," in the fourth line thereof.
5. CONDITIONS PRECEDENT
5.1 Conditions: This Agreement and Lessor's obligation to extend the Term
shall take effect upon issuance by Lessor of a notice to Lessee (the
"Extension Notice") confirming the satisfaction of each of the
following conditions and receipt of the following documents by Lessor
on or prior to February 28, 2000:
(a) Resolutions: a copy of a resolution of the board of directors
of Lessee approving the terms of, and transactions
contemplated by, this Agreement, resolving that it enter into
this Agreement, and authorising a specified person or persons
to execute this Agreement;
(b) Legal Opinions: a legal opinion from legal counsel acceptable
to Lessor in the form of Schedule 1, together with a draft of
a legal opinion from Crowe & Dunlevy P.C. or other counsel
acceptable to Lessor who are recognized specialists with
regard to FAA registration matters in form acceptable to
Lessor as to the due filing for recordation of this Agreement,
to be delivered in executed final form to Lessor and Lessee
upon such filing and recordation;
(c) Certificate of Lease Termination: a replacement certificate of
lease termination executed by a duly authorized officer of
Lessee, substantially in the form of Schedule 2 hereto,
acknowledging that the Extended Lease is no longer in effect
with respect to the Aircraft, which certificate Lessor will
hold in escrow to be filed at the FAA upon the expiration of
the Term or other termination of the leasing of the Aircraft
to Lessee pursuant to the Extended Lease; and
(d) Other: such other documents as Lessor may reasonably request.
5.2 Further Conditions Precedent: The obligation of Lessor to extend the
Term under this Agreement is subject to the further conditions
precedent that as of the date of issuance of the Extension Notice:
(a) the representations and warranties of Lessee under Clause 2
of this Agreement and u nder Clause 2 of the Lease shall be
true and correct; and
(b) no Default shall have occurred and be continuing or might
result from the leasing of the Aircraft to Lessee under the
Extended Lease.
5.3 Waiver: The conditions specified in Clauses 5.1 and 5.2 are for the
sole benefit of Lessor and may be waived or deferred (in whole or in
part and with or without conditions) by Lessor.
6. MISCELLANEOUS
6.1 Further Assurances: Lessee agrees from time to time to do and perform
such other and further acts and execute and deliver any and all such
other instruments as may be required by law or reasonably requested by
Lessor to establish, maintain and protect the rights and remedies of
Lessor and to carry out and effect the intent and purpose of this
Agreement.
6.2 Counterparts: This Agreement may be executed in any number of separate
counterparts, and each counterpart shall when executed and delivered be
an original document, but all counterparts shall together constitute
one and the same instrument.
6.3 Governing Law: The provisions of Clause 1 6.12 (Governing Law and
Jurisdiction) of the Lease shall apply to this Agreement as if the same
were set out in full herein.
6.4 Variation: The provisions of this Agreement shall not be varied
otherwise than by an instrument in writing executed by or on behalf of
Lessor and Lessee.
6.5 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.
6.6 Costs and Expenses: In accordance with Clause 16.9 of the Lease, Lessee
shall bear the costs and expenses associated with this extension and
amendment of the Lease, including without limitation the costs and
expenses of legal counsel providing the legal opinions referenced in
Clause 5.1.
7. CONTINUATION OF LEASE
Save as expressly amended by this Agreement, the Lease shall continue
in full and unvaried force and effect as the legal, valid and binding
rights and obligations of each of Lessor and Lessee enforceable in
accordance with their respective terms.
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement the day and
year first above written.
Signed for and on behalf of
AIRPLANES HOLDINGS LIMITED
(formerly known as GPA II Limited)
By: __________________
Name: __________________
Title: __________________
Signed for and on behalf of FRONTIER AIRLINES, INC.
By: __________________
Name: __________________
Title: __________________
<PAGE>
SCHEDULE 1
FORM OF LEGAL OPINION
[TO BE CONFORMED TO FORM PROVIDED AT ORIGINAL DELIVERY, UPDATED AS NECESSARY]
Airplanes Holdings Limited
Aviation House
Shannon
Co. Clare
Ireland
[Date]
Dear Sirs,
1. You have asked us to render an opinion in connection with the
transaction governed by or subject to, inter alia, the under-mentioned
documents.
1.1 the Agreement as defined in paragraph 1.4 below;
1.2 the Amendment as defined in paragraph 1.4 below;
1.3 the [Articles of Incorporation and By-laws]* of Lessee; and
[*Counsel should amend this reference as necessary to describe the actual
constitutional documents of Lessee]
1.4 all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgement and to our knowledge,
necessary or appropriate to examine to enable us to give the opinion
expressed below.
Words and expressions used and not otherwise defined herein will bear
the same meanings as defined in an Aircraft Lease Agreement dated
________ 19__ between ________ ________ ("Lessor") and ________
________ ("Lessee") in respect of one ________ aircraft with
manufacturer's serial number ________ together with the ________
installed ________ engines (the "Aircraft"), as amended, modified,
extended or supplemented by that certain Aircraft Lease Extension [and
Amendment] Agreement, dated ______ 19__ between Lessor and Lessee) (the
"Amendment"). As used herein the term "Agreement" means and includes
the Aircraft Lease Agreement as defined in the Aircraft Lease
Agreement, as amended, modified, extended or supplemented from time to
time, including as amended by the Amendment.
The term "Deregistration Power of Attorney" means the power of attorney
granted by Lessee in favour of ________ pursuant to paragraph 1.1
(a)(j) in Schedule 3 to the Agreement.
2. Having considered the documents listed in paragraph 1 above, and having
regard to the relevant laws of ________ we are pleased to advise tha
t in our opinion:
(a) Lessee is a company duly incorporated under the laws of ________ , is
qualified to do business as a foreign corporation in each jurisdiction
where failure to so qualify would have a materially adverse effect on
Lessee's business or its ability to perform its obligations under the
Agreement, and is subject to suit in its own name, and, to the best of
our knowledge, no steps have been, or are being, taken to appoint a
receiver, liquidator, trustee or similar officer over, or to wind up,
Lessee;
(b) Lessee has the corporate power to enter into and perform, and has taken
all necessary corporate action to authorise the entry into, performance
and delivery of, the Amendment and the transactions contemplated by the
Amendment;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Amendment do not and will not:
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the [Articles of Incorporation or By-laws] of
Lessee; or
(iii) conflict with or result in default under any agreement or
instrument which is binding upon Lessee or any of its assets
or result in the creation of any Security Interest over any of
its assets;
(d) no authorisations, consents, licenses, approvals or registrations
(other than those which have been obtained and of which copies are
attached hereto) are necessary or desirable to be obtained from any
governmental or other regulatory authorities in ________ having
jurisdiction over Lessee or its properties to enable Lessee:
(1) to enter into and perform the transactions contemplated by the
Amendment;
(2) to continue the import of the Aircraft into ________ for the
duration of the Term;
(3) to operate the Aircraft in ________ and on international
flights for the transport of fare-paying passengers; or
(4) to make the payments provided for in the Agreement;
(e) except for the filing and recordation of the Amendment with ________
(which filing has been duly made on or before this date) it is not
necessary or desirable, to ensure the priority, validity and
enforceability of any of the obligations of Lessee under the Amendment
that the Amendment be filed, registered, recorded or notarised in any
public office or elsewhere or that any other instrument relating
thereto be signed, delivered, filed, registered or recorded, that any
tax or duty be paid or that any other action whatsoever be taken;
(f) the interests of Lessor in the Aircraft are registered on the public
register of aircraft of the Air Authority and no other steps are
necessary or desirable to record or perfect Lessor's interest in the
Aircraft in ________ ;
(g) on termination of the Agreement (whether on expiry or otherwise) as
contemplated in the Agreement, Lessor would be entitled:
(1) to repossess the Aircraft;
(2) to deregister the Aircraft from the register of the Air
Authority;
(3) to export the Aircraft from ________ ;
without requiring any further consents, approvals or licenses from any
governmental or regulatory authority in ________ ;
(h) the Amendment has been properly signed and delivered on behalf of
Lessee and the obligations on the part of Lessee contained therein are
valid and legally binding on and enforceable against Lessee under the
laws of [Ireland] [England] [New York];
(i) the events described in Schedule 9 paragraphs (g), (h) and (i) of the
Agreement comprise an accurate and complete statement of all events and
situations provided for by the laws of ________ which may lead to the
cessation of activities, winding up or dissolution of Lessee;
(j) the obligations of Lessee under the Agreement rank at least pari passu
with all other present and future unsecured and unsubordinated
(including contingent obligations) of Lessee;
(k) there is no withholding tax or other Tax to be deducted from any
payment whatsoever which may be made by Lessee pursuant to the
Agreement; with respect to any withholdings, the provisions of Clause
5.6 of the Agreement are fully effective; and the arrangements
contemplated by the Agreement do not give rise to any charge whatsoever
to Taxes in ________ ;
(l) there is no applicable usury or interest limitation law in ________
which may restrict the recovery of payments in accordance with the
Agreement;
(m) there are no registration, stamp or other taxes or duties of any kind
payable in ________ in connection with the signature, performance or
enforcement by legal proceedings of the Agreement;
(n) Lessor will not violate any law or regulation in ________ nor become
liable to tax in ________ by reason of entering into the Amendment with
Lessee, or performing its obligations thereunder;
(o) it is not necessary to establish a place of business in ________ in
order to enforce any provisions of the Agreement;
(p) the choice of the Governing Law to govern the Amendment and the
Agreement will be upheld as a valid choice of law in any action in the
courts of ________ ;
(q) the consent to the jurisdiction by Lessee contained in the Agreement is
valid and binding on Lessee and not subject to revocation;
(r) any judgement for a definite sum given by the courts of ________
against Lessee would be recognised and accepted by the courts of
________ without re-trial or examination of the merits of the case;
(s) Lessee is subject to civil commercial law with respect to its
obligations under the Agreement; and neither Lessee nor any of its
assets is entitled to any right of immunity; and the entry into and
performance of the Agreement by Lessee constitute private and
commercial acts;
(t) there are no laws or other rules in ________ (including, without
limitation, emergency powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other person,
other than Lessor or any assignee of Lessor; and
(u) the Deregistration Power of Attorney is fully effective to authorise
the Attorney named therein to act in accordance with the terms set out
therein, and a duly appointed appointee of the Attorney named therein
may (to the extent permitted by its appointment) serve as agent for the
Attorney and perform any and all acts authorised therein as if
originally authorised therein; the Deregistration Power of Attorney
cannot be revoked by Lessee and would not terminate or lapse in the
event of steps being taken for the cessation of activities, protection
from creditors, winding up or dissolution of Lessee.
Yours faithfully,
<PAGE>
AIRCRAFT LEASE EXTENSION AND AMENDMENT AGREEMENT
Dated as of October 1, 1999
between
GENERAL ELECTRIC CAPITAL CORPORATION
as Lessor
and
FRONTIER AIRLINES, INC.
as Lessee
in respect of
Aircraft Lease Agreement dated as
of October 20, 1995 relating to Boeing 737-301
aircraft bearing manufacturer's serial number 23257
THIS AGREEMENT is made as of October 1, 1999 BETWEEN:
GENERAL ELECTRIC CAPITAL CORPORATION, a company incorporated under the laws of
New York whose headquarters are at 260 Long Ridge Road, Stamford Connecticut
06927, U.S.A. ("Lessor"); and
FRONTIER AIRLINES, INC., a company incorporated under the laws of the State of
Colorado whose headquarters are at 12015 East 46th Avenue, Denver, Colorado
80239, U.S.A. ("Lessee").
WHEREAS:
(A) By an Aircraft Lease Agreement dated as of October 20, 1995, as amended
and supplemented by a Lease Supplement No.1 dated October 24, 1995,
recorded by the FAA on December 20, 1995 as Conveyance No. SS004071
(the "Lease") Lessor leased to Lessee and Lessee took on lease one
Boeing 737-301 aircraft with manufacturer's serial number 23257 (the
"Aircraft") on the terms and subject to the conditions contained
therein.
(B) Lessor and Lessee wish to enter into this Agreement for the purpose of
extending the term of the Lease and making certain further amendments
to the Lease.
IT IS AGREED as follows:
1. INTERPRETATION
1.1 Definitions: Capitalised terms used herein but not defined shall have
the respective meanings ascribed to such terms in the Lease. In this
Agreement "Extended Lease" means the Lease as amended by this
Agreement.
1.2 Construction: The provisions of Clause 1.2 (Construction) of the Lease
shall apply to this Agreement as if the same were set out in full
herein.
2. REPRESENTATIONS AND WARRANTIES
Lessee hereby repeats the representations and warranties in Clause 2.1
of the Lease as if made with reference to the facts and circumstances
existing as at the date hereof and as if the references in such
representations and warranties to "this Agreement" referred to the
Lease as amended by this Agreement.
3. LEASE EXTENSION
Lessor and Lessee hereby agree (subject to satisfaction of the
conditions specified in Clause 5) to extend the period for which the
Aircraft is leased to Lessee pursuant to the Lease from the current
Expiry Date to and including February 23, 2003. Accordingly, the Lease
is hereby amended (subject to satisfaction of the conditions specified
in Clause 5) by deleting the words " the day preceding the numerically
corresponding day " through the words " following an Event of Loss " in
the definition of "Expiry Date" in Clause 1.1 and replacing them with
the words " February 23, 2003 ".
4. OTHER AMENDMENTS TO LEASE
4.1 Other Amendments: The Lease shall be further amended ( subject to
satisfaction of the conditions specified in Clause 5) as follows:
4.1.1 The definition of "Other Agreements" in Clause 1.1 shall be amended
by deleting the words "GPA Group plc" and replacing them with the
words "Airplanes Holdings Limited".
4.1.2 The word "or" at the end of Clause 16.7(a) shall be deleted and the
following shall be added at the end of Clause 16.7(a):
"The U.N. Convention on Contracts for the International Sales of
Goods is not applicable to this Agreement and all of its terms must
be construed in accordance with the Governing Law applicable to
domestic transactions in the jurisdiction to which the Governing Law
pertains;and".
4.1.3 Clause 16.11 shall be amended by deleting the Lessor contact
information and replacing it with the following: "Lessor: Address:
c/o GE Capital Aviation Services, Inc., 201 High Ridge Road,
Stamford, CT 06927 Attn.: Contracts Leader; Facsimile: 203 357 3201;
Telephone: 203 357 4482"; and further amended by deleting the "With a
copy to:" contact information, it being hereby confirmed by Lessor
that copies need no longer be sent to such entity at such location.
4.1.4 In Clause 17.1(a), the words "DATE PROCESSING," shall be added after
the word "DURABILITY," in the fourth line thereof.
5. CONDITIONS pRECEDENT
5.1 Conditions: This Agreement and Lessor's obligation to extend the Term
shall take effect upon issuance by Lessor of a notice to Lessee (the
"Extension Notice") confirming the satisfaction of each of the
following conditions and receipt of the following documents by Lessor
on or prior to February 23, 2000:
(a) Resolutions: a copy of a resolution of the board of directors
of Lessee approving the terms of, and transactions
contemplated by, this Agreement, resolving that it enter into
this Agreement, and authorising a specified person or persons
to execute this Agreement;
(b) Legal Opinions: a legal opinion from legal counsel acceptable
to Lessor in the form of Schedule 1, together with a draft of
a legal opinion from Crowe & Dunlevy P.C. or other counsel
acceptable to Lessor who are recognized specialists with
regard to FAA registration matters in form acceptable to
Lessor as to the due filing for recordation of this Agreement,
to be delivered in executed final form to Lessor and Lessee
upon such filing and recordation;
(c) Certificate of Lease Termination: a replacement certificate of
lease termination executed by a duly authorized officer of
Lessee, substantially in the form of Schedule 2 hereto,
acknowledging that the Extended Lease is no longer in effect
with respect to the Aircraft, which certificate Lessor will
hold in escrow to be filed at the FAA upon the expiration of
the Term or other termination of the leasing of the Aircraft
to Lessee pursuant to the Extended Lease; and
(d) Other: such other documents as Lessor may reasonably request.
5.2 Further Conditions Precedent: The obligation of Lessor to extend the
Term under this Agreement is subject to the further conditions
precedent that as of the date of issuance of the Extension Notice:
(a) the representations and warranties of Lessee under Clause 2
of this Agreement and under Clause 2 of the Lease shall be
true and correct; and
(b) no Default shall have occurred and be continuing or might
result from the leasing of the Aircraft to Lessee under the
Extended Lease.
5.3 Waiver: The conditions specified in Clauses 5.1 and 5.2 are for the
sole benefit of Lessor and may be waived or deferred (in whole or in
part and with or without conditions) by Lessor.
6. MISCELLANEOUS
6.1 Further Assurances: Lessee agrees from time to time to do and perform
such other and further acts and execute and deliver any and all such
other instruments as may be required by law or reasonably requested by
Lessor to establish, maintain and protect the rights and remedies of
Lessor and to carry out and effect the intent and purpose of this
Agreement.
6.2 Counterparts: This Agreement may be executed in any number of separate
counterparts, and each counterpart shall when executed and delivered be
an original document, but all counterparts shall together constitute
one and the same instrument.
6.3 Governing Law: The provisions of Clause 16.12 (Governing Law and
Jurisdiction) of the Lease shall apply to this Agreement as if the same
were set out in full herein.
6.4 Variation: The provisions of this Agreement shall not be varied
otherwise than by an instrument in writing executed by or on behalf of
Lessor and Lessee.
6.5 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.
6.6 Costs and Expenses: In accordance with Clause 16.9 of the Lease, Lessee
shall bear the costs and expenses associated with this extension and
amendment of the Lease, including without limitation the costs and
expenses of legal counsel providing the legal opinions referenced in
Clause 5.1.
7. CONTINUATION OF LEASE
Save as expressly amended by this Agreement, the Lease shall continue
in full and unvaried force and effect as the legal, valid and binding
rights and obligations of each of Lessor and Lessee enforceable in
accordance with their respective terms.
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement the day and
year first above written.
Signed for and on behalf of
GENERAL ELECTRIC CAPITAL CORPORATION
By: __________________
Name: __________________
Title: __________________
Signed for and on behalf of FRONTIER AIRLINES, INC.
By: __________________
Name: __________________
Title: __________________
<PAGE>
SCHEDULE 1
FORM OF LEGAL OPINION
[TO BE CONFORMED TO FORM PROVIDED AT ORIGINAL DELIVERY, UPDATED AS NECESSARY]
General Electric Capital Corporation
c/o GE Capital Aviation Services, Inc.
201 High Ridge Road,
Stamford CT 06927-4900,
U.S.A.
[Date]
Dear Sirs,
1. You have asked us to render an opinion in connection with the
transaction governed by or subject to, inter alia, the under-mentioned
documents.
1.1 the Agreement as defined in paragraph 1.4 below;
1.2 the Amendment as defined in paragraph 1.4 below;
1.3 the [Articles of Incorporation and By-laws]* of Lessee; and
[*Counsel should amend this reference as necessary to describe the actual
constitutional documents of Lessee]
1.4 all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgement and to our knowledge,
necessary or appropriate to examine to enable us to give the opinion
expressed below.
Words and expressions used and not otherwise defined herein will bear
the same meanings as defined in an Aircraft Lease Agreement dated
________ 19__ between ________ ________ ("Lessor") and ________
________ ("Lessee") in respect of one ________ aircraft with
manufacturer's serial number ________ together with the ________
installed ________ engines (the "Aircraft"), as amended, modified,
extended or supplemented by that certain Aircraft Lease Extension [and
Amendment] Agreement, dated ______ 19__ between Lessor and Lessee) (the
"Amendment"). As used herein the term "Agreement" means and includes
the Aircraft Lease Agreement as defined in the Aircraft Lease
Agreement, as amended, modified, extended or supplemented from time to
time, including as amended by the Amendment.
The term "Deregistration Power of Attorney" means the power of attorney
granted by Lessee in favour of ________ pursuant to paragraph 1.1
(a)(j) in Schedule 3 to the Agreement.
2. Having considered the documents listed in paragraph 1 above, and having
regard to the relevant laws of ________ we are pleased to advise that
in our opinion:
(a) Lessee is a company duly incorporated under the laws of ________ , is
qualified to do business as a foreign corporation in each jurisdiction
where failure to so qualify would have a materially adverse effect on
Lessee's business or its ability to perform its obligations under the
Agreement, and is subject to suit in its own name, and, to the best of
our knowledge, no steps have been, or are being, taken to appoint a
receiver, liquidator, trustee or similar officer over, or to wind up,
Lessee;
(b) Lessee has the corporate power to enter into and perform, and has taken
all necessary corporate action to authorise the entry into, performance
and delivery of, the Amendment and the transactions contemplated by the
Amendment;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Amendment do not and will not:
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the [Articles of Incorporation or By-laws] of
Lessee; or
(iii) conflict with or result in default under any agreement or
instrument which is binding upon Lessee or any of its assets
or result in the creation of any Security Interest over any of
its assets;
(d) no authorisations, consents, licenses, approvals or registrations
(other than those which have been obtained and of which copies are
attached hereto) are necessary or desirable to be obtained from any
governmental or other regulatory authorities in ________ having
jurisdiction over Lessee or its properties to enable Lessee:
(1) to enter into and perform the transactions contemplated by the
Amendment;
(2) to continue the import of the Aircraft into ________ for the
duration of the Term;
(3) to operate the Aircraft in ________ and on international
flights for the transport of fare-paying passengers; or
(4) to make the payments provided for in the Agreement;
(e) except for the filing and recordation of the Amendment with ________
(which filing has been duly made on or before this date) it is not
necessary or desirable, to ensure the priority, validity and
enforceability of any of the obligations of Lessee under the Amendment
that the Amendment be filed, registered, recorded or notarised in any
public office or elsewhere or that any other instrument relating
thereto be signed, delivered, filed, registered or recorded, that any
tax or duty be paid or that any other action whatsoever be taken;
(f) the interests of Lessor in the Aircraft are registered on the public
register of aircraft of the Air Authority and no other steps are
necessary or desirable to record or perfect Lessor's interest in the
Aircraft in ________ ;
(g) on termination of the Agreement (whether on expiry or otherwise) as
contemplated in the Agreement, Lessor would be entitled:
(1) to repossess the Aircraft;
(2) to deregister the Aircraft from the register of the Air
Authority;
(3) to export the Aircraft from ________ ;
without requiring any further consents, approvals or licenses from any
governmental or regulatory authority in ________ ;
(h) the Amendment has been properly signed and delivered on behalf of
Lessee and the obligations on the part of Lessee contained therein are
valid and legally binding on and enforceable against Lessee under the
laws of [Ireland] [England] [New York];
(i) the events described in Schedule 9 paragraphs (g), (h) and (i) of the
Agreement comprise an accurate and complete statement of all events and
situations provided for by the laws of ________ which may lead to the
cessation of activities, winding up or dissolution of Lessee;
(j) the obligations of Lessee under the Agreement rank at least pari passu
with all other present and future unsecured and unsubordinated
(including contingent obligations) of Lessee;
(k) there is no withholding tax or other Tax to be deducted from any
payment whatsoever which may be made by Lessee pursuant to the
Agreement; with respect to any withholdings, the provisions of Clause
5.6 of the Agreement are fully effective; and the arrangements
contemplated by the Agreement do not give rise to any charge whatsoever
to Taxes in ________ ;
(l) there is no applicable usury or interest limitation law in
________ which may restrict the recovery of payments in
accordance with the Agreement;
(m) there are no registration, stamp or other taxes or duties of any kind
payable in ________ in connection with the signature, performance or
enforcement by legal proceedings of the Agreement;
(n) Lessor will not violate any law or regulation in ________ nor become
liable to tax in ________ by reason of entering into the Amendment with
Lessee, or performing its obligations thereunder;
(o) it is not necessary to establish a place of business in ________ in
order to enforce any provisions of the Agreement;
(p) the choice of the Governing Law to govern the Amendment and the
Agreement will be upheld as a valid choice of law in any action in the
courts of ________ ;
(q) the consent to the jurisdiction by Lessee contained in the Agreement is
valid and binding on Lessee and not subject to revocation;
(r) any judgement for a definite sum given by the courts of ________
against Lessee would be recognised and accepted by the courts of
________ without re-trial or examination of the merits of the case;
(s) Lessee is subject to civil commercial law with respect to its
obligations under the Agreement; and neither Lessee nor any of its
assets is entitled to any right of immunity; and the entry into and
performance of the Agreement by Lessee constitute private and
commercial acts;
(t) there are no laws or other rules in ________ (including, without
limitation, emergency powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other person,
other than Lessor or any assignee of Lessor; and
(u) the Deregistration Power of Attorney is fully effective to authorise
the Attorney named therein to act in accordance with the terms set out
therein, and a duly appointed appointee of the Attorney named therein
may (to the extent permitted by its appointment) serve as agent for the
Attorney and perform any and all acts authorised therein as if
originally authorised therein; the Deregistration Power of Attorney
cannot be revoked by Lessee and would not terminate or lapse in the
event of steps being taken for the cessation of activities, protection
from creditors, winding up or dissolution of Lessee.
Yours faithfully,
<PAGE>
AIRCRAFT SUBLEASE AGREEMENT
between
INDIGO AVIATION AB (publ)
as Sublessor
and
FRONTIER AIRLINES, INC.
as Sublessee
Dated as of October 11th, 1999
Aircraft Make and Model: One Boeing 737-3L9
Aircraft Manufacturer's Serial Number: 26442
Aircraft Registration Mark: N313FL
Engines Make and Model: CFM International CFM56-3B2
Engine Serial Numbers: 856183 and 857192
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 counterparts of this Agreement, so identified by the
signature of Lender on the receipt set forth on the signature page of such
original counterpart.
(Portions of this exhibit have been excluded from the publicly available
document and an application for an order granting confidential treatment of the
excluded material has been made. These items are maked with (*).)
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS; CONSTRUCTION.............................................1
1.1 Definitions..................................................1
1.2 Construction................................................10
2. REPRESENTATIONS AND WARRANTIES.......................................12
2.1 Sublessee's Representations and Warranties..................12
2.2 Sublessor's Representations and Warranties..................14
2.3 Survival of Representations and Warranties..................15
3. CONDITIONS PRECEDENT.................................................16
3.1 Sublessor's Conditions Precedent............................16
3.2 Waiver......................................................17
3.3 Sublessee's Conditions Precedent............................17
3.4 Waiver......................................................18
4. DELIVERY CONDITION AND INSPECTION OF AIRCRAFT........................18
4.1 Sublessee Selection of Aircraft.............................18
4.2 Condition at Delivery.......................................18
4.3 Sublessee Inspection and Acceptance Flight..................18
4.4 Delivery of Aircraft to Sublessee...........................18
4.5 Sublessee's Failure to take Delivery........................19
5. SUBLEASE TERM........................................................19
5.1 Sublease Term...............................................19
5.2 Expiry Date.................................................19
5.3 Survival of Certain Sublessee Obligations...................20
5.4 Risk........................................................20
6. DELIVERY 20
6.1 Location and Time of Delivery...............................20
6.2 Delay or Failure in Delivery................................20
7. RENT 21
7.1 Basic Rent Period...........................................21
7.2 Time of Payment of Basic Rent...............................21
7.3 Amount of Basic Rent........................................21
7.4 Maintenance Reserves........................................21
7.5 Supplemental Rent for Excess Cycles.........................22
8. SECURITY DEPOSIT.....................................................22
8.1 Security Deposit............................................22
8.2 Letter of Credit............................................22
8.3 Sublessor's Rights..........................................22
9. MAINTENANCE RESERVES.................................................23
9.1 Amount......................................................23
9.2 Payments....................................................23
9.3 Adjustment..................................................23
9.4 Release of Maintenance Reserves.............................23
9.5 Costs in Excess of Maintenance Reserves.....................24
9.6 Reimbursement after ExpiryDate..............................25
10. PAYMENTS 25
10.1 Account for Sublessee Payments..............................25
10.2 Default Interest............................................25
10.3 Absolute Obligations........................................26
10.4 Application of Payments to Sublessor........................26
10.5 Currency Indemnity..........................................26
10.6 Set-Off.....................................................27
10.7 Time for Payments...........................................27
11. SUBLESSOR'S COVENANTS................................................27
11.1 Quiet Enjoyment.............................................27
11.2 Sublessor Obligations Following Expiry Date.................27
12. SUBLESSEE'S COVENANTS................................................28
12.1 Duration....................................................28
12.2 Information.................................................28
12.3 Sublessor Visits............................................30
12.4 Periodic Estoppel Certificates..............................30
12.5 Airport and Navigation Charges..............................30
12.6 Operation of Aircraft.......................................31
12.7 Areas of Operation..........................................31
12.8 Non-Prejudicial Action......................................31
12.9 Non-Representation of Sublessor.............................32
12.10 Inspection..................................................32
12.11 Registration................................................32
12.12 Name Plates.................................................33
12.13 Geneva Convention...........................................33
12.14 Merger and Shareholding.....................................33
12.15 Ownership...................................................34
12.16 Maintenance of Principal Business Place.....................34
12.17 Maintenance of Flight Records...............................34
13. POSSESSION...........................................................35
13.1 No Relinquishment of Possession.............................35
13.2 Copy of Sublease............................................37
13.3 Sublessee Primarily Liable..................................37
13.4 Recognition of Rights.......................................38
14. SECURITY INTERESTS...................................................38
14.1 Title.......................................................38
14.2 No Security Interests.......................................38
14.3 Base of Aircraft............................................38
14.4 Notice to Sublessor.........................................38
14.5 Procure Release.............................................39
15. MAINTENANCE AND REPAIR...............................................39
15.1 General Obligations.........................................39
15.2 Specific Obligations........................................40
16. REPLACEMENT OF PARTS.................................................41
16.1 Replacement of Parts........................................41
16.2 Title to Replacement Parts..................................41
16.3 Pooling of Parts............................................42
16.4 Alterations.................................................42
16.5 Removal of Parts............................................43
16.6 Substitution of Engine......................................43
16.7 Temporary Removal of parts..................................44
16.8 Parts Incapable of Transfer.................................45
17. MANUFACTURER'S WARRANTIES............................................45
17.1 Authorization...............................................45
17.2 Proceeds....................................................45
17.3 Agreements with Manufacturers...............................46
17.4 No Operation Contrary to Warranties.........................46
18. DISCLAIMERS..........................................................46
18.1 General.....................................................46
18.2 AS IS, WHERE IS.............................................47
18.3 Waiver of Warranty of Description...........................47
18.4 No Liability Under UCC......................................48
18.5 Sublessee Acknowledgment....................................48
18.6 Sublessee Waiver............................................48
18.7 Sublessee Examination of Aircraft...........................48
18.8 No Sublessor Liability for Losses...........................48
18.9 Exclusion...................................................49
18.10 Waiver......................................................49
18.11 No Waiver...................................................49
18.12 Confirmation................................................49
19. INDEMNITIES..........................................................50
19.1 General Indemnity...........................................50
19.2 Exception to General Indemnity..............................50
19.3 Time of Payment.............................................51
19.4 Survival of General Indemnity...............................51
19.5 Notice to Sublessee.........................................51
20. TAXATION 51
20.1 Gross-up....................................................51
20.2 Tax Indemnity...............................................52
20.3 Value Added Taxes...........................................53
20.4 Taxation of Indemnity Payments..............................53
20.5 Benefit of Indemnities......................................53
20.6 Sublessor Indemnification...................................53
20.7 Survival of Tax Indemnities.................................54
20.8 Mitigation and Co-operation.................................54
20.9 Furnishing Forms............................................54
21. INSURANCE............................................................54
21.1 Insurances..................................................54
21.2 Reinsurance.................................................55
21.3 Requirements................................................55
21.4 Insurance Covenants.........................................55
21.5 Renewal of Insurances.......................................56
21.6 Failure to Insure...........................................57
21.7 Continuation of Insurances..................................57
21.8 Application of Insurance Proceeds...........................58
21.9 Pursuit of Claims...........................................58
22. TOTAL LOSS AND REQUISITION...........................................58
22.1 Total Loss Prior to Delivery................................58
22.2 Total Loss After Delivery...................................58
22.3 Total Loss of Engines.......................................59
22.4 Requisition.................................................60
23. REDELIVERY...........................................................61
23.1 Redelivery of Aircraft......................................61
23.2 Final Inspection............................................61
23.3 Discrepancies...............................................62
23.4 Non-compliance..............................................62
23.5 Acknowledgment..............................................63
23.6 Storage.....................................................63
24. EVENTS OF DEFAULT....................................................63
24.1 Notice......................................................63
24.2 Events......................................................63
24.3 Sublessor's Rights..........................................66
24.4 Default Payments............................................67
24.5 Cumulative Rights...........................................68
25. ASSIGNMENT AND TRANSFER..............................................68
25.1 By Sublessee................................................68
25.2 By Sublessor................................................68
25.3 Assignment to Lender........................................69
25.4 Sublessee Co-operation......................................69
25.5 Sublessor Includes Sublessor's Assignee and Lender..........69
26. MISCELLANEOUS PROVISIONS.............................................70
26.1 Rights Cumulative, Waivers..................................70
26.2 Delegation..................................................70
26.3 Expenses....................................................70
26.4 Time of Essence.............................................71
26.5 Entire Agreement............................................71
26.6 Further Assurances..........................................71
26.7 Language....................................................71
26.8 Variation...................................................71
26.9 Invalidity of Any Provision.................................71
26.10 Survival....................................................71
26.11 Reimbursement...............................................72
26.12 Press Releases..............................................72
26.13 Power of Attorney...........................................72
26.14 Usury Laws..................................................72
26.15 Confidentiality.............................................72
26.16 Counterparts................................................73
26.17 Bankruptcy..................................................73
27. NOTICES 73
28. GOVERNING LAW AND JURISDICTION.......................................74
28.1 New York Law................................................74
28.2 Non-exclusive Jurisdiction in New York......................74
28.3 Service of Process..........................................75
28.4 Prevailing Party in Dispute.................................75
28.5 Waiver......................................................75
SIGNATURE PAGE 76
SCHEDULE 1 - Aircraft Specification...........................................77
SCHEDULE 2 - Certain Business Terms...........................................82
SCHEDULE 3 - Insurance Requirements...........................................85
SCHEDULE 4 - Delivery Conditions..............................................90
SCHEDULE 5 - Acceptance Certificate...........................................93
SCHEDULE 6 - Certificate of Officer of Frontier Airlines, Inc.................96
SCHEDULE 7 - Form of Letter of Authority......................................98
SCHEDULE 8 - Power of Attorney................................................99
SCHEDULE 9 - Form of Opinion of Sublessee Counsel............................100
SCHEDULE 10 - Monthly Aircraft Utilization and Status Report.................105
SCHEDULE 11 - Form of Quiet Enjoyment Letter.................................107
SCHEDULE 12 - Return Conditions..............................................108
SCHEDULE 13 - Return Acceptance Certificate..................................111
SCHEDULE 14 - Sublease Supplement............................................117
<PAGE>
THIS AGREEMENT is made as of October 11th, 1999.
BETWEEN:
(1) INDIGO AVIATION AB (publ), a Swedish limited liability company whose address
and principal place of business is at Sodra Forstadsgatan 4, S-211 43 Malmo,
Sweden, ("Sublessor"); and
(2) FRONTIER AIRLINES, INC., a Colorado corporation whose address and principal
place of business is at 12015 E. 46th Avenue, Denver, Colorado, United States of
America (Sublessee").
WHEREAS
Owner Trustee holds title to the Aircraft for the benefit of Sublessor;
Owner Trustee, as headlessor, leases the Aircraft to Sublessor under the terms
of the Headlease Agreement;
NOW, THEREFORE, in consideration of and subject to the mutual covenants, terms
and conditions contained in this Agreement, and other valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Sublessor agrees to
sublease to Sublessee and Sublessee agrees to sublease from Sublessor the
Aircraft for the Sublease Term and the parties further agree as follows:
1. DEFINITIONS; CONSTRUCTION
1.1 Definitions
In this Agreement the following words and expressions have the following
meanings unless the context otherwise requires:
Acceptance Certificate means a certificate of acceptance substantially in the
form set out in Schedule 5;
Agreed Value has the meaning ascribed to it in Schedule 2;
Aircraft means the Airframe, the Engines, the Parts and the Aircraft Documents,
collectively. As the context requires, the Aircraft may also mean the Airframe,
any Engine, any Part, the Aircraft Documents or any part thereof, individually;
Aircraft Documents means the documents, data and records referred to in Annexure
1 to Schedule 1 of this Agreement and, at Delivery, more closely identified in
Annexure 1 to the Acceptance Certificate and all additions, renewals, revisions
and replacements from time to time made to any of the foregoing in accordance
with this Agreement;
Airframe means the airframe described in Schedule1 together with all Parts
relating thereto (except Engines or engines);
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 any 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;
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 has the meaning ascribed to it in Schedule 2;
Basic Rent Period means each period ascertained in accordance with Clause 7.1;
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
London, New York and Stockholm;
"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 the Maintenance Program;
Conditions Precedent means the conditions specified in Clause 3;
CPCP means corrosion prevention 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;
"D" Check means a "C7" Check plus Structural Inspection (a complete system,
zonal, corrosion and structural inspection in accordance with the MPD);
Damage Notification Threshold has the meaning ascribed to it in Schedule 2;
Default means any Event of Default or any event which with the lapse of time or
giving of notice or making of any determination, would constitute an Event of
Default;
Default Rate means, for the relevant period, three percent (3%) above the rate
of interest at the start of that relevant period publicly quoted by Chase
Manhattan Bank N.A. as its prime rate;
Delivery means delivery of the Aircraft by Sublessor to Sublessee pursuant to
Clause 6;
Delivery Date means the date on which Delivery occurs;
Delivery Location means Munich, Germany or such other location as Sublessor and
Sublessee may agree;
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, whether or not installed on the Airframe on this
Delivery Date, such engines being described as to serial
numbers on the Acceptance Certificate; 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 has the meaning ascribed to it in Schedule 2;
Engine Manufacturer means CFM International;
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 24;
Expiry Date means the date determined in accordance with Clause 5.2;
Extension Sublease Expiry Date has the meaning ascribed to it in Schedule 2;
FAA means the Federal Aviation Administration of the Department of
Transportation of the United States of America and any successor thereof;
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 and any successor regulation thereto;
Federal Aviation Act means Title 49 Subtitle VII of the U.S. Code, as amended,
modified or replaced from time to time;
Final Inspection has the meaning given to it in Clause 23.2;
Financial Indebtedness means any indebtedness in respect of:
(a) moneys 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 leave the ground at take off
until the wheels of the Aircraft next touch the ground at landing;
Geneva Convention means the Convention on the International Recognition of
Rights in Aircraft signed in 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, state or local 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 Head Lease Agreement entered into
between Owner Trustee and Sublessor dated as of October 11th, 1999 and which is
being filed with the FAA simultaneously herewith;
Indemnitees means Sublessor, Owner Trustee, Lender, or any parts or equipment
vendor or Maintenance Facility as identified by Sublessor from time to time and
any other person identified by Sublessor 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; Insurances has the meaning ascribed to it in Clause 21.1;
Landing Gear means the landing gear assembly of the Aircraft, including all life
limited parts;
Lender means any person or persons notified by Sublessor to Sublessee as
providing financing to Owner Trustee or Sublessor 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);
Letter of Credit has the meaning ascribed to it in Schedule 2;
LLP means life limited part;
Loss means any and all loss, liability, obligation, action, claim, suits,
proceeding, judgement, penalty, fine, damages, fee, cost, disbursement and
expense and Losses shall be construed accordingly;
Maintenance Facility means a FAA approved maintenance facility or such other
maintenance facility as Sublessor may, in its absolute discretion, from time to
time approve in writing;
Maintenance Program means Sublessee's maintenance program as approved by the FAA
provided in compliance with the MPD or such other maintenance program as
Sublessor may, in its absolute discretion, approve in writing;
Maintenance Reserves means all amounts payable pursuant to Clause 9;
Manufacturer means the Boeing Company, a Delaware Corporation with its principal
office in the City of Seattle, State of Washington, United States of America;
Minimum Liability Coverage has the meaning ascribed to it in Schedule 2;
Monthly Report means a report substantially in the form of Schedule 10;
Mortgage means a mortgage over the Aircraft created for the benefit of Lender;
MPD mean the Maintenance Planning Document 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 parent
company, subsidiary, associate or affiliate of Sublessor) and Sublessee (or any
subsidiary, associate or affiliate of Sublessee);
Overhaul means the full refurbishment of the Aircraft, an Engine, the APU, a
Landing Gear, a module or a Part, as the case may be, in which such equipment
has been disassembled, cleaned, thoroughly inspected, repaired, reworked or had
a replacement of parts, reassembled, and tested to the tolerances and standards
specified by the applicable manufacturer's overhaul procedures manual or
equivalent;
Owner Trustee means First Security Bank, National Association;
Part means, whether or not for the time being installed in or attached to the
Airframe or any Engine:
(a) any component, furnishing or equipment (other than a complete
Engine) installed or attached to the Airframe or any Engine 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 Air Carrier has the meaning ascribed to it in Clause 13.1;
Permitted Liens means:
(a) any lien for Sublessee 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) any Sublessee liens arising out of judgments or awards with
respect to which at the time (i) an appeal proceeding 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 lien of the Owner Trustee as Owner Trustee or as
Headlessor;
(e) any Sublessor Lien; and
(f) any Security Interest over the Aircraft 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 continue existence of the lien, do not involve any danger
(in the reasonable opinion of Sublessor or Lender) of the sale, forfeiture or
other loss of the Aircraft or any interest therein;
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;
Redelivery Location means a location in the continental US reasonably requested
by Sublessor or such other location as Sublessor and Sublessee may agree;
Rent means Basic Rent and Supplemental Rent;
Rent Date means the day preceding each Basic Rent Period;
Replacement Engine means an engine complying with Clause 16;
Return Conditions means the conditions specified in Schedule 12;
Scheduled Delivery Date has the meaning ascribed to it in Schedule 2;
Security Deposit has the meaning ascribed to it in Schedule 2;
Security Interest means any encumbrance or security interest, however and
wherever created or arising, including without limitation, any right of
ownership, security, mortgage, charge, pledge, lien, encumbrance, assignment,
hypothecation or any other agreement or arrangement conferring security;
State of Incorporation means the State of 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 Expiry Date has the meaning ascribed to it in Schedule 2;
Sublease Extension Option has the meaning ascribed to it in Schedule 2;
Sublease Term has the meaning ascribed to it in Schedule 2;
<PAGE>
Sublessor Lien means:
(a) any Security Interest from time to time created by or throug
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;
(e) any Security Interest arising as a result of any act or
omission of Sublessor that constitutes a breach by Sublessor
of this Agreement; or
(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;
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 (but
excluding for the avoidance of doubt, taxes directly related
to payment made under this Agreement); 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 the 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 Maintenance 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;
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 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 thirty (30)
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
thirty (30) 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 paragraph (c) in the definition of Total Loss,
the date on which the event referred to therein takes effect;
(d) in the case of paragraph (d) in the definition of Total Loss,
the final day of the said period of thirty (30) consecutive
days;
(e) in the case of paragraph (e) in the definition of Total Loss,
the date on which the Aircraft is sold; and
(f) in case of paragraph (f) above the definition of Total Loss,
the final day of the said period of thirty (30) consecutive
days;
Total Loss Proceeds means the proceeds of any insurance or any other
compensation or similar payment arising in respect of a Total Loss;
Transaction Documents means
(a) this Aircraft Sublease Agreement;
(b) the Acceptance Certificate;
(c) the acknowledgment by Sublessee of the security assignment or
the pledge of, inter alia, this Agreement in favor of the
Lender and any documents duly executed pursuant to any of the
foregoing by Sublessee or Sublessor;
(d) the Sublease Supplement; and
(e) the Side Letter;
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;
1.2 Construction
1.2.1 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 25);
(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, judgment, 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 person 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).
(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", "hereinafter" and
"Sublease" refer to this entire Agreement; and
(xiv) the word "or" is used inclusively to mean "and/or".
1.2.2 Headings are for ease of reference only.
1.2.3 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.
2. REPRESENTATIONS AND WARRANTIES
2.1 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 each of the following representations and warranties.
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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 any Security
Interest upon any property of Sublessee, pursuant to any
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.
(v) Filings: Except for the filing or recording of this Agreement
with the FAA and a UCC-1 with the Secretary of State in the
State of Incorporation, 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
Registration to evidence the interests of Owner Trustee,
Sublessor and Lender in the Aircraft or any Transaction
Document.
(vi) Licenses: Sublessee holds, all licenses, certificates and
permits from all applicable Government Entities for the
conduct of its business as a certified air carrier and
performance of its obligations under the Transaction Document.
(vii) 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.
(viii) No Withholding: Under the laws of the State of Incorporation
or the State of Registration, Sublessee will not be required
to deduct any withholding or other Tax from any payment it may
make under this Agreement.
(ix) 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.
(x) Tax Returns: All necessary returns have been delivered by
Sublessee to all relevant taxation authorities in the State of
Incorporation and in the United States of America and
Sublessee is not in default in the payment of any taxes due
and payable.
(xi) 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.
(xii) No Default under this Agreement: At the time of execution of
this Agreement, no Default has occurred and is continuing.
(xiii) Financial Statements: The balance sheet and other financial
statements for Sublessee for the financial year which ended
31st of March 1999 were prepared in accordance with accounting
principles consistently applied and generally accepted in the
State of Incorporation and in the United States of America.
(xiv) 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.
(xv) 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.
(xvi) No Immunity: In any proceedings taken in the State of
Incorporation, or in any State or Federal Court in the United
States of America, 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.
(xvii) 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.
(xviii) 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.
(xix) Principal Place of Business: Sublessee's principal place of
business and chief executive office are located at the address
specified in the preamble of this Agreement.
(xx) Flight Records: Sublessee's flight records are located at
Sublessee's principal place of business on the address stated
in Clause 27.
(xxi) Year 2000 Compliance: Sublessee has (i) initiated a review and
assessment of all areas within its business and operations
(including those affected by suppliers and vendors) that could
be adversely affected by the "Year 2000 Problem" (this is, the
risk that computer applications used by Sublessee, or its
suppliers, customers and vendors, may be unable to recognize
and perform properly date-sensitive functions involving
certain dates prior to, on and any date after December 31,
1999), (ii) developed a plan for addressing the Year 2000
Problem on a time basis, and (iii) is in the process of
implementing such plan.
2.2 Sublessor's Representations and Warranties
Sublessor represents and warrants to Sublessee as of the Delivery
Date that:
(i) 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 Liens except for the
Security Interests of Owner Trustee, Sublessor's Lender and
this Sublease.
(ii) Organizational Status: Sublessor is a public limited liability
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 a party.
(iii) Trust Agreement: The Trust Agreement dated as of October 11th,
1999, by and between Owner Trustee and Sublessor as
beneficiary (the "Trust Agreement") has been duly authorized,
validly executed and delivered on the part of Sublessor, is
legally binding upon Sublessor, and creates a legally
enforceable trust (as hereinafter defined 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.
(iv) 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.
(v) Binding: This Agreement and the other Transaction Documents to
which Sublessor 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.
(vi) 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.
2.3 Survival of Representations and Warranties
All of the foregoing Sublessee's and Sublessor's representations and
warranties shall survive the execution and delivery of this Agreement
and the Delivery of the Aircraft.
<PAGE>
3. CONDITIONS PRECEDENT
3.1 Sublessor's Conditions Precedent
Sublessor's obligation to deliver and lease the Aircraft to Sublessee
under this Agreement is subject to satisfaction of each of the
following conditions.
3.1.1 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) Officer's Certificate: A certificate of an officer of
Sublessee substantially in the form of Schedule 6;
(ii) 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;
(iii) Accounts: The balance sheet and other financial statements of
Sublessee for the financial year ended March 31 1999;
(iv) Licences: Copies of Sublessee's Certificate of Public
Convenience and Necessity and Operating Certificate covering
its operation of 737-200's issued by the US Department of
Transportation and FAA, respectively;
(v) Transaction Documents: Originals of the Transaction Documents
(duly executed by all parties other than Sublessor);
(vi) Insurances: Evidence that the Insurances are in place together
with an insurance broker's letter of undertaking (in a form
acceptable to Headlessor, Sublessor and Lender) addressed to
Headlessor, Sublessor and Lender;
(vii) Opinions: Legal opinions from:
(a) Counsel to Sublessee addressed to Owner Trustee,
Sublessor and Lender substantially in the form of
Schedule 9 and otherwise in a form and substance
acceptable to Owner Trustee, Sublessor and Lender;
and
(b) Special FAA counsel to Sublessee addressed to Owner
Trustee, Sublessor and Lender confirming that this
Agreement and other appropriate documents have been
filed with the FAA;
(viii) Security: Receipt by Sublessor of the Security Deposit and the
Letter of Credit;
(ix) Authority: A letter of authority substantially in the form of
Schedule 7 duly executed by Sublessee to such addressees as
requested by Sublessor;
(x) Power of Attorney: A power of attorney in the form of Schedule
8 duly executed by Sublessee; and
(xi) Others: Any other documents, approvals, consents, certificates
that Sublessor or Lender may reasonably require.
3.1.2 The representations and warranties of Sublessee under Clause 2.1 shall
be correct and would be correct if repeated on Delivery.
3.1.3 No Default shall have occurred and be continuing.
3.2 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 fifteen (15) days after the Delivery Date, and Sublessor may
treat the failure of Sublessee to do so as an Event of Default.
3.3 Sublessee's Conditions Precedent
Sublessee's obligation to accept and lease the Aircraft from Sublessor
under this Agreement is subject to satisfaction of each of the
following conditions.
3.3.1 The Aircraft is substantially and materially in the condition set forth
in Schedule 4.
3.3.2 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; and
(iii) Transaction Documents: Originals of this Agreement and the
Side Letter (duly executed by Sublessor).
3.3.3 The representations and warranties of Sublessor under Clause 2.2 shall
be correct and would be correct if repeated on Delivery.
3.4 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.
4. DELIVERY CONDITION AND INSPECTION OF AIRCRAFT
4.1 Sublessee Selection of Aircraft
IN ADDITION TO THE DISCLAIMERS IN CLAUSE 18, 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 NEITHER A MANUFACTURER
OF THE AIRCRAFT NOR A DEALER IN THE AIRCRAFT.
4.2 Condition at Delivery
In addition to the disclaimers in Clause 18, Sublessor has advised
Sublessee that at Delivery the Aircraft will be substantially and
materially in the condition set forth in Schedule 4, provided that this
confirmation expires as at Delivery.
4.3 Sublessee Inspection and Acceptance Flight
Sublessor will arrange for Sublessee to perform such ground inspection
of the Aircraft prior to the Scheduled Delivery Date as is reasonable.
Sublessor will procure that Sublessee may have up to two (2) observers
on board the Aircraft during delivery acceptance flight from Sublessor.
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.
4.4 Delivery of Aircraft to Sublessee
Sublessor will deliver the Aircraft to Sublessee at the Delivery
Location. Provided that the Aircraft is in the condition required by
Clause 4.2, 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 on the
Delivery Date.
<PAGE>
4.5 Sublessee's Failure to take Delivery
If Sublessee fails to (i) comply with the conditions contained in
Clauses 3.1 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 costs and expenses, directly or indirectly, incurred
by Sublessor as a result thereof including (but without limitation) any
payments that Sublessor, or Sublessor's General Partner, affiliates or
related companies become obliged to make to any third party to put the
Aircraft in the condition set forth in Schedule 4.
5. SUBLEASE TERM
5.1 Sublease Term
Sublessor shall lease the Aircraft to Sublessee and Sublessee shall
take the Aircraft on lease in accordance with this Agreement for the
duration of the Sublease Term.
5.2 Expiry Date
The Expiry Date shall be the Sublease Expiry Date subject to the
following provisions:
(i) If Sublessor, acting in accordance with Clause 3.2, notifies
Sublessee that it is terminating this Agreement, Sublessee
shall immediately redeliver the Aircraft in accordance with
Clause 23 and the Expiry Date shall be the date upon which the
Aircraft has been redelivered in accordance with the terms
hereof and Sublessee has complied with all its obligations
hereunder;
(ii) If Sublessor, upon an Event of Default, exercises its rights
in accordance with Clause 24.3 and terminates the leasing of
the Aircraft to Sublessee under this Agreement, Sublessee
shall immediately redeliver the Aircraft in accordance with
Clause 23 and the Expiry Date shall be the date upon which the
Aircraft has been redelivered in accordance with the terms
hereof and Sublessee has complied with all its obligations
hereunder;
(iii) If the Aircraft or the Airframe suffers a Total Loss prior to
Delivery, the Expiry Date shall be the Total Loss Date;
(iv) If the Aircraft or the Airframe suffers a Total Loss after
Delivery, the Expiry Date shall be the date upon which
Sublessee has paid to Sublessor the Agreed Value and all other
sums due from Sublessee to Sublessor hereunder;
(v) If Clause 23.4 becomes applicable, the Expiry Date shall be
the date when any non-compliance referred to in Clause 23.4
has been fully rectified and Sublessor shall have accepted
redelivery of the Aircraft and Sublessee shall have complied
with all its obligations hereunder; and
(vi) Under any other circumstances, the Expiry Date shall be the
date upon which the Aircraft is redelivered in accordance with
Clause 23 and the Return Acceptance Receipt has been duly
executed and delivered by Sublessor in accordance with that
clause.
5.3 Survival of Certain Sublessee Obligations
5.3.1 For the avoidance of doubt, in respect of Clauses 5.2 (i), (ii), (v)
and (vi) the obligations of Sublessee in respect of payment of Rent and
all other obligations shall continue to be payable and valid in respect
of those days prior to the redelivery to Sublessor of the Aircraft in
the condition required under Clause 23.1, and in respect of Clause 5.2
(iv) such obligations shall continue until payment of the Total Loss
Proceeds.
5.3.2 The obligations of Sublessee set forth in Clauses 12.5, 12.17, 19, 20
and 21.7 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 5.4, will survive
the Expiry Date.
5.4 Risk
5.4.1 Throughout the Sublease Term and until redelivery of the Aircraft in
the condition required under Clause 23.1, Sublessee shall bear all
risks of loss, theft, damage, confiscation and destruction of or to the
Aircraft and every part thereof.
5.4.2 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.
6. DELIVERY
6.1 Location and Time of Delivery
Sublessor will deliver the Aircraft to Sublessee at the Delivery
Location on or about the Scheduled Delivery Date. Sublessor will notify
Sublessee from time to time and in as timely a manner as is possible of
any changes to the Scheduled Delivery Date.
6.2 Delay or Failure in Delivery
6.2.1 Sublessee and Sublessor expressly acknowledge that Delivery of the
Aircraft to Sublessee is subject to and conditioned upon completion of
the Delivery Work. 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 willful default of Sublessor.
6.2.2 If a delay, not caused by Sublessor's or Sublessee's breach of this
Agreement, causes Delivery to be delayed beyond seventy-five (75) days
after the Scheduled Delivery Date either party will have the right to
terminate this Agreement by giving the other party written notice
within ten (10) Business Days after such date and this Agreement will
terminate on the date of receipt of such notice. In the event of such
termination, neither party will have any further obligation or
liability to the other under this Agreement, except that Sublessor
will repay to Sublessee under this Agreement any prepaid Rent, the
amount of the Security Deposit, if paid, and will return the Letter of
Credit. If either party does not give notice of termination within
such ten (10) Business Days, both parties lose all rights to terminate
under this Clause 6.2.2, unless otherwise agreed by the parties.
7. RENT
7.1 Basic Rent Period
The first Basic Rent Period shall commence on the day following
Delivery and each subsequent Basic Rent Period shall commence on the
date succeeding the last day of the previous Rent Period within the
Sublease Term. Each Basic Rent Period shall end on the date immediately
preceding the numerically corresponding day one (1) month thereafter,
except that:
(i) if there is no such numerically corresponding day in that
month, it shall end on the last day of that month; and
(ii) if a Basic Rent Period would otherwise end after the Expiry
Date, it shall end on the Expiry Date and the Rent for such
Basic Rent Period will be prorated on the basis of a thirty
(30) day month.
7.2 Time of Payment of Basic Rent
Sublessee shall pay Basic 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.
7.3 Amount of Basic Rent
The Basic Rent payable on each Rent Date during the Sublease Term shall
be the amount set out as Basic Rent in Schedule 2.
7.4 Maintenance Reserves
Sublessee will pay to Sublessor Maintenance Reserves in accordance with
Clause 9 as Supplemental Rent, based on Sublessee's use of the Aircraft
during the Sublease Term.
7.5 Supplemental Rent for Excess Cycles
Sublessee shall pay to Sublessor Supplemental Rent based on Sublessee's
operation of the Aircraft in the amount and at the times set forth in
Schedule 2.
8. SECURITY DEPOSIT
8.1 Security Deposit
Sublessee shall pay to Sublessor a Security Deposit in the amount and
at the times set forth in Schedule 2. The Security Deposit will serve
as security for the performance by Sublessee of its obligations under
the Transaction Documents and the Other Agreements.
Upon Sublessor's receipt of the additional Security Deposit set forth
in Clause 8.2 the initial deposit set forth in this Clause 8.1 will be
credited to the payment of Rent during the Sublease Term.
8.2 Letter of Credit
Sublessee shall provide Sublessor with an additional Security Deposit
in the form of an irrevocable, assignable, standby letter of credit in
favor of Sublessor at the time and in the amount set forth in Schedule
2 and issued by a major US Bank and in a form and substance acceptable
by Sublessor. The Letter of Credit will serve as security for the
performance by Sublessee of its obligations under the Transaction
Documents and the.
8.3 Sublessor's Rights
8.3.1 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 Security
Deposit or Letter of Credit, Sublessor may immediately, or at any time
thereafter, without prior notice to Sublessee, apply all or part of the
Security Deposit or 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 10.6 against all or part of the Security Deposit or
Letter of Credit.
8.3.2 If Sublessor exercises the rights described in Clause 8.3.1, Sublessee
shall, following a demand in writing from Sublessor, immediately
restore the Security Deposit (if applicable) or Letter of Credit to the
level at which it stood immediately prior to such exercise.
8.3.3 Sublessee acknowledges that Sublessor may commingle all or any part of
the Security Deposit with its general funds and that no interest shall
accrue in favour of Sublessee in respect of the Security Deposit.
8.3.4 Sublessor's obligations in respect of return of the Security Deposit
and Letter of Credit shall be those of debtor and not those of a
trustee or other fiduciary.
9. MAINTENANCE RESERVES
9.1 Amount
Sublessee shall during the Sublease Term pay Maintenance Reserves to
Sublessor in the amount set forth in Schedule 2.
9.2 Payments
9.2.1 Sublessee shall pay the Maintenance Reserves in respect of each
calendar month during which the Maintenance 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.
9.2.2 Sublessee acknowledges that Sublessor may commingle all or any part of
the Maintenance Reserves with its general funds and that no interest
shall accrue in favor of Sublessee in respect of the Maintenance
Reserves.
9.2.3 Sublessor's obligations to release the Maintenance Reserves as set out
hereinafter shall be those of debtor and not those of a trustee or
other fiduciary.
9.3 Adjustment
The amount payable by Sublessee to the Maintenance Reserves shall be
subject to escalation in accordance with the terms set forth in
Schedule 2.
9.4 Release of Maintenance Reserves
9.4.1 Airframe Maintenance Reserves
Sublessor will reimburse Sublessee from the actual Airframe Maintenance
Reserves, if paid by Sublessee, provided that no Default has occurred
and is continuing, for the actual cost of the structural inspection
portion of completed scheduled "D" Checks 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 Clause 9.4.5 below.
9.4.2 Engine Maintenance Reserves
Sublessor will reimburse Sublessee from the actual Engine Maintenance
Reserves, if paid by Sublessee, provided that no Default has occurred
and is continuing, for the actual cost of completed Engine Performance
Restoration Visits to the extent the work performed during such Engine
Performance Restoration Visits consisted of the replacement of
life/time limited components and/or performance restoration, with work
performed for all other causes excluded, including those causes set
forth in Clause 9.4.5 below. Reimbursement will be made up to the
amount in the Engine Maintenance Reserve applicable to such Engine.
9.4.3 Landing Gear Maintenance Reserves
Sublessor will reimburse Sublessee from the actual Landing Gear
Maintenance Reserves, if paid by Sublessee, provided that no Default
has occurred and is continuing, 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 9.4.5.
Reimbursement will be made up to the amount in the Landing Gear
Maintenance Reserve at the time for the Landing Gear Overhaul.
9.4.4 APU Maintenance Reserves
Sublessor will reimburse Sublessee from the actual APU Maintenance
Reserves, if paid by Sublessee, provided that no Default has occurred
and is continuing, 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 9.4.5.
Reimbursement will be made up to the amount in the APU Maintenance
Reserve at the time for the APU performance restoration.
9.4.5 Exclusion
Each of the following causes shall be excluded from this Clause 9.4:
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).
9.4.6 Remaining balance
For the avoidance of doubt, Sublessee has no right to payment of any
amount from the Maintenance Reserves not paid in cash by Sublessee and,
subject to Clause 9.6, any remaining balances of the Maintenance
Reserves on the Expiry Date, after application of the foregoing
provisions, shall be retained by Sublessor as its sole property.
9.5 Costs in Excess of Maintenance 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.
9.6 Reimbursement after Expiry Date
Sublessee may not submit any invoice for reimbursement from the
Maintenance 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. PAYMENTS
10.1 Account for Sublessee Payments
All payments by Sublessee to Sublessor under this Agreement will be
made for value on the due date in dollars and in same day funds to:
Nordbanken
Account No.: 3968-77 720 42
S.W.I.F.T.: NBBK SESS
S-105 Stockholm, Sweden
Cover Through: Bank of America, New York, NY
S.W.I.F.T.: BOFA US3N
For the Account of Indigo Aviation AB (publ)
or to such other account as Sublessor may from time to time notify
Sublessee in writing.
10.2 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 judgement 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. All such interest will
accrue on a day-to-day basis and be compounded weekly and calculated on
the basis of a 360 day year.
<PAGE>
10.3 Absolute Obligations
This Agreement is a net lease and Sublessee's obligations under this
Agreement are absolute and unconditional, irrespective of any
contingency or circumstance whatsoever, including (but not limited to):
(i) 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;
(ii) 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;
(iii) 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;
(iv) any insolvency, bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar
proceedings by or against Sublessor or Sublessee or any other
person;
(v) any invalidity, illegality, unenforceability or lack of due
authorization of, or other defect in, this Agreement; and
(vi) 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.
10.4 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.
10.5 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 the currency in
which it is payable pursuant to this Agreement ("contractual
currency"), Sublessee shall, 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, 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.
10.6 Set-off
Sublessor may set-off any matured obligation owed by Sublessee under
the Transaction Documents or any Other Agreements against any
obligation, whether or not matured, owed by Sublessor to Sublessee.
10.7 Time for Payments
If any payment due under this Agreement other than a payment of Rent
(see Clause 7.4) would otherwise be due on a day that is not a Business
Day, it shall be due on the next succeeding Business Day.
11. SUBLESSOR'S COVENANTS
11.1 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
Sublease Term. Sublessor will cause Lender to confirm, substantially in
the form of Schedule 11 or such other form as Lender may reasonably
require, that it will not interfere with the quiet use, possession and
enjoyment of the Aircraft by Sublessee during the Sublease Term,
provided no Default has occurred and is continuing.
11.2 Sublessor Obligations Following Expiry Date
Within five (5) Business Days after:
(i) redelivery of the Aircraft to Sublessor in accordance with and
in the condition required by this Agreement; or
(ii) 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
that 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):
(a) pay to Sublessee an amount equal to the balance of
the Security Deposit, if any, paid by Sublessee under
this Agreement and then held by Sublessor; and
(b) pay to Sublessee the amount of any Rent received in
respect of any period falling after the Redelivery
Date or the date of 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's claim is due; and
(c) return the Letter of Credit.
12. SUBLESSEE'S COVENANTS
12.1 Duration
Sublessee shall perform and comply with its undertakings and covenants
in this Agreement and the other Transaction Documents at all times
during the Sublease Term. All such undertakings and covenants shall,
except where expressly otherwise stated, be performed at the expense of
Sublessee.
12.2 Information
12.2.1 Sublessee shall 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.
12.2.2 Sublessee shall 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 United States
(U.S. GAAP);
(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 United States
(U.S. GAAP);
(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 end of each month a Monthly
Report in the form of Schedule 10, 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.
12.2.3 Sublessee shall promptly notify Sublessor in writing:
(i) 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;
(ii) 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;
(iii) 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;
(iv) 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;
(v) of any substantial injury or damage to a third party caused
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; and
(vi) 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.
(vii) 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 (as described in Clause 2.1 (xxii)) on
a timely basis, except to the extent that such failure could
not reasonably be expected to have a materially adverse
effect.
12.3 Sublessor Visits
Sublessor may visit, upon reasonable notice, Sublessee's premises to
discuss Sublessee's general affairs and finances with Sublessee's
principal officers.
12.4 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:
(i) 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;
(ii) 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; and
(iii) 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 time-limit,
the statements set forth in this Clause 12.4 will be deemed correct and
binding upon Sublessee.
12.5 Airport and Navigation Charges
12.5.1 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, and will indemnify and
hold harmless Sublessor in respect of the same. This indemnity will
continue in full force and effect notwithstanding the termination or
expiration of this Agreement. 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.
12.5.2 If requested by Sublessor, Sublessee will provide Sublessor with a list
of the airports to which the Aircraft or Sublessee's other aircraft are
regularly operated. Sublessee hereby authorizes any Aviation Authority,
any airport or any other creditor claiming rights on the Aircraft or
Sublessee's other aircraft to confirm the status of Sublessee's
payments to such creditor for the Aircraft and its other aircraft, as
and when requested by Sublessor. To evidence this authority, Sublessee
will at Sublessor's request execute one or more authorities
substantially in the form of Schedule 7.
12.6 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
Sublease 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.
12.7 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 the Insurances or (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.
12.8 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 the manufacturer or supplier of any part of
the Aircraft in respect of the Aircraft or any part thereof.
<PAGE>
12.9 Non-Representation of Sublessor
Sublessee shall not at any time represent Sublessor, Owner Trustee or
Lender as carrying goods or passengers in the Aircraft or as being in
any way connected or associated with any operation or carriage being
undertaken by Sublessee or as having any operational interest in or
responsibility for the Aircraft.
12.10 Inspection
Sublessor may at all reasonable times on reasonable notice inspect, or
appoint an inspector (including Lender) 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
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 12.10 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.
12.11 Registration
12.11.1 Sublessee shall at its own expense procure that the Aircraft and the
interests of the parties set out below is duly registered, recorded or
filed with the FAA as follows:
(i) Owner Trustee as owner;
(ii) the first priority security interest of Lender
(iii) Sublessor's interest, by filing the Sublease Supplement
according to Schedule 14;
(iv) Sublessee as operator of the Aircraft
and maintain or provide the maintenance of such registration throughout
the Sublease 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
provide Sublessor as soon as available with evidence of such
registration.
12.11.2 Sublessee shall at its own expense provide that at all times during the
Sublease Term, the Aircraft possesses a valid current FAA Certificate
of Airworthiness, 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.
12.12 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 stating the Aircraft type, manufacturer's serial number and
current registration letters of the Aircraft and denoting the name of
(i) First Security Bank, National Association as Owner Trustee and
Headlessor; (ii) Paribas, as First Priority Mortgagee; (iii) Indigo
Aviation AB (publ) as Sublessor 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 13 and 14) from placing its
customary colors and insignia on the Airframe.
12.13 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, Sublessor and Lender to
the Aircraft by every other signatory state that has ratified the
Geneva Convention.
12.14 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 organized and existing under the law of the
State of Incorporation or any other State of the United States of
America, if applicable, 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.
Sublessee will give Sublessor prior written notice of any such proposed
sale or change in operation together with a non-refundable processing
fee in the amount as set forth in Schedule 2 and a request of
Sublessor's approval. Sublessee shall reimburse Sublessor within ten
(10) days of Sublessor's invoice for all 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.
12.15 Ownership
Title to the Aircraft will be and remain vested in Owner Trustee.
Sublessee will have no right, title or interest in the Aircraft except
as provided for in this Agreement. 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.
12.16 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 Clause 27. 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 thirty (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.
12.17 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 27 and shall hold and preserve such records at
such address and permit inspection of such records by the FAA,
Sublessor, Owner Trustee and Lender. Sublessee shall give Sublessor at
least thirty (30) days prior written notice of change in location of
the flight records of the Aircraft.
13. POSSESSION
13.1 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 acknowledgment(s) of 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:
13.1.1 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 16.6;
13.1.2 deliver possession of the Airframe or any Engine to the manufacturer
thereof for testing or other similar purposes or to any organization
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 16.4 and 16.5;
13.1.3 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;
13.1.4 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 subparagraphs
(ii) and (iii) of Clause 13.1.3 and (ii) Sublessee shall have obtained
from the sub-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 sub-sublessor or secured party to substantially the same effect
as the agreement of Sublessor set forth in the final sentence of
Clause 13.4 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;
13.1.5 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 13.1.1 nor
13.1.2 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 16.6 and which satisfies the conditions
specified in Clause 16.6;
13.1.6 sublease the Aircraft or Airframe to any person provided that the
Aircraft or Airframe is operated by, and remains throughout the term of
such sublease 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 the
Expiry Date;
(iv) the relevant sub-sublessee shall acknowledge that its rights
are subordinate to Sublessor's rights under this Agreement and
the rights of Lender under any finance document or security
document entered into between Owner Trustee or Sublessor in
relation to the Aircraft;
13.1.7 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 proposed sub-sublessee and the proposed form of the
sublease is approved by Sublessor and Lender in writing, which
approval will not be unreasonably withheld or delayed provided
all the following conditions set out in this Clause13.1.7 are
satisfied;
(iii) 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 Lender and the sub-sublessee shall
acknowledge that its rights are subordinate to Owner
Trustee's, Sublessor's and Lender's rights under this
Agreement (provided that the sublease shall not permit further
subleasing);
(iv) 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 sublease, 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 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 Lender which
opinion must, at least, address the satisfactory recognition
of Owner Trustee's ownership of, and Lender's Security
Interest in the Aircraft and (y) evidence that all actions
recommended in such opinion have been or will be duly taken.
13.2 Copy of Sublease
No less than three (3) Business Days after the execution of any
sublease entered into by Sublessee under Clause 13.1.6 or Clause 13.1.7
Sublessee shall provide Sublessor with a copy of such executed
sublease.
13.3 Sublessee Primarily Liable
Notwithstanding anything contained in Clause 13.1, Sublessee shall
remain primarily liable hereunder for the performance of all of the
terms of this Agreement to the same extent as if such transfer or
sublease had not occurred. No interchange agreement, sublease or other
relinquishment of possession of the Airframe or any Engine permitted by
this Clause 13 shall in any way discharge or diminish any of
Sublessee's obligations hereunder.
<PAGE>
13.4 Recognition of Rights
If Sublessee shall have obtained from the sub-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 13.1.4, Sublessor hereby
agrees for the benefit of such sub-Sublessor or secured party that
Sublessor shall not acquire or claim, as against such sub-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 sub-Sublessor or subject to a Security Interest in favor of
such secured party and Sublessor shall, at the request of Sublessee,
confirm such agreement in writing for any such sub-Sublessor or secured
party.
14. SECURITY INTERESTS
14.1 Title
Sublessee shall not do, or permit to be done, any act, which might
reasonably be expected to jeopardize the interest of Owner Trustee,
Sublessor or Lender. Sublessee shall make clear to all third parties
that legal title to the Aircraft is owned by Owner Trustee or the
relevant title holder advised by Owner Trustee.
14.2 No Security Interests
Sublessee shall not create, incur or permit to subsist over the
Aircraft of any part thereof or over the Transaction Documents any
Security Interest other than Permitted Liens.
14.3 Base of Aircraft
Sublessee shall not keep or habitually base the Aircraft or any part
thereof outside the State of Registration for any continuous period
exceeding ten (10) days.
14.4 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 of (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 of 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.
14.5 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.
15. MAINTENANCE AND REPAIR
15.1 General Obligations
15.1.1 Sublessee shall, or procure that any sub-sublessee will, at its own
expense at all times during the Sublease Term:
(i) maintain, service, repair, Overhaul and test the Aircraft and
all Parts thereon and equipment thereon and the Engines and
all 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 FAA 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 FAA's
requirements, in which case the FAA'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
(a) the airworthiness certification of the Aircraft with the
Aviation Authority to be maintained in good standing at all
times during the Sublease Term (b) the issuance of a standard
certificate of airworthiness for transport category aircraft
issued by the FAA in accordance FAR Part 21 and, (c) the
Aircraft to be placed on the operations specifications of a
U.S. airline in accordance with Part 121 of the FAR's; (ii)
maintain, service, repair, Overhaul and test the Aircraft and
the Engines, 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 and the Engines;
and
(iii) 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 to examine such records, logs and other materials at
any reasonable time upon reasonable notice.
15.1.2 The performer of such maintenance and repairs as stated in this Clause
15.1 shall be approved by the Sublessor with such approval not to be
unreasonably withheld.
<PAGE>
15.2 Specific Obligations
Without limiting Clause 15.1, Sublessee agrees that the performance by
Sublessee or any sub-sublessee of such maintenance and repairs as
stated therein 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 Sublease Term
for the major part of its fleet of aircraft of the same make
as the Aircraft. 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 CPCP 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 Documents. 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; and
(x) ensuring that Overhauls are accomplished utilizing maintenance
and quality control procedures approved by the Aviation
Authority and that the repair agency provides a complete
record of all work performed during the course of such
Overhaul and certifies that such Overhaul was accomplished,
that the equipment is airworthy and released for return to
service and that the Overhaul was in conformity with the
original type design.
16. REPLACEMENT OF PARTS
16.1 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 16.4 or 16.5. 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 16.7, 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 16.7, be in as
good operating condition as, and shall have a value, age, configuration
and utility at least equal to, the replaced Parts, 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.
16.2 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, 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 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.
16.3 Pooling of Parts
Any Part removed from the Airframe or any Engine as provided in Clause
16.1 or 16.2 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 16.1 and 16.2 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 16.1 and 16.2
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 16) 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 16.1 and 16.2 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.
16.4 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 or recommended
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 16.4, 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, 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 16.5 require Sublessor's prior written consent, which consent
shall not be unreasonably withheld or delayed.
16.5 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 Sublease 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 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 16.4 or 16.5, 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, 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.
16.6 Substitution of Engine
In addition to its rights under Clause 13, Sublessee shall have the
right at its option at any time, on at least thirty (30) days prior
written notice to Owner Trustee, Lender and Sublessor, to substitute or
procure the substitution of an engine of the same make and model as the
Engine specified in Schedule 1 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 substitute
engine, the substitution of which is in accordance with the provisions
of this Clause 16.6 and which complies with the requirements of this
Clause 16.6 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 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:
(i) title to the replaced Engine shall thereupon vest in Sublessee
free and clear of all rights of Owner Trustee, 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
(ii) 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.
16.7 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 16.1 or 16.2 provided that:
(i) 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 16.1 and 16.2;
(ii) 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 16.1 and 16.2 became available for installation in
or on the Aircraft;
(iii) 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; and
(iv) 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 16.1 and 16.2 and
replace or substitute the same with a Part complying with such
requirements.
16.8 Parts Incapable of Transfer
If any replacement Part is incapable of becoming the property of Owner
Trustee free of all Security Interests (other than Permitted Liens) as
required by Clause 16 the part which it has replaced shall, unless
Sublessor shall otherwise agree in writing, be kept and maintained by
the Sublessee or any sub-sublessee, as the case may be, until the
Expiry Date and be placed on the Aircraft in good working order before
the Aircraft is redelivered to the Sublessor on the Expiry Date.
17. MANUFACTURER'S WARRANTIES
17.1 Authorization
17.1.1 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 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 available to Sublessee, Sublessor agrees 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
authorization 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).
17.1.2 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 Sublease Term
due to a defect covered by such warranty, shall be for Sublessor's
account.
17.2 Proceeds
So long as no Default has occurred and is continuing, Sublessor agrees,
subject to Clause 17.1, to co-operate with Sublessee to cause any
proceeds from any warranty referred to in Clause 17.1 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:
(i) retain for its own account any such proceeds previously paid
to Sublessor which would have been remitted to Sublessee under
this Clause 17.2 in the absence of such Default or Event of
Default; and
(ii) 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 17.2 had no
such Default occurred.
17.3 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:
(i) apply the proceeds of any claim under such agreement in
accordance with Clause 17.2; and
(ii) take all such steps as are necessary at the end of the
Sublease Term to ensure that the benefit of any of those
warranties that have not expired is vested in Sublessor.
17.4 No Operation Contrary to Warranties
Sublessee shall not operate the Aircraft contrary to the terms of any
warranty referred to in Clause 17.1.1, provided that Sublessor has
advised Sublessee of the terms of such warranties.
18. DISCLAIMERS
18.1 General
SUBLESSOR AND SUBLESSEE AGREE THAT THE DISCLAIMERS, WAIVERS AND
CONFIRMATIONS SET FORTH IN CLAUSES 18.2 THROUGH 18.12 BELOW SHALL APPLY
AS BETWEEN SUBLESSOR AND SUBLESSEE AT ALL TIMES DURING THE SUBLEASE
TERM WITH EFFECT FROM SUBLESSEE'S ACCEPTANCE OF THE AIRCRAFT BY
EXECUTION OF THE ACCEPTANCE CERTIFICATE, 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.
18.2 AS IS, WHERE IS
PRIOR TO DELIVERY HEREUNDER, SUBLESSEE HAD THE OPPORTUNITY TO INSPECT
THE AIRCRAFT, ACCORDINGLY, SUBLESSEE UNCONDITIONALLY ACKNOWLEDGES AND
AGREES THAT NEITHER OWNER TRUSTEE, LENDER OR SUBLESSOR, NOR ANY OF
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES 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 DOCUMENTS),
DESIGN, WORKMANSHIP, MATERIALS, MANUFACTURE, CONSTRUCTION, OPERATION,
STATE, MERCHANTABILITY, PERFORMANCE, FITNESS FOR ANY PARTICULAR USE OR
PURPOSE (INCLUDING THE ABILITY TO OPERATE OR REGISTER THE AIRCRAFT OR
USE THE AIRCRAFT DOCUMENTS IN ANY OR ALL JURISDICTIONS) OR SUITABILITY
OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT
OR CONCEALED, EXTERIOR OR INTERIOR, (ii) THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL
PROPERTY RIGHTS, (iii) ANY IMPLIED WARRANTY ARISING FROM COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, OR (iv) ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED WITH RESPECT
TO THE AIRCRAFT OR ANY PART THEREOF, ALL OF WHICH ARE HEREBY EXPRESSLY
EXCLUDED AND EXTINGUISHED.
18.3 Waiver of Warranty of Description
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 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, 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.
18.4 No Liability Under UCC
SUBLESSEE HEREBY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO THE REMEDIES
SET FORTH IN ARTICLE 2A-508 THROUGH 2A-522 OF THE UNIFORM COMMERCIAL
CODE AS CODIFIED AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW
YORK.
18.5 Sublessee Acknowledgment
SUBLESSEE AGREES THAT IT IS LEASING THE AIRCRAFT "AS IS, WHERE IS AND
WITH ALL FAULTS".
18.6 Sublessee Waiver
Sublessee hereby waives as between itself and Sublessor and agrees not
to seek to establish or enforce any rights and remedies, express or
implied (whether statutory or otherwise) against Sublessor, Owner
Trustee, Lender or the Aircraft relating to any of the matters
mentioned in Clause 18.1 through 18.7 and the leasing thereof by
Sublessor to Sublessee.
18.7 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 (i) EACH WAS AIRWORTHY AND IN
GOOD WORKING ORDER AND REPAIR AND (ii) THE AIRCRAFT, ENGINES, EACH PART
THEREOF AND THE AIRCRAFT DOCUMENTS WERE WITHOUTDEFECT (WHETHER OR NOT
DISCOVERABLE AT DELIVERY) AND IN EVERY WAY SATISFACTORY TO SUBLESSEE.
18.8 No Sublessor Liability for Losses
Sublessee agrees that Sublessor will not be liable to Sublessee, any
sub-sublessee or any person, whether in contract, 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 willful
misconduct.
<PAGE>
18.9 Exclusion
Neither Owner Trustee, Lender, nor Sublessor shall have any obligation
or liability whatsoever to Sublessee, any sub-sublessee or any other
person whether arising in contract, tort or otherwise and whether
arising by reference to negligence or strict liability of Sublessor,
Owner Trustee or Lender or otherwise for:
(i) 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;
(ii) the use, operation or performance of the Aircraft or any risks
relating thereto;
(iii) any interruption of service, loss of business or anticipated
profits or any other direct, indirect or consequential loss or
damage; or
(iv) 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.
18.10 Waiver
Sublessee hereby waives, as between itself and Owner Trustee, Lender
and Sublessor, all its rights in respect of any warranty or
representation, express or implied, on the part of Owner Trustee,
Lender or Sublessor and all claims against Owner Trustee, Lender or
Sublessor howsoever and whenever arising at any time in respect of or
out of the matters referred to in Clause 18.
18.11 No Waiver
Nothing in this Clause 18 or elsewhere in this Agreement will be deemed
to be a waiver by Sublessee of any rights it may have against the
Manufacturer, the Engine Manufacturer or any other person.
18.12 Confirmation
Sublessee confirms that the foregoing provisions of this Clause18 and
the following provisions in Clause 19 have been taken into account by
both parties in negotiating the rent and other amounts payable under
this Agreement.
<PAGE>
19. INDEMNITIES
19.1 General Indemnity
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 Sublease Term:
(i) 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 not such Losses may be attributable to any
defect in the Aircraft, any Engine or any Part or to their
respective design, testing or use or otherwise, and regardless
of when the same arises (but excluding any injuries or claims
which arise prior to Delivery) 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);
(ii) 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;
and
(iii) 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 19.1(iii).
19.2 Exception to General Indemnity
The indemnity provided for in Clause 19.1 will not extend to 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 willful
misconduct of such Indemnitee; or
(ii) arises as a direct result of Sublessor Taxes, a Sublessor Lien
or a willful breach by Sublessor of its obligations under any
of the Transaction Documents; or
(iii) constitutes a Tax or liability for Taxes.
19.3 Time of Payment
Sublessee will pay an Indemnitee for Losses within ten (10) Business
Days after receipt of a written demand therefor from such Indemnitee
accompanied by a written statement describing in reasonable detail the
basis for such indemnity.
19.4 Survival of General Indemnity
Notwithstanding anything in this Agreement to the contrary, the
provisions of Clause 19.1 shall survive the Expiry Date for two (2)
years 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.
19.5 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 Sublessee's 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.
20. TAXATION
20.1 Gross-up
20.1.1 All payments by Sublessee under or in connection with this Agreement
shall be made in full without any set-off or counterclaim, free and
clear of and without deduction or withholding for or on account of all
Taxes, except Sublessor Taxes, unless Sublessee is required by law to
make any such deduction or withholding.
20.1.2 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 the net 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.
20.1.3 If any payment is made by Sublessee under Clause19.2 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.
20.2 Tax Indemnity
20.2.1 Sublessee shall indemnify Sublessor on demand against all Taxes (other
than Sublessor Taxes) levied or imposed against or upon Headlessor,
Sublessor, Sublessee or the Aircraft directly or indirectly in
connection with the importation, exportation, registration, ownership,
leasing, subleasing, 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) arises in respect of the period ending prior to Delivery and
commencing immediately after the Expiry Date; or
(iii) is directly attributable to Sublessor's gross negligence or
willful misconduct; or
(iv) relates to any deduction or withholding on any payment to be
made to Sublessor that is covered by Clause 20.1; or
(v) imposed as a direct result of the sale, transfer or assignment
or other disposition of the Aircraft or this Agreement by
Sublessor, other than by Sublessor to Sublessee, or by any
party claiming by or through Sublessor and except (a) 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 (b) any Taxes imposed by the State of
Registration.
20.2.2 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 20.2, 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 20.2 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.
20.3 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.
20.4 Taxation of Indemnity Payments
20.4.1 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.
20.4.2 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.
20.5 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.
20.6 Sublessor Indemnification
Without prejudice to Clause 20.5, 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 20.6
shall operate to increase the obligations or liabilities of Sublessee.
20.7 Survival of Tax Indemnities
Notwithstanding anything in this Agreement to the contrary, the
provisions of Clause 19 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.
20.8 Mitigation and Co-operation
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 Sublessor and the Security Interest of 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.
20.9 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 Sublessee's 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
reasonable determines that furnishing such forms may have an adverse
effect on either the business, tax status, tax liability or operations
of such Indemnitee.
21. INSURANCE
21.1 Insurances
21.1.1 Sublessee shall, at its own expense, maintain in full force and effect
during the Sublease Term insurances in respect of the Aircraft that,
subject to this Clause 21, comply with the requirements set out in
Schedule3 (the Insurances).
21.1.2 The Insurances shall be effected through brokers of international
standing and repute in the London or New York aviation insurance
markets as may be approved by Sublessor, such approval not to be
unreasonably withheld.
21.1.3 For the avoidance of doubt it is understood that the Insurances to be
provided for by Sublessee are not Sublessor's sole remedy and
protection under this Agreement as the obligations of Sublessee are in
excess of the requirements of the Insurances.
21.2 Reinsurance
Any reinsurance will be maintained with reinsurers and brokers approved
by Sublessor, such approval not to be unreasonably withheld. Such
reinsurance will contain each of the following terms and will in all
other respects (including amount) be satisfactory to Sublessor:
(i) The same terms as the original insurance;
(ii) A cut-through and assignment clause satisfactory to Sublessor;
(iii) Payment will be made notwithstanding (a) any bankruptcy,
insolvency, liquidation or dissolution of any of the original
insurers and/or (b) that the original insurers have made no
payment under the original insurance policies.
21.3 Requirements
The current requirements as to the Insurances are as specified in this
Clause 21 and in Schedule 3. Sublessor and 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 international
airline practice, and (b) the interests of Sublessor, Headlessor and
Lender continue to be protected. Sublessee shall procure that such
changes are effected.
21.4 Insurance Covenants
Sublessee shall:
(i) 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;
(ii) comply with the terms and conditions of each policy of the
Insurances and not do, consent or agree to any act or omission
which:
(a) invalidates or may invalidate the Insurances; or
(b) renders or may render void or voidable the whole or
any part of any of the Insurances; or
(c) brings any particular insured liability within the
scope of an exclusion or exception to the Insurances;
(iii) not make any modification or alteration to the Insurances
material and adverse to the interests of any of the
Indemnitees;
(iv) be responsible for any deductible under the Insurances;
(v) 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; and
(vi) 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;
(vii) 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;
(viii) not knowingly effect or authorize the placement of insurance
covering the same subject matter as that covered by the
Insurances (except on a contingent or other secondary basis);
and
(ix) furnish to Sublessor:
(a) not later than seven (7) days prior to the Scheduled
Delivery Date 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 and a letter of undertaking by the
insurance broker providing evidence of insurance
coverage pursuant to this Agreement;
(b) 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;
(c) on request, such evidence as the Sublessor may
require of the Sublessee's compliance with its
obligations under this Agreement; and
(d) any notice received from the insurers or the
insurance brokers (within three (3) Business Days of
receipt) relating to or in connection with any
cancellation of the Insurances or any material
alteration of the Insurances.
21.5 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:
(i) confirmation of completion of renewal at least fifteen (15)
days prior to each expiry date of any of the Insurances;
(ii) 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
(iii) any other information as Sublessor may reasonable request be
provided by the insurance broker at least fifteen (15) days
before such expiry.
21.6 Failure to Insure
If Sublessee fails to maintain the Insurances in compliance with this
Agreement, Sublessee shall:
(i) 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
(ii) 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:
(a) 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
(b) at any time while such failure is continuing to
require the Aircraft to remain at any airport or to
proceed to and remain at any airport designated by
Sublessor until the failure is remedied to
Sublessor's satisfaction.
21.7 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,
and to continue to name the parties listed in Schedule 3 - Insurance
Requirements, to this Agreement as Additional Insureds for that period.
<PAGE>
21.8 Application of Insurance Proceeds
As between Sublessor and Sublessee:
(i) all insurance payments received as the result of a Total Loss
occurring during the Sublease Term will be paid to Sublessor
or to Lender pursuant to the terms of any security given by
Owner Trustee and Sublessor;
(ii) all insurance proceeds of any damage or loss to the Aircraft,
any Engine or any Part occurring during the Sublease 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
(iii) notwithstanding Clauses 21.8 (i) or 21.8 (ii) 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.
21.9 Pursuit of Claims
The parties shall co-operate 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.
22. TOTAL LOSS AND REQUISITION
22.1 Total Loss Prior to Delivery
If a Total Loss occurs prior to Delivery, 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 any prepaid
Rent, the amount of Security Deposit, if paid, and return the Letter of
Credit under this Agreement.
22.2 Total Loss After Delivery
22.2.1 If a Total Loss occurs after Delivery, Sublessee shall pay the
Sublessor on or prior to the earlier of:
(i) thirty (30) days after the Total Loss Date; and
(ii) the date of receipt of insurance proceeds in respect of such
Total Loss,
the aggregate of (x) the Agreed Value and (y) Rent and all other
amounts accrued under this Agreement to the date of payment and (z)
interest on the Agreed Value accruing on a daily basis at the Default
Rate for the period, if any, from the Total Loss Date to the date of
payment.
22.2.2 Subject to the rights of any insurers or other third parties, 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 Owner Trustee and Sublessor in
connection with any such transfer.
22.2.3 If a Total Loss of the Aircraft or the Airframe occurs during the
Sublease Term, Sublessee's obligation to pay Rent shall continue in
full force and effect until the date of payment of the Agreed Value and
all other amounts due under this Agreement 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 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.
22.3 Total Loss of Engines
22.3.1 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 16.6. Such Replacement Engine shall upon acquisition by Owner
Trustee be an Engine as defined herein.
22.3.2 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 leased 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 Lender, as the case may be, 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 Sublessee under this Agreement, be paid to Sublessee.
22.3.3 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, Lender and Sublessor
and shall no longer be deemed an Engine hereunder.
22.4 Requisition
22.4.1 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 Sublease 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.
22.4.2 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 Maintenance Reserves, if any, 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 22.2
shall apply), Sublessee shall be obliged to redeliver the
Aircraft to Sublessor in accordance with Clause 23;
(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; and
(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.
23. REDELIVERY
23.1 Redelivery of Aircraft
On the Redelivery Date, Sublessee shall, unless a Total Loss has
occurred, redeliver the Aircraft and the Aircraft Documents to
Sublessor at Sublessee's cost and 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 22. When the repairs are completed, the
Aircraft shall be redelivered to Sublessor. At the time of the
redelivery of the Aircraft:
(i) the Aircraft shall be free and clear of all Security Interests
other than Sublessor Liens;
(ii) all maintenance to the Aircraft due for performance on or
before the Redelivery Date shall have been completed in
accordance with this Agreement;
(iii) the Aircraft shall be in compliance with the Return
Conditions;
(iv) the Aircraft shall comply with such other reasonable
requirements as Sublessor may request that Sublessee has had
timely notice of 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; and
(v) any service bulletin kits which are allocated to the Aircraft
at no charge by the Manufacturer and not delivered to
Sublessor as at the Redelivery Date will be shipped to a
location specified by Sublessor at Sublessee's cost.
23.2 Final Inspection
Immediately prior to redelivery of the Aircraft, Sublessee shall make
the Aircraft available to Sublessor for inspection (Final Inspection)
at the 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.
23.3 Discrepancies
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. When Sublessee has complied with the provisions of this
Clause 23.3, Sublessee shall redeliver the Aircraft to Sublessor at
Sublessee's cost and expense at the Redelivery Location.
23.4 Non-compliance
23.4.1 To the extent that, at the time of Final Inspection, the condition of
the Aircraft does not comply with this Agreement (except Clause 23.1
(iv)), Sublessee shall at Sublessor's option:
(i) immediately rectify the non-compliance and to the extent the
non-compliance extends beyond the Redelivery Date, the
Sublease 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 Basic Rent (Basic Rent
per month divided by thirty (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
(ii) 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.
23.4.2 Sublessor's option in Clause23.4 is not available to Sublessor provided
that (i) Sublessee has notified Sublessor of its intent to rectify the
non-compliance prior to the Redelivery Date and (ii) Sublessee will in
the reasonable opinion of Sublessor be able to rectify such
non-compliance on or before Redelivery Date.
23.4.3 For the avoidance of doubt, Sublessor shall not be entitled to exercise
its option under Clause 23.4.1 and Sublessee shall suffer no loss or
penalty to the extent that the Aircraft does not, on Final Inspection,
comply with Clause 23.1 (iv) but is otherwise in compliance with the
Return Conditions.
<PAGE>
23.5 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
acknowledgment confirming that Sublessee has redelivered the Aircraft
to Sublessor in accordance with this Agreement substantially in the
form of Schedule 13.
23.6 Storage
Notwithstanding the performance in full by Sublessee of all its
obligations under this Clause 23, Sublessor may require Sublessee to
continue to lease the Aircraft from Sublessor for a period of up to
thirty (30) days from the Expiry Date. During this period, Sublessee
will have no obligations under this Agreement except to park and store
the Aircraft in accordance with Manufacturer's recommended short term
storage program at one of Sublessee's storage facilities and to
continue Insurances in respect of the Aircraft at Sublessee's cost.
Such parking and storage is being made at the risk of Sublessor and
Sublessee shall have no liability for Losses beyond those covered by
the Insurances except for any Losses arising out of Sublessee's gross
negligence or willful misconduct arising during such period. Sublessee
also agrees during this period to ferry/fly the Aircraft to such
location as Sublessor may require. Sublessee will not otherwise utilize
the Aircraft during this period. Any out of pocket costs or expenses
incurred by Sublessee during this period with respect to the Aircraft
for storage, insurance or such ferry/flight shall be reimbursed by
Sublessor to Sublessee promptly after demand and upon receipt by
Sublessor of an invoice and documentation, reasonably satisfactory to
Sublessor, of such costs and expenses.
24. EVENTS OF DEFAULT
24.1 Notice
Sublessee will promptly notify Sublessor if Sublessee becomes aware of
the occurrence of any Default.
24.2 Events
Each of the following events will constitute an Event of Default and a
material breach of this Agreement:
(i) Non-payment: Sublessee fails to pay any amount payable by it
under the Transaction Documents or the Other Agreements in the
currency in which such sum fell due in respect of payments of
Rent or Maintenance Reserves, if any, 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;
(ii) 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
(iii) Delivery: Sublessee fails to take Delivery of the Aircraft
when obligated to do so under the terms of this Agreement; or
(iv) Redelivery: Sublessee fails to return the Aircraft to
Sublessor on the Redelivery Date in accordance with Clause 23;
or
(v) 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
fourteen (14) days of becoming aware of such default; or
(vi) 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 material respect when made or deemed to
be made or if the effects or consequences of the 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
(vii) 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
Sublessee's obligation to perform its obligations under this
Agreement; or
(viii) Registration:
(a) the Registration of the Aircraft is canceled other
than as a result of an act or omission of Sublessor
or another Indemnitee including Owner Trustee or an
affiliate of the Owner Trustee and Sublessor;
(b) Sublessee ceases to be a certified US Air Carrier
authorized to transport passengers in common carriage
in accordance with the requirements of the Federal
Aviation Act of 1958, as amended, and the rules,
regulations and standards prescribed thereunder; or
(ix) 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
(x) Discontinuation: Sublessee threatens to or temporarily or
permanently discontinues business or sells or otherwise
disposes of all or substantially all of its assets; or
(xi) 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
Sublessee's ability to perform its obligations hereunder; or
(xii) 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
(xiii) 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
(xiv) Proceedings: Any proceedings, resolutions, filings or other
steps are instituted or threatened with respect to the
Sublessee or a substantial part of Sublessee's property
relating to the bankruptcy, liquidation, reorganization 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
(xv) Judgements: 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
(xvi) 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 ten (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
(xvii) 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
ten (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;
(xviii) Other Default: An Event of Default is continuing unremedied
under any Other Agreement between Sublessee and Sublessor or
another Sublessor or sub-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; or
(xix) Sub-sublessee: Any approved sub-sublessee acts so as to
prevent present or future performance by Sublessee of its
obligations under this Agreement.
24.3 Sublessor's Rights
24.3.1 Upon the occurrence of any Event of Default, all rights of Sublessee
under this Agreement and with respect to the Aircraft will immediately
cease and terminate, but without prejudice to the continuing
obligations of Sublessee under this Agreement. Without prejudice and in
all cases in addition to any other rights of Sublessor under this
Agreement or under applicable law, Sublessor may upon the occurrence of
any Event of Default exercise all or any of the following rights at its
option:
(i) require that Sublessee immediately move the Aircraft to a
location specified by Sublessor;
(ii) for Sublessee's 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
(iii) proceed by appropriate court action or actions to enforce
performance of this Agreement or to recover damages for the
breach of this Agreement; or
(iv) enter upon the premises where the Airframe or any or all
Engines or any or all Parts are located or believed to be
located and take immediate possession of and remove such
Airframe, Engine or Parts 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;
(v) apply all or any portion of the Security Deposit, the Letter
of Credit and any other security deposit held by Sublessor
pursuant to any Other Agreements to any amounts due.
24.3.2 Whether or not Sublessor shall have exercised, or shall thereafter any
time exercise, any of its rights under Clause 24.3.1 (i) or (iv) above
with respect to all or any part of the Aircraft, Sublessor may, by
written notice to Sublessee specifying a payment date not earlier than
ten (10) days from the date of such notice, demand that 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 installments of Rent due for periods commencing on or after
the payment date in such notice), any unpaid installments of Rent due
for periods prior to the payment date specified in such notice plus the
present value of the remaining installments of Rent during the Sublease
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 24.4 (ii ) and (iii).
24.3.3 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.
24.3.4 If an Event of Default has occurred and is continuing, Sublessor may
take all steps necessary to de-register the Aircraft in and export the
Aircraft from the State of Registration.
24.4 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 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 23.1 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 of 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 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.
24.5 Cumulative Rights
Except as otherwise expressly provided above, no remedy referred to in
this Clause 24 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.
25. ASSIGNMENT AND TRANSFER
25.1 By Sublessee
No assignment, novation, transfer or Security Interest may be made by
Sublessee in any of its rights with respect to the Aircraft, Engine,
Parts, this Agreement or the other Transaction Documents (other than
Permitted Liens).
25.2 By Sublessor
Subject to Sublessee's rights pursuant to this Agreement, Sublessor may
at any time and without Sublessee's consent sell, assign or transfer
its rights and interest hereunder and under the other Transaction
Documents to a third party, (Sublessor's Assignee). Sublessor will in
good faith co-operate with Sublessee to ensure minimum practical
disturbance or cost in connection with such assignment or transfer of
rights and interest hereunder. Sublessee agrees to co-operate 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 Sublessor's 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, Lender and
any Maintenance Facilities or parts or equipment vendors identified by
Sublessor as additional insureds in accordance with the insurance
requirements set out in Clause 21.
25.3 Assignment to Lender
Subject to Sublessee's rights under this Agreement, Owner Trustee and
Sublessor may at any time grant Security Interests over the Aircraft
and the benefit of this Agreement, the other Transaction Documents and
any other agreement related to the Aircraft to any lender as security
for Owner Trustee's obligations to such lender. Owner Trustee's rights
to grant any such Security Interests shall be subject only to receipt
by Sublessee of an acknowledgment from or on behalf of Lender relating
to quiet enjoyment by Sublessee of the Aircraft as referred to in
Clause 25.4.2.
25.4 Sublessee Co-operation
25.4.1 On request by Sublessor, Sublessor's Assignee, Owner Trustee or Lender,
Sublessee will, at Sublessee's sole expense, promptly execute all such
documents as Sublessor, Sublessor's Assignee, Owner Trustee or Lender
may reasonably require (including such estoppel certificate as referred
to in Clause 12.4 to confirm Sublessee's obligations under this
Agreement and the other Transaction Documents), to obtain Sublessee's
confirmation that no Default is outstanding and for the purpose of
perfecting and ensuring and maintaining the perfection of any Security
Interest granted by Owner Trustee and Sublessor over the Aircraft, this
Agreement, the other Transaction Documents or any other agreement
related to the Aircraft. Sublessee will promptly provide all other
reasonable assistance and co-operation at Sublessor's expense to
Sublessor, Sublessor's Assignee, Owner Trustee or Lender in connection
with any of the matters referred to in this Clause 25 or the perfection
and maintenance of any related Security Interest, the making of any
necessary changes to t he Insurances, the making of any necessary
filings and registrations in the State of Incorporation or the State of
Registration or the provision of any appropriate counsel's opinions in
relation to Sublessee's obligations.
25.4.2 Sublessor will obtain for the benefit of Sublessee an acknowledgement
from Sublessor's Assignee or Lender that, so long as no Default has
occurred and is continuing hereunder, such person will not interfere
with Sublessee's quiet, peaceful use and enjoyment of the Aircraft,
substantially in the form of Schedule 11 or such other form as
Sublessor's Assignee or Lender may reasonably require.
25.5 Sublessor Includes Sublessor's Assignee and 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 respectively, the term "Sublessor" will be
deemed to include Sublessor's Assignee and Lender.
<PAGE>
26. MISCELLANEOUS PROVISIONS
26.1 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.
26.2 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.
26.3 Expenses
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, survey 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 26.3 shall be paid in the
currency in which they are incurred by Sublessor.
<PAGE>
26.4 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.
26.5 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.
26.6 Further Assurances
The parties shall take such action as Sublessor and Sublessee
reasonable 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.
26.7 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.
26.8 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.
26.9 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.
26.10 Survival
All indemnities and other obligations of Sublessee which arise or are
attributable to circumstances occurring during the Sublease 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.
26.11 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 26.11 shall not prejudice the rights of Sublessor in respect of
any Default or Event of Default.
26.12 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.
26.13 Power of Attorney
Sublessee hereby irrevocably appoints Sublessor as its attorney for the
purpose of putting into effect the intent of this Agreement 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 8. Sublessee will take all steps required under
the laws of the State of Registration to provide such power of attorney
to Sublessor.
26.14 Usury Laws
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. During any period of time in
which the then applicable highest lawful rate is lower than the Default
Interest rate, Default Interest will accrue and be payable at such
highest lawful rate; however, if at later times such highest lawful
rate is greater than the Default Interest rate, then Sublessee will pay
Default Interest at the highest lawful rate until the Default Interest
which is paid by Sublessee equals the amount of interest which would
have been payable in accordance with the interest rate set forth in
Schedule 2.
26.15 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 Agreement 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
co-operate with one another to obtain confidential treatment as tot he
commercial terms and other material provisions of this Agreement;
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.
26.16 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 facsimile will
be deemed effective as delivery of an originally executed counterpart.
Any party delivering an executed counterpart of this Agreement by
facsimile 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.
26.17 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.
27. 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 AVIATION AB (publ)
Address: Sodra Forstadsgatan 4
SE-211 43 Malmo, Sweden
Attention: Legal Department
Facsimile: +46 40 302350
Sublessee: FRONTIER AIRLINES, INC.
Address: 12015 E. 46th Avenue
Denver, Colorado 80239-3116
U.S.A.
Attention: General Counsel
Facsimile: (303) 371 9669
28. GOVERNING LAW AND JURISDICTION
28.1 New York Law
This Agreement 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).
28.2 Non-exclusive Jurisdiction in New York
Each of Sublessor and Sublessee (a) irrevocably submit to the
non-exclusive jurisdiction of the Commercial Part of the Supreme Court
of the State of New York, sitting in the County of New York, or for
matters not within the jurisdiction of such court, in any state or
federal court sitting in New York County 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 defense or otherwise any claim that it is not personally
subject to the jurisdiction of the above named 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 court of competent jurisdiction.
28.3 Service of Process
With respect to actions, suits and proceedings brought in the courts
named in Clause 28.2. each of Sublessor and Sublessee hereby waives
personal service of process and agrees that service of process may be
made upon certified or registered mail, return receipt requested, at
the address specified in Clause 27 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.
28.4 Prevailing Party in Dispute
If any legal action or other proceeding is brought in connection with
or arises out of any provisions in this Sublease, the prevailing party
will be entitled to recover reasonable attorneys' fees and other
reasonable costs incurred in such action or proceedings. The prevailing
party will also, to the extent permissible by law, be entitled to
receive pre- and post-judgment Default Interest.
28.5 Waiver
Sublessee and Sublessor hereby waive the right to a trial by jury.
Sublessee hereby irrevocably waives any objection which is may now or
hereafter have to the laying of venue of any suit, action or proceeding
arising out of or related to this Agreement brought in any of the
Courts referred to in Clause 28.2, and hereby further irrevocably
waives any claim that any such suit, action or proceeding brought in
any such Court has been brought in an inconvenient forum.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.
SIGNED on behalf of INDIGO AVIATION AB (publ)
By:__________________________________________
Name:________________________________________
Title:_________________________________________
SIGNED on behalf of FRONTIER AIRLINES, INC.
By:___________________________________________
Name:_________________________________________
Title:__________________________________________
<PAGE>
SCHEDULE 1
AIRCRAFT SPECIFICATION
Model Boeing 737-3L9
Serial Numbers 26442
Current Registration D - ADBC
Line Number 2277
Date of Manufacture May, 1992
Engines CFM56-3B2 (22K)
APU Garrett GTCP85-129H
Present Operator Deutsche BA
WEIGHTS Lbs
Max Taxi Weight 140,000
Max Take Off Weight 139,500
Max Landing Weight 114,000
Max Zero Fuel Weight 106,500
Basic Empty Weight
Max Fuel capacity 5,311 US Gallons
(Provisioning for Aft Body Aux Fuel Tank installed - 500 US Gallons)
INTERIOR CONFIGURATION
Seating 136 Y Recaro 3230
Galleys G1, G2, G4B Henshalls
Stowage's G7 Henshalls
Lavatories Three
1 Forward, 2 Aft Boeing Standard
AIRFRAME STATUS (As of September 22, 1999)
Total Hours 18,111
Total Cycles 17,222
Time Since Last C Check 5 hours
Time to D Check (7C+SI) 4,289 hours
<PAGE>
AIRFRAME MAINTENANCE PROGRAM
CHECK SCHEDULE
A Check 250 hours
I Check 475 hours
C Check 3,600 hours or 15 months
D Check 22,400 hours
ENGINES
Serial Number 856183 857192
Total Hours 16,242 16,330
Total Cycles 15,287 15,414
LANDING GEAR (As of September 22, 1999)
Right/Left Main 18,111 hrs/17,222 Cycles
Nose 18,111 hrs/17,222 Cycles
Overhaul limit 22,400 hours
<PAGE>
NAVIGATIONAL, COMMUNICATION, ELECTRONIC SYSTEMS,
FURNISHING & EQUIPMENT LIST
DESCRIPTION MANUFACTURER MODEL OR QTY
PART NUMBER
Dual Flight Control System
(CATIIIa) Honeywell SP300 1
Autothrottle System Smiths Industries 735SUE 1
VHF Communication Collins VHF700 2
HF Communication Collins 628T-2A 1
(Provisions for HF-2)
Selcal Motorola NA1401C 1
Passenger Address Collins 346D-2B 1
Announcement System Matsushita RDAX7308 1
CVR Fairchild A 100A 1
Flight Data Recorder Sundstrand DXUS 1
DFDAU SFIM ED44B 1
Printer Bendix PTA-45B 1
Air Data Computer Smiths 501FAD1 2
IRU Honeywell HG1050 2
EADI Colour Collins EDU-766D 2
EHSI Colour Collins EDU-776D 2
Marker Collins 51 Z4 1
VHF Nav Collins 51RV4B 2
Symbol Generator Collins EFIP-701D 2
WX-Radar Collins WRT701X 1
GPWS Sundstrand MKV 1
Radar Altimeter Collins 860 F-4 2
DME Collins 860 E-5 2
ATC (Mode S) Collins TPR720 2
ADF Collins 51 Y7 2
FMC Smiths U5.0 1
FMCS CDU Smiths - 2
Primary Engine Display Smiths EIS 1
Secondary Engine Display Smiths EIS 1
All data and information included herein are subject to change without notice.
No warranty is made or implied as to the accuracy of the information contained
herein which is subject to independent verification upon inspection.
<PAGE>
Annexure 1
AIRCRAFT DOCUMENTATION
Note: This Annexure 1 is to be used for reference purposes only. The Aircraft
Documents will be more closely identified in Annexure 1 to the
Acceptance Certificate.
A. Certificates
- - Certificate of Airworthiness
- - Certificate of Registration
B. Aircraft Status Records
- - Technical Log Book
- - Airframe Maintenance Status Report
- - Manufacturer's Service Bulletin Status Report
- - Airworthiness Directive Compliance Report (terminated and repetitive)
- - Local Modification Status Report List with Substantiating Data
- - Last Weighing Report
- - Repair Data Structural Repairs
C. Aircraft Maintenance Records
- - Test Flight Reports
- - Last Boeing "C" check and maintenance check Work Cards for each "C"
check multiple (or segment)
D. Aircraft History Records
- - Aircraft Structural Repair History (if applicable)
- - Service Difficulty Report (if applicable)
- - Accident or Incident Report (if applicable)
E. Engine Records (for each engine)
- - Log Books
- - Last overhaul and repair documents for each module
- - Airworthiness Directive Compliance Report (terminated and repetitive)
- - Manufacturer's Service Bulletin Status Report
- - Engine Disk Sheet
- - Engine Data Submittal Sheet
- - Condition Monitoring Status Report
<PAGE>
F. APU Records
- - Log Book
- - Last overhaul and repair documents
- - Manufacturer's Service Bulletin Status Report
G. Component Records (including components installed engines and APU)
- - Time Controlled Component Status Report with remaining hours and
cycles (if applicable)
- - Serviceability tags or back-up documentation, as available, for
components replaced since delivery from Boeing, provided to Frontier
at Delivery.
H. Manuals
- - Airplane Flight Manual
- - Quick Reference Handbook
- - Aircraft Operating Manual
- - Weight and Balance Manual Supplement
- - Wiring Diagram Manual (microfilm)
- - Illustrated Parts Catalog (microfilm)
- - Aircraft Maintenance Manual (microfilm)
- - CFM International Illustrated Parts Catalog
- - Vendor Manual Seats
- - Vendor Manual Galleys
- - Vendor Manual Ovens
- - Vendor Manual Coffee makers
- - Nordam Maintenance Manuel Supplements
I. Miscellaneous Technical Documents
- - Maintenance Program Specifications/Requirements
- - Interior Configuration Drawings
- - Loose Equipment Inventory List
- - Delivery documentation ex Boeing
- - Export Certificate of Airworthiness
- - Aircraft Readiness Log
- - Rigging Record Brochure
- - Miscellaneous Delivery Record Brochure
- - Fuel Measuring Stick Calibration Brochure
- - FAA Airworthiness Directive Compliance Record
<PAGE>
SCHEDULE 2
CERTAIN BUSINESS TERMS
1. Agreed Value
Agreed Value means US$ (*).
2. Basic Rent
The Basic Rent payable on each Rent Date during the Sublease Term shall
be US$212,000.
3. Damage Notification Threshold
Damage Notification Threshold means US$ (*).
4. Engine Agreed Value
Engine Agreed Value means for each engine US$ (*).
5. Sublease Extension Option
Sublessee has an option to extend the Sublease for one additional 12
month period at the same lease rate as paid during the base Sublease
Term, provided Sublessee provides Sublessor with written notice at
least nine (9) months prior to the Sublease Expiry Date.
6. Sublease Expiry Date
Means the date falling 65 months from the Delivery Date.
7. Extension Sublease Expiry Date
Means, upon exercise of the Sublease Extension Option, the date falling
twelve (12) months from the Sublease Expiry Date or such other date as
Sublessor and Sublessee may agree in writing.
8. Sublease Term
Means the period commencing on the Delivery Date and ending on the
Sublease Expiry Date or, if applicable the Extension Sublease Expiry
Date.
9. 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 the amount of US$ (*) issued at least three (3) days prior to
the Scheduled Delivery Date by a major US Bank in a form and
substance acceptable by Sublessor (the "Letter of Credit").
10. Maintenance Reserves
Sublessee shall during the Sublease Term pay the following Maintenance
Reserves to Sublessor:
(i) Airframe Maintenance Reserve
US$ (*) for each Flight Hour that the Airframe is operated;
(ii) Engine Maintenance Reserve, Refurbishment and LLP's
US$ (*) for each Flight Hour that each Engine is operated;
(iii) Landing Gear Maintenance Reserve
US$ (*) for each Flight Hour that the Aircraft is operated;
(iv) APU Maintenance Reserve
US$ (*) for each Flight Hour that the APU is operated.
The amounts payable by Sublessee to the Maintenance Reserves as set out
herein shall be subject to annual escalation of 2.5% on each
anniversary date of the first day of the Sublease Term and are also
subject to upward or downward adjustment where the hour to cycle ratio
changes from that assumed.
11. Minimum Liability Coverage
Minimum Liability Coverage means US$ (*) on each occurrence.
11. Scheduled Delivery Date
Scheduled Delivery Date means on or about October 26th, 1999 or such
other date as the parties may mutually agree and Sublessor may be able
to deliver the Aircraft to Sublessee.
13. Security Deposit
Sublessee has paid to Sublessor a cash Security Deposit in the amount
of US$ (*) and shall provide Sublessor with an additional Security
Deposit according to Clause 9 of this Schedule 2.
The cash Security Deposit of US$ (*) will be credited to the first
payment of Rent payable by Sublessee during the Sublease Term. The
Security Deposit will be non-refundable in the event of failure by
Sublessee to take delivery of the Aircraft in accordance with this
Agreement.
14. Supplemental Rent for Excess Cycles
If on each of the anniversary dates of the first day of the Sublease
Term, based on the previous twelve (12) month period (or portion
thereof) of the Sublease Term the Aircraft has been operated more
Cycles than the number of Cycles which would result from an average
Flight Hour/Cycle ratio of one point two (1.5) Flight Hours to one (1)
Cycle, Sublessee will pay Sublessor as Supplemental Rent US$(*)for each
Cycle the Aircraft actually operated during such twelve (12) month
period (or portion thereof) in excess of the number of Cycles which
result from an average Flight Hour/Cycle ratio of one point five (1.5)
Flight Hours to one (1) Cycle. A calculation will be made as of the
last day of each anniversary of the first day of the Sublease Term each
year and such Supplemental Rent will be due and payable by Sublessee on
the date on which the next Maintenance Reserve payment is due (in
accordance with Clause 9.2) following such Flight Hour/Cycle
calculation period.
<PAGE>
SCHEDULE 3
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;
(b) an All Risk Hull Insurance Policy on each Engine when not installed
on the Aircraft on an agreed value basis not less than the Engine
Agreed Value;
(c) 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;
(d) 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;
(e) 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 believes
that the relevant liabilities shall be unlimited or that such limit
should be revised upwards, it shall be replaced by unlimited
liability or 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 Airline, 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 Lender, if none, to Sublessor or at the request of
Sublessor to 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 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 (AVN 103 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$ (*) ( or the minimum deductible amount carried under the
airline's insurance policy if less than US$ (*)).
(d) Customary Risks: cover at least such risks as are customarily insured
against in the airline industry for any amount not less than the
Agreed Value;
(e) Sound Practice: be in accordance with sound international airline
practice; and
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 canceled 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 additional 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 the time for Boeing 737-200 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 favor of the Lender; and
(k) specifically refers to any security document entered into in favor of
the Lender or any loan agreement.
1.4 Terms of All Insurances
All Insurances will:
(a) Dollars: provide cover denominated in dollars;
(b) World-wide: operate on a world-wide basis subject to such limitations
and exclusions as the parties and the insurance market may agree;
(c) Additional Assureds: name Owner Trustee/Headlessor, Sublessor,
Sublessor's Lenders, Hamilton Aviation and their respective
successors and assigns, shareholders, subsidiaries, affiliates,
partners, contractors, directors, officers, servants, agents and
employees as additional assureds for their rights and interests
warranted no operation interest for the term of the Sublease of the
Aircraft, plus two years after the Expiry Date for the liability
insurances;
(d) 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 Lenders may be party;
(e) 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;
(f) 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;
(g) 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;
(h) 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
installment 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;
(i) Indemnities: accept and insure the indemnity provisions of this
Agreement to the extent of the risks covered by the policies;
(j) Endorsement: contains an endorsement naming:
(i) the Lender as loss payee in the case of a Total Loss;
(ii) provided that any loss will be payable in Dollars to
Lessor's Lender, if none, to Sublessor or at the request
of Sublessor to Sublessor's Lender except where the loss
does not exceed the Damage Notification Threshold, and
Sublessor has not notified the insurers to the contrary,
in which case the loss will be settled with and paid to
Sublessee;
(iii) 50/50 Provision: if separate hull "all risks" and "war
risks" insurances are arranged, include a 50/50
provision in accordance with market practice AVN 103 is
the current market language;
(k) specifically refer to each loan agreement or charge between the
Sublessor and any 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 4
DELIVERY CONDITIONS
The Aircraft will be delivered "AS IS, WHERE IS" at the Delivery Location and
will conform to the conditions outlined in this Schedule 4.
The actual condition of the Aircraft at Delivery will be documented on the
Acceptance Certificate as noted in Schedule 5 of the Aircraft Sublease
Agreement.
Certification:
A United States Standard Certificate of Airworthiness suitable for Part 121
operations. The Aircraft will be airworthy (conform to type design and be in a
condition for safe operation), with all Aircraft equipment, components and
systems operating in accordance with their intended use and within limits
established by the Aircraft Maintenance Manual.
Configuration:
An all economy 136 seat interior with a 31" minimum seat pitch.
Paint:
The exterior will be sanded or stripped as needed and painted in Frontier's
white base color and green lettering. Frontier will provide the tail decals.
Airframe:
Fresh from next Block C Check, excluding hours and cycles used on the
Demonstration/Ferry Flights, with a minimum of 3,000 hours remaining until the
next C7 Check/Structural Inspection.
A. The Aircraft will have no deferred maintenance items, unique inspections or
temporary repairs at Delivery.
B. Modifications and Repairs installed on the Aircraft at Delivery will
have been accomplished in accordance with FAA approved data.
C. The Aircraft will be in compliance with the Manufacturer's CPC program.
D. If available, any No Charge Service Bulletin Kits not installed by
Present Lessee will be loaded onboard the Aircraft as cargo.
E. Fuel tanks will be free from contamination.
<PAGE>
Engines:
Each Engine will have at least 3,000 hours remaining until next anticipated
performance restoration shop visit. ESN 857192 and ESN 856183 will have a
minimum of 7,000 cycles and 3,400 cycles respectively, remaining until the next
LLP limiter at 3B2 Power (22,000 Lbs. Thrust).
Each Engine will pass a Performance Engine Run in accordance with the Aircraft
Maintenance Manual.
Each Engine will pass a hot and cold section borescope inspection.
APU:
Serviceable and passing a borescope inspection.
Components:
Each component that is time controlled will have at least 2,250 flight hours or
cycles remaining until next inspection/overhaul. Each component that is calendar
controlled will have 12 months remaining until its next inspection/overhaul.
Condition Monitored/On Condition components will be serviceable.
Landing Gear:
Each Landing Gear will have at least 2,700 cycles remaining until the next
inspection or overhaul based on a 20,000 cycle interval.
Airworthiness Directives (AD's):
Airworthiness Directives requiring compliance within 90 days after delivery will
be in compliance. Airworthiness Directives that require inspection or repetitive
inspection will be cleared for 3,000 hours or the maximum inspection interval if
less than 3,000 hours.
Demonstration Flight:
Present Lessee will perform a one and one half hour flight demonstrating the
satisfactory operation of the Aircraft with no more than two Sublessee
observers, as designated by Sublessee, on board during such Demonstration
Flight.
Records:
Documentation required to receive a United States Standard Certificate of
Airworthiness suitable for Part 121 operations will be in English or translated
into English prior to delivery.
<PAGE>
TCAS:
TCAS will be installed prior to Delivery.
Aircraft Documentation:
The Aircraft Documentation will be identified in Annexure 1 to the Acceptance
Certificate.
<PAGE>
SCHEDULE 5
ACCEPTANCE CERTIFICATE
This Acceptance Certificate is delivered, on the date set out below by FRONTIER
AIRLINES, INC. (Sublessee), to INDIGO AVIATION AB (publ) (Sublessor), pursuant
to the Aircraft Sublease Agreement dated October 11th 1999 between Sublessor and
Sublessee (the Sublease). Capitalized terms used in this Certificate shall have
the meanings given to such terms in the Sublease.
1. Details of acceptance
Sublessee hereby confirms to Sublessor that Sublessee has at _____o'clock on
this ___ day of ______, at _____ accepted the following, in accordance with the
provisions of the Sublease:
(a) Airframe
Type: B737-3L9 Reg.: N313FL S/N: 26442
(b) Engines
Type: CFM56-3B-2 S/N No.1: 856183 S/N No. 2: 857192
(c) APU:
MSN Total Flight Hours Flight Hours/ Cycles Flight Hours/Cycles
remaining until next remaining on turbine and
HSI inspection 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 Hrs _____ Flight Hrs _____ Flight Hrs
_____ Cycles _____ Cycles _____ Cycles
Right Main ________ _____ Flight Hrs _____ Flight Hrs _____ Flight Hrs
_____ Cycles _____ Cycles _____ Cycles
Left Main ________ _____ Flight Hrs _____ Flight Hrs _____ Flight Hrs
_____ Cycles _____ Cycles _____ Cycles
(e) Equipment Check List: as per list signed by Sublessor and Sublessee and
attached hereto; and
(f) Aircraft Documents List: as per list signed by Sublessor and Sublessee
and attached hereto; and
(g) Place of Acceptance: __________________________________________________
2. Confirmation
Sublessee confirms to Sublessor that as at the time indicated above, being the
Delivery Date:
(a) the representations and warranties contained in Clause 2.1 of the
Sublease are hereby repeated;
(b) the Aircraft is insured as required by the Sublease; and
(c) Sublessee's authorized technical experts have inspected the Aircraft
and the Aircraft Documents to ensure that 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
Sublease and satisfactory in all respects except as may be noted
herein.
3. Fuel at Delivery
Fuel on board at Delivery: ___________ kilos (_________ gallons).
Annexed hereto is details of any damage to the Aircraft as at Delivery.
The Airframe, Engines and Parts had the following Flight Hours/Cycles at
Delivery:
<PAGE>
(a) Airframe:
Total hours Total landings Since last "C" Check Since last "A" Check
_________ ________ ______ Flight Hours ______ Flight Hours
______ Cycles ______ Cycles
(b) Engines:
Position Serial No. Total Flight Total Since last Since last
Hours Cycles shop visit Engine
Performance
Restoration
Visit
____ Flight ____ Flight
Hours Hours
____ Cycles ____ Cycles
See attached Engine run records and disc sheets for further description of
Engines at Delivery.
IN WITNESS WHEREOF, Sublessee has, by its duly authorized representative,
executed this Certificate on the date specified in paragraph 1 above.
Sublessee: FRONTIER AIRLINES, INC.
By: _________________________
Title: _________________________
Annexure 1 Aircraft Documents
Annexure 2 Aircraft Equipment List
Annexure 3 Damage Chart
<PAGE>
SCHEDULE 6
CERTIFICATE OF OFFICER
OF
FRONTIER AIRLINES, INC.
I, _____________________, do hereby certify that:
1. I am a duly and acting Officer of Frontier Airlines, Inc., a Colorado
corporation (the "Company").
2. Attached hereto as Exhibit A is a true, correct and complete copy of
the Certificate of Incorporation of the Company, as amended to the date
hereof, and such Certificate of Incorporation remains in full force and
effect on the date hereof.
3. Attached hereto as Exhibit B is a true, correct and complete copy of
the Articles of Association to of the Company and by-laws, as amended
to the date hereof, and such Articles of Association and by-laws remain
in full force and effect on the date hereof.
4. Attached hereto as Exhibit C is true, correct and complete copy of
resolutions duly adopted by the Board of Officers of the Company at a
meeting duly called and held in [ ] approving the execution, delivery
and performance of the Aircraft Sublease Agreement dated as of October
____ 1999 between INDIGO AVIATION AB (publ) as Sublessor and the
Company as Sublessee (the "Sublease") and the other Transaction
Documents (as defined in the Sublease) to which the Company is a party,
and said resolutions have not been revoked, rescinded or modified and,
at the date hereof, are in full force and effect.
5. The following persons are duly qualified and acting officers of the
Company, and each of such officers certifies that the signature
appearing opposite the name of each other officer is his genuine
signature:
6. I do hereby certify that all of the Company's representations and
warranties set forth in the Sublease are true and correct at the date
hereof.
<PAGE>
Title Name Signature
- ---------------------- ---------------------- ---------------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the ____
day of ___________.
-----------------------------
I, ___________________________, acting as special counsel to Frontier Airlines,
Inc., do hereby certify that ________________________________ is a duly elected,
qualified and acting Officer of Frontier Airlines, Inc. and that the signature
set forth above is his genuine signature.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the ___
day of ____________, 1999.
<PAGE>
SCHEDULE 7
FORM OF LETTER OF AUTHORITY
[ Addressee ]
AUTHORITY
This Authority is given on _________.
Pursuant to an Aircraft Sublease Agreement (the Sublease) dated as of October
____ 1999, made between INDIGO AVIATION AB (publ) as Sublessor (Sublessor) and
Frontier Airlines, Inc. as Sublessee (Sublessee) relating to one (1) Boeing
737-3L9 aircraft bearing manufacturer's serial number 26442 and registration
mark N313FL (the Aircraft), Sublessee will operate the Aircraft during the term
of the Sublease.
Sublessee hereby irrevocably authorizes yourselves, during the term of the
Sublease, to disclose to Sublessor or to anyone duly appointed by it, upon
request by the same, particulars of any and all outstanding charges due to or
collectable by you and incurred in respect of:
(i) the Aircraft; and
(ii) any other aircraft being operated by Sublessee on the date such
request, from time to time, is made.
IN WITNESS WHEREOF a duly authorized representative of Sublessee has granted
this Authority on the day and year first above mentioned.
Signed by:
- -------------------------
for and on behalf of
- -------------------------
<PAGE>
SCHEDULE 8
POWER OF ATTORNEY
The undersigned, Frontier Airlines, Inc. (Sublessee) refers to the Aircraft
Sublease Agreement dated as of October ____ 1999, as amended and supplemented
from time to time (the Sublease) between, INDIGO AVIATION AB (publ) (Sublessor)
and Sublessee with respect to one (1) Boeing 737-3L9 Aircraft bearing
manufacturer's serial number 26442 and registration mark N313FL (the Aircraft).
In consideration of the sum of US$(*)paid by Sublessor to Sublessee (the receipt
and sufficiency of which is hereby acknowledged), Sublessee irrevocably appoints
Sublessor (Attorney) as its true and lawful attorney to:
Execute and to do and 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 State of
Registration (as defined in the Sublease) upon the lawful termination of the
Sublease 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 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 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 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 _________________________.
SIGNED ON BEHALF OF FRONTIER AIRLINES, INC.
By: _______________________
Title: ______________________
<PAGE>
SCHEDULE 9
FORM OF OPINION OF SUBLESSEE COUNSEL
to be addressed to [ Sublessor ]
and
[ Lender ]
Note: This form is made on the assumption that the State of Incorporation
and the State of Registration are the same [herein "State"].
We have acted as counsel in [ Country of Sublessee ] as counsel to [ Name of
Sublessee ] ("Sublessee") in connection with an Aircraft Sublease Agreement
dated [ ] and made between [ Name of Sublessor ] as Sublessor and Sublessee as
the Sublessee in respect of one [ Type of Aircraft ] bearing manufacturer's
serial number [ ] (the "Aircraft") (the "Lease") and owned by Sublessor, and
have examined a copy of the following documents;
(i) the Sublease;
(ii) the Acceptance Certificate;
(iii) the Letter(s) of Authority;
(iv) the Power of Authority;
(v) [ other documents ]; and
(vi) [ ]
and such other documents as we have considered it necessary or desirable to
examine in order that we may give this opinion.
The documents referred to under (i) to (v) above are referred to as the
"Relevant Documents".
Terms defined in the Sublease shall have the same meaning herein.
On the basis on the foregoing we are of the opinion that:
(a) Sublessee is duly incorporated in [ State ] for an indefinite
period as a limited company and is a validly existing separate
legal entity, which is subject to suit in its own name, in
good standing, and, to the best of my knowledge, no steps have
been, or are being, taken to appoint a receiver, liquidator,
trustee or similar officer over Sublessee, or to wind up
Sublessee or commence any other insolvency proceedings with
respect to Sublessee or to have Sublessee dissolved by merger;
(b) Sublessee has the corporate power to enter into and perform,
and has taken all necessary corporate action to authorize the
entry into, performance and delivery of the Sublease and the
transactions contemplated by the Sublease and the Sublease
constitutes the legal binding obligations of the Sublease,
enforceable against the Sublessee in accordance with its
terms;
(c) the entry into and performance by Sublessee of, and the
transactions contemplated by, the Sublease does not and will
not:
(i) conflict with any laws binding on Sublessee; or
(ii) conflict with the constitutional documents of
Sublessee; or
(iii) result in the creation of any Security Interest upon
any property of Sublessee, pursuant to any 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;
(d) Sublessee has obtained all authorizations, consents, licenses,
approvals and registrations necessary to be obtained from any
governmental or other regulatory authorities in [ State ] to
enable Sublessee:
(i) to enter into and perform the transactions
contemplated by the Sublease;
(ii) to import the Aircraft into [ State ];
(iii) to conduct commercial air transport with the Aircraft
in, to and from [ State ] in accordance with the
applicable [ State's ] rules and regulations;
(iv) to effect all payments provided for in the Sublease.
(e) no registration, recording, filing or notarization in any
public office or elsewhere in [ State ] is necessary and no
payment of any tax or duty is necessary to ensure the
validity, enforceability or admissibility in evidence of the
Sublease, or the priority, if any, of the respective rights of
Sublessor and Lender under the Sublease other than [please
advise if applicable] and no other instrument is required to
ensure the priority, enforceability and validity of the
obligations of Sublessee under the Sublease and the Sublease
is in proper legal form under the laws of [ State ] for the
enforcement thereof, if applicable, in the courts of
[ State ];
(f) the Aircraft may be registered on the [ State's ] aircraft
registry in the name of Sublessor and no other steps are
necessary or desirable to record or perfect either Sublessor's
interest in the Aircraft in [ State ];
(g) a mortgage over the Aircraft may be registered on the aircraft
registry in [State] and with [ Name of authority ] for the
benefit of Sublessor and will upon registration constitute a
valid and perfected security over the Aircraft under the laws
of [ State ];
(h) upon termination of the Sublease in accordance with its terms
(whether on expiry or earlier termination) Sublessor would be
entitled:
(i) to repossess the Aircraft without requiring any
further permissions or approvals of any regulatory
authority in [ State ];
(ii) to de-register the Aircraft from the register of
aircraft maintained by the Aviation Authority and to
export the Aircraft from [ State ] without requiring
any further permissions or approvals of any authority
in [ State ] or any further regulators consent from
Sublessee or any third party, provided no mortgages
are registered over the Aircraft, in which case the
mortgagees have to consent to the de-registration;
(i) the Relevant Documents have been properly signed and delivered
on behalf of Sublessee and the obligations on the part of
Sublessee contained therein, assuming them to be valid and
binding according to the laws of Sweden, are valid and legally
binding on and enforceable against Sublessee under the laws of
[ State ] and in the courts of [ State ];
(j) the obligations of Sublessee under the Relevant Documents are
direct, general and unconditional, and rank or will rank at
least pari passu with all other present and future unsecured
and un-subordinated obligations of Sublessee, with the
exception of such obligations as are mandatorily preferred by
law and not by reason of any security interest;
(k) under the laws of [ State ] the execution and delivery of the
Relevant Documents, and the carrying out of the transactions
thereby contemplated and the observance and performance by all
parties of their respective obligations thereunder do not and
will not result in any prejudice to or impairment or
diminution of Sublessor's interest in the Aircraft except for
the express rights of possession of Sublessee under the
Sublease;
(l) the Sublease does not grant to Sublessee any title rights in
the Aircraft, nor does it give Sublessee any capability of
passing valid title to a purchaser or to create a mortgage
over the Aircraft;
(m) Sublessee, or any of its properties, assets, are not entitled
to claim immunity from suit, execution, attachment or other
legal process in [ State ] or any other jurisdiction affecting
Sublessee; the entry into and performance of the Sublease
Agreement by the company constitute private and commercial
acts;
(n) there is no applicable usury or interest limitation law in [
State ] which restricts the recovery of payments of Default
Interest in accordance with the Sublease;
(o) Sublessee is not in default under any agreement to which it is
a party or by which is may be bound which 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
which would have a material adverse effect on the business,
assets or condition (financial or otherwise) of Sublessee;
(p) the financial position of Sublessee is represented by its
audited financial statements prepared in accordance with
accounting principles generally accepted in [ State ];
(q) it is not necessary under the laws and constitution of [ State
], in order to enable the Sublessor to enforce its rights
under the Agreement or by reason of the execution of the
Agreement or the performance by each of them of its obligation
thereunder, that any of them should be licensed, qualified or
entitled to carry on business in [ State ];
(r) there are under the laws of [ State ] no present restrictions
on Sublessee to make the payments required by the Transaction
Documents;
(s) there are no registration, stamp or other taxes or duties of
any kind payable in [ State ] by Sublessor in connection with
the signature, entering into, registration or performance of
the Sublease or the registration of title of ownership or a
mortgage over the Aircraft except the following:
(i) registration of mortgages in [ State ];
(ii) registration of the Sublease Agreement;
(iii) registration of title or ownership: [ ]; and
(iv) registration of the mortgages in the [ Name of
Authority ]: [ ].
(t) Sublessor will not violate any law or regulation in [ State ]
nor become liable to tax in [ State ] by reason of Sublessor
entering into the Sublease with Sublessee, or performing its
obligations thereunder;
(u) the choice of the laws of [ Applicable Law ] to govern the [
Lease/Relevant Documents ] is a valid and binding choice of
law and will be recognized and applied by the courts of [
State ];
(v) Sublessee's submission to the jurisdiction of the courts of [
Relevant Court(s) ] in the Sublease is its legally valid and
binding obligation;
(w) any judgement by the courts of [ Relevant Court(s) ] against
Sublessee which is enforceable in [ Relevant jurisdiction of
Court(s)] is enforceable against Sublessee in [ State ]
provided [ advise conditions ];
(x) there is no withholding tax or other tax to be deducted from
any payment whatsoever which may be made by the Sublessee to
the Sublessor under the Sublease; the provisions in the
Sublease providing for the full compensation of the Sublessor
by the Sublessee for any amount so withholding (and any amount
withheld on such additional compensation) is legally binding
upon Sublessee and enforceable in accordance with the laws of
[ State ].
<PAGE>
SCHEDULE 10
MONTHLY AIRCRAFT UTILISATION AND STATUS REPORT
To: INDIGO AVIATION AB (publ)
Sodra Forstadsgatan 4
S-211 43 Malmo Sweden Fax: 011-46-40-302350
From: Frontier Airlines Page 1 of 2
Aircraft Type: Boeing 737-3L9
Registration Mark: N313FL
Serial Number: 26442 Month of: ________________
- --------------------------------------------------------------------------
Aircraft Total Time (Flight Hours) Since New:
- --------------------------------------------------------------------------
Aircraft Total Cycles Since New:
- --------------------------------------------------------------------------
Airframe Flight Hours Flown During Month:
- --------------------------------------------------------------------------
Airframe Cycles/Landing During Month:
- --------------------------------------------------------------------------
Time Remaining to C7 Check/Structural:
- --------------------------------------------------------------------------
- ---------------------------------- -----------------------------------------
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 During Month: Flight Hours During Month:
- ---------------------------------- -----------------------------------------
Cycles During Month: Cycles During Month:
- ---------------------------------- -----------------------------------------
Time Since Last Boroscope: Time Since Last Boroscope:
- ---------------------------------- -----------------------------------------
Time Until Next Boroscope: Time Until Next Boroscope:
- ---------------------------------- -----------------------------------------
<PAGE>
MONTHLY AIRCRAFT UTILISATION AND STATUS REPORT
Page 2 of 2
Landing Gear: Time Since Time Since Cycles Since Cycles Since
Overhaul: New: Overhaul: New:
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 x US$ Per Flight = Reserve
During Month Hour/Cycle Payment
Airframe: Hours: x $(*) =
Original Engine Hours: x =
Serial Number:
Original Engine Hours: x =
Serial Number:
Total Engines: Hours: x $(*) =
Landing Gear: Cycles: x $(*) =
APU: Hours: x $(*) =
Total
<PAGE>
SCHEDULE 11
FORM OF QUIET ENJOYMENT LETTER
From: [ Lender ]
To: [ Sublessee ]
Dated: [ ]
Dear Sirs,
[ ] Aircraft bearing Manufacturer's Serial Number [ ] (the Aircraft)
equipped with two (2) [ ] Engines bearing Serial Numbers [ ] and [ ]
(the Engines)
With reference to that certain Aircraft Sublease Agreement dated [ ] between [ ]
as Sublessor (Sublessor) and [ ] as Sublessee (Sublessee) in relation to the
Aircraft and the Engines (the Sublease), we, the undersigned, hereby undertake
that we shall not by our own acts interfere with Sublessee's rights under the
Sublease during the Sublease Term (as defined therein), including without
limitation its rights to quiet use, possession and peaceful enjoyment of the
Aircraft and the Engines, provided that no Default (as defined in the Sublease)
shall have occurred and be continuing.
- -------------------
signed for and on behalf of [Lender]
<PAGE>
SCHEDULE 12
RETURN CONDITIONS
On the Redelivery Date the Aircraft will be in the same condition as at
Delivery, ordinary wear and tear excepted.
Location:
A city in the continental United States of America (48 contiguous states)
reasonably requested by Indigo.
Certification:
A United States Standard Certificate of Airworthiness suitable for Part 121
operations or an Export Certificate of Airworthiness as requested by Lessor.
The Aircraft will be airworthy (conform to type design and be in a condition for
safe operation), with all Aircraft equipment, components and systems operating
in accordance with their intended use and within limits established by the
Aircraft Maintenance Manual.
Configuration:
An all economy 136 seat interior with a 31" minimum seat pitch.
Paint:
The Fuselage and the Vertical Stabilizer exterior will be sanded or stripped as
needed and painted white. Frontier will install next lessee's logo on the
fuselage provided the logo is no more complex than Frontier's logo. If the next
lessee's logo is more complex than Frontier's then Frontier and Indigo will
mutually agree in writing how the next lessee's logo will be installed.
Airframe:
Fresh from Block C Check, excluding hours and cycles used on the
Demonstration/Ferry Flights, with a minimum of 3,000 hours remaining until the
next C7 Check/Structural Inspection.
A. The Aircraft will have no deferred maintenance items, unique inspections
or temporary repairs at Delivery.
B. Modifications and Repairs installed on the Aircraft at Delivery will
have been accomplished in accordance with FAA approved data.
C. Aircraft will be in compliance with the Manufacturer's CPC program.
D. If available, any No Charge Service Bulletin Kits not installed by
Present Lessee will be loaded onboard the Aircraft as cargo.
E. Fuel tanks will be free from contamination.
Engines:
Each Engine will have no more time since last engine performance restoration
visit than as of Delivery (unless otherwise agreed) and a minimum of at least
3,000 hours remaining until next anticipated performance restoration shop visit.
ESN 857192 and ESN 856183 will have a minimum of 7,000 cycles and 3,400 cycles
respectively, remaining until the next LLP limiter at 3B2 Power (22,000 Lbs.
Thrust).
Each Engine will pass a Performance Engine Run in accordance with the Aircraft
Maintenance Manual.
Each Engine will pass a hot and cold borescope inspection.
Sublessee will notify Sublessor in writing not less than six (6) months prior to
the Redelivery Date to discuss and agree upon the pre-delivery shop visit work
scope, as applicable.
APU:
Serviceable and passing a borescope inspection.
Components:
Each component that is time controlled will have at least 2,250 hours or cycles
remaining until next inspection/overhaul. Each component that is calendar
controlled will have 12 months remaining until its next inspection/overhaul.
Condition Monitored/On Condition components will be serviceable.
Landing Gear:
Each Landing Gear will have at least 2,700 cycles remaining until the next
inspection or overhaul based on a 20,000 cycle interval.
Airworthiness Directives (AD's):
Airworthiness Directives requiring compliance within 90 days after Redelivery
will be in compliance. Airworthiness Directives that require inspection or
repetitive inspection will be cleared for 3,000 hours or the maximum inspection
interval if less than 3,000 hours.
<PAGE>
Demonstration Flight:
Lessee will perform a one and one half hour flight demonstrating the
satisfactory operation of the Aircraft with no more than two observers, as
designated by Sublessor, on board during such Demonstration Flight.
Records:
Documentation delivered to Sublessee at Delivery will be returned to Sublessor
along with the up-to-date Aircraft Maintenance Records that the Sublessee has
collected during the Sublease Term.
Aircraft Documentation:
Sublessee will prepare the Aircraft Documents in one location at least ten (10)
days prior to Redelivery of the Aircraft. The Aircraft Documents, as identified
in Annexure 1 to the Acceptance Certificate, will be redelivered in their latest
revision to Sublessor at the Redelivery Date.
<PAGE>
SCHEDULE 13
RETURN ACCEPTANCE CERTIFICATE
1. Frontier Airlines, Inc. (Sublessee) and INDIGO AVIATION AB (publ)
(Sublessor) have entered into an Aircraft Sublease Agreement dated
October ____ 1999, (Sublease). Unless otherwise defined, capitalized
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 737-3L9 Aircraft, bearing manufacturer's serial
number 26442, registration mark N313FL together with two (2)
CFM International CFM56-3B-2 engines bearing serial numbers
856183 and 857192, 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 hours Total landings Since last "C" Check Since last "A" Check
______ _____ ______ Flight Hours _____ Flight Hour
______ Cycles _____ Cycles
(b) Engines: CFM56-3B-2
Position Serial No. Total Flight Total Cycles Since last Since last
Hours shop visit Engine
Performance
Restoration
Visit
_____ _____ _____ ______ ____ Flight ____ Flight
hours hours
____ Cycles ____ Cycles
Time Remaining to next life limited part removal
Flight Hours Cycles
MSN: _____ _____
MSN: _____ _____
<PAGE>
(c) APU:
MSN Total Flight Flight Hours/ Cycles Flight Hours/Cycles
Hours remaining until next HSI remaining on turbine and
inspection 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 Hrs ___ Flight Hrs ___ Flight Hrs
___ Cycles ___Cycles ___ Cycles
Right Main ____ ___ Flight Hrs ___ Flight Hrs ___ Flight Hrs
___ Cycles ___Cycles ___ Cycles
Left Main ____ ___ Flight Hrs ___ Flight Hrs ___ Flight Hrs
___ 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
are correctly set forth on the Aircraft report 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
Annex 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 Annex 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
authorized representatives as of the day and year first above written.
FRONTIER AIRLINES, INC.
By:____________________________________
Title:___________________________________
INDIGO AVIATION AB (publ)
By:_____________________________________
Title:____________________________________
ATTACHMENTS:
Annexure 1. Aircraft Documents
Annexure 2. List of Discrepancies
<PAGE>
Annexure 1
AIRCRAFT DOCUMENTS
Note: This Annexure 1 is to be used for reference purposes only. The Aircraft
Documents will be more closely identified in Annexure 1 to the
Acceptance Certificate.
A. Certificates
- - Certificate of Airworthiness
- - Certificate of Registration
B. Aircraft Status Records
- - Technical Log Book
- - Airframe Maintenance Status Report
- - Manufacturer's Service Bulletin Status Report
- - Airworthiness Directive Compliance Report (terminated and repetitive)
- - Local Modification Status Report List with Substantiating Data
- - Last Weighing Report
- - Repair Data Structural Repairs
C. Aircraft Maintenance Records
- - Test Flight Reports
- - Last Boeing "C" check and maintenance check Work Cards for each "C"
check multiple (or segment)
D. Aircraft History Records
- - Aircraft Structural Repair History (if applicable)
- - Service Difficulty Report (if applicable)
- - Accident or Incident Report (if applicable)
E. Engine Records (for each engine)
- - Log Books
- - Last overhaul and repair documents for each module
- - Airworthiness Directive Compliance Report (terminated and repetitive)
- - Manufacturer's Service Bulletin Status Report
- - Engine Disk Sheet
- - Engine Data Submittal Sheet
- - Condition Monitoring Status Report
<PAGE>
F. APU Records
- - Log Book
- - Last overhaul and repair documents
- - Manufacturer's Service Bulletin Status Report
G. Component Records (including components installed engines and APU)
- - Time Controlled Component Status Report with remaining hours and cycles
(if applicable)
- - Serviceability tags or back-up documentation, as available, for
components replaced since delivery from Boeing, as provided to
Frontier at Delivery and any tags or backup documentation for
components replaced by Frontier since Delivery.
H. Manuals
- - Airplane Flight Manual
- - Quick Reference Handbook
- - Aircraft Operating Manual
- - Weight and Balance Manual Supplement Wiring Diagram Manual (microfilm)
- - Illustrated Parts Catalog (microfilm)
- - Aircraft Maintenance Manual (microfilm)
- - CFM International Illustrated Parts Catalog Vendor
- - Manual Seats Vendor Manual
- - Galleys Vendor Manual
- - Ovens Vendor Manual
- - Coffee makers Nordam Maintenance Manuel Supplements
I. Miscellaneous Technical Documents
- - Maintenance Program Specifications/Requirements
- - Interior Configuration Drawings
- - Loose Equipment Inventory List
- - Delivery documentation ex Boeing
- - Export Certificate of Airworthiness
- - Aircraft Readiness Log
- - Rigging Record Brochure
- - Miscellaneous Delivery Record Brochure
- - Fuel Measuring Stick Calibration Brochure
- - FAA Airworthiness Directive Compliance Record
<PAGE>
Annexure 2
Discrepancies
<PAGE>
SCHEDULE 14
SUBLEASE SUPPLEMENT
LEASE SUPPLEMENT NO. 1 dated October ____, 1999, between INDIGO AVIATION AB
(publ) (the "Sublessor") and FRONTIER AIRLINES, INC. (the "Sublessee").
Sublessor and Sublessee have previously entered into that certain Aircraft
Sublease Agreement dated as of October __, 1999 (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 Lease
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 specifically
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 leases to Sublessee under the Sublease
and Sublessee hereby accepts and leases from Sublessor under the
Sublease, that certain used Boeing Model 737-3L9 Aircraft bearing FAA
Registration Mark N313FL, including the Airframe bearing manufacturers
serial number 26442 and the two (2) CFM International, Inc. CFM56-3B2
bearing manufacturer's serial numbers 856183 and 857192 described in
Schedule 1 herewith ("Delivered Aircraft").
2. The Delivery Date of the Aircraft is the date of this Sublease
Supplement set forth in the opening paragraph hereof.
3. The Sublease Term for the Aircraft shall commence on the Delivery Date
and shall end on the Sublease Expiry Date.
4. The amount of Rent for the 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 12.12 of the Sublease, (ii)
Sublessee has inspected the Aircraft and the Aircraft satisfies the
conditions set forth in the Sublease and (iii) Sublessee has accepted
the Aircraft for all purposes hereof and of 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 on the front page 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 Sublease Supplement has been delivered in New York.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, Sublessor and Sublessee have caused this Sublease Supplement
to the Sublease to be duly executed as of the day and year first above written.
SUBLESSOR
INDIGO AVIATION AB (publ)
By:___________________________________
Name:_________________________________
Title:__________________________________
SUBLESSEE
FRONTIER AIRLINES, INC.
By_____________________________________
Name:__________________________________
Title:___________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921929
<NAME> FRONTIER AIRLINES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 47,683,727
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<RECEIVABLES> 12,817,927
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<CURRENT-LIABILITIES> 80,370,748
<BONDS> 0
0
0
<COMMON> 17,582
<OTHER-SE> 66,557,679
<TOTAL-LIABILITY-AND-EQUITY> 152,935,002
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<CGS> 0
<TOTAL-COSTS> 138,321,937
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<INCOME-CONTINUING> 16,630,283
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<NET-INCOME> 16,630,283
<EPS-BASIC> .98
<EPS-DILUTED> .89
</TABLE>
