FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended March 31, 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 of (I.R.S. Employer Identification No.)
incorporated or organization)
12015 E. 46th Avenue, Denver, CO 80239
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (303) 371-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Title of Class
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of Common Stock held by non-affiliates of the Company
computed by reference to the last quoted price at which such stock sold on such
date as reported by the Nasdaq National Market as of June 18, 1999:
$190,236,939.
The number of shares of the Company's Common Stock outstanding as of June 18,
1999 is 17,232,772.
Documents incorporated by reference - Part III is incorporated by reference to
the Company's 1999 Proxy Statement.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1: Business...........................................................1
Item 2: Properties .......................................................12
Item 3: Legal Proceedings.................................................12
Item 4: Submission of Matters to a Vote of Security Holders...............12
PART II
Item 5: Market for Common Equity and Related Stockholder Matters..........13
Item 6: Selected Financial Data...........................................16
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................17
Item 7a: Quantitative and Qualitative Disclosures About Market Risk .......29
Item 8: Financial Statements..............................................29
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................29
PART III
Item 10: Directors and Executive Officers of the Registrant................29
Item 11: Executive Compensation............................................30
Item 12: Security Ownership of Certain Beneficial Owners and Management... 30
Item 13: Certain Relationships and Related Transactions....................30
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K...31
<PAGE>
- 7 -
PART I
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. Future events and
actual results, financial and otherwise, could differ materially from those set
forth in or contemplated by the forward-looking statements herein. These risks
and uncertainties include, but are not limited to, those discussed in "Risk
Factors" below.
Item 1: Business
General
The Company is a scheduled airline based in Denver, Colorado. We
currently operate routes linking our Denver hub to 19 cities in 15 states
spanning the nation from coast to coast. We were organized in February 1994 and
we began flight operations in July 1994 with two leased Boeing 737-200 jets. We
have since expanded our fleet to 20 leased jets, including eight Boeing 737-200s
and 12 larger Boeing 737-300s. We currently use up to seven gates at our hub,
Denver International Airport ("DIA"), where we operate approximately 92 daily
system flight departures and arrivals.
Our current route system links our Denver hub to 19 cities. The following
table lists the cities we serve as of June 14, 1999, as well as the dates we
commenced service to those cities:
El Paso, Texas October 13, 1994
Albuquerque, New Mexico October 13, 1994
Omaha, Nebraska January 16, 1995
Chicago/Midway, Illinois September 25, 1995
Phoenix, Arizona September 25, 1995
Los Angeles, California November 3, 1995
Minneapolis/St. Paul, Minnesota November 13, 1995
Salt Lake City, Utah November 13. 1995
San Francisco, California November 17, 1995
Seattle, Washington May 1, 1996
Bloomington/Normal, Illinois January 6, 1997
Boston, Massachusetts September 16, 1997
Baltimore, Maryland November 16, 1997
New York/LaGuardia, New York December 3, 1997
San Diego, California July 23, 1998*
Atlanta, Georgia December 17, 1998
Dallas/Fort Worth, Texas December 17, 1998
Las Vegas, Nevada December 17, 1998*
Portland, Oregon June 14, 1999
*reintroduction of service
We initiated service to four additional markets during fiscal year 1999:
Atlanta, Georgia; Dallas/Ft. Worth, Texas; Las Vegas, Nevada and San Diego,
California. On November 1, 1998, we initiated complimentary shuttle service
between Boulder, Colorado and Denver International airport. We currently operate
six daily round trip bus routes between Boulder and DIA. We also began serving
Portland, Oregon on June 14, 1999.
Our senior management team includes executives with substantial
experience in the airline industry, including several executives who occupied
similar positions at a former airline called Frontier Airlines. The former
Frontier Airlines served regional routes to and from Denver from 1950 to 1986.
There were various occasions when the former Frontier Airlines served most of
the Company's current and intended markets with jet equipment from its Denver
hub.
Our corporate headquarters are located at 12015 East 46th Avenue, Denver,
Colorado 80239. Our administrative office telephone number is 303-371-7400; our
reservations telephone number is 800-432-1359; and our world wide Web site
address is www.frontierairlines.com.
Business Strategy and Markets
Our business strategy is to provide air service at low fares to high volume
markets from our Denver hub. Our strategy is based on the following factors:
o Stimulate demand by offering a combination of low fares, quality
service and frequent flyer credits in Continental Airlines' OnePass
program.
o Expand our Denver hub operation and increase connecting traffic by
adding additional high volume markets to our current route system.
o Continue filling gaps in flight frequencies to high volume markets from
our Denver hub.
In April 1999, we were named "Best Domestic Low Fare Carrier" by
Entrepreneur Magazine in the publication's sixth annual Business Travel Awards.
Route System History
Our route system strategy encompasses connecting our Denver hub to top
business and leisure destinations. We currently serve 15 of the top 25
destinations from Denver, as defined by the U.S. Department of Transportation's
Origin and Destination Market Survey. In addition, as we bring additional
aircraft into our fleet and add new markets to our route system, connection
opportunities increase. During fiscal year 1999, connection opportunities for
our passengers connecting through DIA increased from 3.2 flights to 5.3 flights.
Marketing and Sales
Our sales efforts are targeted to price-sensitive passengers in both
the leisure and corporate travel markets. In the leisure market, we offer
discounted fares marketed through newspaper, radio and television advertising
along with special promotions. We market these activities in both our Denver hub
and throughout our route system.
To balance the seasonal demand changes that occur in the leisure
market, we introduced several programs in late 1996 designed to capture a larger
share of the corporate market, which tends to be less seasonal than the leisure
market. These programs include negotiated fares for large companies that sign
contracts committing to a specified volume of travel, future travel credits for
small and medium size businesses contracting with us and special discounts for
members of various trade and nonprofit associations. As of June 10, 1999, we had
signed contracts with over 2,300 corporations.
We also pursue sales opportunities with meeting and convention
arrangers, government travel offices and vacation clubs. The primary tools we
use to attract this business include personal sales calls, direct mail and
telemarketing. In addition, we offer air/ground vacation packages to many
destinations on our route system under contracts with various tour operators.
An important marketing tool in today's airline environment is the
frequent flyer program. In 1995, we joined Continental Airlines' OnePass
program. We selected the OnePass program because there was an established
membership base in Denver and in other cities we served and planned to serve. In
addition, the OnePass program consistently receives high marks when compared
with other programs.
An important relationship for airlines is the relationship with travel
agencies. We currently pay travel agent commissions of eight percent. Unlike
some other airlines, we do not limit the earnings potential of travel agents
through a commission cap. We have implemented marketing strategies designed to
maintain and encourage relationships with travel agencies throughout our route
system. We communicate with travel agents through personal visits by company
executives and sales managers, sales literature mailings, telemarketing and
advertising in various travel agent trade publications.
We participate in the four major computer reservation systems used by
travel agents to make airline reservations. We maintain a reservations center in
Denver, operated by our employees. We also maintain an "overflow" center in
Miami, Florida, staffed by contract personnel, which assists our Denver
reservations center during peak booking periods.
In January 1999, we renewed an agreement with Electronic Data Systems
("EDS") for continued and enhanced airline customer information services,
including computerized reservations, passenger processing and telecommunications
services. Since early 1997, we have made greater use of electronic or
"paperless" ticketing, a lower cost alternative to ticketing passengers on
relatively expensive ticket stock. Currently, we do not offer electronic
ticketing through travel agents. Through our agreement with EDS, we are taking
steps to offer travel agents with this ticketing option. We anticipate that by
August 1999 we will be able to offer travel agents electronic ticketing
capabilities through two of the major computer reservations systems and that by
the end of our fiscal year 2000 we will be able to offer travel agents
electronic ticketing capabilities through the other two major computer
reservations systems.
Our agreement with EDS enhances our ability to provide Internet
bookings through the EDS SHARESWEB booking engine. In April 1999, we began
offering "Spirit of the Web" fares via our Web site, which permits customers to
make "close in" bookings beginning on Wednesdays for the following weekend. This
is intended to fill seats that might otherwise go unfilled.
In order to gain connecting traffic from other carriers, we have
negotiated various types of interline agreements with approximately 140 domestic
and international airlines serving cities on our route system. Generally, these
agreements include joint ticketing and baggage services and other conveniences
designed to expedite the connecting process.
Product Pricing
We generally offer our seats at discount fares. We believe by doing so,
we reduce the cost of travel in markets we serve by as much as 60 percent
compared to other carriers. Seat inventories on each flight are managed through
a yield management system and we generally offer discounts with three levels of
advance purchase requirements. In contrast to most carriers, our fares generally
do not require travelers to include a Saturday overnight stay in order to take
advantage of these discount rates. We also do not charge a premium for one-way
fares and, generally, our fares do not require a round-trip purchase.
Competition
The Airline Deregulation Act of 1978 (the "Deregulation Act") produced
a highly competitive airline industry, freed of certain government regulations
that for 40 years prior to the Deregulation Act had dictated where domestic
airlines could fly and how much they could charge for their services. Since
then, small carriers such as Frontier have entered markets long dominated by
large airlines with substantially greater resources, such as United Airlines,
American Airlines, Northwest Airlines and Delta Air Lines.
We compete principally with United Airlines, the dominant carrier at
DIA, and its commuter affiliates with a total market share of approximately 74%.
This gives United a significant competitive advantage compared to us and other
carriers serving DIA. We believe our current market share at DIA is
approximately 5.6%. We compete with United primarily on the basis of fares, fare
flexibility and the quality of our customer service.
Aircraft
As of June 1999, we operated 20 leased Boeing 737 twinjet aircraft in
all-coach seating configurations. We anticipate we will operate 19 aircraft
between August and mid-October 1999, at which time we expect to increase our
fleet size to 20 aircraft. Our intent is to add the 21st aircraft in
approximately April 2000. The age of our current aircraft, their passenger
capacities and their lease expirations are shown in the following table:
Approximate
Number of
Aircraft No. of Year of Passenger Lease
Model Aircraft Manufacture Seats Expiration
B-737-200 5 1968-1969 108 July-October
1999
B-737-200A 3 1978-1981 119 2001-2005
B-737-300 12 1985-1998 136 2000-2006
Stage 3 noise level requirements presently require that 75% of an
operator's fleet comply with Stage 3. Our aircraft fleet currently complies with
Stage 3 noise level requirements. See "Description of Business - Government
Regulation." By January 1, 2000, our entire fleet must comply with Stage 3
requirements. We plan to return our five smaller B-737-200 aircraft, which are
not Stage 3 compliant, to the lessor in the second half of 1999. We intend to
replace these aircraft with B-737-200A and B-737-300 aircraft that meet the
Stage 3 noise level requirements.
We regularly seek to lease additional aircraft in order to replace
aircraft with expiring lease terms and to expand our service and route system.
However, the aircraft lease market is cyclical, and we cannot be certain that
additional aircraft will be available when we need or want to procure them, or
that they will be available at acceptable lease rates and terms. By way of
example, we are returning five of our smaller B-737-200 aircraft to the lessor
in the second half of 1999. We have firm lease agreements to replace three of
these aircraft and have signed letters of intent to replace the other two.
However, delivery delays could cause us to temporarily reduce our fleet size and
our passenger revenues could therefore be adversely affected.
Maintenance and Repairs
All of our aircraft maintenance and repairs are accomplished in
accordance with the our maintenance program approved by the United States
Federal Aviation Administration ("FAA"). Spare or replacement parts are
maintained by us primarily in Denver. A major airline and a spare parts vendor
supply us with certain of these and we purchase or lease others from other
airline or vendor sources.
We terminated a contract with Continental Airlines for routine
maintenance at Denver in August 1996. Since that time, we have trained, staffed
and supervised our own maintenance work force at Denver. We lease a portion of
Continental Airlines' hangar at DIA where we presently perform our own
maintenance through the "C" check level. Other major maintenance such as
airframe overhauls and major engine repairs, continues to be performed by
outside FAA approved contractors. We also maintain a smaller maintenance
facility at El Paso, Texas.
Under our aircraft lease agreements, we pay all expenses relating to the
maintenance and operation of our aircraft, and we are required to pay monthly
maintenance reserve deposits to the lessors based on usage. Maintenance reserve
deposits are applied against the cost of scheduled major maintenance. Scheduled
major maintenance has occurred or will occur for three of our aircraft in the
fiscal year ending March 31, 2000. To the extent not used for major maintenance
during the lease terms, maintenance reserve deposits remain with the aircraft
lessors upon redelivery of the aircraft.
Our monthly completion factors for the years ending March 31, 1999, 1998
and 1997 ranged from 97.6% to 99.8%, from 92.8% to 99.9%, and from 94% to 99.8%,
respectively. The completion factor is the percentage of our scheduled flights
that were operated by us (i.e., not canceled). Flights not completed were
canceled principally as a result of mechanical problems, and to a lesser extent,
weather. There can be no assurance that our aircraft will continue to be
sufficiently reliable over longer periods of time.
Fuel
During the years ending March 31, 1999, 1998 and 1997, jet fuel accounted
for 11.6%, 14.1% and 16.6%, respectively, of our operating expenses. We have
arrangements with major fuel suppliers for substantial portions of our fuel
requirements, and we believe that such arrangements assure an adequate supply of
fuel for current and anticipated future operations. However, we have not entered
into any agreements that fix the price of fuel over any period of time. Jet fuel
costs are subject to wide fluctuations as a result of sudden disruptions in
supply beyond our control. Therefore, we cannot predict the future availability
and cost of jet fuel with any degree of certainty. Our average fuel price per
gallon including taxes and into-plane fees was 55.4(cent) for the year ended
March 31, 1999, with the monthly average price per gallon during the same period
ranging from a low of 48.3(cent) to a high of 62.3(cent). As of June 11, 1999,
the price per gallon was 60.2(cent).
Newer aircraft are more fuel efficient than our Boeing 737-200 aircraft
due to improved aircraft airframe design and engine technology. Significant
increases in the price of jet fuel would result in a higher increase in our
overall total costs than those of competitors whose fleets consist of more fuel
efficient aircraft such as our Boeing 737-300 aircraft. Increases in fuel prices
or a shortage of supply could have a material adverse affect on our operations
and financial results. Our ability to pass on increased fuel costs to passengers
through price increases or fuel surcharges may be limited, particularly given
our low fare strategy.
Insurance
We carry $700 million per aircraft per occurrence in property damage and
passenger and third-party liability insurance, and insurance for aircraft loss
or damage as required by our aircraft lease agreements, and customary coverage
for other business insurance. While we believe such insurance is adequate, there
can be no assurance that such coverage will adequately protect us against all
losses which we might sustain. Our property damage and passenger and third-party
liability insurance coverage exceeds the minimum amounts required by the DOT
regulations.
Employees
As of June 1, 1999, we had 1650 employees, including 1273 full-time and
377 part-time personnel. Our employees included 194 pilots, 271 flight
attendants, 646 customer service agents, 156 reservations agents, 256 mechanics
and related personnel, and 127 general management personnel. We consider our
relations with our employees to be good.
We believe we operate with lower personnel costs than many established
airlines, principally due to lower base salaries and greater flexibility in the
utilization of personnel. There can be no assurance that we can continue to
realize these advantages over established or other air carriers for any extended
period of time. In November 1998, our pilots voted to be represented by an
independent union, the Frontier Airlines Pilots Association. This is our only
employee group that currently is represented by a union. The impact of this
unionization on labor costs is unknown at this time since the first bargaining
agreement has not been negotiated.
We have enhanced our Retirement Savings Plan [401(k)] by announcing a
matching contribution by the Company for April 1999 through December 31, 1999.
Participants will receive a 25% Company match for contributions up to 15%. We
anticipate that the match and related vesting schedule of 20% per year will
reduce our turnover rates.
Training, both initial and recurring, is required for many employees. We
train our pilots, flight attendants, ground service personnel, reservationists
and mechanics. FAA regulations require pilots to be licensed as commercial
pilots, with specific ratings for aircraft to be flown and to be medically
certified as physically fit. Licenses and medical certification are subject to
periodic continuation requirements, including recurrent training and recent
flying experience. Mechanics, quality control inspectors and flight dispatchers
must be licensed and qualified for specific aircraft. Flight attendants must
have initial and periodic competency, fitness training and certification. The
FAA approves and monitors our training programs. Management personnel directly
involved in the supervision of flight operations, training, maintenance and
aircraft inspection must meet experience standards prescribed by FAA
regulations. Employees performing safety-sensitive functions are subject to
pre-employment and subsequent random drug and alcohol testing.
Government Regulation
All interstate air carriers are subject to regulation by the U.S.
Department of Transportation ("DOT") and the Federal Aviation Administration
("FAA") under the Federal Aviation Act. The DOT's jurisdiction extends primarily
to the economic aspects of air transportation, while the FAA's regulatory
authority relates primarily to air safety, including aircraft certification and
operations, crew licensing and training and maintenance standards. In general,
the amount of regulation over domestic air carriers in terms of market entry and
exit, pricing and inter-carrier agreements has been greatly reduced subsequent
to enactment of the Deregulation Act.
U.S. Department of Transportation. We hold a Certificate of Public
Convenience and Necessity issued by the DOT that allows us to engage in air
transportation. Pursuant to law and DOT regulation, each United States carrier
must qualify as a United States citizen, which requires that its President and
at least two-thirds of its Board of Directors and other managing officers be
comprised of United States citizens; that not more than 25% of its voting stock
may be owned by foreign nationals, and that the carrier not be otherwise subject
to foreign control.
U.S. Federal Aviation Administration. We also hold an operating
certificate issued by the FAA pursuant to Part 121 of the Federal Aviation
Regulations. The FAA has jurisdiction over the regulation of flight operations
generally, including the licensing of pilots and maintenance personnel, the
establishment of minimum standards for training and maintenance, and technical
standards for flight, communications and ground equipment. We must have and we
maintain FAA certificates of airworthiness for all of our aircraft. Our flight
personnel, flight and emergency procedures, aircraft and maintenance facilities
are subject to periodic inspections and tests by the FAA.
At the present time, four airports, including New York City (LaGuardia),
are regulated by means of "slot" allocations, which represent government
authorization to take off or land at a particular airport within a specified
time period. FAA regulations require the use of each slot at least 80% of the
time and provide for forfeiture of slots in certain circumstances. The Company
currently holds an exemption representing six take-off and landing slots to
serve the Denver-New York City (LaGuardia) market.
The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, the Airport Noise and Capacity Act of 1990 ("ANCA") and
Clean Air Act of 1963 to monitor and regulate aircraft engine noise and exhaust
emissions. We are required to comply with all applicable FAA noise control
regulations and with current exhaust emissions standards. According to FAA
rules, we must presently have at least 75% of our fleet in compliance with the
FAA's Stage 3 noise level requirements. The balance of our fleet must be brought
into full compliance by January 2000. Our aircraft fleet is currently in
compliance with Stage 3 noise level requirements. See "Description of
Business-Aircraft."
Railway Labor Act/National Mediation Board. Our pilots organized in 1998
under an independent union, the Frontier Airlines Pilots Association. Our labor
relations with respect to the pilots are now covered under Title II of the
Railway Labor Act and are subject to the jurisdiction of the National Mediation
Board.
Miscellaneous. All air carriers are also subject to certain provisions of
the Communications Act of 1934 because of their extensive use of radio and other
communication facilities, and are required to obtain an aeronautical radio
license from the Federal Communications Commission ("FCC"). To the extent that
we are subject to FCC requirements, we take all necessary steps to comply with
those requirements.
Risk Factors
In addition to the other information contained in this Form 10-K, the
following risk factors should be considered carefully in evaluating us and our
business.
We Have a History of Net Losses, Substantial Third-Party Credit and A Limited
Operating History
Although we had net income of $30,566,000 for the fiscal year ended
March 31, 1999, we had net losses of $17,746,000 and $12,186,000 for the years
ended March 31, 1998 and 1997, respectively. We had working capital of
$25,488,000 at March 31, 1999. Our suppliers currently provide goods, services
and operating equipment on open credit terms. If such terms were modified to
require immediate cash payments, we would be materially adversely affected. We
have a limited operating history in a highly competitive industry, and we face
all of the difficulties inherent in a relatively new entrant in the airline
industry.
The Airline Industry is Seasonal and Cyclical
Our operations primarily depend on passenger travel demand, and, as
such are subject to seasonal variations. Our weakest travel periods are
generally during the quarters ending in June and December. The airline industry
is also a highly cyclical business with substantial volatility. Airlines
frequently experience short-term cash requirements. This is caused by seasonal
fluctuations in traffic, which often put a drain on cash during off-peak
periods, and various other factors, including price competition from other
airlines, national and international events, fuel prices and general economic
conditions, including inflation. Because a substantial portion of airline travel
is discretionary, our operating and financial results may be negatively impacted
by any downturn in national or regional economic conditions in the United
States, particularly Colorado. Airlines require substantial liquidity to
continue operating under most conditions. The airline industry also has low
gross profit margins and revenues that vary to a substantially greater degree
than do the related costs. Therefore, a significant shortfall from expected
revenue levels could have a material adverse effect on our operations. Working
capital deficits are not uncommon in the airline industry since airlines
typically have no product inventories and ticket sales not yet flown are
reflected as current liabilities.
Increasing Number of Consolidations and Alliances Has Also Increased Competition
The U.S. airline industry has consolidated in recent years and may
further consolidate in the future. Consolidations have enabled certain carriers
to expand their international operations and increase their presence in the U.S.
domestic market. In addition, many major domestic carriers have formed alliances
with domestic regional carriers and foreign carriers. As a result, many of the
carriers with which we compete in our markets are larger and have substantially
greater resources than we have. Continuing developments in the industry will
affect our ability to compete in the various markets in which we operate.
We Are in a High Fixed Cost Business
The airline industry is characterized by fixed costs that are high in
relation to revenues. Accordingly, a shortfall from expected revenue levels can
have a material adverse effect on our profitability and liquidity.
Increases in Fuel Costs Affect Our Operating Costs
Fuel is a major component of operating expense for all airlines. Both
the cost and availability of fuel are subject to many economic and political
factors and events occurring throughout the world, and fuel costs fluctuate
widely. Fuel accounted for 11.6% of our total operating expenses for the year
ended March 31, 1999. We cannot predict our future cost and availability of
fuel, and substantial sustained price increases or the unavailability of
adequate fuel supplies could have a material adverse effect on our operations
and profitability. Because newer aircraft are more fuel efficient than our
Boeing 737-200 aircraft a significant increase in the price of jet fuel would
therefore result in a higher increase in our total costs than those of
competitors using more fuel-efficient aircraft. In addition, larger airlines may
have a competitive advantage because they pay lower prices for fuel. We intend
generally to follow industry trends by raising fares in response to significant
fuel price increases. However, our ability to pass on increased fuel costs
through fare increases may be limited by economic and competitive conditions.
We are Subject to Federal Regulatory Oversight
We have obtained the necessary authority to conduct flight operations,
including a Certificate of Public Convenience and Necessity from the Department
of Transportation and an operating certificate from the FAA. However, the
continuation of such authority is subject to continued compliance with
applicable statutes, rules and regulations pertaining to the airline industry,
including any new rules and regulations that may be adopted in the future. We
believe that small and start-up airlines are often subject to strict scrutiny by
FAA officials, making them susceptible to regulatory demands that can negatively
impact their operations. No assurance can be given that we will be able to
continue to comply with all present and future rules and regulations. In
addition, we can give no assurance about the costs of compliance with such
regulations and the effect of such compliance costs on our profitability. In May
1996 a relatively new domestic airline, as we are, sustained an accident in
which one of its aircraft was destroyed and all persons on board were fatally
injured. In June 1996, that airline agreed at the FAA's request to cease all of
its flight operations. Although the FAA, after an intensive and lengthy
investigation, allowed that airline to resume its operations, should we
experience a similar accident it is probable that there would be a material
adverse effect on our business and results of operations.
We Experience High Costs at Denver International Airport; the Future
Availability and Location of Our DIA Gates and Their Cost is Uncertain
DIA opened in March 1995, and Stapleton International Airport was
closed. Financed through revenue bonds, DIA depends on landing fees, gate
rentals and other income from airlines, the traveling public and others to pay
debt service and support operations. Generally, our cost of operations at DIA
will vary as traffic increases or diminishes at that airport. We believe that
our operating costs at DIA substantially exceed those we would have incurred at
Stapleton or that other airlines incur at most hub airports in other cities.
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
which Continental does not renew its lease. 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 four 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 significant possibility that the 1995 Agreement, or
any rate-making methodology unilaterally imposed by CCD, will be subject to
litigation. In these circumstances, there is uncertainty with respect to the
number and location of gate facilities at DIA that will be available to us, as
well as the rates and charges that we will be required to pay for such
facilities after February 2000. If we were required to operate at fewer gates
than we have requested or if the rate-making methodology is not amended, it
could have a material adverse effect on our business and results of operations.
We Have a Limited Number of Routes
Because of our relatively small fleet size and limited number of
routes, we are at a competitive disadvantage compared to other airlines, such as
United Airlines, that can spread their operating costs across more equipment and
routes and retain connecting traffic (and revenue) within their much more
extensive route networks.
We Face Intense Competition and Market Dominance by United Airlines
The airline industry is highly competitive, primarily due to the
effects of the Airline Deregulation Act of 1978 (the "Deregulation Act"), which
has substantially eliminated government authority to regulate domestic routes
and fares and has increased the ability of airlines to compete with respect to
flight frequencies and fares. We compete with United Airlines in the Denver
market, which is our hub, and we anticipate that we will compete principally
with United Airlines in our future market entries. United Airlines and its
commuter affiliates is the dominant carrier out of DIA, accounting for
approximately 74% of all passenger boardings and approximately 490 departures
per day. Effective in February 1997, United Airlines commenced service using its
low fare United "Shuttle" between Denver and Phoenix, Arizona, and on October
31, 1997 service to Salt Lake City was added, markets in which we provide
services, as well as additional United Airlines flights in certain of our other
markets. Additionally, from June 29, 1997 until February 4, 1998 when it ceased
flight operations entirely, Western Pacific Airlines, another low-fare carrier
provided hub service at DIA. This additional competition, as well as other
competitive activities by United Airlines and other carriers, have had in the
past and could continue to have a material adverse effect on our revenues and
results of operations. Most of our current and potential competitors have
significantly greater financial resources, larger route networks and superior
market identity than we have.
We are Dependent on Our Chief Executive Officer
We are dependent on the active participation of Samuel D. Addoms, our
President and Chief Executive Officer. The loss of his services could materially
and adversely affect our business and future prospects. We do not maintain key
person life insurance on any of our officers.
We Could Lose Airport and Gate Access
We have not initially encountered barriers to airport or airport gate
access other than cost. However, any condition that would deny or limit our
access to the airports that we intend to utilize in the future or that
diminishes the desire or ability of potential customers to travel between any of
those cities may have a materially adverse effect on our business. In addition,
gates may be limited at some airports, which could adversely affect our
operations.
There are Certain Risks Associated with Our Boeing 737 Aircraft
A. Maintenance. Under our aircraft lease agreements, we are required to
bear all routine and major maintenance expenses. Maintenance expenses comprise a
significant portion of our operating expenses. In addition, we are required
periodically to take aircraft out of service for heavy maintenance checks, which
can adversely affect revenues. We also may be required to comply with
regulations and airworthiness directives issued by the Federal Aviation
Administration, the cost of which may be partially assumed by our aircraft
lessors depending upon the magnitude of the expense. There can be no assurance
that we will not incur higher than anticipated maintenance expenses. Our leased
aircraft are in compliance with all FAA-issued Airworthiness Directives ("ADs").
However, other ADs are presently required to be performed in the future and
there is a high probability that additional ADs will be required.
B. Stage 3 Noise Regulations. FAA rules require each new entrant airline
such as Frontier to have at least 75% of its fleet in compliance with the FAA's
Stage 3 noise level requirements. We are currently in compliance. The balance of
each airline's fleet must be brought into full compliance by January 2000. Five
of our eight leased Boeing 737-200 aircraft do not presently meet Stage 3
requirements, and we plan to return them to the lessor in 1999. We believe that
we will be able to replace these aircraft with Stage 3 compliant aircraft but
there can be no assurance that we will not be required to temporarily reduce our
fleet size during this replacement process. The remaining 12 Boeing 737-300
aircraft we lease are Stage 3 compliant.
C. Local Noise Regulations. As a result of litigation and pressure from
airport area residents, airport operators have taken local actions over the
years to reduce aircraft noise. These actions have included regulations
requiring aircraft to meet prescribed decibel limits by designated dates,
curfews during night time hours, restrictions on frequency of aircraft
operations and various operational procedures for noise abatement. The Airport
Noise and Capacity Act of 1990 ("ANCA") recognized the right of airport
operators with special noise problems to implement local noise abatement
procedures as long as such procedures do not interfere unreasonably with the
interstate and foreign commerce of the national air transportation system. ANCA
generally requires FAA approval of local noise restrictions on Stage 3 aircraft
and establishes a regulatory notice and review process for local restrictions on
Stage 2 aircraft. An agreement between the City and County of Denver and another
city adjacent to DIA precludes the use of Stage 2 aircraft, such as certain of
our Boeing 737-200 aircraft, on one of DIA's runways. On occasion, this results
in longer taxi times for our aircraft than would otherwise be the case. This has
not had a material adverse effect on our operations to date, and we would not
expect it to have such an effect in the future due to the fact that our entire
aircraft fleet must be Stage 3 compliant by January 2000.
We Have a Limited Number of Aircraft, and the Market for Aircraft Fluctuates
We currently schedule all of our aircraft in regular passenger service
with limited spare aircraft capability in the event one or more aircraft is
removed from scheduled service for unplanned maintenance repairs or other
reasons. The unplanned loss of use of one or more of our aircraft for a
significant period of time could have a materially adverse effect on our
operations and operating results. The market for leased aircraft fluctuates
based on worldwide economic factors. There can be no assurance that we will be
able to lease additional aircraft on satisfactory terms or at the times needed.
By way of example, we are returning five of our smaller B-737-200 aircraft to
the lessor in the second half of 1999. We have firm lease agreements to replace
three of these aircraft and have signed letters of intent to replace the other
two. However, delivery delays could cause us to temporarily reduce our fleet
size and our passenger revenues could therefore be adversely affected.
Our Relations With Our Employees is Very Important
We believe we operate with lower personnel costs than many established
airlines, principally due to lower base salaries and greater flexibility in the
utilization of personnel. There can be no assurance that we will continue to
realize these advantages over established or other air carriers for an extended
period of time. Our pilots are represented by an independent labor union, the
Frontier Airlines Pilots Association. Our mechanics and stock clerks voted in
October 1997, and our flight attendants voted in 1998, not to be represented by
a union. Unionization of our employees could materially increase our labor
costs.
We Have Not Paid Dividends
We have never declared or paid cash dividends on our Common Stock. We
currently intend to retain any future earnings to fund operations and to
continue development of our business and do not expect to pay any cash dividends
on our Common Stock in the foreseeable future.
We Face the Year 2000 Issue
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 were limited and 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.
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 third party
service providers to determine their Year 2000 readiness, the extent to which we
are vulnerable to any failure by such third parties to remediate their Year 2000
problems and to resolve such issues to the extent practicable.
All internal systems are in the testing and remediation phases. The
customer reservations and ticketing system and the credit card processing
system, for example, have already been tested and remediated. These systems are
outsourced and the costs of modifying and testing these systems are being
absorbed by the third party provider. Our general accounting and payroll systems
have been upgraded to new versions that are certified as being Year 2000
compliant at an insignificant cost to us. Our crew and dispatch training
records, aircraft maintenance records and inventory control are in the final
stages of being automated from manual systems to computer systems that are
certified as being Year 2000 compliant. The Boeing Company has verified that the
computer systems on the aircraft type operated by us are, or will be, Year 2000
compliant before the year 2000. We plan to complete the testing and remediation
phases by September 30, 1999, and the contingency planning phase by October 31,
1999.
We have utilized existing resources with the exception of four temporary
personnel and have incurred $60,000 of expenses to implement our Year 2000
project as of March 31, 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, we could potentially
experience disruptions to some of our operations, including those resulting from
non-compliant systems used by third party businesses and governmental entities.
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.
Item 2: Properties
We have leased approximately 42,000 square feet of office space in Denver
with terms ending August 2000 and January 2001 at a current annual rental of
approximately $543,000. This facility provides space for our reservations center
together with space for administrative activities, including senior management,
purchasing, accounting, sales, marketing, advertising, human resources,
maintenance and engineering and management information systems.
Each airport location requires leased space associated with gate
operations, ticketing and baggage operations. We either lease the ticket
counters, gates and airport office facilities at each of the airports we serve
from the appropriate airport authority or sublease them from other airlines.
We have entered into an airport lease and facilities agreement with the
City and County of Denver at DIA that expires in 2005. We sublease ticket
counter space and four gates at DIA from Continental Airlines until March 1,
2000 and a portion of Continental Airlines' hangar at DIA until January 1, 2004.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" and "Risk Factors."
Item 3: Legal Proceedings
In February 1997, we filed a complaint with the U.S. Department of
Justice ("DOJ") alleging that United Airlines has engaged in predatory,
anticompetitive and monopolistic practices at DIA. The complaint asks the agency
to investigate eight separate counts of potential antitrust violations. The
eight counts range from "capacity dumping" in markets served by competitors to
alleged abuses relating to United's pricing practices, "exclusive dealing" with
corporate customers and commuter carriers, and other tactics used by United to
allegedly drive competitors from its markets. In early 1998 we received and
answered a DOJ Civil Investigative Demand which requested information and
documents in our possession relating to possible violations of the federal
antitrust laws concerning monopolization or attempts to monopolize air
transportation in certain markets, including certain Denver city-pair markets.
To date, the DOJ has not acted on our complaint. Although the DOJ recently filed
a federal civil antitrust action against another major U.S. carrier with respect
to certain alleged anti-competitive practices against smaller carriers, we are
unable to predict what action, if any, the DOJ will take in response to our
complaint.
In a related matter, the DOT, in response to complaints by us and other
smaller airlines, in April 1998 published a number of proposed guidelines
designed to identify predatory practices in the airline industry, along with
enforcement policies. We are unable to predict what actions, if any, will be
taken either by the DOT or by Congress with respect to these issues.
From time to time, we are engaged in routine litigation incidental to our
business. Except as may be otherwise specifically discussed in this section, we
believe there are no legal proceedings pending in which we are a party or of
which any of our property is the subject that are not adequately covered by
insurance maintained by us, or which if adversely decided, would have a material
adverse effect upon our business or financial condition.
Item 4: Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year covered by this report, we did not
submit any matters to a vote of our security holders through the solicitation of
proxies or otherwise.
PART II
Item 5: Market for Common Equity and Related Stockholder Matters
Price Range of Common Stock
Until May 26, 1999, our Common Stock was traded on the Nasdaq SmallCap
Market under the symbol "FRNT." Effective May 26, 1999, our Common Stock began
trading on the Nasdaq National Market. Our stock will continue to trade under
the symbol "FRNT." We were able to move from the SmallCap Market to the National
Market because of our ability to meet minimum requirements in areas such as net
tangible assets, market capitalization, public float, number of shareholders and
corporate governance.
The following table shows the range of high and low bid prices per share
for our Common Stock for the periods indicated and as reported by Nasdaq through
May 25, 1999, and thereafter the high and low sale prices as reported by Nasdaq.
Market quotations listed here represent prices between dealers and do not
reflect retail mark-ups, mark-downs or commissions. As of June 18, 1999 there
were 652 holders of record of our Common Stock.
Price Range of
Common Stock
Quarter Ended High Low
June 30, 1997 $ 4 7/16 $ 2 15/16
September 30, 1997 4 5/16 2 13/32
December 31, 1997 3 5/8 1 9/16
March 31, 1998 4 1 3/4
June 30, 1998 3 7/8 2 7/8
September 30, 1998 4 5/8 3
December 31, 1998 5 3/8 3
March 31, 1999 10 4 15/16
June 30, 1999 (through June 18, 1999) 17 3/16 9 1/2
Recent Sales of Securities
In April 1998, in connection with a private placement of 4,363,001 shares
of our Common Stock, we issued a warrant to an institutional investor to
purchase 716,929 shares of our Common Stock at a purchase price of $3.75 per
share, which warrant expires in April 2002. In May 1998, we issued a warrant to
a financial advisor in connection with debt and equity financings to purchase
548,000 shares of our Common Stock at a purchase price of $3.00 per share, which
warrant expires in May 2003. In September 1998 we issued to a financial
consultant a warrant to purchase 15,000 shares of our common stock at a purchase
price of $3.57 per share, which warrant expires in September 2003. Each of these
transactions was made under an exemption from registration under the Securities
Act of 1933 pursuant to Sections 4(2) or 4(6) thereof, although the shares
underlying the warrants issued to the institutional investor and financial
advisor were subsequently registered with the Securities and Exchange Commission
on Forms S-3.
<PAGE>
During the period April 1, 1998 through June 16, 1999, various holders of
warrants to purchase our Common Stock exercised their warrants and we issued
Common Stock as described below:
Warrant
Number of Exercise Dates of
Warrant Holder Shares Issued Price Exercise
Initial Public Offering
Underwriter (and affiliates) 110,000 $5.525 3/29/99-
5/18/99
Aircraft Lessor 395,000 $5.00-$7.19 5/6/99 &
6/16/99
Lender 1,750,000 $3.00 7/30/98-
2/19/99
Financial Advisor 548,000 $3.00 6/14/99
Consultant 20,000 $3.00 12/23/98
As of June 18, 1999, we have granted stock options to our employees and
directors to purchase up to 2,658,750 shares of Common Stock, 927,396 of which
options have been previously exercised and 1,038,020 of which are currently
exercisable at exercise prices ranging from $1.00 to $3.86 per share.
Dividend Policy
We have not declared or paid cash dividends on our Common Stock. We
currently intend to retain any future earnings to fund operations and the
continued development of our business, and, thus, do not expect to pay any cash
dividends on our Common Stock in the foreseeable future. Future cash dividends,
if any, will be determined by our Board of Directors and will be based upon our
earnings, capital requirements, financial condition and other factors deemed
relevant by the Board of Directors.
Rights Dividend Distribution
In February 1997, our Board of Directors declared a dividend distribution
of one right (a "Right") for each outstanding share of our Common Stock to
shareholders of record at the close of business on March 15, 1997. Except as
described below, each Right, when exercisable, entitles the registered holder to
purchase from us one share of Common Stock at a purchase price of $17.50 per
share (the "Purchase Price"), subject to adjustment. The Rights expire at the
close of business on February 20, 2007, unless we redeem or exchange them
earlier as described below. The description and terms of the Rights are set
forth in a Rights Agreement, as amended by amendments dated June 30, 1997 and
December 5, 1997 (as so amended, the "Rights Agreement").
The Rights are exercisable upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
other than us, our subsidiaries or any person receiving newly-issued shares of
Common Stock directly from us or indirectly via an underwriter in connection
with a public offering by us (an "Acquiring Person") has acquired, or obtained
the right to acquire, beneficial ownership of 20% or more of the outstanding
shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days
following the commencement of a tender offer or exchange offer that would result
in a person or group beneficially owning 20% or more of such outstanding shares
of Common Stock.
If any person becomes an Acquiring Person other than pursuant to a
Qualifying Offer (as defined below), each holder of a Right has the right to
receive, upon exercise, Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two times
the exercise price of the Right. Notwithstanding any of the foregoing, all
Rights that are beneficially owned by any Acquiring Person will be null and
void. However, Rights are not exercisable in any event until such time as the
Rights are no longer redeemable by us as set forth below.
A "Qualifying Offer" means a tender offer or exchange offer for, or
merger proposal involving, all outstanding shares of Common Stock at a price and
on terms determined by at least a majority of the Board of Directors who are not
our officers or employees and who are not related to the Person making such
offer, to be fair to and in the best interests of the Company and our
shareholders.
If after the Stock Acquisition Date we are acquired in a merger or other
business combination transaction in which the Common Stock is changed or
exchanged or in which we are not the surviving corporation (other than a merger
that follows a Qualifying Offer) or 50% or more of the Company's assets or
earning power is sold or transferred, each holder of a Right shall have the
right to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the exercise price of the Right.
The Purchase Price payable, and the number of shares of Common Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Stock, (ii) if holders of the Common Stock are granted certain rights or
warrants to subscribe for Common Stock or convertible securities at less than
the current market price of the Common Stock, or (iii) upon the distribution to
holders of the Common Stock of evidences of indebtedness or assets or of
subscription rights or warrants.
At any time until ten days following the Stock Acquisition Date, we may
redeem the Rights in whole at a price of $.01 per Right. Upon the action of the
Board of Directors ordering redemption of the Rights, the Rights will terminate
and the only right of the holders of Rights will be to receive the $.01
redemption price.
While the distribution, if any, of the Rights will not be taxable to
shareholders or to us, shareholders may, depending upon the circumstances,
recognize taxable income if the Rights become exercisable for Common Stock (or
other consideration) of the Company or for common stock of the acquiring
company.
<PAGE>
Item 6: Selected Financial Data
The following selected financial data as of and for each of the years
ended March 31, 1999, 1998, 1997, 1996 and 1995 are derived from our audited
financial statements. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the financial statements and the related notes thereto included elsewhere in
this Report.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended March 31,
1999 1998 1997 1996 1995
------------------------------------------------------------------
Statement of Operations Data:
Total operating revenues (000s) $220,608 $147,142 $116,501 $70,393 $24,595
Total operating expenses (000s) 195,928 165,697 129,662 76,325 32,692
Operating income (loss) (000s) 24,680 (18,554) (13,161) (5,933) (8,122)
Net income (loss) (000s) 30,566 (17,746) (12,186) (5,582) (7,999)
Net income (loss) per share
basic 2.14 (1.95) (1.49) (1.23) (2.56)
diluted 1.98 (1.95) (1.49) (1.23) (2.56)
Balance Sheet Data:
Cash and cash equivalents (000s) $47,289 $3,641 $10,286 $6,359 $3,835
Current assets (000s) 94,209 33,999 31,470 25,797 8,270
Total assets (000s) 119,620 50,598 44,093 30,990 13,746
Current liabilities (000s) 68,721 50,324 32,745 25,844 9,529
Long-term debt (000s) 435 3,566 56 92 147
Total liabilities (000s) 75,230 56,272 34,210 26,289 12,104
Stockholders' equity (deficit) (000s) 44,391 (5,673) 9,883 4,701 1,642
Working capital (deficit) (000s) 25,488 (16,325) (1,275) (47) (1,259)
Selected Operating Data:
Passenger revenue (1) (000s) $214,311 $142,018 $113,758 $68,455 $23,883
Revenue passengers carried (000s) 1,664 1,356 1,180 758 269
Revenue passenger miles (RPMs) (2) (000s) 1,506,597 1,119,378 839,939 479,887 147,215
Available seat miles (ASMs) (3) (000s) 2,537,503 1,996,185 1,419,720 844,161 357,089
Passenger load factor (4) 59.4% 56.1% 59.2% 56.8% 41.2%
Break-even load factor (5) 52.4% 63.1% 65.5% 61.5% 55.0%
Block hours (6) 52,789 42,767 32,459 20,783 9,719
Departures 25,778 22,257 18,910 14,957 8,779
Average seats per departure 125 124 118 112 108
Average stage length 787 723 636 504 377
Average length of haul 905 826 712 633 547
Aircraft miles 20,300 16,098 12,032 7,537 3,306
Average daily block hour utilization (7) 9.6 9.5 10.3 9.9 8.7
Yield per RPM ( 8) (cents) 14.22 12.69 13.54 14.26 16.22
Total yield per RPM (9) (cents) 14.64 13.15 13.87 14.67 16.71
Total yield per ASM (10) (cents) 8.69 7.37 8.21 8.34 6.89
Expense per ASM (cents) 7.72 8.30 9.13 9.04 9.16
Expense per ASM excluding fuel (cents) 6.82 7.13 7.61 7.65 7.73
Passenger revenue per block hour $4,060 $3,321 $3,505 $3,294 $2,457
Average fare (11) $123 $100 $92 $88 $88
Average aircraft in service 15.0 12.3 9.6 5.7 4.1
EBITDAR (12) (000s) 58,848 7,437 4,576 942 (5,618)
EBITDAR as a % of revenue 26.7% 5.1% 3.9% 1.3% (22.8%)
Note: We did not begin flight operations until July 1994 (during the fiscal year ended March 31, 1995).
</TABLE>
<PAGE>
(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 passenger 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
we and many airline industry analysts 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.
Item 7: Management's Discussion and Analysis of Financial Condition and Result
of Operations
Selected Operating Statistics
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 years ended March 31, 1999, 1998
and 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
------------------------ ----------------------- -----------------------
Per % Per % Per %
total of total of total of
ASM Revenue ASM Revenue ASM Revenue
Revenues:
Passenger 8.44 97.2% 7.11 96.5% 8.01 97.6%
Cargo 0.19 2.2% 0.15 2.1% 0.14 1.7%
Other 0.06 0.6% 0.11 1.4% 0.06 0.7%
----------- ----------- ----------- ---------- ----------- ----------
Total revenues 8.69 100.0% 7.37 100.0% 8.21 100.0%
Operating expenses:
Flight operations 3.12 35.9% 3.32 45.1% 3.71 45.2%
Aircraft and traffic servicing 1.35 15.5% 1.54 20.9% 1.75 21.3%
Maintenance 1.42 16.4% 1.59 21.6% 1.76 21.4%
Promotion and sales 1.40 16.1% 1.47 19.9% 1.52 18.5%
General and administrative 0.36 4.2% 0.32 4.3% 0.33 4.0%
Depreciation and amortization 0.07 0.7% 0.06 0.9% 0.08 0.9%
=========== =========== =========== ========== =========== ==========
Total operating expenses 7.72 88.8% 8.30 112.6% 9.13 111.3%
=========== =========== =========== ========== =========== ==========
Total ASMs (000s) 2,537,503 1,996,185 1,419,720
</TABLE>
Results of Operations - Year Ended March 31, 1999 Compared to Year Ended March
31, 1998
General
We are a scheduled airline based in Denver, Colorado. We currently
operate routes linking our Denver hub to 19 cities in 15 states spanning the
nation from coast to coast. At present, we use up to seven gates at Denver
International Airport ("DIA") for approximately 92 daily flight departures and
arrivals. During the year ended March 31, 1999, we added Atlanta, Georgia and
Dallas/Ft. Worth, Texas to our route system and re-entered the San Diego,
California and Las Vegas, Nevada markets. On June 14, 1999 we commenced service
in the Denver-Portland, Oregon market.
Organized in February 1994, we commenced flight operations as a regional
carrier in July 1994 with two leased Boeing 737-200 jet aircraft. We have since
expanded our fleet to 20 leased jets as of June 1999, including eight Boeing
737-200s and twelve larger Boeing 737-300s. During the year ended March 31,
1999, we added two additional leased Boeing 737-300 aircraft and one Boeing
737-200A to our fleet.
On June 30, 1997, we signed an Agreement and Plan of Merger ("the Merger
Agreement") providing for our merger (the "Merger") with Western Pacific
Airlines. Pursuant to the Merger Agreement, a "code share" marketing alliance
between us and Western Pacific went into effect on August 1, 1997, in effect
integrating the route networks of the two airlines. On September 29, 1997, we
both mutually agreed to terminate the Merger Agreement and the code-share
arrangement. The separation of the two carriers required us to implement a
costly restructuring of our flight schedule and route system to support a
stand-alone operation competing against both Western Pacific and United
Airlines, the dominant air carrier at DIA. On October 5, 1997, Western Pacific
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Western
Pacific ceased operations on February 4, 1998. The Merger Agreement and our
competition with Western Pacific adversely affected our results of operations
for the year ended March 31, 1998.
As a result of the expansion of our operations and the cessation of
service by Western Pacific during the year ended March 31, 1999, our results of
operations are not necessarily indicative of future operating results or
comparable to the prior year ended March 31, 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 the our liquidity, cash
flows and results of operations.
Results of Operations
We had net income of $30,566,000 or $1.98 per diluted share for the year
ended March 31, 1999 as compared to a net loss of $17,746,000 or $1.95 per share
for the year ended March 31, 1998. During the year ended March 31, 1999 as
compared to the prior comparable period, we experienced higher fares as a result
of increases in business travelers, decreased competition as a result of the
demise of Western Pacific, and an increase in the average length of haul and
stage length. Our cost per ASM declined to 7.72(cent) during the year ended
March 31, 1999 from 8.30(cent) for the prior comparable period, principally as a
result of lower fuel prices and improved operating efficiencies and economies of
scale as our fixed costs were spread across a larger base of operations.
An airline's break-even load factor is the passenger load factor that
will result in operating revenues being equal to operating expenses, assuming
constant revenue per passenger mile and expenses. For the year ended March 31,
1999, our break-even load factor was 52.4% compared to the passenger load factor
achieved of 59.4%. For the year ended March 31, 1998, our break-even load factor
was 63.1% compared to the achieved passenger load factor of 56.1%. Our
break-even load factor decreased from the prior comparable period largely as a
result of an increase in our average fare to $123 during the year ended March
31, 1999 from $100 during the year ended March 31, 1998, an increase in our
total yield per RPM from 13.15(cent) for the year ended March 31, 1998 to
14.64(cent) for the year ended March 31, 1999, and a decrease in our expense per
ASM to 7.72(cent) for the year ended March 31, 1999 from 8.30(cent) for the year
ended March 31, 1998.
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.
Our average fare for the years ended March 31, 1999 and 1998 was $123 and
$100, respectively. We believe that the increase in the average fare during the
year ended March 31, 1999 over the prior comparable period was largely a result
of our focus on increasing the number of business travelers, decreased
competition as a result of the demise of Western Pacific, and an increase in the
average length of haul and stage length. The average length of haul increased
from 825 miles for the year ended March 31, 1998 to 905 miles for the year ended
March 31, 1999. We also experienced higher average fares in certain of our
markets as a result of accommodating Northwest Airlines passengers during that
carrier's pilot strike in August and September 1998.
Passenger Revenues. Passenger revenues totaled $214,311,000 for the year
ended March 31, 1999 compared to $142,018,000 for the year ended March 31, 1998,
or an increase of 50.9%. We carried 1,664,000 revenue passengers for the year
ended March 31, 1999 compared to 1,356,000 for the year ended March 31, 1998 or
an increase of 22.7%. We had an average of 15 aircraft in our fleet during the
year ended March 31, 1999 compared to an average of 12.3 aircraft during the
year ended March 31, 1998, an increase of 22%, and ASMs increased 541,318,000 or
27.1%.
Cargo revenues, consisting of revenues from freight and mail service,
totaled $4,881,000 and $3,009,000 for the years ended March 31, 1999 and 1998,
respectively, representing 2.2% and 2.0% of total operating revenues,
respectively, or an increase of 62.2%. 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 $1,415,000 and $2,115,000 or .6% and 1.4%
of total operating revenues for each of the years ended March 31, 1999 and 1998,
respectively. Other revenues were higher during the year ended March 31, 1998 as
a result of ticket handling fees associated with the code share agreement with
Western Pacific. Ticket handling fees are earned by the ticketing airline to
offset ticketing costs incurred on segments ticketed on the flight operated by
our code share partner. We recognized approximately $1,007,000 in ticket
handling fees associated with our code share agreement with Western Pacific
during the year ended March 31, 1998. The costs that offset this revenue are
included in sales and promotion expenses.
Operating Expenses
Operating expenses include those related to flight operations, aircraft
and traffic servicing, maintenance, promotion and sales, general and
administrative and depreciation and amortization. Total operating expenses were
$195,928,000 and $165,697,000 for the years ended March 31, 1999 and 1998 and
represented 88.8% and 112.6% of total revenue, respectively. Operating expenses
decreased as a percentage of revenue during the year ended March 31, 1999 as we
experienced significantly lower fuel prices and improved operating efficiencies
and economies of scale as our fixed costs were spread across a larger base of
operations.
Flight Operations. Flight operations expenses of $79,247,000 and
$66,288,000 were 35.9% and 45.1% of total revenue for the years ended March 31,
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.
Aircraft fuel expenses include both the direct cost of fuel including
taxes as well as the cost of delivering fuel into the aircraft. Aircraft fuel
costs of $22,758,000 for 41,082,000 gallons used and $23,332,000 for 33,098,000
gallons used resulted in an average fuel cost of 55.4(cent) and 70.5(cent) per
gallon and represented 28.7% and 35.2% of total flight operations expenses for
the years ended March 31, 1999 and 1998, respectively. The average fuel cost per
gallon decreased for the years ended March 31, 1999 and 1998 from the comparable
prior period due to an overall decrease in the market price of fuel. Fuel prices
are subject to change weekly as we do not purchase supplies in advance for
inventory. Fuel consumption for each of the years ended March 31, 1999 and 1998
averaged 778 and 774 gallons per block hour, respectively.
Aircraft lease expenses totaled $32,958,000 (14.9% of total revenue) and
$24,330,000 (16.5% of total revenue) for the years ended March 31, 1999 and
1998, respectively, or an increase of 35.5%. The increase is largely due to
higher lease expenses for larger and newer Boeing 737-300 aircraft added to the
fleet which resulted in the increase in the average number of aircraft to 15
from 12.3, or 22%, for the years ended March 31, 1999, respectively.
Aircraft insurance expenses totaled $2,425,000 (1.1% of total revenue)
for the years ended March 31, 1999 and 1998 offset by a profit commission of
$153,000 for the policy period ended June 6, 1998. The profit commission was
earned because we had no aircraft hull insurance claims during the 1997-1998
policy year. Aircraft insurance expenses for the year ended March 31, 1998 were
$2,989,000 (2% of total revenue). Aircraft insurance expenses decreased as a
percentage of revenue as a result of competitive pricing in the aircraft
insurance industry, 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 $10,653,000 and $8,708,000 or 5% and 6.1% of passenger revenue for each
of the years ended March 31, 1999 and 1998, or an increase of 22.3%. Pilot and
flight attendant compensation increased principally as a result of a 22%
increase in the average number of aircraft in service, general wage rate
increases, and an increase of 23.4% 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 exception.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses
were $34,147,000 and $30,685,000 (an increase of 11.3%) for the years ended
March 31, 1999 and 1998, respectively, and represented 15.5% and 20.9% of total
revenue. These include all expenses incurred at airports served by us, as well
as station operations administration and flight operations ground equipment
maintenance. Station expenses include landing fees, facilities rental, station
labor and ground handling expenses. Station expenses as a percentage of revenue
decreased during the year ended March 31, 1999 over the year ended March 31,
1998 as a result of our rental costs (in particular, the gate rentals at DIA and
other cities where we added additional frequencies), which are largely fixed
costs, remaining relatively constant as compared to the increase in revenue.
Additionally, we began our own ground handling operations at DIA effective
September 1, 1998 which is more cost effective than using a third party
contractor. Aircraft and traffic servicing expenses will increase with the
addition of new cities to our route system.
Maintenance. Maintenance expenses of $36,090,000 and $31,791,000 were
16.4% and 21.6% of total revenue for the years ended March 31, 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. Effective March 1999, we began to conduct certain
aircraft heavy maintenance checks in-house which we expect will reduce
maintenance expenses in future years. During the quarter ended March 31, 1999,
we reduced our accrued maintenance expenses for these heavy maintenance checks
by approximately $1,100,000 as a result of the reduced costs associated with
performing these heavy maintenance checks in-house. Maintenance cost per block
hour was $684 and $743 per block hour for the years ended March 31, 1999 and
1998, respectively. Maintenance costs per block hour decreased as a result of
six new aircraft we added to our fleet during the past two years, by bringing
certain aircraft heavy maintenance checks in-house, the fixed rental cost of the
hangar facility being spread over a larger aircraft fleet offset by FAA mandated
corrosion inspections on our 737-200s. The newer aircraft require fewer routine
repairs and are generally covered by a warranty period of approximately up to
three years on standard Boeing components. We believe that these costs will
continue to normalize as we add additional aircraft to our fleet.
Promotion and Sales. Promotion and sales expenses totaled $35,621,000 and
$29,329,000 and were 16.1% and 19.9% of total revenue for the years ended March
31, 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. Our
promotion and sales expenses for the year ended March 31, 1998 included expenses
as a result of the code share agreement with Western Pacific, under which we
incurred additional communications, computer reservation, and interline service
charges and handling fees for the code share agreement. These expenses were
offset, in part, by interline handling fees earned which are included in other
revenues. We did not have any code share agreements during the year ended March
31, 1999 that had as large of an impact on our expenses as the code share
agreement with Western Pacific. Promotion and sales expenses decreased as a
percentage of revenue for the year ended March 31, 1999 over the prior
comparable period largely as a result of the increase in revenue.
Promotion and sales expenses per passenger decreased to $21.41 from
$21.63 for year ended March 31, 1999, as a result of the elimination of expenses
related to the code share agreement with Western Pacific offset by increased
reservation costs and an increase in credit card fees. The costs of reservation
expenses increased as a result of outsourcing part of our reservations
requirements. These increased costs were offset by a decrease in travel agency
commissions. During April 1998, we reduced travel agency commissions to 8% from
10%, matching an 8% commission instituted by our competitors in the fall of
1997. Additionally, our direct sales, which are not subject to commissions,
increased as a percentage of passenger revenue. Travel agency commissions and
interline service charges and handling fees, as a percentage of passenger
revenue, before non-revenue passengers, administrative fees and breakage
(revenue from expired tickets), decreased to 5.6% for the year ended March 31,
1999 from 7.6% for the year ended March 31, 1998.
Advertising expenses of $3,900,000 were 1.8% of passenger revenue for the
year ended March 31, 1999, compared to $3,048,000 or 2.2% of passenger revenue
for the year ended March 31, 1998. As new cities are added to our flight
schedule, advertising and marketing promotions are designed and implemented to
increase awareness of our new service, name and brand awareness. Advertising
expenses decreased as a percentage of revenue largely as a result of the
increase in the average fare. Additionally, during the year ended March 31, 1998
we competed with Western Pacific for the low fare market which required a higher
volume of advertising.
General and Administrative. General and administrative expenses for the
years ended March 31, 1999 and 1998 totaled $9,163,000 and $6,353,000,
respectively, and were 4.2% and 4.3% of total revenue, respectively. These
expenses include the wages and benefits for our executive officers and various
other administrative personnel. Legal and accounting expenses, supplies and
other miscellaneous expenses are also included in this category. Included in
general and administrative expenses for the year ended March 31, 1999 were
accrued bonuses and related payroll taxes for our employees which totaled
approximately $1,830,000. This was the first time we paid bonuses to our
employees. Included in general and administrative expenses during the year ended
March 31, 1998 were unusual expenses of approximately $500,000 associated with
the terminated Merger Agreement with Western Pacific.
Depreciation and Amortization. Depreciation and amortization expenses of
$1,659,000 and $1,251,000 were approximately .8% and .9% of total revenue for
the years ended March 31, 1999 and 1998, respectively. These expenses include
depreciation of office equipment, ground station equipment, and other fixed
assets. Amortization of start-up and route development costs are not included as
these expenses have been expensed as incurred.
Nonoperating Income (Expense). Net nonoperating income totaled $406,000
for the year ended March 31, 1999 compared to $808,000 for the year ended March
31, 1998. Interest income increased from $722,000 to $1,556,000 during the year
ended March 31, 1999 from the prior comparable period due to an increase in cash
balances as a result of the sale of Common Stock in April 1998 and an increase
in cash from operating activities. Interest expenses increased to $701,000 from
$324,000 during the year ended March 31, 1999 from the prior year. In December
1997, we sold $5,000,000 of 10% senior notes. In connection with this
transaction, we issued the lender warrants to purchase 1,750,000 shares of
Common Stock. Interest expense paid in cash and the accretion of the warrants
and deferred loan expenses associated with the senior secured notes totaled
$568,000 and $263,000 during the years ended March 31, 1999 and 1998,
respectively. See Note 4 to the Financial Statements. Other, net nonoperating
expense was $449,000 for the year ended March 31, 1999 compared to other, net
nonoperating income of $410,000 for the year ended March 31, 1998. Other, net
nonoperating expense for the year ended March 31, 1999 includes $486,000 of
unamortized deferred loan and warrant costs associated with the senior secured
notes that remained at the time we prepaid the debt.
Income Tax Benefit: We recognized an income tax benefit of $5,480,000
primarily attributable to the probable realization of our remaining income tax
loss carryforwards for which a valuation allowance had been previously recorded.
As a result of our profitability for the year ended March 31, 1999 and projected
taxable income for the year ending March 31, 2000, a valuation allowance was no
longer considered necessary.
Expenses per ASM. Our expenses per ASM for the years ended March 31, 1999
and 1998 were 7.72(cent) and 8.30(cent), respectively, or a decrease of 7%.
Expenses per ASM decreased from the prior comparable period as a result of
economies of scale as fixed costs were spread across a larger base of
operations, a decrease in fuel prices, and the increase in average ASMs per
aircraft as we added aircraft with greater seating capacity compared to earlier
fleet additions. Expenses per ASM excluding fuel for the year ended were
6.82(cent) and 7.13(cent), respectively, or a decrease of 4.3%. Expenses per ASM
are influenced to a degree by the amount of aircraft utilization and by aircraft
seating configuration. For example, with the 108 seat all coach seating
configuration selected by us on five of our Boeing 737-200 aircraft, the
expenses per ASM for us are higher by 11% when compared with the 120 seat
alternative used by many carriers. Our average seats per aircraft for the year
ended March 31, 1999 were 125 as compared to 124 seats per aircraft for the year
ended March 31, 1998, with the increase in our Boeing 737-300 aircraft.
Results of Operations - Year Ended March 31, 1998 Compared to Year Ended March
31, 1997
General
During the year ended March 31, 1998, we added four new Boeing 737-300
aircraft to our fleet. As a result of these new aircraft fleet additions, we
added service to Boston, Massachusetts in September 1997, Baltimore, Maryland in
November 1997 and New York (LaGuardia), New York in December 1997. We terminated
service to Las Vegas, Nevada in August 1997 and San Diego, California and St.
Louis, Missouri in November 1997.
In June 1997, we signed the Merger Agreement with Western Pacific. In
September 1997, we mutually agreed to terminate the Merger Agreement. On October
5, 1997, Western Pacific filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. Western Pacific, which originally began service to and from
Colorado Springs, Colorado, commenced service from DIA on June 29, 1997. On
February 4, 1998, Western Pacific ceased flight operations and has since been
engaged in liquidating its business.
As a result of our expansion of operations during the year ended March
31, 1998, our results of operations are not necessarily indicative of future
operating results or comparable to the prior year ended March 31, 1997.
Results of Operations
We incurred a net loss of $17,746,000 or $1.95 per share for the year
ended March 31, 1998 as compared to a net loss of $12,186,000 or $1.49 per share
for the year ended March 31, 1997. We believe that our operating results were
adversely affected during the year ended March 31, 1998 by a code share
agreement with Western Pacific which, in connection with the proposed merger
with Western Pacific, was effective August 1, 1997. The code share was designed
to coordinate our schedule with Western Pacific's schedule at DIA. The code
share agreement was terminated effective November 15, 1997 as a part of the
mutual termination of the Merger Agreement. As a result of the schedule
implemented under the code share agreement, we had flights scheduled in certain
markets that were not at peak travel times. This arrangement did not benefit us
as an independent airline. As a result of the termination of the Merger
Agreement and code share agreement, we introduced a new, independent schedule,
terminated service to San Diego, California and St. Louis, Missouri, and added
routes to Baltimore, Maryland and to New York City's La Guardia Airport in
November and December 1997. Competition from Western Pacific on several of our
routes adversely affected our yields and load factors. Additionally, during the
year ended March 31, 1998 as compared to the prior comparable period, we
experienced higher average aircraft lease expenses on our newer aircraft, higher
maintenance expenses associated with our in-house maintenance operation which
began in September 1996, and unusual general and administrative expenses
associated with the Western Pacific merger.
Revenues
General. Airline revenues are primarily a function of the number of
passengers carried and fares charged by the airline. We believe that revenues
will gradually increase in a new market over a 60 to 120 day period as market
penetration is achieved. We added three new markets during the year ended March
31, 1998 and four new markets during the year ended March 31, 1997.
During the years ended March 31, 1998 and 1997, we faced significant
competitive actions by two airlines that maintained hubs at DIA. During the year
ended March 31, 1997, we competed with United Airlines with respect to fare and
other competitive actions. During the year ended March 31, 1998, we, as well as
competing with United Airlines for passenger traffic and on fares, also were
forced to compete with Western Pacific in six of our markets where Western
Pacific was offering extremely low fares in an effort we believe was targeted
toward increasing load factor and revenues. The effect upon us of this
competition during the year ended March 31, 1997 was a low average fare and, to
a lesser degree, fewer passengers carried, and during the year ended March 31,
1998 fewer passengers carried and with a slight downward effect on the average
fare. Western Pacific discontinued all flight operations on February 4, 1998 and
has since been engaged in liquidating its business.
Our average fares for the years ended March 31, 1998 and 1997 were $100
and $92, respectively. We believe that the increase in the average fare during
the year ended March 31, 1998 over the prior comparable period was largely a
result of our focus on increasing business travelers, an increase in the average
length of haul and stage length, and reduced fare competition from United
Airlines, offset by low pricing by Western Pacific. Effective October 1, 1997,
the U.S. Congress reduced the 10% excise tax to 9%, but added a
per-flight-segment fee of $1 on domestic flights. The tax decreases to 8%
October 1, 1998 and to 7.5% on October 1, 1999. The per-flight-segment fee
increased to $2 effective October 1, 1998, $2.25 effective October 1, 1999 and
thereafter increases in annual amounts of 25 cents until it reaches $3 effective
October 1, 2002.
Passenger Revenue. Passenger revenues totaled $142,018,000 for the year
ended March 31, 1998 compared to $113,758,000 for the year ended March 31, 1997,
or an increase of 24.8%. Competition increased dramatically during the months of
July through January 1998 when Western Pacific began operations at DIA and even
more significantly during the months of October 1997 through January 1998 once
our merger and code share agreements with Western Pacific were terminated. This
increased competition had a negative impact on the number of revenue passengers
we carried. The number of revenue passengers carried was 1,356,000 for the year
ended March 31, 1998 compared to 1,181,000 for the year ended March 31, 1997 or
an increase of 14.9%. We had an average of 12.3 aircraft in service during the
year ended March 31, 1998 compared to an average of 9.6 aircraft in service
during the year ended March 31, 1997 resulted in an increase in ASMs of
576,465,000 or 40.6%.
For the year ended March 31, 1998, our break-even load factor was 63.1%
compared to a passenger load factor of 56.1%. For the year ended March 31, 1997,
our break-even load factor was 65.5% compared to a passenger load factor of
59.2%. Our break-even load factor decreased from the prior comparable period
largely as a result of an increase in our average fare to $100 during the year
ended March 31, 1998 from $92 during the year ended March 31, 1997.
Our load factor decreased to 56.1% for the year ended March 31, 1998 from
59.2% the prior comparable period. We believe that our load factor for the year
ended March 31, 1998 was adversely affected by increased competition from
Western Pacific and the ramp-up effect from new routes we added during
September, November and December 1997.
Cargo revenues, consisting of revenues from freight and mail service,
totaled $3,009,000 and $1,956,000 for the years ended March 31, 1998 and 1997,
representing 2.1% and 1.7% of total operating revenues, respectively.
Other revenues, comprised principally of interline handling fees, liquor
sales and excess baggage fees, totaled $2,115,000 and $786,000 or 1.4% and .7%
of total operating revenues for the years ended March 31, 1998 and 1997,
respectively. The increase for the year ended March 31, 1998 over the prior
comparable period is due to the increase in ticket handling fees associated with
the code share agreement with Western Pacific. Ticket handling fees are earned
by the ticketing airline to offset ticketing costs incurred on segments ticketed
on the flight operated by our code share partner. We recognized approximately
$1,007,000 in ticket handling fees associated with our code share agreement with
Western Pacific during the year ended March 31, 1998. The costs which offset
this revenue are included in sales and promotion expenses.
Operating Expenses
Total operating expenses increased to 112.6% of revenue for the year
ended March 31, 1998 compared to 111.3% of revenue for the year ended March 31,
1997. Operating expenses increased as a percentage of revenue as our revenue was
adversely effected by lower load factors caused by increased competition and we
also experienced higher average aircraft lease expenses on our newer larger
aircraft, higher maintenance expenses associated with our in-house maintenance
operation which began in September 1996, and unusual general and administrative
expenses associated with the Western Pacific merger.
Flight Operations. Flight operations expenses of $66,288,000 and
$52,650,000 were 45.1% and 45.2% of total revenue for years ended March 31, 1998
and 1997, respectively, or an increase of 25.9%.
Aircraft fuel costs of $23,332,000 for 33,098,000 gallons used and
$21,551,000 for 25,926,000 gallons used resulted in an average fuel cost of
70.5(cent) and 83.1(cent) per gallon and represented 35.2% and 40.9% of total
flight operations expenses for the years ended March 31, 1998 and 1997,
respectively. The average fuel cost per gallon decreased for the year ended
March 31, 1998 from the comparable prior period due to an overall decrease in
the cost of fuel. Fuel prices are subject to change weekly as we do not purchase
supplies in advance for inventory. Fuel consumption for the years ended March
31, 1998 and 1997 averaged 774 and 799 gallons per block hour, respectively.
Fuel consumption per block hour decreased as a result of more fuel efficient
aircraft and an increase in the average length of haul.
Aircraft lease expenses, excluding short-term aircraft lease expenses,
totaled $24,330,000 (16.5% of total revenue) and $16,704,000 (14.3% of total
revenue) for the years ended March 31, 1998 and 1997, respectively, or an
increase of 45.7%. The increase is partially attributable to the increase in the
average number of aircraft in service to 12.3 from 9.6, or 28.1%, for the years
ended March 31, 1998 and 1997, respectively, and largely due to higher lease
expenses for larger and newer Boeing 737-300 aircraft added to the fleet. In
August 1996, we entered into short-term lease agreements in order to add a
partial spare to our fleet to improve our on-time performance and completion
factors and to substitute for aircraft in our fleet that were out of service for
scheduled maintenance. Total expenses associated with the short-term lease
agreements totaled $3,359,000 for the months of August 1996 through March 1997
and none during the year ended March 31, 1998. Because of the increase in our
fleet size, we use at certain times up to one of our aircraft as a spare and
schedule most of our major maintenance cycles to coincide with lesser traveled
months.
Aircraft insurance expenses totaled $2,989,000 (2.0% of total revenue)
and $2,638,000 (2.3% of total revenue) for the years ended March 31, 1998 and
1997, respectively, or an increase of 13.3%. Aircraft insurance expenses
decreased as a percentage of revenue as a result of competitive pricing in the
aircraft insurance industry, our favorable experience rating since it began
flight operations in July 1994 and economies of scale due to the increase in
fleet size.
Pilot and flight attendant salaries totaled $8,708,000 and $6,671,000 or
6.1% and 5.9% of passenger revenue for the years ended March 31, 1998 and 1997,
respectively, or an increase of 30.5%. Pilot and flight attendant compensation
increased principally as a result of a 28.1% increase in the average number of
aircraft in service and an increase of 31.8% in block hours. During the years
ended March 31, 1998, we added four leased aircraft to our fleet and during the
year ended March 31, 1997, we added three leased aircraft to our fleet. We pay
pilot and flight attendant salaries for training, consisting of approximately
six and three weeks, respectively, prior to scheduled increases in service,
causing the compensation expense for the years ended March 31, 1998 and 1997 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, we expect that pilot
and flight attendant expense per aircraft will normalize. 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 exception.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses
were $30,685,000 and $24,849,000 for the years ended March 31, 1998 and 1997,
respectively, and represented 20.9% and 21.3% of total revenue. These include
all expenses incurred at airports served by us, as well as station operations
administration and flight operations ground equipment maintenance. Station
expenses include landing fees, facilities rental, station labor and ground
handling expenses. Station expenses as a percentage of revenue decreased during
the year ended March 31, 1998 over the year ended March 31, 1997 as a result of
our rental costs (in particular, gate rentals at DIA), which are largely fixed
costs, remaining relatively constant as compared to the increase in revenue and
more of our "above wing" (including passenger check-in at ticket counters,
concourse gate operations and cabin cleaning) operations being performed by our
personnel rather than by third party suppliers. We began our own "above wing"
operations at Los Angeles International Airport in June 1996, Chicago (Midway)
in July 1996, Seattle-Tacoma in August 1996, and El Paso, Texas effective
October 1996. Aircraft and traffic servicing expenses will increase with the
addition of new cities; however, the increased existing gate utilization at DIA
is expected to reduce per unit expenses.
Maintenance. Maintenance expenses of $31,791,000 and $24,946,000 were
21.6% and 21.4% of total revenue for the years ended March 31, 1998 and 1997,
respectively. These include all maintenance, labor, parts and supplies expenses
related to the upkeep of the aircraft. Routine maintenance is charged to
maintenance expense as incurred while major engine overhauls and heavy
maintenance checks are accrued each quarter. Maintenance cost per block hour was
$743 and $769 for the years ended March 31, 1998 and 1997, respectively.
Maintenance costs per block hour decreased as a result of lower maintenance
costs associated with the four new aircraft we added to our fleet this year.
Continental Airlines had been providing routine aircraft maintenance services
for us at Denver but discontinued this service in September 1996. As a result,
we hired our own aircraft mechanics to perform routine maintenance and subleased
a portion of a hangar from Continental at DIA in which to perform this work. The
performance of this work by us, together with the cost of leasing adequate
hangar space, initially increased our maintenance cost per block hour. We
believe that these costs will continue to normalize as we add additional
aircraft to our fleet.
During the years ended March 31, 1998 and 1997, we revised the timing of
our scheduled maintenance and related estimates for our engine maintenance
reserves. The revised estimate resulted in an additional reserve accrual of
approximately $1,034,000 and $765,000, respectively, which approximates $24.17
and $23.57 of the total maintenance cost per block hour of $743 and $769 for the
years ended March 31, 1998 and 1997, respectively.
Promotion and Sales. Promotion and sales expenses totaled $29,329,000 and
$21,526,000 and were 20.7% and 18.9% of passenger revenue for the years ended
March 31, 1998 and 1997, respectively. These include advertising expenses,
telecommunications expenses, wages and benefits for reservationists and
reservations supervision as well as marketing management and sales personnel.
Credit card fees, travel agency commissions and computer reservations costs are
included in these costs. The promotion and sales expenses per passenger were
$21.63 and $18.24 for the years ended March 31, 1998 and 1997, respectively. Our
promotion and sales expenses per passenger increased largely as a result of the
code share agreement with Western Pacific, under which we incurred additional
communications, computer reservation, credit card and interline handling fees,
and increased advertising expenses. These expenses were offset, in part, by
interline handling fees earned which are included in other revenues. We offer
mileage credits on Continental Airlines OnePass mileage program. Our expense
associated with the OnePass program has increased from $317,000 or 27(cent) per
passenger for the year ended March 31, 1997 to $584,000 or 43(cent) per
passenger for the year ended March 31, 1998. Our OnePass expense has increased
as it has become more mature and more passengers have become aware of our
participation in the OnePass program. Additionally, the increase in business
travelers, who generally participate in mileage programs more than leisure
travelers, has also caused an increase in the OnePass expense.
Advertising expenses of $3,048,000 and $2,482,000 were 2.2% of passenger
revenue for the years ended March 31, 1998 and 1997, respectively.
General and Administrative. General and administrative expenses for the
years ended March 31, 1998 and 1997 totaling $6,353,000 and $4,618,000 were 4.3%
and 4.0% of total revenue, respectively. These expenses include the wages and
benefits for our executive officers and various other administrative personnel.
Legal and accounting expenses, supplies and other miscellaneous expenses are
also included in this category. Included in general and administrative expenses
during the year ended March 31, 1998 are unusual expenses of approximately
$513,000 associated with the terminated merger agreement with Western Pacific.
Depreciation and Amortization. Depreciation and amortization expense of
$1,251,000 and $1,072,000 were approximately .9% of total revenue for each of
the years ended March 31, 1998 and 1997, respectively. These expenses include
depreciation of office equipment, ground station equipment, and other fixed
assets. Amortization of start-up and route development costs are not included as
these expenses have been expensed as incurred.
Nonoperating Income (Expenses). Total net nonoperating income totaled
$808,000 for the year ended March 31, 1998 compared to $975,000 for the year
ended March 31, 1997, or a decrease of 17.1%. Interest income decreased from
$1,034,000 to $722,000 from the prior comparable period as a result of a
decrease in cash associated with the net loss incurred during the year ended
March 31, 1998. 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 our Common Stock. Total interest expense paid in cash and the
accretion of the warrants and deferred loan expenses totaled $263,000 during the
year ended March 31, 1998. We had $410,000 of other net income for the year
ended March 31, 1998 which was comprised principally of $484,000 in insurance
claims for our telephone switch which was subject to an electrical fire in
October 1997, offset by other miscellaneous expenses.
Expenses per ASM. Our expenses per ASM for the years ended March 31, 1998
and 1997 were 8.30(cent) and 9.13(cent), respectively, or a decrease of 9.1%.
Expenses per ASM decreased from the prior comparable period as a result of the
economies of scale as the fixed costs were spread across a larger base of
operations and the average ASMs per aircraft have increased as we add planes
with more seating capacity as compared to our earlier fleet additions. Our
average seats per aircraft for the year ended March 31, 1998 were 122 as
compared to 118 seats per aircraft for the year ended March 31, 1997.
Liquidity and Capital Resources
Our balance sheet reflected cash and cash equivalents of $47,289,000 and
$3,641,000 at March 31, 1999 and 1998, respectively. At March 31, 1999, total
current assets were $94,209,000 as compared to $68,721,000 of total current
liabilities, resulting in working capital of $25,488,000. At March 31, 1998,
total current assets were $33,999,000 as compared to $50,324,000 of total
current liabilities, resulting in a working capital deficit of $16,325,000. Our
present working capital is largely a result of the sale in April 1998 of
4,363,001 shares of our Common Stock with net proceeds to us totaling
approximately $13,650,000, combined with cash flows from operating activities
during the year ended March 31, 1999.
Cash provided by operating activities for the year ended March 31, 1999
was $35,956,000. This is attributable to our net income for the period,
increases in accounts payable, air traffic liability, other accrued expenses and
accrued maintenance expense, offset by increases in restricted investments,
trade receivables, security, maintenance and other deposits, prepaid expenses
and inventories. Cash used by operating activities for year ended March 31, 1998
was $8,158,000. This was largely attributable to our net loss for the period, an
increase in restricted investments, trade receivables, security, maintenance and
other deposits, and prepaid expenses and other assets, offset by increases in
accounts payable, air traffic liability, other accrued expenses and accrued
maintenance expenses.
Cash used by investing activities for year ended March 31, 1999 was
$6,801,000. We used $4,313,000 for capital expenditures for ground handling
equipment, rotable aircraft components, maintenance equipment and aircraft
leasehold costs and improvements. We used cash of $944,000 for initial lease
acquisition security deposits for one aircraft delivered during the year ended
March 31, 1999 and for three fiscal year 2000 deliveries. Additionally, we
secured two aircraft delivered in December 1998 with letters of credit and for
one aircraft delivered in April 1999 totaling $1,544,000. Our restricted
investments increased $1,544,000 to collateralize the letters of credit. Cash
used by investing activities for the year ended March 31, 1998 was $3,648,000,
largely a result of capital expenditures for rotable aircraft components and
aircraft leasehold costs and improvements for the aircraft delivered in May,
August and September 1997 and February 1998. Additionally, we secured lease
obligations for the aircraft delivered in August 1997 and February 1998 with
letters of credit totaling $1,500,000. In turn, we received $650,000 during the
year ended March 31, 1998 from the aircraft lessor that was previously on
deposit to secure lease obligations for these aircraft. Our restricted
investments increased $1,500,000 to collateralize the letter of credit.
Cash provided by financing activities for the years ended March 31, 1999
and 1998 was $14,493,000 and $5,161,000, respectively. During the year ended
March 31, 1999, we sold 4,363,001 shares of our Common Stock through a private
placement to an institutional investor. Gross proceeds to us from the
transaction were approximately $14,180,000, of which we received net proceeds of
approximately $13,650,000. We issued a warrant to this investor to purchase
716,929 shares of our Common Stock at a purchase price of $3.75 per share. This
warrant expires in April 2002. Additionally, during the year ended March 31,
1999, we received $1,900,000 from the exercise of Common Stock options and
warrants. During the year ended March 31, 1998, we received $435,000 from the
exercise of Common Stock options. In December 1997, we sold $5,000,000 of 10%
senior secured notes. In connection with this transaction, we issued warrants to
purchase 1,750,000 shares of Common Stock at $3.00 per share.
We lease 20 Boeing 737 type aircraft under operating leases with
expiration dates ranging from 1999 to 2006. Under these leases, we were required
to make cash security deposits or issue letters of credit to secure the lease
obligations. At March 31, 1999, we had made cash security deposits and
outstanding letters of credit totaling $5,549,000 and $3,644,000, respectively.
Accordingly, our restricted cash balance includes $5,549,000 which collateralize
the outstanding letters of credit. Additionally, we make deposits for
maintenance of these aircraft. At March 31, 1999 and 1998, we had made
maintenance deposits of $18,673,000 and $11,466,000, respectively.
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 sale of our Common Stock, $486,000 in cash
security deposits were returned to us during the month of May 1999.
Five of our leased aircraft are not compliant with FAA Stage 3 noise
regulations. As their leases expire in 1999 we are replacing these aircraft with
Stage 3 compliant aircraft. We have entered into lease agreements to lease a
Boeing 737-300 aircraft and two Boeing 737-200 advanced aircraft to replace
three of the non-Stage 3 compliant aircraft and have signed letters of intent
for two Boeing 737-200 advanced aircraft to replace the remaining two non-Stage
3 compliant aircraft, however, delivery delays could cause us to temporarily
reduce our fleet size and therefore adversely affect our revenues.
We are exploring various means to increase revenues and reduce expenses.
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 which had been
provided by an independent contractor. Ground handling equipment required by us
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 which we expect will reduce maintenance expenses.
Other potential expense reduction programs include the installation of an
upgraded flight operations, maintenance, and parts inventory management
information system which will be fully operational by the end of the fiscal year
ending March 31, 2000, and an in-house revenue accounting system.
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
which Continental does not renew its lease. 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 four 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 significant possibility that the 1995 Agreement, or
any rate-making methodology unilaterally imposed by CCD, will be subject to
litigation. In these circumstances, there is uncertainty with respect to the
number and location of gate facilities at DIA that will be available to us, as
well as the rates and charges that we will be required to pay for such
facilities after February 2000. If we were required to operate at fewer gates
than we have requested or if the rate-making methodology is not amended, it
could have a material adverse effect on our business and results of operations.
Our goal is to continue to lease 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 and Portland, Oregon effective June
14, 1999. 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 which often requires quick reaction by management to changes in market
conditions, we may require additional capital to further expand our business.
In February 1997, United Airlines commenced service using its low fare
United "Shuttle" between Denver and Phoenix, Arizona, and in October 1997 such
service to Salt Lake City was added by United. These are both markets in which
the Company provides service, in addition to other markets where United Airlines
provides flights. The Company commenced service between Denver and Las Vegas in
December 1998, another market in which United provides service with United
"Shuttle". This competition, as well as other competitive activities by United
and other carriers, have had and could continue to have an adverse effect on the
Company's revenues and results of operations.
Except for the year ended March 31, 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.
Year 2000 Compliance
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.
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 third party
service providers to determine their Year 2000 readiness, the extent to which we
are vulnerable to any failure by such third parties to remediate their Year 2000
problems and to resolve such issues to the extent practicable.
All internal systems are in the testing and remediation phases. The
customer reservations and ticketing system and the credit card processing
system, for example, have already been tested and remediated. These systems are
outsourced and the costs of modifying and testing these systems are being
absorbed by the third party provider. Our general accounting and payroll systems
have been upgraded to new versions that are certified as being Year 2000
compliant at an insignificant cost to us. Our crew and dispatch training
records, aircraft maintenance records and inventory control are in the final
stages of being automated from manual systems to computer systems that are
certified as being Year 2000 compliant. The Boeing Company has verified that the
computer systems on the aircraft type operated by us are or will be Year 2000
compliant before the year 2000. We plan to complete the testing and remediation
phases by September 30, 1999, and the contingency planning phase by October 31,
1999.
We have utilized existing resources with the exception of four temporary
personnel and have incurred $60,000 of expenses to implement our Year 2000
project as of March 31, 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, we could potentially
experience disruptions to some of our operations, including those resulting from
non-compliant systems used by third party businesses and governmental entities.
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.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
The 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 actions
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.
Item 8: Financial Statements
Our financial statements are filed as a part of this report immediately
following the signature page.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
We have not, during the past three years and through the date of this
report, had a change in our independent certified public accountants or had a
disagreement with such accountants on any matter of accounting principles,
practices or financial statement disclosure.
PART III
Item 10: Directors and Executive Officers of the Registrant.
The information required by this Item is incorporated herein by reference
to the data under the heading "Election of Directors" in the Proxy Statement to
be used in connection with the solicitation of proxies for our annual meeting of
shareholders to be held on September 9, 1999. We will file the definitive Proxy
Statement with the Commission on or before July 29, 1999.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference
to the data under the heading "Executive Compensation" in the Proxy Statement to
be used in connection with the solicitation of proxies for our annual meeting of
shareholders to be held on September 9, 1999. We will file the definitive Proxy
Statement with the Commission on or before July 29, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated herein by reference
to the data under the heading "Voting Securities and Principal Holders Thereof"
in the Proxy Statement to be used in connection with the solicitation of proxies
for our annual meeting of shareholders to be held on September 9, 1999. We will
file the definitive Proxy Statement with the Commission on or before July 29,
1999.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein by reference
to the data under the heading "Related Transactions" in the Proxy Statement to
be used in connection with the solicitation of proxies for our annual meeting of
shareholders to be held on September 9, 1999. We will file the definitive Proxy
Statement with the Commission on or before July 29, 1999.
PART IV
Item 14(a): Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Exhibit
Numbers Description of Exhibits
3.1 Amended and Restated Articles of Incorporation of the Company.(12)
3.2 Amended Bylaws of the Company (June 9, 1997). (5)
4.1 Specimen Common Stock certificate of the Company. (1)
4.2 The Amended and Restated Articles of Incorporation and Amended
Bylaws of the Company are included as Exhibits 3.1 and 3.2.
4.3 Form of Warrant. (1)
4.4 Rights Agreement, dated as of February 20, 1997, between Frontier
Airlines, Inc. and American Securities Transfer & Trust, Inc,
including the form of Rights Certificate and the Summary of Rights
attached thereto as Exhibits A and B, respectively, incorporated
by reference to Frontier Airlines, Inc. Registration Statement
on Form 8-A dated March 11, 1997. (6)
4.4(a) Amendment to Rights Agreement dated June 30, 1997. (5)
4.4(b) Amendment to Rights Agreement dated December 5, 1997. (13)
10.1 Office Lease. (1)
10.2 Office Lease Supplements and Amendments. (5)
10.2(a) Addendum to Office Lease (10)
10.2(b) Office Lease Supplements and Amendments (13)
10.3 1994 Stock Option Plan. (1)
10.4 Amendment No. 1 to 1994 Stock Option Plan. (2)
10.4(a) Amendment No. 2 to 1994 Stock Option Plan (5)
10.5 Registration Rights Agreement. (1)
10.6 Sales Agreement. (1)
10.7 Airport Use and Facilities Agreement, Denver International Airport
(2)
10.8 Aircraft Lease Agreement dated as of July 26, 1994. (2)
10.8(a) Assignment and Assumption Agreements dated as of March 28, 1997
and March 20, 1997 between USAirways, Inc. and First Security
Bank, National Association ("Trustee") and Frontier Airlines, Inc.
(5)
10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated
as of July 26, 1994 between Frontier Airlines, Inc. and First
Security Bank, National Association. (5)
10.9 Code Sharing Agreement. (5)
10.10 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177).
(3)
10.11 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257).
(3)
10.12 Aircraft Lease Agreement dated as of May 1, 1996. (3)
10.13 Aircraft Lease Agreement dated as of June 3, 1996. (3)
10.13(a) Amendment No.1 to Aircraft Lease Agreement dated as of June 3,
1996.(10)
10.14 Aircraft Lease Agreement dated as of June 12, 1996. Portions of
this Exhibit have been excluded from the publicly available
document and an order granting confidential treatment of the
excluded material has been received. (3)
10.15 Operating Lease Agreement dated November 1, 1996 between the
Company and First Security Bank, National Association. Portions
of this Exhibit have been excluded from the publicly available
document and an order granting confidential treatment of the
excluded material has been received. (4)
10.16 Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996
between the Company and Boullion Aircraft Holding Company, Inc.
Portions of this Exhibit have been excluded from the publicly
available document and an order granting confidential treatment
of the excluded material has been received. (4)
10.16(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated
May 20, 1997. 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. (5)
10.17 Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996
between the Company and Boullion Aircraft Holding Company, Inc.
Portions of this Exhibit have been excluded from the publicly
available document and an order granting confidential treatment
of the excluded material has been received. (4)
10.17(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) dated
May 20, 1997. Portions of this Exhibit have been excluded from the
publicly available document and an a pplication for an order
granting confidential treatment of the excluded material has been
made. (5)
10.18 Aircraft Lease Agreement (MSN 28563) dated as of March 25, 1997
between the Company and General Electric Capital Corporation.
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. (5)
10.19 Space and Use Agreement with Continental Airlines, as amended.
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. (5)
10.20 Letterof Understanding with Continental Airlines dated August 16,
1996. 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. (5)
10.21 Service Agreement between Frontier Airlines, Inc and Greenwich Air
Services, Inc. dated May 19, 1997. 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. (5)
10.22 Agreement between Frontier Airlines, Inc. and Dallas Aerospace,
Inc. dated April 17, 1997. 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. (5)
10.23 General Services Agreement between Frontier Airlines, Inc. and
Tramco, Inc. dated as of August 6, 1996. (5)
10.24 General Terms Engine Lease Agreement between Frontier Airlines,
Inc. and Terandon Leasing Corporation dated as of August 15, 1996,
as assigned to U.S. Bancorp Leasing and Financial on February 19,
1997. 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. (5)
10.25 Lease Agreement between Frontier Airlines, Inc. and Aircraft
Instrument and Radio Company, Inc, dated December 11, 1995.
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. (5)
10.26 Agreement and Plan of Merger between Western Pacific Airlines,
Inc. and Frontier Airlines, Inc. dated June 30, 1997. (5)
10.26(a) Agreement dated as of September 29, 1997 between Western Pacific
Airlines, Inc. and Frontier Airlines, Inc. (7)
10.27 Security Agreement with Wexford Management LLC dated December 2,
1997. (8)
10.28 Amended and Restated Warrant Agreement with Wexford Management LLC
dated as of February 27, 1998. (12)
10.29 Amended and Restated R egistration Rights Agreement with Wexford
Management LLC dated as of February 27, 1998. (12)
10.30 Securties Purchase Agreement with B III Capital Partners, L.P.
dated as of April 24, 1998. (9)
10.31 Registration Rights Agreement with B III Capital Partners, L.P.
dated as of April 24, 1998. (12)
10.32 Warrant Agreement with The Seabury Group, LLC dated as of May 26,
1998. (12)
10.33 Registration Rights Agreement with The Seabury Group, LLC dated as
of May 26, 1998. (12)
10.34 Aircraft Lease Agreement (MSN 21613) dated as of August 10, 1998
between the Company and Interlease Aviation Investors, L.L.C. (10)
10.35 Aircraft Lease Agreement (MSN 28738) dated as of November 23, 1998
among first Security Bank, National Association, Lessor, Heller
Financial Leasing, Inc., Owner participant, and the Company,
Lessee. (11).
10.36 Aircraft Sublease Agreement (MSN 28734) dated as of December 14,
1998 between Indigo pacific AB, Sublessor, and the Company,
Sublessee. (11)
10.37 Aircraft Lease Agreement (MSN 23004) dated as of February 26, 1999
between First Security Bank, N.A., 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. (13)
10.38 Aircraft Lease Agreement (MSN 23007) dated as of February 26, 1999
between First Security Bank, N.A. 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. (13)
10.39 Aircraft Lease Agreement (MSN 26440) dated as of March 15, 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. (13)
10.40 Aircraft Lease Agreement (MSN 24569) dated as of April 16, 1999
between C.I.T. Leasing Corporation, 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. (13)
10.41 Aircraft Lease Agreement (MSN 24856) dated as of June 2, 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. (13)
10.42 Severance Agreement dated March 10, 1999 between the Company and
Samuel D. Addoms. (13)
10.43 Space and Use Agreement between Continental Airlines, Inc. and the
Company. (13)
23.1 Consent of KPMG LLP (13)
27.1 Financial Data Schedule (13)
(1) Incorporated by reference from the Company's Registration Statement on
Form SB-2, Commission File No. 33-77790-D, declared effective May 20,
1994.
(2) Incorporated by reference from the Company's Annual Report on Form
10-KSB, Commission File No. 0-4877, filed on June 29, 1995.
(3) Incorporated by reference from the Company's Annual Report on Form
10-KSB, Commission File No. 0-4877, filed on June 24, 1996.
(4) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB, Commission File No. 0-4877, filed on February 13, 1997.
(5) Incorporated by reference from the Company's Annual Report on Form
10-KSB, Commission File No. 0-24126, filed July 14, 1997.
(6) Incorporated by reference from the Company's Report on Form 8-K filed
on March 12, 1997.
(7) Incorporated by reference from the Company's Report on Form 8-K filed
on October 1, 1997.
(8) Incorporated by reference from the Company's Report on Form 8-K filed
on December 12, 1997.
(9) Incorporated by reference from the Company's Report on Form 8-K filed
on May 4, 1998.
(10) Incorporated by reference from the Company's Report on Form 10-Q,
Commission File No. 0-24126, filed on November 13, 1998.
(11) Incorporated by reference from the Company's Report on Form 10-Q,
Commission File No. 0-24126, filed on February 12, 1999.
(12) Incorporated by reference from the Company's Report on Form 10-K/A,
Commission file No. 0-24126, filed July 9, 1998.
(13) Filed herewith.
Item 14(b): Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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: June 21, 1999 By: /s/ Samuel D. Addoms
------------------------------
Samuel D. Addoms, Principal
Executive Officer and Principal
Financial Officer
Date: June 21, 1999 By: /s/ Elissa A. Potucek
------------------------------
Elissa A. Potucek, Vice President,
Controller, Treasurer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: June 21, 1999 /s/ Samuel D. Addoms, Director
----------------------------------
Samuel D. Addoms, Director
Date: June 21, 1999 /s/ William B. McNamara, Director
----------------------------------
William B. McNamara, Director
Date: June 21, 1999 /s/ Paul Stephen Dempsey, Director
----------------------------------
Paul Stephen Dempsey, Director
Date: June 21, 1999 /s/ B. LaRae Orullian, Director
----------------------------------
B. LaRae Orullian, Director
Date: June 21, 1999 /s/ D. Dale Browning, Director
----------------------------------
D. Dale Browning, Director
Date: June 21, 1999 /s/ James B. Upchurch, Director
----------------------------------
James B. Upchurch, Director
Date: June 21, 1999 /s/ B. Ben Baldanza, Director
----------------------------------
B. Ben Baldanza, Director
<PAGE>
Independent Auditors' Report
The Board of Directors and
Stockholders
Frontier Airlines, Inc.:
We have audited the accompanying balance sheets of Frontier Airlines, Inc. as of
March 31, 1999 and 1998, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Frontier Airlines, Inc., as of
March 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
Denver, Colorado
June 2, 1999, except as to
Note 11, which is as of June 16, 1999
<PAGE>
<TABLE>
<CAPTION>
FRONTIER AIRLINES, INC.
Balance Sheets
March 31, 1999 and 1998
<S> <C> <C>
March 31, March 31,
1999 1998
--------------- --------------
Assets
Current assets:
Cash and cash equivalents $ 47,289,072 $ 3,641,395
Restricted investments 4,000,000 4,000,000
Trade receivables, net of allowance for doubtful accounts of $199,960
and $139,096 at March 31, 1999 and 1998, respectively 16,930,038 11,661,323
Maintenance deposits (note 3) 13,018,466 9,307,723
Prepaid expenses 5,439,834 3,843,694
Inventories 1,203,916 1,164,310
Deferred tax assets (note 5) 6,041,576 -
Deferred lease and other expenses 285,636 380,975
--------------- --------------
Total current assets 94,208,538 33,999,420
Security, maintenance and other deposits (note 3) 11,834,457 7,633,143
Property and equipment, net (note 2) 8,733,778 5,579,019
Deferred lease and other expenses 267,762 780,429
Restricted investments 4,575,760 2,606,459
--------------- --------------
$ 119,620,295 $ 50,598,470
=============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 14,011,238 $ 13,664,750
Air traffic liability 28,887,692 18,910,441
Other accrued expenses 10,781,509 5,157,640
Accrued maintenance expense (note 3) 14,933,568 12,537,228
Current portion of obligations under capital leases
(note 3) 106,833 54,346
--------------- --------------
Total current liabilities 68,720,840 50,324,405
Senior secured notes payable (note 4) - 3,468,138
Accrued maintenance expense (note 3) 6,042,958 2,381,354
Deferred tax liability (note 5) 30,928 -
Obligations under capital leases, excluding current
portion (note 3) 434,920 97,757
--------------- --------------
Total liabilities 75,229,646 56,271,654
--------------- --------------
Stockholders' equity
Preferred stock, no par value, authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, no par value, stated value of $.001 per share, authorized
40,000,000 shares; 16,141,172 and 9,253,563 shares issued and
outstanding at March 31, 1999 and 1998, respectively 16,141 9,253
Additional paid-in capital 58,054,844 37,954,584
Unearned ESOP shares (note 8) (609,375) -
Accumulated deficit (13,070,961) (43,637,021)
--------------- --------------
44,390,649 (5,673,184)
--------------- --------------
Commitments and contingencies (notes 3, 6, 10 & 11)
$ 119,620,295 $ 50,598,470
=============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FRONTIER AIRLINES, INC.
Statements of Operations
Years Ended March 31, 1999, 1998 and 1997
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Revenues:
Passenger $ 214,311,312 $ 142,018,392 $ 113,758,027
Cargo 4,881,066 3,008,919 1,956,150
Other 1,415,332 2,115,326 786,457
-------------- --------------- --------------
Total revenues 220,607,710 147,142,637 116,500,634
-------------- --------------- --------------
Operating expenses:
Flight operations 79,247,347 66,288,125 52,650,575
Aircraft and traffic servicing 34,146,888 30,684,992 24,849,388
Maintenance 36,090,052 31,790,600 24,945,636
Promotion and sales 35,620,954 29,328,970 21,526,345
General and administrative 9,163,045 6,352,977 4,617,982
Depreciation and amortization 1,659,429 1,251,364 1,072,160
-------------- --------------- --------------
Total operating expenses 195,927,715 165,697,028 129,662,086
-------------- --------------- --------------
Operating income (loss) 24,679,995 (18,554,391) (13,161,452)
-------------- --------------- --------------
Nonoperating income, net:
Interest income 1,556,047 722,380 1,033,508
Interest expense (700,635) (324,167) (20,435)
Other, net (448,917) 409,808 (37,953)
-------------- --------------- --------------
Total nonoperating income, net 406,495 808,021 975,120
-------------- --------------- --------------
Net income (loss) before income tax 25,086,490 (17,746,370) (12,186,332)
Income tax benefit (note 5) 5,479,570 - -
-------------- --------------- --------------
Net income (loss) $ 30,566,060 $ (17,746,370) $ (12,186,332)
============== =============== ==============
Earnings (loss) per share:
Basic $2.14 ($1.95) ($1.49)
============== =============== ==============
Diluted $1.98 ($1.95) ($1.49)
============== =============== ==============
Weighted average shares of
common stock outstanding
14,257,661 9,095,220 8,156,302
============== =============== ==============
Weighted average shares of common stock and
common stock equivalents outstanding
15,401,435 9,095,220 8,156,302
============== =============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FRONTIER AIRLINES, INC.
Statements of Stockholders' Equity
Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Common
Stock Additional Unearned Total
Stated paid-in ESOP Accumulated stockholders'
Shares value capital shares Deficit equity
--------------- ------------ ------------ ------------ -------------- --------------
Balances,
March 31, 1996 5,420,640 $ 5,421 $ 18,399,918 $ - $ (13,704,319) $ 4,701,020
Sale of common stock, net of
offering costs of $279,385 678,733 679 2,720,615 - - 2,721,294
Exercise of common stock
warrants, net of issuance
costs of $55,518 2,666,133 2,666 13,275,145 - - 13,277,811
Contribution of common stock to
employees stock ownership
plan 78,869 78 499,922 - - 500,000
Issuance of warrants - - 869,110 - - 869,110
Net loss - - - - (12,186,332) (12,186,332)
--------------- ------------ ------------ ------------ -------------- --------------
Balances,
March 31, 1997 8,844,375 8,844 35,764,710 - (25,890,651) 9,882,903
Exercise of common stock
options 409,188 409 434,948 - - 435,357
Warrants issued in conjunction
with debt - - 1,754,926 - - 1,754,926
Net loss - - - - (17,746,370) (17,746,370)
--------------- ------------ ------------ ------------ -------------- --------------
Balances,
March 31, 1998 9,253,563 9,253 37,954,584 - (43,637,021) (5,673,184)
Sale of common stock, net of
offering costs of $525,059 4,363,001 4,363 13,650,331 - - 13,654,694
Contribution of common stock to
employees stock ownership
plan 275,000 275 1,457,975 (609,375) - 848,875
Exercise of common stock
warrants 1,796,400 1,797 4,360,022 - - 4,361,819
Exercise of common stock
options 453,208 453 631,932 - - 632,385
Net income - - - -
30,566,060 30,566,060
--------------- ------------ ------------ ------------ -------------- --------------
Balances,
March 31, 1999 16,141,172 $ 16,141 $ 58,054,844 $ (609,375) $ (13,070,961) $ 44,390,649
=============== ============ ============ ============ ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FRONTIER AIRLINES, INC.
<TABLE>
<CAPTION>
Statements of Cash Flows
Years ended March 31, 1999, 1998, and 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 30,566,060 $ (17,746,370) $ (12,186,332)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Employee stock ownership plan compensation
expense 848,600 - 500,000
Depreciation and amortization 2,705,255 1,749,097 1,322,916
Loss on sale of equipment 3,867 10,334 4,708
Changes in operating assets and liabilities:
Restricted investments (425,301) (2,372,326) 82,458
Trade receivables (5,268,715) (4,209,981) (1,579,184)
Security, maintenance and other deposits (6,968,057) (3,583,327) (1,608,524)
Prepaid expenses (1,596,140) (393,823) (562,954)
Inventories (39,606) (167,208) (427,926)
Note receivable - 11,740 10,950
Deferred tax benefit (6,010,648) - -
Accounts payable 346,488 5,619,217 3,643,071
Air traffic liability 9,977,251 5,851,809 1,858,072
Other accrued expenses 5,758,840 1,839,597 1,323,037
Accrued maintenance expense 6,057,944 5,233,104 1,151,443
-------------- --------------- --------------
Net cash provided (used) by
operating activities 35,955,838 (8,158,137) (6,468,265)
-------------- --------------- --------------
Cash flows used by investing activities:
Decrease in short-term investments - - 1,168,200
Aircraft lease deposits (944,000) 207,500 (2,682,250)
Increase in restricted investments (1,544,000) (1,500,000) (600,000)
Capital expenditures (4,313,065) (2,355,266) (3,434,789)
-------------- --------------- --------------
Net cash used in investing activities (6,801,065) (3,647,766) (5,548,839)
-------------- --------------- --------------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants 15,550,085 435,357 15,999,455
Proceeds from sale of senior secured notes - 5,000,000 -
Principal payments on senior secured notes (941,841) - -
Cash payments for debt issuance costs - (227,500) -
Proceeds from short-term borrowings 179,664 202,810 95,911
Principal payments on short-term borrowings (179,664) (212,622) (96,540)
Principal payments on obligations under capital leases (115,340) (37,200) (54,523)
-------------- --------------- --------------
Net cash provided by financing activities 14,492,904 5,160,845 15,944,303
-------------- --------------- --------------
Net increase (decrease) in cash and
cash equivalents 43,647,677 (6,645,058) 3,927,199
Cash and cash equivalents, beginning of period 3,641,395 10,286,453 6,359,254
-------------- --------------- --------------
Cash and cash equivalents, end of period $ 47,289,072 $ 3,641,395 $ 10,286,453
============== =============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FRONTIER AIRLINES, INC.
Notes to Financial Statements
March 31, 1999
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Frontier Airlines, Inc. (the "Company") was incorporated in the State
of Colorado on February 8, 1994 and is a scheduled airline based in
Denver, Colorado which currently serves cities on the west and east
coasts, as well as intermediate cities in relatively close proximity to
Denver. The Company commenced airline operations on July 5, 1994.
Airline operations have high fixed costs and are highly sensitive to
various factors incuding the actions of competing airlines and general
economic factors.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
For financial statement purposes, the Company considers cash and
short-term investments with an original maturity of three months or less
to be cash equivalents.
Supplemental Disclosure of Cash Flow Information
Noncash Financing and Investment Activities:
During the year ended March 31, 1998, the Company issued warrants to its
lender in connection with its $5,000,000 senior secured notes with an
estimated fair market value totaling $1,645,434, and issued warrants to
its financial advisor in connection with debt and equity financing with
an estimated fair market value totaling $109,492. Also during the years
ended March 31, 1999 and 1998, the Company entered into capital lease
agreements totaling $504,900 and $97,000, respectively. During the year
ended March 31, 1998 the Company exchanged a note receivable for certain
property and equipment totaling $47,000. In the years ended March 31,
1997 and 1996, the Company issued warrants to aircraft lessors with an
estimated fair market value totaling $869,110 and $577,200,
respectively.
<PAGE>
FRONTIER AIRLINES, INC.
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
(1) Nature of Business and Summary of Significant Accounting Policies
(continued)
Interest and Taxes Paid During the Year:
Cash paid for interest totaled $302,503, $184,999, and $20,435, for the
years ended March 31, 1999, 1998 and 1997, respectively. No income taxes
were paid during the years ended March 31, 1999, 1998, and 1997.
Restricted Investments
Restricted investments include certificates of deposit which secure
certain letters of credit issued primarily to companies which process
credit card sale transactions, certain airport authorities and aircraft
lessors. Restricted investments are carried at cost, which management
believes approximates market value. Maturities are for one year or less
and the Company intends to hold restricted investments until maturity.
Valulation and Qualifying Accounts
The allowance for doubtful accounts was $199,960 and $139,096 at March
31, 1999 and 1998, respectively. Provisions for bad debts net of
recoveries totaled $386,000, $267,000, and $160,000 for the years ended
March 31, 1999, 1998 and 1997. Deductions from the reserve totaled
$330,000, $200,000, and $120,000 for the years ended March 31, 1999.
1998, and 1997, respectively.
Inventories
Inventories consist of expendable parts, supplies and aircraft fuel and
are stated at the lower of cost or market. Inventories are accounted for
on a first-in, first-out basis and are charged to expense as they are
used.
The Company has two aircraft parts agreements for its Boeing 737
aircraft as discussed in note 3, one with another air carrier and
another with an aircraft parts supplier. The Company is required to pay
a monthly consignment fee to each of these lessors, based on the value
of the consigned parts, and to replenish any such parts when used with a
like part. At March 31, 1999 and 1998, the Company held consigned parts
and supplies in the amount of approximately $8,902,000 and $8,161,000,
respectively, which are not included in the Company's balance sheet.
<PAGE>
(1) Nature of Business and Summary of Significant Accounting Policies
(continued)
Property and Equipment
Property and equipment are carried at cost. Major additions, betterments
and renewals are capitalized. Depreciation and amortization is provided
for on a straight-line basis to estimated residual values over estimated
depreciable lives as follows:
Flight equipment 5-10 years
Improvements to leased aircraft Life of improvements or term
of lease, whichever is less
Ground property, equipment, and
leasehold improvements 3-5 years or term of lease
Assets utilized under capital leases are amortized over the lesser of
the lease term or the estimated useful life of the asset using the
straight-line method. Amortization of capital leases is included in
depreciation expense.
Maintenance
Routine maintenance and repairs are charged to operations as incurred.
Under the terms of its aircraft lease agreements, the Company is
required to make monthly maintenance deposits and a liability for
accrued maintenance is established based on usage; the deposits are
applied against the cost of major airframe maintenance checks, landing
gear and engine overhauls. Deposit balances remaining at lease
termination remain with the lessor and any remaining liability for
maintenance checks is reversed against the deposit balance.
Additionally, a provision is made for the estimated costs of scheduled
major overhauls required to be performed on leased aircraft and
components under the provisions of the aircraft lease agreements if the
required monthly deposit amounts are not adequate to cover the entire
cost of the scheduled maintenance. Accrued maintenance expense expected
to be incurred beyond one year is classified as long-term.
Revenue Recognition
Passenger, cargo, and other revenues are recognized when the
transportation is provided or after the tickets expire, and are net of
excise taxes. Revenues which have been deferred are included in the
accompanying balance sheet as air traffic liability.
<PAGE>
(1) Nature of Business and Summary of Significant Accounting Policies
(continued)
Passenger Traffic Commissions and Related Expenses
Passenger traffic commissions and related expenses are expensed when the
transportation is provided and the related revenue is recognized.
Passenger traffic commissions and related expenses not yet recognized
are included as a prepaid expense.
Frequent Flyer Awards
The Company allows its passengers to accumulate mileage on Continental
Airlines' OnePass frequent flyer program. The cost of providing mileage
on the OnePass program is based on an agreed upon rate per mileage
credit, which is paid to Continental Airlines on a monthly basis.
Income (Loss) Per Common Share
Basic EPS excludes dilution and is computed by dividing income (loss)
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in earnings. Common
stock equivalents are excluded from the computation of diluted loss per
share in 1998 and 1997 as their effect would have been anti-dilutive.
Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under that method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and tax bases of the existing
assets and liabilities. A valuation allowance for net deferred tax
assets is provided unless realizability is judged by management to be
more likely than not. The effect on deferred taxes from a change in tax
rates is recognized in income in the period that includes the enactment
date.
Fair Value of Financial Instruments
The Company estimates the fair value of its monetary assets and
liabilities based upon existing interest rates related to such assets
and liabilities compared to current rates of interest for instruments
with a similar nature and degree of risk. The Company estimates that the
carrying value of all of its monetary assets and liabilities
approximates fair value as of March 31, 1999.
<PAGE>
(1) Nature of Business and Summary of Significant Accounting Policies
(continued)
Stock Based Compensation
The Company follows Accounting Principles Board Opinion No. 25
Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations in accounting for its employee stock options and follows
the disclosure provisions of Statement of financial Accounting Standards
No. 123 (SFAS No. 123). Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized. The Company has included the pro forma disclosures required
by SFAS No. 123 in Note 7.
Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount.
(2) Property and Equipment, Net
As of March 31, 1999 and 1998 property and equipment consisted of the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- ----
Flight equipment and improvements to leased aircraft $ 7,204,878 $ 4,932,024
Ground property, equipment and leasehold improvements 6,186,490 3,673,363
--------------- --------------
13,391,368 8,605,387
Less accumulated depreciation and amortization 4,657,590 3,026,368
--------------- --------------
Property and equipment, net $ 8,733,778 $ 5,579,019
=============== ==============
</TABLE>
Property and equipment includes certain office equipment under capital
leases. At March 31, 1999 and 1998, office equipment recorded under capital
leases was $785,847 and $280,857 and accumulated amortization was $154,942
and $113,364, respectively.
<PAGE>
(3) Lease Commitments
Aircraft Leases
At March 31, 1999, the Company operated 17 aircraft which are accounted
for under operating lease agreements with initial terms ranging from 2
to 8 years with certain leases that allow for renewal options. Security
deposits related to leased aircraft at March 31, 1999 and 1998 totaled
$5,548,750 and $4,604,750 and are included in security, maintenance and
other deposits on the balance sheet. Letters of credit issued to certain
aircraft lessors in lieu of cash deposits and related restricted
investments to secure these letters of credit at March 31, 1999 and 1998
totaled $3,644,000 and $2,100,000, respectively.
In addition to scheduled future minimum lease payments, the Company is
generally required to pay to each aircraft lessor monthly cash deposits
based on flight hours and cycles operated to provide funding for certain
scheduled maintenance costs of leased aircraft. The lease agreements
provide that the Company shall pay taxes, maintenance, insurance, and
other operating expenses applicable to the leased property. At March 31,
1999 and 1998, aircraft maintenance deposits totaled $18,672,825 and
$11,466,033, respectively, and are reported as a component of security,
maintenance and other deposits on the balance sheet.
Any cash deposits paid to aircraft lessors for future scheduled
maintenance costs to the extent not used during the lease term remain
with the lessors, and any remaining liability for maintenance checks is
reversed against the deposit balance. Maintenance deposits are unsecured
and may be subject to the risk of loss in the event the lessors are not
able to satisfy their obligations under the lease agreements.
Other Leases
The Company leases an office and hangar space, a spare engine and office
equipment for its headquarters, airport facilities, and certain ground
equipment. The Company also leases certain airport gate facilities on a
month-to-month basis.
<PAGE>
(3) Lease Commitments (continued)
At March 31, 1999, commitments under capital and noncancelable operating
leases (excluding maintenance deposit requirements) with terms in excess
of one year were as follows:
Capital Operating
Leases Leases
Year ended March 31:
2000 $ 158,452 $ 45,978,116
2001 153,320 34,799,628
2002 153,320 30,256,397
2003 153,320 26,341,587
2004 44,322 25,856,040
Thereafter - 20,371,397
Total minimum lease payments $ 662,734 $183,603,165
Less amount representing interest (120,981)
Present value of obligations under
capital leases 541,753
Less current portion of obligations under
capital leases 106,833
Obligations under capital leases,
excluding current portion $ 434,920
The obligations under capital leases have been discounted at imputed
interest rates ranging from 10% to 13%.
Rental expense under operating leases, including month-to-month leases, for
the years ended March 31, 1999, 1998 and 1997 was $46,099,140, $36,573,509
and $25,336,749, respectively.
<PAGE>
(4) Senior Secured Notes
In December 1997, the Company sold $5,000,000 of 10% senior secured
notes to Wexford Management LLC ("Wexford"). The notes were due and
payable in full on December 15, 2001 with interest payable quarterly in
arrears. The notes were secured by substantially all of the assets of
the Company. The Wexford agreement contained restrictions primarily
related to liens on assets and required prior written consent for
expenditures outside the ordinary course of business. In connection with
this transaction, the Company issued Wexford warrants to purchase
1,750,000 shares of Common Stock at $3.00 per share. The Company
determined the value of the warrants to be $1,645,434 and recorded the
value as a discount on notes payable and as equity in additional paid-in
capital. The balance of the notes were to be accreted to its face value
over the term of the notes and included as interest expense. The
effective interest rate on the notes was approximately 18.2% including
the value of the warrants
During the year ended March 31, 1999, Wexford exercised all of the
warrants described above. As permitted under the terms of the agreement,
Wexford elected to tender debt for the warrant exercise price first by
application of accrued unpaid interest and the remainder by reducing the
principal balance of the notes. The total amount of $5,250,000 from the
exercise was comprised of the following: payment of accrued interest
totaling $134,971, then to the outstanding principal balance totaling
$4,058,159, and the remaining balance in cash to the Company totaling
$1,056,870. In January 1999, the Company paid the remaining balance of
the note in full which totaled $941,841, thereby terminating all of
Wexford's security interests in the Company's assets.
The value of the outstanding warrants amortized to interest expense
prior to the pay-off of the notes totaled $199,975 and $113,454 for the
years ended March 31, 1999 and 1998, respectively. Upon the exercise of
the warrants by Wexford, $1,094,042 of unamortized discount was charged
to additional paid-in capital. The deferred cost of the remaining
warrants and other deferred loan costs totaled $485,846 at the repayment
date and was charged to expense and is included in other, net
non-operating income (expense).
<PAGE>
(5) Income Taxes
Income tax expense (benefit) for the years ended March 31, 1999 consists
of:
Current Deferred Total
Year ended March 31, 1999:
U.S. Federal $ 531,077 $ (5,244,134) $ (4,713,057)
State and local (766,513) (766,513)
----------------------------------------------
$ 531,077 $(6,010,647) $(5,479,570)
==============================================
There was no income tax expense or benefit in 1998 or 1997.
The differences between the Company's effective rate for income taxes
and the federal statutory rate are comprised of the items shown in the
following table:
1999 1998 1997
---- ---- ----
Income tax benefit (expense)
at the statutory rate (35%) 34% 34%
(Increase) decrease in valuation
allowance 60% (34%) (34%)
State and local income tax, net of
federal income tax benefit (3%) - -
===========================================
22% - -
===========================================
<PAGE>
(5) Income Taxes, continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 1999 and 1998 are
presented below:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- ----
Deferred tax assets:
Net operating loss carryforwards $4,548,000 $13,434,000
AMT credit carryforward 525,000 -
Start-up cost deferred for
tax purposes 55,000 108,000
Accrued maintenance not
deductible for tax purposes 212,000 899,000
Accrued vacation and health
insurance liability not
deductible for tax purposes 654,000 527,000
Other 103,000 110,000
------------------ -------------------
Total gross deferred tax assets 6,097,000 15,078,000
Less valuation allowance - (14,832,000)
------------------ -------------------
6,097,000 246,000
------------------ -------------------
Deferred tax liabilities:
Equipment depreciation and
amortization (86,000) (246,000)
================== ===================
Net deferred taxes $6,011,000 $ -
================== ===================
</TABLE>
<PAGE>
(5) Income Taxes, continued
The Company recognized an income tax benefit of $5,479,570 in 1999
attributable to the probable realization of its remaining income tax
loss carryforwards for which a valuation allowance had previously been
recorded. The valuation allowance for deferred tax assets as of March
31, 1998 and 1997 was $14,832,000 and $8,934,000, respectively. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the Company's
profitibility in fiscal 1999 and projections for fiscal 2000 taxable
income, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences; accordingly,
a valuation allowance is no longer considered necessary. As a result of
reversing its valuation allowance, the Company expects it will recognize
income tax expense on future income based on statutory rates. The
Company had net operating loss carryforwards of approximately
$11,891,000 which expire in the years 2010 to 2012, and alternative
minimum tax credits of approximately $525,000 which are available to
reduce future federal regular income taxes, if any, over an indefinite
period.
(6) Warrants and Rights Dividend
The Company issued 2,670,000 warrants to purchase common stock in
conjunction with a private placement and its initial public offering.
Each warrant entitled the warrant holder to purchase one share of common
stock for $5.00. These warrants were subject to redemption at $.05 per
warrant by the Company on 45 days written notice if certain conditions
were met. The Company met these conditions in May 1996 and on May 14,
1996, the Company notified the warrant holders of the Company's intent
to exercise its redemption rights with respect to the warrants not
exercised on or before June 28, 1996. 2,666,133 warrants were exercised
with net proceeds to the Company totaling $13,275,000.
At completion of the Company's initial public offering in 1994, an
underwriter acquired options to purchase up to 110,000 shares of common
stock exercisable at a price equal to $5.525 per share. At March 31,
1999, 26,400 options were exercised with net proceeds to the Company
totaling $145,860. (See note 11). The underwriters in a secondary public
offering by the Company in 1995 received a warrant to purchase 119,211
shares of common stock at $5.55 per share. The options and warrants
issued to underwriters in connection with the initial and secondary
public offerings expire, respectively, on May 20, 1999 and September 18,
2000.
<PAGE>
(6) Warrants and Rights Dividend, continued
In October 1995, the Company issued to each of two of its Boeing 737-300
aircraft lessors a warrant to purchase 100,000 shares of common stock
for an aggregate purchase price of $500,000. In June 1996, the Company
issued two warrants to a Boeing 737-200 lessor, each warrant entitling
the lessor to purchase 70,000 shares of common stock at an aggregate
exercise price of $503,300 per warrant. In connection with a Boeing
737-300 aircraft delivered in August 1997, the Company issued to the
lessor a warrant to purchase 55,000 shares of Common Stock at an
aggregate purchase price of $385,000. Warrants issued to aircraft
lessors, to the extent not earlier exercised, expire upon expiration of
the aircraft leases in March 2000, May 2001 and June 2002. (See note
11).
In February 1998, in connection with the $5,000,000 senior notes as
discussed in note 4, the Company issued a warrant to the lender to
purchase 1,750,000 shares of the Company's common stock at a purchase
price of $3.00 per share, which warrant expires in December 2001. During
the year ended March 31, 1999, this warrant was exercised in its
entirety as discussed in note 4. In May 1998, the Company issued to its
financial advisor, in connection with debt and equity financings, a
warrant to purchase 548,000 shares of the Company's common stock at a
purchase price of $3.00 per share, which warrant expires in May 2003.
(See note 11). Of the 548,000 shares, 116,450 were recognized as of
March 31, 1998 as part of the sale of the senior secured notes discussed
in note 4. The Company recorded a value of $109,492 for these warrants
attributable to the debt and recorded the value as equity in additional
paid in capital and deferred loan expenses. The amount was fully
amortized during the year ended March 31, 1999 as discussed in note 4.
In April 1998, in connection with a private placement of 4,363,001
shares of its common stock, the Company issued a warrant to an
institutional investor to purchase 716,929 shares of its common stock at
a purchase price of $3.75 per share, which warrant expires in April
2002.
In February 1997, the Board of Directors declared a dividend
distribution of one common stock purchase right for each share of the
Company's common stock outstanding on March 15, 1997. Each right
entitles a shareholder to purchase one share of the Company's common
stock at a purchase price of $17.50 per full common share, subject to
adjustment. The rights are not currently exercisable, but would become
exercisable if certain events occurred relating to a person or group
acquiring or attempting to acquire 20 percent or more of the outstanding
shares of the Company's common stock. The rights expire on February 20,
2007, unless redeemed by the Company earlier. Once the rights become
exercisable, each holder of a right will have the right to receive, upon
exercise, common stock (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two times the
exercise price of the right.
<PAGE>
(7) Stock Option Plan
The Company has a stock option plan whereby the Board of Directors or
its Compensation Committee may issue options to purchase shares of the
Company's common stock to employees, officers, and directors of the
Company.
Under the plan, the Company has reserved an aggregate of 4,250,000
shares of common stock for issuance pursuant to the exercise of options.
With certain exceptions, options issued through March 31, 1999 generally
vest over a five year period from the date of grant and expire from
March 9, 2004 to March 28, 2009. At March 31, 1999, 1,591,250 options
are available for grant under the plan.
A summary of the Plan's stock option activity and related information
for the years ended March 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
--------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------------------------------------------------------------------------
Outstanding-beginning of year 1,532,062 $1.56 1,911,250 $1.85 1,731,250 $1.27
Granted 717,500 $5.94 30,000 $2.77 180,000 $7.40
Exercised (453,208) $1.34 (409,188) $1.06 - -
Surrendered - - (180,000) $7.40 - -
Re-issued - - 180,000 $3.00 - -
--------------------------------------------------------------------------
1,796,354 $3.35 1,532,062 $1.56 1,911,250 $1.85
==========================================================================
Exercisable at end of year 1,103,020 $1.70 1,761,250 $1.39 1,671,250 $1.20
</TABLE>
Exercise prices for options outstanding under the plan as of March 31,
1999 ranged from $1.00 to $9.00 per option share. The weighted-average
remaining contractual life of those options is 7.1 years. A summary of
the outstanding and exercisable options at March 31, 1999, segregated by
exercise price ranges, is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
Weighted-
Average
Weighted- Remaining Weighted-
Exercise Price Options Average Contractual Exercisable Average
Range Outstanding Exercise Price Life (in years) Options Exercise Price
---------------------------------------------------------------------------------------------------
$ 1.00 - $ 2.50 800,937 $1.10 5.0 800,937 $1.10
$ 3.00 - $ 5.06 640,417 3.49 8.3 302,083 3.30
$ 8.13 - $ 9.00 355,000 8.20 10.0
-----------------------------------------------------------------------------------
1,796,354 $3.35 7.1 1,103,020 $1.48
===================================================================================
</TABLE>
<PAGE>
(6) Stock Option Plan, continued
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost is
recognized for options granted at a price equal to the fair market value
of the common stock. Pro forma information regarding net income and
earnings per share is required by SFAS No. 123, which also requires that
the information be determined as if the Company has accounted for its
employee stock options granted subsequent to March 31, 1995 under the
fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1999, 1998 and
1997, respectively: risk-free interest rates of 5.36%, 6.42% and 6.55%,
dividend yields of 0%, 0% and 0%; volatility factors of the expected
market price of the Company's common stock of 69.25%, 64.33% and 58.78%,
and a weighted-average expected life of the options of 3.6 years for
each year. Had compensation cost for the Company's stock-based
compensation plan been determined using the fair value of the options at
the grant date, the Company's pro forma net income (loss) and earnings
(loss) per share is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Net Income:
As reported $ 30,566,060 $(17,746,370) $(12,186,332)
Pro forma $ 30,263,570 $(17,842,594) $(12,366,532)
Earnings (loss) per share, basic:
As reported $ 2.14 $ (1.95) $ (1.49)
Proforma $ 2.12 $ (1.96) $ (1.52)
Earnings (loss) per share, diluted:
As reported $ 1.98 $ (1.95) $ (1.49)
Proforma $ 1.96 $ (1.96) $ (1.52)
</TABLE>
(8) Benefit Plans
Employee Stock Ownership Plan
The Company has established an Employee Stock Ownership Plan (ESOP)
which inures to the benefit of each employee of the Company, except
those employees covered by a collective bargaining agreement that does
not provide for participation in the ESOP. Company contributions to the
ESOP are discretionary and may vary from year to year. In order for an
employee to receive an allocation of company common stock from the ESOP,
the employee must be employed on the last day of the ESOP's plan year,
with certain exceptions. The Company's annual contribution to the ESOP,
if any, will be allocated among the eligible employees of the Company as
of the end of each plan year in proportion to the relative compensation
(as defined in the ESOP) earned that plan year by each of the eligible
employees. The ESOP does not provide for contributions by participating
employees. Employees will vest in contributions made to the ESOP based
upon their years of service with the Company. A year of service is an
ESOP plan year
<PAGE>
(8) Benefit Plans, continued
during which an employee has at least 1,000 hours of service. Vesting
generally occurs at the rate of 20% per year, beginning after the first
year of service, so that a participating employee will be fully vested
after five years of service. Distributions from the ESOP will not be
made to employees during employment. However, upon termination of
employment with the Company, each employee will be entitled to receive
the vested portion of his or her account balance.
The initial Company contribution to the ESOP was made on June 22, 1995
and consisted of 137,340 shares of Common Stock, of which 27,468 shares
relate to the plan year ended March 31, 1995 and 109,872 shares relate
to the period from April 1, 1995 to December 31, 1995. During the years
ended March 31, 1999 and 1997, the Company contributed 275,000 and
78,869 shares to the plan and none during the year ended March 31, 1998.
The Company recognized compensation expense during the year ended March
31, 1999 and 1997 of $848,600 and $500,000, respectively, related to its
contribution to the ESOP and none during the year ended March 31, 1998.
Retirement Savings Plan
The Company has established a Retirement Savings Plan (401(k)).
Participants may contribute from 1% to 15% of pre-tax annual
compensation. Individual pre-tax participant contributions are limited
annually (not to exceed $10,000 for calander year 1998 and $9,500 for
calander years 1997 and 1996) under the Internal Revenue Code.
Participants are immediately vested in their voluntary contributions,
adjusted by any actual earnings and/or losses there on from the specific
investments.
Effective April 1999, for the plan year ending December 31, 1999, the
Company's Board of Directors elected to match 25% of Participant
contributions from April 1999 through December 1999. The Company has not
matched any contributions made prior to this date. Future matching
contributions, if any, will be determined annually by the Board of
Directors. In order to receive the matching contribution, Participants
must be employed on the last day of the plan year. Participants will
vest in contributions made to the 401(k) upon their years of service
with the Company. A year of service is a 401(k) plan year during which a
participant has at least 1,000 hours of service. Vesting generally
occurs at the rate of 20% per year, beginning after the first year of
service, so that a Participant will be fully vested after five years of
service. Upon termination of employment with the Company, each
Participant will be entitled to receive the vested portion of his or her
account balance.
<PAGE>
(9) Concentration of Credit Risk
The Company does not believe it is subject to any significant
concentration of credit risk relating to trade receivables. At March 31,
1999 and 1998, 70% and 60% of the Company's trade receivables relate to
tickets sold to individual passengers through the use of major credit
cards, travel agencies approved by the Airlines Reporting Corporation,
tickets sold by other airlines and used by passengers on Company
flights, or the United States Postal Service. These receivables are
short-term, generally being settled shortly after sale or in the month
following ticket usage.
(10) Contingencies
The Company is party to legal proceedings and claims which arise during
the ordinary course of business. In the opinion of management, the
ultimate outcome of these matters will not have a material adverse
effect upon the Company's financial position or results of operations.
The Company uses information systems in managing and conducting certain
aspects of its business. The Company is taking measures to address Year
2000 compliance of its systems and processes. Failure by the company and
its key business partners (e.g., the FAA, DOT, airport authorities,
credit card companies, suppliers, and data providers) to achieve Year
2000 compliance on a timely basis could have a significant adverse
impact on the Company's business financial condition and operating
results.
(11) Subsequent Events
During April and June 1999, the Company entered into two aircraft leases
for two aircraft with lease terms of 6 and 7 years, respectively. Annual
rental expense for these two aircraft total $5,160,000.
During April and May 1999, the underwriter of the Company's initial
public offering in 1994, exercised the remaining 83,600 options with net
proceeds to the Company totaling $461,890.
During May and June 1999, aircraft lessors exercised 395,000 warrants
with net proceeds to the Company totaling $2,391,600. To the extent that
the aircraft lessors were able to realize certain profit margins on
their subsequent sale of the stock, they were required to refund a
portion of the cash security deposits they were holding. As a result of
their sale of the Company's common stock, $486,000 in cash security
deposits were returned to the Company during the month of May 1999.
During June 1999, a financial consultant exercised its warrant to
purchase 548,000 shares of the Company's common stock with net proceeds
to the Company totaling $1,644,000.
<PAGE>
(11) Subsequent Events, continued
Between April 1, 1999 and June 16, 1999, 65,000 options issued under the
Company's Stock Option Plan were exercised with net proceeds to the
Company totaling $65,000.
As a result of these warrant and option exercises, the Company has
17,232,772 shares of its common stock outstanding as of June 16, 1999.
FURTHER RESOLVED, that the Notes and Warrants, when issued on such
basis, shall constitute valid and binding obligations of the Corporation;
FURTHER RESOLVED, that if and when any of the Warrants are exercised,
the officers of the Corporation be and they hereby are authorized to issue the
number of shares of Common Stock with respect to which any such Warrant is
exercised, upon receipt of payment therefor and surrender of the certificate
representing any such Warrant to the Corporation or its designated agent with
the exercise form thereon duly completed; and, further that said shares of
Common Stock, when paid for in accordance with the terms of said Warrant and
when issued by the Corporation, shall be validly issued, fully paid and
nonassessable shares of Common Stock;
FURTHER RESOLVED, that pursuant to Section 27 of the Rights Agreement,
the Rights Agreement is hereby amended as follows:
1. The second sentence of Section 1(a) is hereby amended in its entirety to read
as follows:
Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of the acquisition by such
Person directly from the Company of newly-issued or treasury
shares of Common Stock or warrants, options or other
securities convertible into Common Stock of the Company ( it
being understood that a purchase from an underwriter or other
intermediary in connection with a public offering by the
Company is deemed for purposes hereof to be a purchase
directly from the Company); provided, however, that if a
person shall become the Beneficial Owner of 20% or more of the
shares of Common Stock of the Company then outstanding by
reason of the receipt directly from the Company of
newly-issued shares of Common Stock or warrants, options or
other securities convertible into Common Stock of the Company
and shall, after such direct issuance by the Company, become
the Beneficial Owner of any additional shares of Common Stock
of the Company other than pursuant to a Qualifying Offer (and
thereafter remains a Beneficial Owner of 20% or more of the
shares of Common Stock of the Company), then such Person shall
be deemed to be an "Acquiring Person"; and provided, further,
that any transferee from such Person who becomes the
Beneficial Owner of 20% or more of the shares of Common Stock
of the Company then outstanding shall nevertheless be deemed
to be an "Acquiring Person."
FURTHER RESOVLED, that the officers of the Company are hereby directed
to take such other action, including further amendments to the Rights Agreement,
as they deem necessary or appropriate in the sole discretion to effectuate the
purposes and intent of the resolutions.
OFFICE LEASE
LEASE TERM SHEET
BUILDING: Airport Plaza
LEASE DATE: August 1st, 1998
LANDLORD: Pacific Rim Investments, a Colorado Limited
Liability Partnership
Address: 12015 E. 46th Ave. Suite #115
Denver, Colorado 80239
TENANT:
Name: Frontier Airlines
Address: 12015 E. 46th Avenue, Suite 200
Denver, Colorado 80239
(Address for Notice if
different than above)
BROKER OF RECORD: na
TENANT'S BROKER(if any) na
LEASED PREMISES:
Suite Number: 120 Floor: 1st floor
Address: 12015 E. 46th Avenue-Denver, Colorado 80239
Tenant's Rentable Area: 2,107 RSF (rentable square feet) Taken in as
is/where is condition.
LEASE TERM:
Lease Commencement Date: August 1st, 1998
Lease Expiration Date: August 31, 1999
Lease Period: 1 year(s), plus 1 month(s) with 1 option for tenant to
renew for a period of six to twelve months at tenants election and at
current rental rate. An annual rental rate of $27,391.00 divided into
12 (twelve) equal monthly installments of $2,282.50 per month, due and
payable on the first day of each month. This term sheet is part of the
2nd floor lease dated March 15th, 1994.
"BUILDING OPERATING COST" REFERENCE (Article 5.02):
BASE YEAR: Calendar Year 1994
TENANT'S PRO RATA SHARE(of Building for Building Operating Costs):
2,107/63,226
SECURITY DEPOSIT: (Equivalent to first months rent)
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
Location of Parking Spaces: Adjacent to office building
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
OFFICE LEASE
LEASE TERM SHEET
BUILDING: Airport Plaza
LEASE DATE: August 1st, 1998
LANDLORD: Pacific Rim Investments, a Colorado Limited
Liability Partnership
Address: 12015 E. 46th Ave. Suite #115
Denver, Colorado 80239
TENANT:
Name: Frontier Airlines
Address: 12015 E. 46th Avenue, Suite 200
Denver, Colorado 80239
(Address for Notice if
different than above)
BROKER OF RECORD: na
TENANT'S BROKER(if any) na
LEASED PREMISES:
Suite Number: 400 Floor: 4th floor
Address: 12015 E. 46th Avenue-Denver, Colorado 80239
Tenant's Rentable Area: 1,422 RSF (rentable square feet) Taken in as
is/where is condition except for painting and patching of walls, carpet
cleaned.
LEASE TERM:
Lease Commencement Date: August 1st, 1998
Lease Expiration Date: August 31, 1999
Lease Period: 1 year(s), plus 1 month(s) with 1 option for tenant to
renew for a period of six to twelve months at tenants election and at
current rental rate. An annual rental rate of $18,486.00 divided into
12 (twelve) equal monthly installments of $1,540.50 per month, due and
payable on the first day of each month. This term sheet is part of the
2nd floor lease dated March 15th, 1994.
"BUILDING OPERATING COST" REFERENCE (Article 5.02):
BASE YEAR: Calendar Year 1994
TENANT'S PRO RATA SHARE(of Building for Building Operating Costs):
1,422/63,226
SECURITY DEPOSIT: (Equivalent to first months rent)
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
Location of Parking Spaces: Adjacent to office building
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
OFFICE LEASE
LEASE TERM SHEET
BUILDING: Airport Plaza
LEASE DATE: Sept. 14, 1998
LANDLORD: Pacific Rim Investments, a Colorado Limited
Liability Partnership
Address: 12015 E. 46th Ave. Suite #115
Denver, Colorado 80239
TENANT:
Name: Frontier Airlines
Address: 12015 E. 46th Avenue, Suite 200
Denver, Colorado 80239
(Address for Notice if
different than above)
BROKER OF RECORD: na
TENANT'S BROKER(if any) na
LEASED PREMISES:
Suite Number: 360 Floor: 3rd floor
Address: 12015 E. 46th Avenue-Denver, Colorado 80239
Tenant's Rentable Area: 1,140 RSF (rentable square feet)
LEASE TERM:
Lease Commencement Date: September 15, 1998
Lease Expiration Date: August 31, 1999
Lease Period: 0 year(s), plus 11.5 month(s) with 1 option for tenant to
renew for a period of six to twelve months at tenants election and at
current rental rate. An annual rental rate of $14,820(less 2 weeks of
Sept.) divided into 12 (twelve) equal monthly installments of $1,235
per month, due and payable on the first day of each month.
"BUILDING OPERATING COST" REFERENCE (Article 5):
BASE YEAR: Calendar Year 1994 or
EXPENSE STOP: Reference 1994 lease
TENANT'S PRO RATA SHARE(of Building for Building Operating Costs):
1,140/63,226
SECURITY DEPOSIT: (Equivalent to first months rent)
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
Location of Parking Spaces: Adjacent to office building
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
OFFICE LEASE
LEASE TERM SHEET
BUILDING: Airport Plaza
LEASE DATE: January 1st, 1999
LANDLORD: Pacific Rim Investments, a Colorado Limited
Liability Partnership
Address: 12015 E. 46th Ave. Suite #115
Denver, Colorado 80239
TENANT:
Name: Frontier Airlines
Address: 12015 E. 46th Avenue, Suite 200
Denver, Colorado 80239
(Address for Notice if
different than above)
BROKER OF RECORD: na
TENANT'S BROKER(if any) na
LEASED PREMISES:
Suite Number: 121 Floor: 1st floor Square Footage: 1,600
Suite Number: 190 Floor: 1st floor Square Footage: 700
Suite Number: 300 Floor: 3rd floor Square Footage: 3,031
Address: 12015 E. 46th Avenue-Denver, Colorado 80239
Tenant's Rentable Area: 5,331 RSF (rentable square feet) Taken in as
is/where is condition except for painting, light fixtures, locks, as
required.
LEASE TERM:
Lease Commencement Date: January 1st, 1999
Lease Expiration Date: January 31st, 2001
Lease Period: 2 year(s), plus 1 month(s) with 1 option for tenant to
renew for a period of six to twelve months at tenants election and at
current rental rate. An annual rental rate of $63,972.00 divided into
12 (twelve) equal monthly installments of $5,331.00 per month, due and
payable on the first day of each month. This term sheet is part of the
2nd floor lease dated March 15th, 1994.
"BUILDING OPERATING COST" REFERENCE (Article 5.02):
BASE YEAR: Calendar Year 1999
TENANT'S PRO RATA SHARE(of Building for Building Operating Costs):
5,331/63,226
SECURITY DEPOSIT: (Equivalent to first months rent)
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
Location of Parking Spaces: Adjacent to office building
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
OFFICE LEASE
LEASE TERM SHEET
BUILDING: Airport Plaza
LEASE DATE: January 20th, 1999
LANDLORD: Pacific Rim Investments, a Colorado Limited
Liability Partnership
Address: 12015 E. 46th Ave. Suite #115
Denver, Colorado 80239
TENANT:
Name: Frontier Airlines
Address: 12015 E. 46th Avenue, Suite 200
Denver, Colorado 80239
(Address for Notice if
different than above)
BROKER OF RECORD: na
TENANT'S BROKER(if any) na
LEASED PREMISES:
Suite Number: 450 Floor: 4th floor Square Footage: 846
Address: 12015 E. 46th Avenue-Denver, Colorado 80239
Tenant's Rentable Area: 846 RSF (rentable square feet) Taken in as
is/where is condition as of 1/15/99 with no additional improvements.
LEASE TERM:
Lease Commencement Date: January 20th, 1999
Lease Expiration Date: January 31st, 2001
Lease Period: 2 year(s), plus 11 day(s) with 1 option for tenant to
renew for a period of six to twelve months at tenants election and at
current rental rate. An annual rental rate of $11,844.00 divided into
12 (twelve) equal monthly installments of $987.00 per month, due and
payable on the first day of each month. This term sheet is part of, and
shall be incorporated into and shall be an addendum to the 2nd floor
lease dated March 15th, 1994.
"BUILDING OPERATING COST" REFERENCE (Article 5.02):
BASE YEAR: Calendar Year 1999 (Paragraph 6B(2), or
EXPENSE STOP: $5.00 per square foot.[Paragraph 6B(3)]
TENANT'S PRO RATA SHARE(of Building for Building Operating Costs):
846/63,226
SECURITY DEPOSIT: (Equivalent to first months rent)
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
Location of Parking Spaces: Adjacent to office building
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
OFFICE LEASE
LEASE TERM SHEET
This Office Lease Term Sheet is part of, shall be incorporated into and shall
constitute an addendum to the Lease Agreement, dated March 15, 1994, between
Tenant and the predecessor owner of the building (the "Lease").
Building: Airport Plaza
12015 East 46th Avenue
Denver, CO 80239
Term Sheet Date: May 16, 1999
Landlord: Highline Group, LLC, as reciever for 12015
East 46th Avenue, Denver, CO 80239
Address: 1425 Market Street, Suite 205
Denver, Colorado 80202
Tenant: Frontier Airlines
Address: 12015 E. 46th Avenue, Suite 200
Denver, Colorado 80239
Broker of Record: n/a
Tenant's Broker: n/a
Leased Premises: Suite: 470
Floor: 4th
Square Footage: 2,762
Lease Term:
Commencement: May 17, 1999
Termination: January 31, 2001
Rental Rate: $3,222.33 per month during the term of this Amendment.
Tenant Finish: None
Building Operating Cost Reference (Article 5.02 of Lease):
Base Year: Calendar Year 1999
Expense Stop: $5.00 per square foot
Tenant's Pro Rata Share applicable to this Amendment: 2,762/63,226
Security Deposit applicable to this Amendment: none
Permitted Use: General Office
Parking: Number of parking spaces-n/a
Location of Parking Spaces: Adjacent to building
Highline Group LLC, Frontier Airlines, Inc.
As receiver for 12015 East 46th Avenue
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AIRCRAFT LEASE AGREEMENT
Dated as of February 26, 1999
Between
FIRST SECURITY BANK, N.A.,
As Owner Trustee,
Lessor
and
FRONTIER AIRLINES, INC.
Lessee
One Boeing Model 737-200A Aircraft
Bearing Manufacturer's Serial Number 23004
- ------------------------------------------------------------------------------
Items marked with "*" have been omitted pursuant to a request for confidential
treatment.
<PAGE>
CERTAIN PROCEEDS OF THIS LEASE ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF
NATIONSBANK, N.A., AS AGENT, AND ANY SUCCESSOR AGENT, FOR ONE OR MORE FINANCIAL
INSTITUTIONS
AIRCRAFT LEASE AGREEMENT
THIS AGREEMENT dated February 26, 1999 ("Lease"), between FIRST SECURITY
BANK, N.A., not in its individual capacity but solely as owner trustee
("Lessor"), and FRONTIER AIRLINES, INC., a Colorado corporation ("Lessee").
Lessee desires to lease from Lessor and Lessor is willing to lease to
Lessee the aircraft described herein upon and subject to the terms and
conditions of this Lease. In consideration of the mutual promises herein, Lessor
and Lessee agree as follows:
SECTION 1
DEFINITIONS
Terms used in this Lease have the respective meanings specified in Exhibit
A.
SECTION 2
LEASE AND CONDITIONS
(1) Lessor hereby agrees, subject to satisfaction of the conditions set forth
herein, to lease the Aircraft to Lessee, and Lessee hereby agrees to lease the
Aircraft from Lessor, on the terms of this Lease.
(2) Lessor's obligation to lease the Aircraft hereunder to Lessee shall be
conditioned upon (i) the absence of any Default hereunder and the absence of any
materially adverse change in Lessee's financial condition or prospects from the
date hereof to the Delivery Date, and (ii) the receipt by Lessor of the
following documents on or before the Delivery Date, all of which shall be
reasonably satisfactory in form and substance to Lessor: (1) a Lease Supplement
executed by Lessee, and effective as of the Delivery Date; (2) such officer's
certificates and legal opinions relating to due authority to enter into, the
enforceability of, and absence of Defaults under this Lease as Lessor shall
require; (3) an Approved Insurance Broker's report as to the due compliance with
the insurance provisions of Section 11 hereof; (4) a certificate of an Approved
Insurance Broker evidencing the insurance as required by Section 11 hereof; (5)
a certificate in the form of Exhibit D completed, executed and delivered by
Lessee setting forth the status of the Aircraft and Engines on the Delivery
Date; and (6) such other documents and matters incident to the foregoing as
Lessor may reasonably request. (1)
<PAGE>
SECTION 3
DELIVERY AND ACCEPTANCE; TERM
(3) Delivery; Place of Delivery and Acceptance. The Aircraft is expected to be
available for delivery on or about the Estimated Delivery Date, and shall be
delivered to and accepted by Lessee at the Delivery Location.
(4) Casualty to the Aircraft Preceding Delivery; Excusable Delay. Upon a
Casualty Occurrence taking place prior to delivery of the Aircraft to Lessee,
this Lease shall terminate. If an Excusable Delay prevents the delivery of the
Aircraft beyond April 15, 1999, Lessor shall notify Lessee in writing thereof,
and at the option of Lessee, this Lease shall terminate. Lessor shall not be
responsible for the failure to deliver the Aircraft hereunder due to an
Excusable Delay.
(5) Pre-Delivery Check Flight. Prior to the Delivery Date, Lessee shall be
permitted to assign up to two representatives (one of whom may sit in the jump
seat in the cockpit) to participate as observers in a functional check flight of
not more than two (2) hour's duration, at Lessor's expense, to enable Lessee to
verify that the Aircraft satisfies the conditions set forth in Exhibit E hereto.
Lessor will provide the pilots and insurance for the functional check flight.
(6) Correction of Deficiencies. If the pre-delivery check flight reveals that
the Aircraft does not fulfill the conditions described in Exhibit E, Lessor and
Lessee shall attempt in good faith to agree upon a list of deficiencies with
respect to the Aircraft. If the parties are unable to agree upon such list, then
this Lease shall terminate. If the parties are able to agree upon such list,
then Lessor shall cure such deficiencies listed thereon during which time Lessee
may have a reasonable number of representatives to observe such corrections
being made. Upon correction of such deficiencies, Lessee shall promptly
re-inspect the Aircraft and if the Aircraft is then in compliance with the
conditions described in Exhibit E, Lessee shall accept delivery of the Aircraft.
(7) Acceptance of Aircraft. Except as may otherwise be expressly provided
pursuant to the terms of this Lease, the Aircraft is to be leased to Lessee "AS
IS," "WHERE IS" and SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND
REPRESENTATION AS SET FORTH IN SECTION 5(a) HEREOF. Upon tender of the Aircraft
for delivery hereunder by Lessor, if the Aircraft is in the condition specified
in Exhibit E, Lessee shall immediately accept delivery of the Aircraft. Upon
acceptance of the Aircraft Lessee shall thereupon indicate and confirm its
irrevocable acceptance of the Aircraft by delivery to Lessor of a duly executed
Lease Supplement, dated the Delivery Date.
<PAGE>
(8) Term of Lease. The Term of this Lease shall commence on the Delivery Date
and shall continue until the Expiration Date; provided that this Lease may be
earlier terminated or renewed pursuant to the provisions hereof. Throughout the
Term and until redelivery of the Aircraft in accordance with Section 12 hereof,
Lessee shall bear all risks of loss, theft, damage and destruction of or to the
Aircraft and every Part thereof, and no such loss, theft, damage or destruction
nor any other event, circumstance or change in Law shall impair, discharge or
frustrate any obligation of Lessee under this Lease (including, without
limitation, as to Rent or other payments), so that all such obligations shall,
save as expressly provided in Section 10 hereof, continue in full force and
effect.
SECTION 4
RENT AND RESERVES
(9) Rent. Lessee covenants and agrees to pay to Lessor, or its assigns: (i) the
Initial Basic Rent Payment Amount on the Delivery Date, (ii) Basic Rent in
consecutive installments on each Basic Rent Payment Date; (iii) the Final Basic
Rent Payment Amount on the Final Basic Payment Date; and (iv) Supplemental Rent
as the same becomes due. If a Basic Rent Payment Date shall fall on a day which
is not a Business Day, any payment due on such Basic Rent Payment Date shall be
made on the next succeeding Business Day. All Rent and other amounts payable
under this Lease shall be paid in immediately available funds, at the Payment
Location or at such other location as Lessor shall designate in writing.
<PAGE>
(10) Reserves. Separate reserve accounts shall be established by Lessor for the
Airframe, each Engine and each landing gear. On the tenth (10) calendar day of
each month during the Term, Lessee shall pay Lessor an amount calculated as the
product of the number of Flight Hours of operation during the prior calendar
month, and the Airframe Reserve Rate, Landing Gear Reserve Rate and Engine
Reserve Rate, as applicable. Subject to receipt of satisfactory invoices, Lessor
shall use amounts deposited in each reserve account to reimburse Lessee for the
actual out-of-pocket costs incurred by Lessee in completing a "C7"Check (or its
equivalent) in the case of the Airframe, overhaul or replacement in the case of
landing gear, and Engine Overhauls in the case of an Engine; provided, however,
such reimbursable costs shall not include, without limitation, costs associated
with the auxiliary power unit. Lessee shall provide Lessor with written evidence
reasonably satisfactory to Lessor as to completion of such check or overhaul in
accordance with the Maintenance Program. No portion of any reserve shall be
applied to the cost of repairing damage resulting from any accident or incident,
abuse or misuse, foreign object damage or to the cost of complying with any FAA
airworthiness directive. Lessee shall bear the cost of any check or overhaul to
the extent such cost exceeds the balance then available in the applicable
reserve; provided, however, (A) in the event the Aircraft requires a "C7" Check
within the first two and one-half (2 1/2) years of the Term, or (B) in the event
an Engine is removed within the first fifteen (15) months following the Delivery
Date due to a condition which would require such removal in accordance with the
Engine Manufacturer's maintenance manual, Lessor shall bear the cost of any "C7"
Check or the first Engine overhaul of such Engine, as the case may be, only to
the extent that such cost exceeds the balance then available in the applicable
reserve. Lessor shall be entitled to commingle money held in the reserve
accounts from time to time with its other assets and Lessee shall not be
entitled to any interest on such amounts. Any amounts remaining in the reserve
accounts at the Return Occasion shall be applied first to reduce any payment
obligation of Lessee pursuant to Exhibit C (with the balance of any reserve
account available only to offset a payment obligation with respect to the check
or overhaul for which such reserve was established), and then the balance shall
be retained by Lessor. Lessee agrees that if Lessee Defaults have occurred or
are occurring, Lessor shall be entitled, but not required, to apply any amounts
held as reserves against such default.
(11) Prohibition Against Setoff, Counterclaim, Etc. This Lease is a net lease,
and Lessee, except as otherwise expressly provided herein, shall be responsible
for the cost of delivery, possession, importation, registration, use, operation,
management, return, maintenance, repair and modification of the Aircraft and
compliance with applicable laws, regulations and airworthiness directives from
the Delivery Date until the Aircraft is returned to Lessor in accordance with
Section 12 hereof. Lessee's obligation to pay all Rent hereunder shall be
absolute and unconditional and shall not be affected or reduced by any
circumstances whatsoever (including, without limitation any right of setoff,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, the Manufacturer, the Engine Manufacturer, any seller of or person
providing services with respect to the Aircraft or any other Person, for any
reason whatsoever), it being the express intention of Lessor and Lessee that all
Rent payable hereunder shall be payable in all events, unless the obligation to
pay the same shall be terminated pursuant to the express provisions of this
Lease. Lessee hereby waives, to the extent permitted by applicable Law, any and
all rights which it may now have or which at any time hereafter may be conferred
upon it, by Law or otherwise, to terminate this Lease or any obligation imposed
upon Lessee hereunder or in relation hereto except upon the terms expressly set
forth in this Lease. Nothing contained in this Section shall be construed as a
waiver of Lessee's right to seek a separate recovery of any payment of Rent
which is not due and payable in accordance with the terms of this Lease or
monies or payments which are due and payable by Lessor under the terms of this
Lease.
SECTION 5
REPRESENTATIONS AND WARRANTIES
<PAGE>
(12) Warranties and Disclaimer of Warranties. EXCEPT AS SET OUT IN SECTION
5(b)(i), LESSOR HAS NOT AND SHALL NOT BE DEEMED TO HAVE MADE OR GIVEN AND LESSOR
HEREBY SPECIFICALLY DISCLAIMS, ANY TERM, CONDITION, COVENANT, REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, QUALITY,
DURABILITY, DESCRIPTION, CONDITION, DESIGN, OPERATION, MERCHANTABILITY, OR THE
ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, COPYRIGHT, DESIGN, OR OTHER
PROPRIETARY RIGHT, OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT,
THE ABSENCE THEREFROM OF LATENT, INHERENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS
OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE
OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE AIRCRAFT; AND LESSEE HEREBY
WAIVES, RELEASES, RENOUNCES AND DISCLAIMS EXPECTATION OF OR RELIANCE UPON ANY
SUCH WARRANTY OR WARRANTIES, IT BEING UNDERSTOOD THAT ALL CONDITIONS, WARRANTIES
AND REPRESENTATIONS (OR OBLIGATION OR LIABILITY IN CONTRACT OR IN TORT) IN
RELATION TO ANY OF THOSE MATTERS, EXPRESSED OR IMPLIED, STATUTORY OR OTHERWISE,
ARE, EXCEPT AS PROVIDED IN SECTION 5(b)(i), EXPRESSLY EXCLUDED.
(13) LESSOR REPRESENTS AND WARRANTS (IN LIEU OF ALL OTHER EXPRESS OR IMPLIED
WARRANTIES WHATSOEVER) THAT: (i) title to the Aircraft is vested in Lessor and
the Aircraft is free and clear of any and all Lessor's Liens; (ii) Lessor is a
corporation duly organized and validly existing under the Laws of the State of
Utah and is a "citizen of the United States" as defined in section 40102 of the
Transportation Code, and has the power and authority to perform its obligations
under this Lease; (iii) the making and performance by Lessor of this Lease have
been duly authorized by all necessary corporate action on the part of Lessor and
will not violate any provision of Law or its charter documents; and (iv) this
Lease has been duly entered into and delivered by Lessor, and that this Lease
does, and the Lease Supplement when executed and delivered hereunder will,
constitute legal, valid and binding obligations of Lessor, enforceable in
accordance with their respective terms.
(14) Manufacturers' Warranties. Lessor hereby authorizes Lessee to exercise for
the account of Lessor such rights as Lessor may have under any warranty, express
or implied, with respect to the Aircraft to the extent that the same may be
assigned or otherwise made available to Lessee; provided, however, that upon an
Event of Default all such rights shall immediately revert to Lessor including
all claims thereunder whether or not perfected.
<PAGE>
(15) Lessee's Representations and Warranties. Lessee hereby makes the following
representations and warranties, which representations and warranties shall
survive the execution and delivery of this Lease and the delivery of the
Aircraft: (i) Lessee is a corporation duly organized, existing and in good
standing under the Laws of Colorado and has the corporate power and authority to
carry on its business as presently conducted and to perform its obligations
under this Lease; (ii) this Lease has been duly authorized by all necessary
corporate action on the part of Lessee, and neither the execution and delivery
hereof nor the consummation of the transactions contemplated hereby nor
compliance by Lessee with any of the terms hereof will contravene any applicable
Law or result in any breach of, or constitute any default under, or result in
the creation of any Lien upon any property of Lessee under, any credit agreement
or instrument, corporate charter or by-law or other agreement or instrument to
which Lessee is a party or by which Lessee or its properties or assets are bound
or affected; (iii) Lessee has received every consent, approval or authorization,
and has given every notice, that is required for Lessee to execute and deliver
this Lease, and to perform the transactions contemplated hereby and all of which
remain valid and effective; (iv) this Lease has been duly executed and delivered
by Lessee, and this Lease does, and the Lease Supplement when executed and
delivered by Lessee will, constitute legal, valid and binding obligations of
Lessee, enforceable in accordance with their respective terms, but subject to
bankruptcy, insolvency, or other similar laws affecting creditors' rights
generally; (v) the consolidated financial statements of Lessee, including the
balance sheets and unaudited statements of income and retained earnings of
Lessee, for the current year and if available, the immediately preceding fiscal
year, copies of which have been furnished to Lessor, are prepared in accordance
with generally accepted accounting principles, and present fairly the financial
position and operations of Lessee, and subsequent to the conclusion of the last
such period, there has been no material adverse change in such position or
operations; (vi) the chief executive office or chief place of business (as such
terms are used in Division 9 of the Uniform Commercial Code) of Lessee is
located at 12015 E. 46th Avenue, #200, Denver, Colorado 80239; (vii) each of
this Lease and any other document, certificate or statement furnished to Lessor
by or on behalf of Lessee in connection with the transactions contemplated
hereby or thereby does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading; and there is no fact, to the best
knowledge of Lessee, which has not been disclosed to Lessor in writing on or
before the date of execution of this Lease and which materially adversely
affects or will materially adversely affect the ability of Lessee to carry on
its business or to perform its obligations under this Lease; and (viii) Lessor
shall be entitled to the benefits of a lessor under Title 11 U.S.C.
Section 1110 as in effect on the date hereof.
SECTION 6
POSSESSION, USE AND MAINTENANCE
(16) Sublease, Assignment and Transfer. Without Lessor's prior written consent,
Lessee will not assign this Lease or sublet or transfer possession of the
Aircraft, Airframe or any Engine or install any Engine or permit any Engine to
be installed on any airframe other than the Airframe, provided that so long as
no Default shall have occurred and be continuing then Lessee, without the prior
written consent of Lessor, may: (i) deliver possession of the Aircraft, the
Airframe or any Engine to any organization for service, repair, maintenance,
testing or overhaul work; (ii) install an Engine on an airframe (other than the
Airframe) owned by Lessee free and clear of all Liens except Permitted Liens and
those which by their terms would not attach to such Engine; and (iii) install an
Engine on an airframe leased to Lessee or owned by Lessee subject to a
conditional sale or other security agreement, provided, that: (A) such airframe
is free and clear of all Liens except the rights of the parties to the lease or
conditional sale or other security agreement covering such airframe and except
Permitted Liens and the lien of any mortgage which by its terms would not apply
to such Engine; and (B) the lessor or secured party of such airframe has made an
agreement substantially similar in effect to the agreement of Lessor in Section
6(b) below whereby such lessor or secured party agrees that neither it nor its
successors or assigns will acquire or claim any right, title or interest in any
Engine by reason of such Engine being installed on such airframe. The rights of
any transferee that receives possession by reason of a transfer permitted by
this Section 6(a) shall be subject and subordinate to all the terms of this
Lease; Lessee shall remain primarily liable hereunder for the performance of all
of the terms of this Lease to the same extent as if such transfer had not
occurred; and no relinquishment of possession pursuant to the terms of this
Section 6(a) shall in any way discharge or diminish any of Lessee's obligations
to Lessor hereunder.
(17) Reciprocal Recognition of Rights. In the event Lessee shall have received
from the lessor or secured party of any airframe leased to Lessee or owned by
Lessee subject to a conditional sale or other security agreement a written
agreement complying with Section (B) of Section 6(a)(iii) hereof, and such lease
or conditional sale or other security agreement covering such airframe also
covers an engine or engines owned by the lessor under such lease or subject to a
security interest in favor of the secured party under such conditional sale or
other security agreement, Lessor hereby agrees for the benefit of such lessor or
secured party that Lessor will not acquire or claim, as against such lessor or
secured party, any right, title or interest in any such engine as the result of
such engine being installed on the Airframe at any time while such engine is
subject to such lease or conditional sale or other security agreement and owned
by such lessor or subject to a security interest in favor of such secured party.
Lessor also hereby agrees for the benefit of the mortgagee under any mortgage
complying with Section (A) of Section 6(a)(iii) hereof, that Lessor will not
acquire or claim, as against such mortgagee, any right, title or interest in any
engine subject to the lien of such mortgage as the result of such engine being
installed on the Airframe at any time while such engine is subject to the lien
of such mortgage.
(18) Lawful Insured Operations. Lessee will not permit the Aircraft to be
maintained, used or operated in violation of any Law of any Governmental Entity,
or in violation of any airworthiness certificate, or license or registration
issued by any such authority, or contrary to the Manufacturer's or Engine
Manufacturer's operating manuals or instructions for the Aircraft or the
Engines. In the event that any such Law requires alteration of the Aircraft,
Lessee shall ensure compliance therewith and shall ensure that the Aircraft is
maintained in proper condition for operation under such Laws. Lessee agrees not
to operate the Aircraft or permit the Aircraft to be operated during the Term
unless the Aircraft is covered by insurance as required by the provisions
hereof.
<PAGE>
(19) Maintenance. Lessee shall, at its own expense: (i) perform all mandatory
service, inspections, repair, maintenance, airworthiness directives, overhaul
and testing, (A) as may be required under applicable FAA rules and regulations
for compliance therewith during the Term and for a period of one hundred eighty
(180) days thereafter and in compliance with the Maintenance Program, (B) in the
same manner and with the same care as shall be the case with similar aircraft
and engines owned by or operated by or on behalf of Lessee without
discrimination and (C) so as to keep the Aircraft in as good operating condition
as when delivered to Lessee, ordinary wear and tear excepted; provided, however,
in the event the cost of performing, or causing the performance of, an
inspection resulting in the modification or terminating action being performed
pursuant to any Airworthiness Directive exceeds one hundred thousand dollars
($100,000), Lessor will reimburse Lessee for an amount equal to the AD Sharing
Formula for such cost, provided that (A) no Event of Default has occurred and is
continuing, and (B) Lessee provides evidence satisfactory to Lessor of payment
and completion of the relevant work; (ii) keep the Aircraft in such condition as
is necessary to maintain the airworthiness certification of the Aircraft in good
standing; and (iii) maintain all records, logs and other materials required by,
and in a manner acceptable to, the FAA.
(20) Registration and Insignia. The Aircraft shall be and shall remain
registered under the Transportation Code in the name of Lessor or such Person as
Lessor may designate. Upon delivery of the Aircraft, Lessee agrees to place the
Lease Identification in the cockpit in a prominent location and to place the
Lease Identification on each Engine. Lessee agrees to make such changes to the
Lease Identification as Lessor may request from time to time. Lessee will not
exercise any control or dominion over the Aircraft or operate or permit to be
operated the Aircraft until such Lease Identification has been so placed
thereon. Lessee will promptly replace any such marking which has been removed,
defaced or destroyed.
(21) Replacement of Parts. Lessee will promptly replace all Parts which may from
time to time become worn out, lost, stolen, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever. In
addition, Lessee may remove any Parts, whether or not worn out, damaged beyond
repair or permanently rendered unfit for use, provided that Lessee replaces such
Parts as promptly as practicable. All replacement Parts shall be free and clear
of all Liens, other than Permitted Liens, and shall be in as good an operating
condition as, and have a utility value and remaining warranty reasonably
approximating, the Parts replaced (assuming such replaced Parts were in the
condition and repair in which they were required to be maintained by the terms
hereof). All Parts owned by Lessor which are at any time removed from the
Aircraft shall remain the property of Lessor and subject to this Lease until
such time as such Parts shall be replaced by Parts which have been incorporated
or installed in to the Aircraft and which meet the requirements for replacement
Parts specified above. Immediately upon any replacement Part becoming
incorporated or installed into the Aircraft as above provided, (i) title to the
removed Part shall thereupon vest in Lessee, free and clear of all rights of
Lessor, (ii) title to such replacement Part shall thereupon vest solely in
Lessor and (iii) such replacement Part shall become subject to this Lease and be
deemed a Part for all purposes hereof to the same extent as the Part which it
has replaced.
<PAGE>
(22) Alterations, Modifications and Additions. Lessee shall make such
alterations and modifications and additions to the Aircraft as may be required
from time to time to meet the applicable standards of the FAA or to comply with
any Law, rule, directive, bulletin, regulation or order of any Governmental
Entity or of the manufacturer of the Aircraft, Engines or Parts. Lessee may from
time to time make alterations and modifications in and additions to the
Aircraft, provided no such alteration, modification or addition diminishes the
remaining warranty, value or utility, or impairs the condition or airworthiness,
of the Aircraft. Title to all Parts incorporated or installed in or attached or
added to the Aircraft as the result of such alteration, modification or addition
shall vest immediately in Lessor and become subject to this Lease, without the
necessity for any further act of transfer, document or notice.
SECTION 7
INFORMATION AND INSPECTION
Lessee agrees to furnish Lessor: (a) within one hundred twenty (120) days
after the close of each fiscal year of Lessee, its audited balance sheet, profit
and loss statement, and statement of stockholders' equity of Lessee (prepared on
a consolidated basis), as of the close of such fiscal year; (b) within ten (10)
calendar days following the end of each calendar month during the Term, an
Airframe Usage Report; and (c) from time to time such other information as
Lessor may reasonably request, including interim, unaudited financial
information regarding Lessee and information concerning the location, condition,
use and operation of the Aircraft. Lessee shall permit Lessor or its designee on
three (3) days' prior written notice to visit and inspect the Aircraft, its
condition, use and operation and the records maintained in connection therewith.
During such inspection, Lessor may take copies of the Aircraft Documents and
other operational records relating to the Aircraft. Lessor shall have no duty to
make any such inspection. Lessor's failure to object to any condition or
procedure observed or observable in the course of an inspection hereunder shall
not be deemed to waive or modify any of the terms of this Lease with respect to
such condition or procedure.
<PAGE>
SECTION 8
CERTAIN COVENANTS OF LESSEE
(23) Maintenance of Existence, Status and Consents. Lessee will (i) preserve and
maintain its corporate existence and such of its rights, privileges, licenses
and franchises in any jurisdiction where failure to obtain such licensing or
qualification would have a material adverse effect upon Lessee; (ii) maintain
and operate the Aircraft at all times as a Certificated Air Carrier and be
otherwise certificated and registered to the extent necessary to provide to
Lessor the benefits contemplated by Section 1110 of Title 11 of the United
States Code or any successor provision thereof; and (iii) maintain in full force
and effect all governmental consents, licenses, authorizations, approvals,
declarations, filings and registrations obtained or effected in connection with
this Lease and take such additional action as may be proper or advisable in
connection herewith. Lessee further undertakes to obtain or effect any new or
additional governmental consents, licenses, authorizations, approvals,
declarations, filings or registrations as may become necessary for the
performance of any of the terms and conditions of this Lease. Without the prior
written consent of Lessor, which consent shall not be unreasonably withheld,
Lessee shall not consolidate with, merge with or merge into any other Person or
convey, transfer or lease substantially all of its assets as an entirety to any
other Person. Without prior written notice to Lessor, Lessee will not change its
principal place of business or chief executive office.
(24) Payment of Taxes. Lessee will pay or cause to be paid all Taxes which are
payable by Lessee upon any property belonging to it, prior to the date on which
penalties attach thereto and prior to the date on which any lawful claim, if not
paid, would become a Lien upon any of the material property of Lessee.
(25) Liens. Lessee shall not directly or indirectly create, incur, or suffer to
exist any Lien on the Aircraft or any Engine or any interest therein, except:
(a) the respective rights of Lessor and Lessee as herein provided; (b) Lessor's
Liens; (c) Liens for Taxes either not yet due or being contested in good faith
by appropriate proceedings and so long as adequate reserves are maintained with
respect to such Liens; and (d) inchoate materialmen's, mechanics', workmen's,
repairmen's, employees' or other like Liens arising in the ordinary course of
business, which either are not delinquent or are being contested in good faith
by Lessee, so long as the Aircraft or such Engine is not in danger of being
lost, sold, confiscated, forfeited or seized as a result of any such Lien.
Lessee shall promptly take such action as may be necessary to duly discharge any
Lien (except for the Liens referred to in Sections (a) and (b) above) arising at
any time with respect to the Aircraft or any Engine. Lessee shall promptly pay
and discharge when due, or make adequate provision for all debts, claims,
liabilities or obligations whatsoever created by it, or arising as a result of
any matter concerning it, which may give rise to any Lien.
(26) Perfection of Title and Further Assurances. If the filing or recording of
this Lease or any other document or instrument is reasonably necessary to
protect the interest of Lessor, Lessee, at its own cost and expense and upon
request by Lessor, shall cause the same to occur. At the request of Lessor,
Lessee shall furnish to Lessor an opinion of counsel or other evidence
satisfactory to Lessor of each such filing or refiling and recordation or
re-recordation. Lessee will promptly and duly execute and deliver to Lessor such
further documents and assurances and take such further actions as it may from
time to time reasonably request in order to more effectively carry out the
intent and purpose of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor hereunder.
<PAGE>
SECTION 9
INDEMNIFICATION
(27) General Indemnity. Lessee agrees to defend, indemnify and hold harmless the
Indemnitees on demand from and against any and all Expenses (regardless of when
the same are made or incurred): (i) which may at any time be suffered or
incurred directly or indirectly as a result of or connected with (A) the
possession, performance, management, ownership, registration, control,
maintenance, condition, service, repair, overhaul, leasing, use or operation of
the Aircraft, any Engine or any Part, (B) the delivery or redelivery of the
Aircraft, any Engine or Part, or (C) the occurrence of any Default, whether or
not the Expenses may be attributable to any defect in the Aircraft, any Engine
or any Part or to its design, testing or use or otherwise, and regardless of
whether they arise out of or are attributable to any act or omission of any
Indemnitee; and/or (ii) which may at any time be suffered or incurred as a
consequence of any design, article or material in the Aircraft, any Engine or
any Part or its operation or use constituting an infringement of patent,
copyright, trademark, design or other proprietary right, or a breach of any
obligation of confidentiality owed to any Person in respect of any of the
matters referred to in this paragraph; but excluding any Expenses in relation to
a particular Indemnitee to the extent that such Expenses (A) are covered
pursuant to another indemnity provision of this Lease or (B) arise solely as a
result of the gross negligence or wilful misconduct of that Indemnitee or (C)
arise solely as a result of a Lessor Lien. The foregoing indemnities will
continue in full force following the Expiration Date notwithstanding any breach
or repudiation by Lessor or Lessee of this Lease or any termination of the
leasing of the Aircraft hereunder.
(28) Tax Indemnity.
<PAGE>
(1) Indemnity. All payments by Lessee to or on behalf of any Indemnitee
shall be free of withholdings of any nature whatsoever (including,
without limitation, withholding taxes, monetary transfer fees, sales,
use and excise taxes, VAT, income taxes (other than that, on the net
income of Lessor) and any similar taxes and charges) and in the event
any withholding is required, Lessee shall pay an additional amount
such that the net amount actually received by the person entitled to
receive such payment will under any circumstances and in any event,
after such withholding, equal the full amount of the payment then due.
Lessee shall pay when due and indemnify and hold each Indemnitee
harmless from all Taxes, howsoever levied or imposed, whether levied
or imposed upon or asserted against Lessor, Lessee, the Aircraft or
any part thereof or interest therein, or otherwise, by any federal,
state or local taxing authority in the United States of America or by
any government or taxing authority of or in a foreign country or of or
in a territory or possession of the United States or by any
international taxing authority, upon or with respect to or based upon
or measured by or as a result of or in connection with (i) the
Aircraft or any part thereof or interest therein, (ii) the use,
operation, maintenance, possession, condition, control, occupancy,
servicing, installation, transportation, storage, substitution, sale,
recording, documentation, importation, exportation, modification,
location, repair, abandonment, replacement, delivery, registration,
deregistration, repossession, improvement, ownership, leasing,
subleasing, manufacture, rental, settlement of any insurance claim,
return, transfer of title, transfer of possession, or other
disposition of the Aircraft or any part thereof or interest therein,
(iii) the rentals, receipts, earnings or gains arising from the
Aircraft or any part thereof or interest therein, (iv) any amount
payable pursuant to the Lease or any related agreement, (v) the Lease
or any related agreement or any future amendment, supplement, waiver
or consent with respect to any thereof, or the execution, delivery,
recording or performance of any thereof or (vi) otherwise arising
from, with respect to or in connection with the transactions
contemplated by the Lease or any related agreement, except to the
extent provided in Section 9(b)(ii) hereof. Each payment or indemnity
payable hereunder shall include any amount necessary to hold the
recipient of the payment or indemnity harmless on an after-tax basis
from all Taxes required to be paid by such recipient with respect to
such payment or indemnity.
<PAGE>
(2) Exclusions. Lessee shall not be required to pay any indemnity pursuant
to Section 9(a) with respect to any of the following: (i) any Tax to
the extent attributable solely to an event or circumstance occurring
prior to the Delivery Date; (ii) any Tax imposed as a result of a
voluntary transfer, assignment or other disposition by Lessor of the
Aircraft or the Lease unless such transfer, assignment or other
disposition shall occur (x) at any time when an Event of Default under
the Lease shall have occurred and be continuing (or would be
continuing but for the exercise of remedies), or (y) in connection or
as a result of with any termination of the Lease; (iii) any Tax to the
extent attributable solely to any event, circumstance or period of
time that occurs after the Aircraft has been redelivered to Lessor
pursuant to Section 12 hereof (under circumstances not involving a
repossession pursuant to Section 13(b) hereof) unless any such act or
event shall itself result from or be attributable to an act or
omission of Lessee which occurred prior to or concurrently with the
redelivery of the Aircraft and the discharge of Lessee's obligations
under the Lease; and (iv) any Tax that is imposed by any state or
local government or taxing authority in the United States and that is
imposed on or measured by the gross or net income, gross or net
receipts, capital or net worth of an Indemnitee; provided that the
exclusion described in this subparagraph (iv) shall not apply to (A)
Taxes that are or are in the nature of sales, use, rental,
value-added, license, excise or property Taxes, or (B) any Tax to the
extent incurred by such Indemnitee as a result of (1) the use or
location of the Aircraft or any Engine or any part of any thereof in
the jurisdiction imposing the Tax or (2) the situs of organization,
any place of business or any activity of Lessee, any affiliate of
Lessee or any Person having custody, possession or use of the Aircraft
or any Engine or any part of any thereof through Lessee in the
jurisdiction imposing the Tax or (3) the execution, delivery, filing,
registration, recording or enforcement of the Lease, or any
instrument, certificate or other document executed pursuant to the
Lease, in the jurisdiction imposing the Tax.
(3) Payment. All Taxes indemnified under this Section 9(b) shall be paid
by Lessee (to the extent permitted by applicable Law, unless otherwise
directed by the relevant Indemnitee) directly to the appropriate
taxing authority on or before the time (and in the manner) prescribed
by applicable Law. All other amounts shall be paid to the relevant
Indemnitee within 30 days after receipt of a written demand therefor
from such Indemnitee accompanied by a written statement describing in
reasonable detail the Taxes that are the subject of such indemnity and
the computation of the indemnity being demanded.
(4) Miscellaneous. In case any report or return is required to be made
with respect to any Tax for which Lessee would be required to
indemnify an Indemnitee under this Section 9(b), Lessee will either
make such report or return in such manner as will show the ownership
of the Aircraft in Lessor and send a copy of such report or return to
the affected Indemnitee or will notify the affected Indemnitee of such
requirement and make such report or return in such manner as shall be
reasonably satisfactory to such Indemnitee. If actual notice is given
by any taxing authority to Lessor that a report or return is required
to be filed with respect to any such Taxes referred to in this Section
9(b), Lessor shall promptly notify Lessee of such required report or
return. Lessor agrees to respond to any reasonable request of Lessee
for information within the control of Lessor with respect to the
filing of any report or return, but Lessee agrees to pay any
reasonable costs, fees or other charges of independent counsel or
independent accountants incurred in connection with such request.
Lessee agrees that within sixty (60) days after the close of each
fiscal year of Lessor it shall provide Lessor with any information
reasonably requested by Lessor, including information regarding the
use and location of the Aircraft during such fiscal year.
<PAGE>
SECTION 10
CASUALTY OCCURRENCES
(29) Casualty Occurrence with Respect to the Airframe. Within five (5) days
after a Casualty Occurrence with respect to the Airframe and any Engine then
installed thereon, Lessee shall give Lessor written notice of such occurrence.
On or before thirty (30) days after the date of the Casualty Occurrence with
respect to the Aircraft, Lessee shall pay to Lessor in immediately available
funds the sum of (i) the Casualty Value of the Aircraft computed as of the date
of payment less an amount equal to the daily equivalent of Basic Rent (computed
on the basis of a 365-day year) for each day during the period commencing with
the day after payment of such Casualty Value and extending to, but excluding,
the Basic Rent Payment Date immediately following payment of such Casualty
Value, and (ii) all Supplemental Rent, other than amounts paid pursuant to
Section (i), computed as of the date of payment. Upon such payment (A) the
obligation of Lessee to make further payments of Basic Rent hereunder shall
terminate, (B) this Lease shall terminate with respect to the Aircraft and (C)
Lessor will transfer to Lessee, without recourse or warranty, all of Lessor's
right, title and interest, if any, in and to the Airframe and Engines (if any)
suffering the Casualty Occurrence, as well as all of Lessor's right, title and
interest in and to any Engine constituting part of the Aircraft but not
installed thereon at the time of the Casualty Occurrence.
(30) Casualty Occurrence with Respect to an Engine. Upon a Casualty Occurrence
with respect to an Engine only, Lessee shall give Lessor prompt written notice
thereof and shall, within forty-five (45) days after such occurrence, convey to
Lessor, as replacement for the Engine suffering a Casualty Occurrence, title to
a Replacement Engine. Each Replacement Engine shall be free of all Liens (except
Permitted Liens). Upon full compliance by Lessee with the terms of this
paragraph, Lessor will transfer to Lessee title to the Engine which suffered the
Casualty Occurrence. Prior to or at the time of any such conveyance, Lessee, at
its own expense, will promptly (i) furnish Lessor with a full warranty bill of
sale, in form and substance reasonably satisfactory to Lessor, with respect to
such Replacement Engine; (ii) cause a supplement hereto, in form and substance
reasonably satisfactory to Lessor, subjecting such Replacement Engine to this
Lease, to be duly executed by Lessee, and recorded pursuant to applicable Law;
(iii) furnish Lessor with such legal opinions and other documents as Lessor may
reasonably request in connection with the consummation of the transactions
contemplated by this Section 10(b), in each case in form and substance
satisfactory to Lessor. Upon full compliance by Lessee with the terms of this
Section 10(b), Lessor will transfer to Lessee all of the right, title and
interest in the Engine which suffered the Casualty Occurrence, and such
Replacement Engine shall be deemed an "Engine" as defined herein.
(31) Application of Proceeds and Payments. Any payments received at any time by
Lessor or by Lessee from any insurer under any policy of insurance (other than
liability insurance) shall be applied in the manner specified in Sections 11(m),
11(n) or 11(o) hereof as applicable. Any payments received at any time by Lessor
or Lessee with respect to a Casualty Occurrence will be applied as follows: (i)
if such payments are received as a result of a Casualty Occurrence with respect
to the Aircraft, such payment up to the amount of the Casualty Value shall be
paid to Lessor, or if Lessee has already paid Lessor the Casualty Value, such
payment shall be applied by Lessor to reimburse Lessee; or (ii) if such payments
are received as a result of a Casualty Occurrence with respect to an Engine
which is being replaced pursuant to Section 10(b), such payments shall be paid
over to, or retained by, Lessee if Lessee shall have fully performed the terms
of Section 10(b) hereof.
<PAGE>
(32) Application in Default. Any amount referred to in Section (i) or (ii) of
Section 11(c) which is otherwise payable to Lessee shall not be paid to Lessee,
or, if it has been previously paid to Lessee, and not yet applied by Lessee as
permitted or required hereunder, shall be delivered from Lessee to Lessor, if at
the time of such payment a Default shall have occurred and be continuing. In
such case, all such amounts shall be paid to and held by Lessor as security for
the obligations of Lessee, or, at the option of Lessor, applied by Lessor toward
payment of any of Lessee's obligations at the time due hereunder, as Lessor may
elect. At such time as there shall not be continuing any such Default, all such
amounts at the time held by Lessor in excess of the amount, if any, which Lessor
has elected for application as provided above, shall be paid to Lessee.
SECTION 11
INSURANCE
(33) Obligation to Insure. From the Delivery Date until the termination of the
Lease and redelivery of the Aircraft to Lessor, Lessee shall, at its own cost
and expense, effect and maintain or cause to be effected and maintained in full
force and effect insurances with respect to the Aircraft that comply with the
provisions of this Section 11. Lessee agrees that such insurances shall be
carried with Approved Insurers. Lessee further agrees that such insurances shall
reflect prudent practices in the international aviation insurance market for air
carriers operating the same type of aircraft as the Aircraft on similar routes.
(34) Public Liability and Property Damage Insurance. Lessee will carry and
maintain in effect, at its own expense, comprehensive public liability insurance
covering aircraft liability including bodily injury and property damage,
passenger, baggage, cargo and mail, and general liability (including products
and completed operation) for a combined single limit on any one occurrence of
not less than the amount applicable to similar passenger aircraft and engines
which comprise Lessee's fleet, and in any event not less than the amount under
"Public Liability and Property Damage Insurance" as set forth on Exhibit A
hereto (or such higher amounts as Lessor may from time to time reasonably
require). Lessee shall not discriminate against the Aircraft in providing such
insurance.
(35) Required Policy Designations Relating to Comprehensive Public Liability
Insurance. The policies evidencing the insurance required under Section 11(b)
shall be endorsed to include paragraph 2 of AVN67B with each Indemnitee and
Lender named as a contract party in AVN67B, shall cover "war risks and allied
perils" in accordance with extended coverage endorsement AVN52C and shall to the
extent not in conflict with AVN67B:
(1) provide that all the provisions thereof, except the limits of
liability, shall operate to give each Additional Insured the same
protection as if there were a separate policy covering each insured;
and
(2) be primary and without right of contribution from other insurance that
may be available to any other Additional Insured or Lessee.
<PAGE>
(36) Insurance with Respect to the Aircraft. Lessee, at its own expense, will
maintain in effect:
(1) "hull all risks" insurance for loss of or damage to the Aircraft
(including all flight and ground risks) on an agreed value basis in an
amount not less than the Casualty Value;
(2) "all risks" and "war risks and allied perils" insurance on the Engines
and Parts while not installed on the Airframe on an agreed value basis
in an amount not less than their full replacement value; and
(3) "hull war and allied perils" insurance on the Aircraft covering risks
excluded from the "hull all risks" policy to the fullest extent
available from the leading international insurance markets, including
confiscation or requisition by the state of registration, on an agreed
value basis for an amount not less than the Casualty Value.
(37) Required Policy Designations and Provisions Relating to Insurance Against
Loss or Damage. Each and any policy of insurance obtained and maintained
pursuant to Section 11(d), and each and any policy obtained in substitution or
replacement for any such policies, shall be provided by policies that shall be
endorsed to include paragraph 1 of AVN67B with Lessor and Lender as contract
parties and shall to the extent not in conflict with AVN67B:
(1) include a loss payable clause that provides that all insurance
proceeds in the event of a Casualty Occurrence shall be payable to
Lessor or its designee and that all other insurance proceeds shall be
paid in accordance with the terms of this Lease to such parties as may
be necessary to repair the Aircraft;
(2) provide in the event of separate insurances being arranged to cover
the "hull all-risks" insurance and the "hull war-risks" insurance that
the underwriters subscribing to such insurance agree that in the event
of any dispute as to whether a claim is covered by the "hull
all-risks" or "hull war-risks" policy, such claim be settled on a
50/50 claim funding basis in accordance with AVS103 (or its
equivalent) or under either the "hull all-risks" or "hull war-risks"
policy;
(3) be subject to such exclusions and deductibles as Lessor may reasonably
approve, provided that in no event shall the deductible under the
"hull all-risks" and "hull war-risks" insurance exceed the Deductible
Amount; and
(4) provide that all insurance proceeds shall be payable in Dollars.
<PAGE>
(38) Revised Policy Designations and Provisions Relating to All Insurance. The
policies evidencing the insurance required under this Section 11 shall be
endorsed to include paragraph 3 of AVN67B with Lessor and Lender with respect to
hull insurance and each Additional Insured with respect to liability insurance
be named as contract parties in AVN67B, shall name the Additional Insureds and
shall, to the extent not in conflict with AVN67B:
(1) designate the Additional Insureds as additional insureds and loss
payees;
(2) provide that the insurance shall not be invalidated, so far as
concerns any Additional Insured, by any action or inaction or omission
(including misrepresentation and nondisclosure) of any person or party
that results in a breach of any term, condition or warranty of such
policy; provided, that the Additional Insured so protected has not
caused, contributed to or knowingly condoned the action, inaction or
omission, as the case may be;
(3) specifically reference this Lease;
(4) provide for worldwide coverage (subject only to such exceptions as are
customary in insurance coverage carried by air carriers operating
aircraft of the same type as the Aircraft);
(5) provide that upon payment of any loss or claim to or on behalf of any
Additional Insured, the respective insurer shall to the extent and in
respect of such payment be thereon subrogated to all legal and
equitable rights of the Additional Insured indemnified hereby (but not
against any other Additional Insured); provided, that such insurer
shall not exercise such rights without the consent of the indemnified
Additional Insured, such consent not to be reasonably withheld;
(6) provide that neither Lessor nor Lender shall be liable for any
premiums in respect thereof and that the insurers shall waive any
right of set-off or counterclaim against Lessor or Lender except in
respect of unpaid premiums in respect of the Aircraft; and
<PAGE>
(7) provide that the insurers shall promptly notify Lessor and Lender in
the event of cancellation of, or any material change in, the insurance
or any act or omission or any event that might invalidate or render
unenforceable the insurances or in the event that any premium shall
not have been paid when due and that the insurances shall continue
unaltered for the benefit of each Additional Insured for at least
thirty (30) days after written notice by registered mail of such
cancellation, change, event or non-payment of premium thereof shall
have been received by Lessor and Lender except in the case of war
risks for which seven (7) day notice (or such period as may be
customarily available in respect of war risks or allied perils) will
be given.
(39) Information.
(1) On or before the Delivery Date and promptly after each renewal of the
insurances, Lessee shall provide Lessor and Lender with certificates
of insurance and a broker's letter of undertaking that (i) name each
of Triton Aviation Services V LLC, First Security Bank, N.A.,
NationsBank, N.A., and their respective officers, directors,
shareholders, agents and employees and their respective successors and
assigns as "additional insureds", (ii) evidence to the satisfaction of
Lessor that the insurances are and will continue in full force after
the Delivery Date or the renewal date (as the case may be) for such
period as shall then be stipulated and (iii) contain such other
certifications and undertakings as are customarily provided to lessors
and mortgagees by insurance brokers acting for air carriers.
(2) Lessee shall from time to time upon request from Lessor (i) provide to
it evidence reasonably satisfactory to it that any and all premiums
payable in respect of the insurances have been paid in accordance with
the terms of the relevant policy and (ii) provide or cause its broker
to provide a list of the insurers with whom the insurances are carried
and the coverages provided by each of them.
(3) Lessee shall furnish such information regarding the status of renewal
negotiations as may from time to time be reasonably requested by
Lessor. In addition, Lessee shall arrange for its brokers (i) to
confirm to Lessor not later than five (5) days prior to the renewal
date of the insurances, that negotiations for such renewal are at an
advanced state and that there is no reason to suppose that the
insurances will not be renewed at the relevant date in terms that will
comply with the provisions of this Lease and (ii) to furnish to Lessor
on or prior to the renewal date, the renewal certificates of
insurance, reinsurance (if applicable) and brokers' letters of
undertaking, each in English and in form and substance satisfactory to
Lessor.
<PAGE>
(4) Lessee shall furnish, or cause to be furnished, to Lessor and Lender
on the Delivery Date and thereafter as and when required by Lessor and
upon each transfer of the Aircraft or assignment of rights hereunder
as permitted by this Lease, certificates and brokers letter of
undertaking (and, if further requested, of its insurers) that confirm
that the requirements of this Section 11 are being complied with.
(5) Lessee shall, at the request of Lessor, make copies of the policies
and endorsements and any amendments thereto with respect to the
insurance available to Lessor (or its authorized representatives) for
inspection by any representative of Lessor at the office of Lessee or
its insurance brokers during normal business hours.
(40) Additional Insurance; No Lien.
(1) Lessee shall not, without the prior written consent of Lessor,
maintain insurances with respect to the Aircraft or any Engine, other
than as required under this Lease if it would prejudice recovery under
the insurance required hereunder.
(2) Lessor may from time to time require Lessee at no cost to Lessor to
effect such other insurances, or such variations to the terms of the
existing insurances, as Lessor may reasonably require in order to
fully protect the interests of the Additional Insureds.
(3) Lessee shall not create or permit to exist any Lien over the
insurances required by this Lease, or its interest therein, save as
constituted by this Lease.
(41) Failure to Insure. If at any time Lessee fails to maintain in full force
and effect insurances in compliance with any provision of this Section 11,
Lessor shall be entitled but not obligated (without prejudice to any other
rights that it may have or acquire under this Lease by reason of such failure):
(1) to pay any premiums due or to effect or maintain insurances
satisfactory to Lessor or otherwise remedy such failure in such manner
as Lessor considers appropriate, and Lessee shall immediately
reimburse Lessor in full for any amount so expended by Lessor; and/or
(2) 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 Lessor until such failure is remedied.
<PAGE>
(42) Assignment. If Lessor transfers the Aircraft or assigns its rights
hereunder as permitted by this Lease, Lessee will, upon request, promptly
procure that the transferee or assignee (including, without limitation, any
lender) shall be added as a further named insured to any of the insurances
referred to in this Section 11 so as to enjoy the same rights and protection as
Lessor may have from time to time under such insurances. In addition, if Lessor
transfers the Aircraft or such rights and thereafter ceases to be Lessor (a
"Transferor"), Lessee shall, at the request of such Transferor and at Lessees
expense, effect and maintain for the benefit of such Transferor the insurance
required by Section 11(c) for such period (not exceeding two years) as in
Transferor may request and shall ensure that the Transferor shall be named as an
additional insured thereunder.
(43) Reinsurance. Any reinsurance will be maintained with reinsurers and brokers
approved by Lessor. Such reinsurance will contain each of the following terms
and will in all other respects (including amount) be satisfactory to Lessor.
(1) the same terms as the original insurance;
(2) a cut through and assignment clause satisfactory to Lessor; and
(3) 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.
(44) Settlement of Claims. Lessee will not settle or permit settlement of any
claims arising under any of the insurances referred to in Section 11 without the
prior written consent of Lessor or its designee and will not settle or permit
settlement of any claims under such insurance without such consent if an Event
of Default has occurred and is continuing.
(45) Application of Insurance Proceeds for a Casualty Occurrence. It is agreed
that insurance payments which arise from any policy of insurance carried by
Lessee and received as the result of the occurrence of a Casualty Occurrence
shall be applied as follows: (i) if such payments are received with respect to a
Casualty Occurrence relating to the Airframe and Engines or engines installed on
the Airframe, so much of such payments as shall not exceed the amounts due under
Section 10(a) hereof shall be paid to Lessor, and the balance to Lessee; and
(ii) if such payments are received with respect to a Casualty Occurrence
relating to an Engine under circumstances contemplated by Section 11(d) hereof,
such payment shall be adjusted with Lessee (provided that Lessee has not
breached any warranty, declaration or condition contained in the applicable
insurance policy) and paid over to Lessee, provided that Lessee shall have fully
performed the terms of Section 10(b) hereof.
<PAGE>
(46) Application of Insurance Proceeds for Other than a Casualty Occurrence. The
insurance payments for any property damage loss to the Airframe or any Engine
not constituting a Casualty Occurrence, or to any Part, will be held by Lessor
until Lessee furnishes Lessor with satisfactory evidence that the repairs or
replacement property Lessee is required to perform or obtain in accordance with
the terms of Section 6(f) of this Lease have been made or obtained by Lessee.
Upon receipt of such evidence of repair or replacement, Lessor shall pay Lessee
the amount of the insurance payment received with respect to such loss.
(47) Application in Default. Any amount referred to in Sections 11(e)(i), 11(m)
or 11(n) which is otherwise payable to Lessee shall not be paid to Lessee, or,
if it has been previously paid to Lessee, and not yet applied by Lessee as
permitted or required hereunder, shall be delivered by Lessee to Lessor, if at
the time of such payment, a Default shall have occurred and be continuing. In
such case, all such amounts shall be held by Lessor as security for the
obligations of Lessee, or, at the option of Lessor, applied by Lessor toward
payment of any of Lessee's obligations at the time due hereunder. At such time
as there shall not be continuing any such Default, all such amounts at the time
held by Lessor in excess of the amount, if any, which Lessor has elected for
application as provided above, shall be paid to Lessee.
SECTION 12
RETURN OF AIRCRAFT AND RECORDS
(48) Return. On the Expiration Date, Lessee, at its own expense, shall return
the Aircraft to Lessor in the condition specified on Exhibit C hereto at the
Return Location, fully equipped with all required Parts and Engines, duly
installed thereon, together with the Aircraft Documents and records which are
complete and acceptable to the FAA, and at no cost to Lessor, all service
bulletin kits furnished without charge by a manufacturer for installation on the
Aircraft which have not been so installed.
(49) Records. Six months prior to the Expiration Date (and in an updated form
upon the Return Occasion), Lessee will provide Lessor with a technical report in
form and substance reasonably requested by Lessor, and, in addition, upon
Lessor's request, will make copies of (i) drawings of the interior configuration
of the Aircraft both as it presently exists and as it will exist at return, (ii)
the airworthiness directive status list, (iii) service bulletin incorporation
list, (iv) rotable controlled, hard-time and life limited component listings,
(v) listing of Lessee-initiated modifications and alterations, (vi) interior
material burn certificates, (vii) Maintenance Program, (viii) complete work
scope for the checks, inspections and other work to be performed prior to
return, (ix) current Engine disk sheets and (x) any other data which is
reasonably requested by Lessor. In addition to the foregoing, upon the Return
Occasion, Lessee shall deliver to Lessor all Aircraft Documentation.
<PAGE>
(50) Final Inspection. Upon the Return Occasion, Lessee shall make the Aircraft
available to Lessor for a functional check flight and detailed inspection, at
Lessee's expense, in order to verify that the condition of the Aircraft complies
with the requirements set forth herein (the "Final Inspection"). Lessee shall
give Lessor not less than ten (10) days prior written notice of the commencement
date of the "C" Check required by Exhibit C. Lessor shall have the right to
appoint a representative who may observe (i) the Final Inspection, (ii) any
inspections conducted in accordance with Exhibit C, and/or (iii) the maintenance
conducted in connection with or as a consequence of any such inspections. The
functional test flight shall be conducted, at Lessee's expense, using a
qualified pilot and not more than three (3) technical representatives selected
by Lessor (one of whom may sit in the jump seat in the cockpit), in conjunction
with Lessee's flight crew, shall be up to two (2) hours duration, shall conform
with Lessee's standard operation check flight procedures, shall be covered by
Lessee's insurance policy required pursuant to Section 11, and shall otherwise
be of such scope as is necessary to demonstrate the airworthiness of the
Aircraft and proper functioning of all systems and components. The Final
Inspection shall commence on or before the Expiration Date and shall continue on
consecutive days until all activity required above to be conducted during the
Final Inspection has been concluded. To the extent that any portion of the Final
Inspection extends beyond the Expiration Date, the Term shall be deemed to have
been automatically extended, and the obligation to pay Rent hereunder continued
on a daily basis until the Final Inspection shall have been concluded.
(51) Corrections and Subsequent Corrections. If the Aircraft or any Engine fails
upon the Return Occasion to conform to any requirement imposed by this Lease,
Lessor, at its option, may continue the Lease in effect in the manner provided
for in Section 12(c) above with regard to automatic extension until such time as
the Aircraft is brought up to the condition required by this Lease, or accept
the return of the Aircraft and thereafter have any such nonconformance
corrected. Any expense incurred by Lessor for such correction shall become
Supplemental Rent payable by Lessee upon demand. Lessee's obligations to pay
such Supplemental Rent shall survive the passage of the Expiration Date or other
termination of this Lease.
SECTION 13
DEFAULT AND REMEDIES
(52) Events of Default. Any one or more of the following occurrences or events
shall constitute an Event of Default: (i) Lessee shall fail to make any payment
of Rent to Lessor when due and such payment shall be overdue for a period of two
(2) Business Days; (ii) Lessee shall fail to obtain and maintain any insurance
required under the provisions of Section 11 hereof, or shall operate the
Aircraft outside of the scope of the insurance coverage so maintained; (iii) any
representation or warranty made by Lessee herein or in any document or
certificate furnished Lessor in connection herewith or therewith or pursuant
hereto is incorrect at the time given in any material respect; (iv) any
bankruptcy, insolvency or similar proceeding is commenced by or against Lessee;
or (v) Lessee shall fail to perform or observe any other covenant, condition or
agreement hereunder and such failure shall continue for a period of five (5)
Business Days after written notice thereof is given by Lessor to Lessee.
<PAGE>
(53) Remedies. Upon the occurrence of any Event of Default Lessor may, at its
option and without notice to Lessee, exercise one or more of the following
remedies as Lessor in its sole discretion shall elect: (i) demand that Lessee,
and Lessee shall upon the written demand of Lessor and at Lessee's expense,
immediately return the Aircraft to Lessor in the manner specified in such
notice; (ii) enter upon the premises where the Aircraft is located and take
immediate possession of and remove the same; (iii) cancel Lessee's leasehold
interest in the Aircraft under this Lease effective upon dispatch of written
notice to Lessee, and store, sell or lease to others the Aircraft, all free and
clear of any rights of Lessee; (iv) demand that Lessee, and Lessee shall upon
the written demand of Lessor, pay as damages for the breach hereof an amount
equaling the sum of: (1) all Rent due and payable hereunder; (2) all Expenses
incurred by Lessor as a result of Lessee's breach of this Lease; and (3) such
additional amount as shall be sufficient to place Lessor in the same economic
position, on an after-tax basis, as Lessor would have been in if Lessee had
timely performed each of its obligations under this Lease; and/or (v) proceed by
appropriate court action or actions, either at Law or in equity, to enforce
performance by Lessee of the applicable covenants of this Lease and to obtain
the benefit of any remedies available to Lessor hereunder or under applicable
Law for breach hereof.
In addition to the foregoing, Lessor shall be entitled to exercise such
other rights and remedies as may be available under applicable Law and Lessee
shall be liable on an after-tax basis for, and shall pay Lessor on demand: (1)
interest on all unpaid amounts at the Interest Rate, from the due date until the
date of payment in full; (2) all reasonable legal fees and other reasonable
costs and expenses incurred by Lessor by reason of the occurrence of any Event
of Default or the exercise of Lessor's remedies with respect thereto; and (3)
all reasonable expenses, disbursements, costs and fees incurred in (A)
repossessing, storing, preserving, shipping, maintaining, repairing and
refurbishing the Aircraft, the Airframe, any Engine or Part to the condition
required by Section 12 hereof and (B) preparing the Aircraft, the Airframe, an
Engine or Part for sale or lease, advertising the sale or lease of the Aircraft,
the Airframe, an Engine or Part and selling or releasing the Aircraft, the
Airframe, an Engine or Part.
No remedy referred to in this Section 13(b) is intended to be exclusive,
but, to the extent permissible hereunder or under applicable Law, each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at Law or in equity; and the exercise or beginning of
exercise by Lessor of any one or more of such remedies shall not preclude the
simultaneous or later exercise by Lessor of any or all of such other remedies.
No express or implied waiver by Lessor of any Default or Event of Default shall
in any way be, or be construed to be, a waiver of any future or subsequent
Default or Event of Default.
<PAGE>
SECTION 14
ALIENATION
Lessor shall have the right to assign, sell or encumber any interest of
Lessor in the Aircraft or this Lease and/or the proceeds hereof subject to the
rights of Lessee under the provisions of this Lease; provided, however, in the
case of assignment for security, Lessee shall be reimbursed for any costs
reasonably incurred by Lessee in connection therewith. To effect or facilitate
any such assignment, sale or encumbrance, Lessee agrees to provide such
agreements, consents, conveyances or documents as may be reasonably requested by
Lessor, which in the case of an assignment other than for security shall include
an unrestricted release of Lessor from its obligations hereunder. Lessee
acknowledges that an assignment, sale or encumbrance of Lessor's interest
hereunder would not have the effect of altering the terms of this Lease relating
to the rights and obligations of Lessee. Lessee agrees that it will not assert
against an assignee any claim or defense which it may have against Lessor. The
agreements, covenants, obligations, and liabilities contained herein including,
but not limited to, all obligations to pay Rent and indemnify each Indemnitee
are made for the benefit of each Indemnitee and their respective successors and
assigns.
SECTION 15
MISCELLANEOUS
(54) Severability and Construction. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. To the extent permitted by Law,
Lessee hereby waives any provisions of Law which renders any provisions hereof
prohibited or unenforceable in any respect. This Lease shall constitute an
agreement of lease, and nothing herein shall be construed as conveying to Lessee
any right, title or interest in the Aircraft or any Engine or Part except as a
lessee only. Lessor and Lessee agree that this Lease is to be treated as a lease
for U.S. federal income tax purposes.
(55) Governing Law; Jurisdiction. This Lease shall in all respects be governed
by, and construed in accordance with, the Laws of the State of California.
Lessee hereby irrevocably consents that any legal action or proceeding against
it or any of its assets with respect to the Lease may be brought in any
jurisdiction where Lessee or any of its assets may be found, or in any court of
the State of California or any Federal court of the United States of America
located in San Francisco, California, as Lessor may elect, and by execution and
delivery of this Lease, Lessee hereby irrevocably submits to and accepts with
regard to any such action or proceeding, for itself and in respect of its
assets, generally and unconditionally, the jurisdiction of the aforesaid courts.
Lessee further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified airmail, postage prepaid, to Lessee at its
address set forth on Exhibit A hereto. The foregoing, however, shall not limit
the rights of Lessor to serve process in any other manner permitted by Law or to
bring any legal action or proceeding or to obtain execution of judgment in any
jurisdiction. Lessee hereby irrevocably waives, to the fullest extent permitted
by Law, any objection which Lessee may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this Lease
brought in the State of California, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in the State of
California has been brought in an inconvenient forum.
<PAGE>
(56) Notices. All notices required under the terms and provisions hereof shall
be in writing, shall be sent to Lessor or Lessee at their respective addresses
set forth on Exhibit A hereto (or such other addresses as the parties may
designate from time to time in writing) and, except as otherwise provided
herein, shall become effective upon the earlier of actual receipt or (i) in the
case of a letter, the fifth day following posting, and (ii) in the case of a
facsimile transmission on the day immediately following the date of dispatch.
(57) Lessor's Right to Perform for Lessee. If Lessee fails to perform or comply
with any covenant, agreement or obligation contained herein, Lessor shall have
the right but not the obligation to so perform or comply for Lessee, and the
reasonable expenses of Lessor incurred in connection therewith, together with
interest thereon at the Interest Rate, shall be payable by Lessee to Lessor (as
Supplemental Rent) upon demand. The taking of any such action by Lessor shall
not constitute a waiver or release of any obligation of Lessee under this Lease,
nor a waiver of any Default which may arise out of Lessee's nonperformance of
such obligation, nor an election or waiver by Lessor of any remedy or right
available to Lessor hereunder.
(58) Counterparts. This Lease may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. To the extent, if any, that this Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction) no security interest in this Lease may be
created through the transfer or possession of any counterpart other than the
counterpart which has been marked "Original" on the signature page thereof.
(59) Quiet Enjoyment. Lessor covenants that so long as an Event of Default shall
not have occurred and be continuing, Lessee shall quietly enjoy the Aircraft and
all rents, revenues, profits and income thereto, without interference by Lessor,
or by any Person lawfully claiming by or through Lessor.
(60) Brokers. Neither Lessor nor Lessee have utilized the services of any agent,
broker or similar third party representation in connection with the transactions
contemplated by this Lease and each party agrees to indemnify and hold the other
harmless from and against any and all claims, suits, damages, costs and expenses
(including, but not limited to reasonable attorneys' fees) asserted by any
agent, broker or other third party for any commission or compensation based upon
the lease of the Aircraft, if such claim, damage, cost or expense arises out of
any action or alleged action by the indemnifying party, its employees or agents.
(61) Time is of the Essence. Time and strict and punctual performance are of the
essence with respect to each provision of this Lease.
<PAGE>
(62) DISCLAIMER OF CONSEQUENTIAL DAMAGES. LESSEE AGREES THAT IT SHALL NOT BE
ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY
OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES (AS SUCH TERM IS DEFINED IN
SECTION 10520(B) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE) AS A RESULT OF ANY
BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR
WARRANTIES OF LESSOR CONTAINED IN THIS LEASE OR THE OTHER RELATED AGREEMENTS.
(63) Security Deposit. Lessor hereby acknowledges the receipt of an initial
security deposit in the Initial Amount and Lessee hereby agrees to deposit with
Lessor on or before thirty (30) days prior to the Estimated Delivery Date, a
final installment of the security deposit in the Further Additional Amount
(collectively, the "Security Deposit"). The Security Deposit shall be
non-refundable during the Term hereof; provided that the Security Deposit shall
be promptly refunded by Lessor to Lessee in the event that Lessor shall fail to
tender the Aircraft for delivery in accordance with Section 3 of this Lease on
or prior to May 30, 1999, despite Lessee's satisfaction of all conditions to
such tender, and Lessee elects to terminate this Lease. Such sums are received
by Lessor as security for the timely and faithful performance by Lessee of all
of Lessee's obligations under this Lease, and Lessee hereby grants Lessor a
security interest therein and in all other sums deposited under this Section
15(j). Lessor shall be entitled to commingle the Security Deposit with its other
funds, and Lessee shall not be entitled to any interest or other earnings
thereon. If Lessee is in Default hereunder, in addition to all other rights
Lessor shall have under the California Uniform Commercial Code as a secured
party, Lessor may use, apply or retain all or any portion of the Security
Deposit in partial payment for sums due to Lessor by Lessee, to compensate
Lessor for any sums it may in its discretion advance as a result of a Default by
Lessee, or to apply toward losses or expenses Lessor may suffer or incur as a
result of Lessee's Default. If Lessor uses or applies all or any portion of such
Security Deposit, such application shall not be deemed a cure of any Defaults,
and Lessee shall within five days after written demand therefore deposit with
Lessor in cash an amount sufficient to restore the Security Deposit to its
original sum and the failure of Lessee to do so shall be a material breach of
this Lease by Lessee. Provided Lessee is not in Default under this Lease, the
principal amount of such Security Deposit, without interest, and less any costs
incurred by Lessor in connection with the termination of the Lease or return of
the Aircraft and any amounts owed by Lessee to Lessor under this Lease or
otherwise, shall be returned to Lessee on the Expiration Date, provided that
Lessee shall have returned the Aircraft in compliance with Section 12 hereof.
(64) Costs. Except as otherwise provided herein, Lessor and Lessee each shall
pay its own costs and expenses incurred in connection with the negotiation,
documentation and performance of its obligations under this Lease.
(65) Entire Agreement; Modification or Revision. This Lease is intended to be a
complete and exclusive statement of the terms of the agreement of the parties
hereto, and this Lease supersedes any prior or contemporaneous agreements,
whether oral or in writing. Neither this Lease nor any term of this Lease may be
modified, rescinded, changed, waived, discharged or terminated except by a
writing signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provisions of this Section 15(l) by their signatures below.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee, each pursuant to due authority,
have each caused this Lease to be executed by their duly authorized officers as
of the day and year first above written.
LESSOR:
FIRST SECURITY BANK, N.A.,
not in its individual capacity
but solely as owner trustee
By:____________________________
Name:__________________________
Its:_____________________________
LESSEE:
FRONTIER AIRLINES, INC.
By:______________________________
Name:____________________________
Its:______________________________
CERTAIN PROCEEDS OF THIS LEASE ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF
NATIONSBANK, N.A., AS AGENT, AND ANY SUCCESSOR AGENT, FOR ONE OR MORE FINANCIAL
INSTITUTIONS
<PAGE>
EXHIBIT A
to
Aircraft Lease Agreement
DEFINITIONS AND VALUES
Part I -- General
Additional Insureds shall mean Lessor, Beneficiary, Lender and their respective
officers, directors, shareholders, agents and employers and their respective
successors and assigns.
Aircraft shall mean the Airframe together with (a) the Engines, whether or not
installed on the Aircraft, (b) all Parts or components thereof, (c) spare parts
or ancillary equipment or devices furnished with the Aircraft under this Lease,
(d) all Aircraft Documents, and (e) all substitutions, replacements and renewals
of any and all thereof.
Aircraft Documents shall mean the items identified on Schedule 2 to Exhibit D,
together with all additions and replacements.
Airframe shall mean (a) the Boeing model 737-200A aircraft having Manufacturer's
serial number 23004, but not including any engine installed thereon, and (b) any
and all Parts so long as the same shall be incorporated or installed on or
attached to the Airframe, or so long as title thereto shall remain vested in
Lessor in accordance with the terms hereof, after removal from the Airframe.
Airframe Usage Report shall mean a monthly report furnished to Lessor by Lessee
in substantially the form attached hereto as Exhibit F showing the number of
Flight Hours of operation for the Aircraft during the preceding month.
Approved Insurance Broker shall mean any reputable aviation insurance broker of
internationally recognized responsibility and standing approved by Lessor in its
sole discretion.
Approved Insurer shall mean any reputable aviation underwriter of
internationally recognized responsibility and standing approved by Lessor in its
sole discretion.
Basic Rent Payment Date shall mean the 5th calendar day of each month during the
Term commencing with the date of the first occurring calendar day of the Term
but excluding the Final Basic Rent Payment Date.
<PAGE>
Beneficiary shall mean Triton Aviation Services V LLC, a California limited
liability company, and its successors and assigns.
Business Day shall mean any day other than a Saturday, Sunday or other day on
which banking institutions in San Francisco, California are authorized or
required by Law to be closed.
"C" Check shall mean a "C" check in accordance with the Maintenance Program.
"C7" Check shall mean the heaviest maintenance inspection, complete block
overhaul, including the twenty thousand (20,000) hour structural inspection
items. For purposes of this Lease, the "C7" Check shall be the equivalent of a
"D" check.
Casualty Occurrence shall mean any of the following events with respect to the
Aircraft, Airframe or any Engine: (a) the actual or constructive total loss of
such property (including any damage to such property which results in an
insurance settlement on the basis of a total loss, or requisition for use or
hire which results in an insurance settlement on the basis of a total loss); (b)
such property being destroyed, damaged beyond repair or permanently rendered
unfit for normal use for any reason whatsoever; (c) the requisition of title, or
other compulsory acquisition, capture, seizure, deprivation, confiscation or
detention for any reason of such property by any Governmental Entity or
purported Governmental Entity (whether de jure or de facto); or (d) the
hijacking, theft, condemnation, confiscation, seizure or requisition for use or
hire of such property which deprives any Person permitted by this Lease to have
possession and/or use of such property of such possession and/or use for more
than 30 days. A Casualty Occurrence with respect to the Aircraft shall be deemed
to have occurred if a Casualty Occurrence occurs with respect to the Airframe. A
Casualty Occurrence with respect to any Engine shall not, without loss of the
Airframe, be deemed a Casualty Occurrence with respect to the Aircraft.
Certificated Air Carrier means any Person (except the United States Government)
that is a citizen of the United States of America (as defined in Section 40102
of the Transportation Code) holding an air carrier operating certificate issued
pursuant to Chapter 447 of the Transportation Code for the operation of aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of cargo.
Component shall mean each time controlled, cycle controlled or calendar
controlled component of the Aircraft.
Default shall mean an Event of Default or event which would constitute an Event
of Default but for the lapse of time or the giving of notice or both.
Delivery Conditions shall mean the conditions in respect of the Aircraft set
forth on Exhibit E.
Delivery Date shall mean the date on which the Aircraft is delivered to and
accepted by Lessee for purposes of this Lease.
<PAGE>
Delivery Location: Dalfort Aerospace in Dallas, Texas.
Dollars shall mean lawful currency of the United States of America.
Engine shall mean each of the two (2) Pratt & Whitney model JT8D-15A engines
installed on or furnished with the Aircraft on the Delivery Date, bearing Engine
Manufacturer's serial numbers 709066 and 717107, respectively, and any
Replacement Engine which may from time to time be substituted therefor pursuant
to Section 10; together in each case with any and all Parts incorporated or
installed in or attached thereto or any and all Parts removed therefrom so long
as title thereto remains vested in Lessor in accordance with the terms hereof
after removal from such Engine. Except as otherwise set forth herein, at such
time as a Replacement Engine shall be so substituted, such replaced Engine shall
cease to be an Engine hereunder. The term "Engines" means, as of any date of
determination, all Engines then leased hereunder.
Engine Manufacturer: Pratt & Whitney.
Engine Overhaul shall mean a complete overhaul (hot section or cold section
refurbishment and life limited part replacement) of an Engine.
Estimated Delivery Date: April 15, 1999.
Event of Default shall have the meaning specified in any one or more clauses in
Section 13(a).
Excusable Delay shall mean any of the following causes: (a) act of God or the
public enemy, (b) fires, floods, explosions, earthquakes, strikes, epidemics or
quarantine restrictions, (c) inability of a maintenance facility to complete its
maintenance activities, or (d) any other cause to the extent it is beyond the
control of Lessor and not occasioned by its fault or negligence, but only for
such length of time as the delivery of the Aircraft is reasonably prevented by
such cause or causes.
Expenses means any claims, proceedings, losses, liabilities, damages (whether
direct, indirect, special, incidental or consequential), suits, judgments,
costs, expenses, fees, penalties or fines (whether civil or criminal) of every
nature and kind, including any of the foregoing arising or imposed with or
without Indemnitee's fault or negligence, whether passive or active or under the
doctrine of strict liability.
Expiration Date shall mean the fifth (5th) anniversary of the Delivery Date.
FAA shall mean the Federal Aviation Administration of the United States
Department of Transportation or any successor.
Final Basic Payment Date shall mean the last occurring 5th calendar day of the
Term.
<PAGE>
Flight Hours shall mean (i) in the case of the Airframe and landing gear, the
actual number of hours or fractions thereof that the Aircraft is in flight (from
takeoff to landing) as recorded in the Aircraft's log book, and (ii) in the case
of an Engine, the actual number of hours or fractions of thereof that such
Engine is in operation (from takeoff to landing of the Airframe on which such
Engine is installed) as recorded in the Aircraft's log book.
Governmental Entity shall mean and include (a) any national government, or
political subdivision thereof or local jurisdiction therein; (b) any board,
commission, department, division, organ, instrumentality, court, or agency of
any entity described in (a) above, however constituted; and (c) any association,
organization, or institution of which any entity described in (a) or (b) above
is a member or to whose jurisdiction any such entity is subject or in whose
activities any such entity is a participant but only (except for purposes of
defining Law below) to the extent that any of the preceding have jurisdiction
over the Aircraft or its operations.
Indemnitee shall mean Lessor, Beneficiary, each affiliate and Tax Affiliate of
Lessor and Beneficiary, each successor and assign of each of the foregoing and
each director, officer, employee and agent of each of the foregoing.
Law shall mean and include (a) any statute, decree, constitution, regulation,
order, judgment or other directive of any Governmental Entity; (b) any treaty,
pact, compact or other agreement to which any Governmental Entity is a signatory
or party; (c) any judicial or administrative interpretation or application of
any Law described in (a) or (b) above; and (d) any amendment or revision of any
Law described in (a), (b) or (c) above.
Lease shall mean this Lease, each Lease Supplement, and any and all amendments,
revisions, supplements and modifications thereto.
Lease Identification: "OWNED BY AND LEASED FROM FIRST SECURITY BANK, N.A., AS
OWNER TRUSTEE AT 79 SOUTH MAIN STREET, SALT LAKE CITY, UTAH 84111, U.S.A., AND
SUBJECT TO SECURITY INTEREST IN FAVOR OF NATIONSBANK, N.A., AS AGENT, AND ANY
SUCCESSOR AGENT, FOR ONE OR MORE FINANCIAL INSTITUTIONS."
Lease Supplement shall mean the Lease Supplement, substantially in the form of
Exhibit B hereto, entered into between Lessor and Lessee.
Lender shall mean NationsBank, N.A., as agent, and any successor agent, for one
or more financial institutions.
<PAGE>
Lessee's Address: Frontier Airlines, Inc.
- ----------------
12015 E. 46th Avenue, #200
Denver, Colorado 80239
Telephone: (303) 371-7400
Facsimile: (303) 371-7007
Attn: Director, Aircraft Mgmt.
Lessor's Address: First Security Bank, N.A.
- ----------------
79 South Main Street
Salt Lake City, Utah 84111
Telephone: (801) 246-5819
Facsimile: (801) 246-5053
Attn: Corporate Trust Department
with a copy to: Triton Aviation Services V LLC
c/o Triton Aviation Services Ltd.
55 Green Street, Suite 500
San Francisco, CA 94111
Telephone: (415) 956-6311
Facsimile: (415) 398-9184
Attn: Mr. John E. Flynn
Lessor's Liens shall mean Liens arising as a result of (a) claims against Lessor
not related to the transactions contemplated by this Lease; or (b) acts of
Lessor, not contemplated and expressly permitted under this Lease; or (c) Taxes
imposed against Lessor which are not indemnified against by Lessee pursuant to
Section 9(b); or (d) claims against Lessor arising out of the voluntary transfer
by Lessor of all or any part of its interests in the Aircraft or this Lease,
other than a transfer pursuant to Sections 10 or 13(b) of this Lease.
Lien shall mean any mortgage, pledge, lien, charge, encumbrance, lease, exercise
of rights, security interest, claim or right of detention or sale.
Maintenance Program shall mean Lessee's FAA approved maintenance program as in
effect from time to time for the Aircraft.
Manufacturer: The Boeing Company.
<PAGE>
Parts shall mean all appliances, components, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature (other than
complete Engines or engines), which may now or from time to time be incorporated
or installed in or attached to the Airframe or any Engine. Except as otherwise
set forth herein, at such time as a replacement part shall be substituted for a
Part in accordance with Section 10 hereof, the Part so replaced shall cease to
be a Part hereunder.
Payment Location: Bank of America Illinois, 231 South La Salle Street, Chicago,
Illinois 60697, for the account of Triton Aviation Services V LLC, Account No.
79-51523, ABA 071-000039.
Permitted Liens shall mean Liens which are permitted by Section 8(c) hereof.
Person shall mean and include any individual person, corporation, limited
liability company, partnership, trust, estate, unincorporated organization,
association or Governmental Entity.
Rent shall mean the Initial Rent Payment Amount, Basic Rent, the Final Basic
Rent and Supplemental Rent collectively.
Replacement Engine shall mean an engine of the same Engine Manufacturer and
model, and having equivalent value, utility, modification and remaining warranty
status as the Engine it is intended to replace under Section 10(b) hereof, or,
at Lessee's option, an engine of the same Engine Manufacturer as such Engine but
of an improved model, and otherwise of an equivalent value and utility and
suitable for installation and use on the Airframe without impairing the value or
utility of the Airframe.
Return Location: such location as may be agreed to between Lessor and Lessee.
Return Occasion shall mean the event that occurs when possession of the Aircraft
is returned from Lessee to Lessor at the end of the Term of this Lease or upon
Lessor taking possession pursuant to Section 13(b).
Security Deposit has the meaning ascribed thereto in Section 15(j).
Supplemental Rent shall mean any and all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay hereunder to
Lessor, including without limitation, (a) any payment of Casualty Value; (b) any
payment of indemnity required by Section 9 hereof; (c) any payment of reserves
pursuant to Section 4(b) hereof; and (d) to the extent permitted by applicable
Law, interest accruing daily at the Interest Rate (all computations of interest
under this Lease to be made on the basis of a 365-day year for the actual number
of days elapsed, compounded monthly) calculated: (i) on any part of any
installment of Basic Rent not paid on the due date thereof for the period the
same remains unpaid and (ii) on any Supplemental Rent not paid when due
hereunder until the same is paid.
<PAGE>
Tax Affiliate shall mean (a) in the case of the entity that is the Beneficiary
on the Delivery Date and in the case of any successor or direct or indirect
transferee thereof that is (or is treated as) a partnership for the United
States Federal income tax purposes, each general partner, limited partner or
member (as the case may be) of the Beneficiary and (b) in the case of any such
general partner, limited partner or member which itself is (or is treated as) a
partnership for United States Federal income tax purposes, each general partner,
limited partner or member thereof (as the case may be).
Taxes shall mean any and all present and future taxes, levies, assessments,
duties, imposts, fees, withholdings and other government charges or of any
nature, together with any penalties, additions to tax, fines, charges and/or
interest thereon or computed by reference thereto.
Term shall mean the term of this Lease specified in the Lease Supplement,
commencing on the Delivery Date and ending on the Expiration Date.
Transportation Code means Title 49 of the United States Code.
<PAGE>
Part II -- Certain Proprietary and Confidential Terms and Values.
AD Sharing Formula shall be as follows: P=(C x (N-R))/N
Where "N" equals the Term in months; "R" represents the
remainder of the Term in months after completion of the
modification/termination action; "C" equals the cost of the
modification/termination action in excess of $* and "P" equals
the Lessor's share of any cost.
Airframe Reserve Rate: * per Airframe Flight Hour.
Basic Rent Payment Amount: * per month in advance.
Casualty Value: *
Deductible Amount: *
Engine Reserve Rate: * per Engine, per Engine Flight Hour.
Final Basic Rent Payment Amount: The Dollar amount obtained by multiplying the
Per Diem Rent Rate by the number of days from and including the Final Basic Rent
Payment Date to and including the Expiration Date.
Further Additional Amount: * payable in cash but as may be exchanged by Lessee
at any time prior to the day immediately preceding the Delivery Date for a
letter of credit of equal amount issued from a financial institution acceptable
to Beneficiary.
Initial Amount: * paid in cash, receipt of which is hereby acknowledged by
Lessor, but as may be exchanged by Lessee at any time prior to the day
immediately preceding the Delivery Date for a letter of credit of equal amount
issued from a financial institution acceptable to Beneficiary.
Initial Basic Rent Payment Amount: The Dollar amount obtained by multiplying the
Per Diem Rent Rate by the number of days from Delivery Date to the first Basic
Rent Payment Date.
Interest Rate: Citibank, N.A.'s prime rate plus 3% per annum, but not to exceed
the maximum amount permitted by Law.
<PAGE>
Landing Gear Reserve Rate: * per Airframe Flight Hour.
Per Diem Rent Rate: *
Public Liability and Property Damage Insurance: *
<PAGE>
EXHIBIT B
to
Aircraft Lease Agreement
LEASE SUPPLEMENT NO. 1
LEASE SUPPLEMENT NO. 1, dated , 1999, between FIRST SECURITY BANK, N.A.,
not in its individual capacity but solely as Owner Trustee ("Lessor"), and
FRONTIER AIRLINES, INC., a Colorado corporation ("Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of February 26, 1999 (herein called the "Lease" and the
defined terms therein being hereinafter used with the same meaning). The Lease
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 Lease as and when delivered by Lessor to Lessee in
accordance with the terms thereof.
The Lease relates to the Aircraft, Parts and Engines as more precisely
described below. A counterpart of the Lease is attached hereto and this Lease
Supplement and the Lease shall form one document.
In consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease and Lessee
hereby accepts and leases from Lessor under the Lease, that certain Boeing model
737-200A commercial jet aircraft, comprised of the Airframe having
Manufacturer's serial number 23004 and the two Pratt & Whitney JT8D-15A Engines
having Engine Manufacturer's serial numbers 709066 and 717107, respectively
(collectively, the "Delivered Aircraft").
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Term for the Delivered Aircraft shall commence on the Delivery Date
and shall end on the Expiration Date, which shall be , 2004. The Initial Basic
Rent Payment Amount is due and payable on the date hereof and the Final Basic
Rent Payment Date shall be _________________ 5, 2004.
<PAGE>
4. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and
each Engine installed thereon or belonging thereto have been duly marked in
accordance with the terms of Section 6(e) of the Lease, (ii) Lessee has accepted
the Delivered Aircraft for all purposes hereof and of the Lease, and (iii)
Lessee has inspected the Delivered Aircraft and the Delivered Aircraft satisfies
the conditions set forth in the Lease.
5. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement to the same extent as if fully set forth
herein.
6. This Lease Supplement may be executed in any number of counterparts,
each of such counterparts, except as provided in Section 15(e) of the Lease,
shall for all purposes be deemed to be an original; and all such counterparts
shall together constitute but one and the same Lease Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No. 1 to be duly executed as of the day and year first above written.
LESSOR,
FIRST SECURITY BANK, N.A.
not in its individual capacity
but solely as owner trustee
By:___________________________
Name:_________________________
Its:__________________________
LESSEE,
FRONTIER AIRLINES, INC.
By:___________________________
Name:_________________________
Its:__________________________
CERTAIN PROCEEDS OF THIS LEASE ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF
NATIONSBANK, N.A., AS AGENT, AND ANY SUCCESSOR AGENT, FOR ONE OR MORE FINANCIAL
INSTITUTIONS
<PAGE>
EXHIBIT C
to
Aircraft Lease Agreement
RETURN CONDITION REQUIREMENTS
A. Certificate of Airworthiness Matters.
Upon the Return Occasion, the Aircraft shall possess a valid FAA
Certificate of Airworthiness and meet the requirements for U.S. domestic
operation under FAR Part 121, without restriction (including, without
limitation, compliance with Stage III requirements).
B. General Condition of Aircraft At Return.
(1) All Aircraft documentation will have been maintained in English and in
accordance with the rules and regulations of the FAA.
(2) The Aircraft shall be in working order, with all pilot discrepancies
and deferred maintenance items cleared.
(3) The Aircraft interior will be clean by scheduled commercial airline
standards and shall otherwise be returned in the same condition as at
the Delivery Date. The cockpit shall be "touched up" in accordance
with standard international airline practice and placards replaced as
required.
(4) The Aircraft will be airworthy and all airworthiness directives
requiring compliance prior to return and for a period of one hundred
eighty (180) days thereafter will have been performed on the Aircraft
prior to the Expiration Date.
(5) The Aircraft will be in full compliance with the Manufacturer's
Corrosion Prevention and Control Program ("CPCP") specified for the
model type by the Manufacturer.
C. Checks Prior to Return. Immediately prior to the return of the Aircraft to
Lessor, Lessee at its expense will:
(1) At the option of Lessor, either (i) perform at an FAA-approved repair
station, the next due full and complete zonal, systems and structural
check ("C" or its equivalent) in accordance with the Maintenance
Program, sufficient to clear the Aircraft for operation until the next
scheduled full and complete zonal, systems and structural check under
the Maintenance Program, or (ii) pay Lessor an amount in Dollars
representing the average of two (2) bids given for the cost of
conducting such check(s) from two (2) independent FAA repair stations.
<PAGE>
(2) Remove Lessee's exterior markings, including all exterior paint, by
stripping (or, at Lessor's option, pneumatically scuff/sanding) the
paint from the Airframe and properly strip, clean, reseal, refinish,
prepare (including application of alodine or another corrosion
inhibitor) and prime the surfaces to be painted, all in accordance
with the Manufacturer's and paint manufacturer's recommendations.
Lessee will then repaint the Airframe white. Such painting will be
accomplished in such a manner as to result in a uniformly smooth and
cosmetically acceptable aerodynamic surface. As an alternative to
repainting the Airframe white as required hereunder, Lessee may
instead elect to pay an amount equal to the cost of such repainting.
All external placards, signs and markings will be properly attached,
free from damage, clean and legible.
(3) Clean the exterior and interior of the Aircraft.
(4) Perform full and complete hot section and cold section video borescope
on each Engine and its modules in accordance with the Engine
Manufacturer's maintenance manual, with Lessor or its representatives
entitled to be present. Lessee will provide evidence (photographic or
video) to Lessor's satisfaction that such inspection does not reveal
any condition which would cause the Engine or any module to be
unserviceable. Lessee will, at its expense, correct any discrepancies
which may be discovered during such inspection in accordance with the
guidelines set out by the Engine Manufacturer. No Engine will be on
watch for any reason.
(5) If the Engine historical and technical records and/or condition trend
monitoring data, of any Engine (including the auxiliary power unit),
indicate an acceleration in the rate of deterioration in the
performance of an Engine or an increase in oil consumption, Lessee
will correct, to Lessor's satisfaction, such conditions which are
determined to have exceeded Engine Manufacturer's maintenance manual
tolerances or otherwise be causing such accelerated rate of
deterioration.
(6) In accordance with Manufacturer's maintenance manual, accomplish a
maximum power assurance run on the Engines and accomplish condition,
acceleration and bleed valve scheduling checks on the Engines. Lessee
will record and evaluate the Engine performance with Lessor and/or its
representative entitled to be present. The performance and all
operating parameters of each Engine will be within the limits
specified in the Manufacturer's maintenance manual so as to ensure
that the Engine can be operated on-wing for a period of at least as
great a duration as that shown with respect to such Engine on the
Delivery Status Certificate as of the Delivery Date, regardless of the
operating environment of the Engine.
(7) In the event the Engine historical and technical records, borescope
inspection, trend monitoring and other checks specified in paragraphs
(5), (6) and (7) above result in a dispute with respect to whether an
Engine meets the requirements of this Lease, Lessee and Lessor will
consult with the Engine Manufacturer and follow the Engine
Manufacturer's recommendations (including the accomplishment of an
Engine test cell operational check) with regard to determining if such
Engine complies with the requirements of this Lease and the manner in
which any discrepancies from the requirements of this Lease will be
rectified.
<PAGE>
D. Part Lives. The condition of the Aircraft and installed systems will be as
follows:
(1) The Aircraft shall be returned with no more time since the last "C7"
Check including the 20,000 hour structural inspection items or the
equivalent heaviest maintenance inspection (complete block overhaul)
as provided at the Delivery Date. Lessee may return the Aircraft with
more time since last "C7" Check provided Lessee pays Lessor the
difference between the time since the last "C7" Check upon delivery
and the actual time since "C7" Check upon return, times the Airframe
Maintenance Reserve Amount. However, in no event shall the Aircraft
have less than one "C" Check interval remaining until the next "C7"
Check. Airframe Maintenance Reserves may be used to offset this
amount.
(2) Each Engine shall be returned with the same time remaining or more
time remaining until the next restriction as at the Delivery Date.
Each Engine shall have no more time since last heavy shop visit, last
hot section refurbishment and last cold section refurbishment as at
the Delivery Date. Engine disk sheets shall be used for reference.
(3) Each landing gear will be serviceable. Each landing gear shall be
returned with the same amount of time remaining or more time remaining
until the next restriction as at the Delivery Date. Lessee may return
a landing gear with less time remaining until the next restriction
provided Lessee pays Lessor the difference between the time remaining
until the next restriction upon delivery and the time remaining until
the next restriction upon return times the Landing Gear Reserve Rate.
Landing Gear Reserves may be used to offset this amount. However, in
no event shall any single landing gear have less than one (1) "C"
Check interval remaining.
(4) Each APU will be returned in serviceable condition and shall pass
borescope.
(5) Each Component (excluding the Engines but including any components
thereon) will be returned in serviceable condition with at least 3,000
hours or cycles or twelve (12) months remaining, whichever is more
limiting.
<PAGE>
EXHIBIT D
to
Aircraft Lease Agreement
CERTIFICATE AS TO STATUS OF AIRCRAFT
FIRST SECURITY BANK, N.A., not in its individual capacity, but
solely as owner trustee ("Lessor"), and FRONTIER AIRLINES, INC., a Colorado
corporation ("Lessee"), hereby certify as follows:
1. Lessor and Lessee are parties to that certain Aircraft Lease
Agreement dated February 26, 1999 (the "Lease"), with respect to the Boeing
737-200A commercial jet aircraft bearing manufacturer's serial number 23004 and
current Federal Aviation Administration registration number N234TR. Capitalized
term not otherwise defined herein shall have the meanings assigned to them in
the Lease.
2. Lessor and Lessee acknowledge and agree that the status of the
Airframe and the Engines on the Delivery Date are as set forth in Schedule 1
hereto, that the Aircraft, together with the Aircraft Documents described on
Schedule 2 hereto, are delivered by Lessor to Lessee in accordance with the
Lease on the date of this Certificate and that the Aircraft and Aircraft
Documents have been technically accepted by Lessee in accordance with the
provisions of the Lease.
INWITNESS WHEREOF, Lessor and Lessee have caused this Certificate
to be duly executed as of this day of , 1999.
LESSOR,
FIRST SECURITY BANK, N.A.,
not in its individual capacity
but solely as owner trustee
By:__________________________
Name:________________________
Its:_________________________
LESSEE,
FRONTIER AIRLINES, INC.
By:__________________________
Name:________________________
Its:_________________________
<PAGE>
SCHEDULE 1
TO
CERTIFICATE AS TO STATUS OF AIRCRAFT
Aircraft Status
on The Delivery Date
Airframe Heaviest Check ("C7" Check or Equivalent):
Interval: _____ Hrs. (____ months)
Time Remaining: _________ Hrs.
Airframe "C" Check (or Equivalent):
Interval: ______ Hrs.
Time Remaining: ______ Hrs.
Landing Gear Overhaul:
Interval:
______ cycles Left Gear
______ cycles Right Gear
______ cycles Nose Gear
______ cycles Center Gear
Time Remaining:
_____ cycles Left Gear
_____ cycles Right Gear
_____ cycles Nose Gear
_____ cycles Center Gear
<PAGE>
Engines Time Remaining to First Restriction:
See attached engine disk sheets attached as Schedule 3 for Engines
delivered on the Delivery Date.
APU TT TC TSO
SN P_____ _____ hr _____ cy ____ hrs
CSO Limiter
----- ----------------
----------------
Fuel on Board at Delivery:
_____ Gal. U.S.
<PAGE>
SCHEDULE 2
TO
CERTIFICATE AS TO STATUS OF AIRCRAFT
AIRCRAFT DOCUMENTS (Estimated)
A. CERTIFICATES
o FAA Certificate of Airworthiness
B. AIRCRAFT STATUS RECORDS
o Log Books
o Airframe Maintenance Status Report
o Supplemental Structural Inspection Document Status
(if applicable)
o Manufacturer's Service Bulletin Status Report
o Airworthiness Directive Compliance Report
(terminated and repetitive)
o Modification Status Report List
(documents will be provided upon request)
o Last Weighing Report
o List of Life Limited Components with remaining
hours/cycles
C. AIRCRAFT MAINTENANCE RECORDS (last heavy maintenance visits)
o Test Flight Reports
o X-ray pictures
o Last annual check and heaviest maintenance check Work Cards
D. AIRCRAFT HISTORY RECORDS
o Aircraft Maintenance History Cards
o Service Difficulty Report
o Accident or Incident Report (Major Structural Repair)
<PAGE>
E. ENGINE RECORDS (for each engine)
o Engine time and cycle records
o Last overhaul and repair documents
(including FAA Forms 337)
o Airworthiness Directive Compliance Report
(terminated and repetitive)
o Manufacturer's Service Bulletin Status Report
o List of Time Controlled Components with remaining
hours and cycles
o Modification Status Report
o Engine Disc Sheets
o Engine Build Specifications
F. APU RECORDS
o Last Overhaul and Repair Documents
(including modification status)
o Airworthiness Directive Compliance Report
(terminated and repetitive)
o Manufacturer's Service Bulletin Status Report
o List of Time Controlled Components with remaining
hours/cycles
o Modification Status Report
G. COMPONENT RECORDS
o Time Controlled Component Historical Records with Installation
and Serviceability Tags
H. MANUALS
o Airplane Flight Manual
(Manufacturer Approved, FAA Approved)
o Flight Crew Operating Manual
o Weight and Balance Manual
o Wiring Diagram Manual
(microfilm and hard copy if available)
o Illustrated Parts Catalog (microfilm)
o Aircraft Maintenance Manual (microfilm)
o Manufacturer's Engine Maintenance Manual and any
approved engineering changes, as applicable
<PAGE>
I. MISCELLANEOUS TECHNICAL DOCUMENTS
o Maintenance Program Specifications
o Interior Configuration Drawings
o Original Delivery Documents
o Loose Equipment Inventory
<PAGE>
SCHEDULE 3
TO
CERTIFICATE AS TO STATUS OF AIRCRAFT
<PAGE>
EXHIBIT E
to
Aircraft Lease Agreement
DELIVERY CONDITION REQUIREMENTS
On the Delivery Date, the Aircraft shall be delivered in "as
is" condition; provided, however, the Aircraft shall meet the following
conditions:
(1) The Aircraft shall be in compliance with the requirements for domestic
operation in the United States, will meet the requirements of FAA Part 121,
shall have a current and valid FAA Certificate of Airworthiness, will have LGW
Stage III (Nordam hushkit) installed thereon, and will have flight data recorder
systems installed which conform to the requirements of FAR 121.344(b)(1) or
(b)(2), as applicable.
(2) The records required for Lessee to operate the Aircraft and bridge the
Aircraft onto Lessee's maintenance program will be in English.
(3) The Aircraft will be in working order with all pilot discrepancies and
deferred maintenance items cleared.
(4) The Aircraft will be airworthy and all AD's requiring compliance on the
Delivery Date and for a period of one hundred eighty (180) days thereafter, will
be accomplished. The Aircraft will be in full compliance with the CPCP program.
(5) The Aircraft shall be clean by scheduled commercial airline standards. The
interior will be delivered in a one hundred nineteen (119) seat standard class
passenger configuration with a minimum seat pitch of 31 inches. Lessor will
install galleys recommended by Lessee subject to timing and availability
thereof.
(6) The Aircraft shall have next scheduled "C" Check performed in accordance
with the Boeing MPD maintenance program. The Aircraft will be bridged onto the
Boeing MPD maintenance program.
(7) Each Engine shall be delivered in serviceable condition. Each Engine shall
have at least three thousand (3,000) hours or cycles (whichever is more
limiting) of life remaining as described on the engine disk sheets.
<PAGE>
(8) Each Engine shall have had a full and complete hot section and cold section
video borescope performed on such Engine and its modules in accordance with the
Engine Manufacturer's maintenance manual. Lessor will provide evidence
(photographic or video) to Lessee's satisfaction that such inspection does not
reveal any condition which would cause the Engine or any module to be
unserviceable. Lessor will, at its expense, correct any discrepancies which may
be discovered during such inspection in accordance with the guidelines set out
by the Engine Manufacturer. No Engine will be on watch for any reason.
(9) If the Engine historical and technical records and/or condition trend
monitoring data, of any Engine (including the auxiliary power unit), indicate an
acceleration in the rate of deterioration in the performance of an Engine or an
increase in oil consumption, Lessor will correct, to Lessee's satisfaction, such
conditions which are determined to have exceeded Engine Manufacturer's
maintenance manual tolerances or otherwise be causing such accelerated rate of
deterioration.
(10) In accordance with Manufacturer's maintenance manual, accomplish a maximum
power assurance run on the Engines and accomplish condition, acceleration and
bleed valve scheduling checks on the Engines. Lessor will record and evaluate
the Engine performance with Lessee and/or its representative entitled to be
present. The performance and all operating parameters of each Engine will be
within the limits specified in the Manufacturer's maintenance manual so as to
ensure that the Engine can be operated on-wing for a period of at least as great
a duration as that shown with respect to such Engine on the Delivery Status
Certificate as of the Delivery Date, regardless of the operating environment of
the Engine.
(11) In the event the Engine historical and technical records, borescope
inspection, trend monitoring and other checks specified in paragraphs (8), (9)
and (10) above result in a dispute with respect to whether an Engine meets the
requirements of this Lease, Lessee and Lessor will consult with the Engine
Manufacturer and follow the Engine Manufacturer's recommendations (including the
accomplishment of an Engine test cell operational check) with regard to
determining if such Engine complies with the requirements of this Lease and the
manner in which any discrepancies from the requirements of this Lease will be
rectified.
(12) Each landing gear shall have no less than three thousand (3,000) hours
remaining to the next scheduled overhaul and no landing gear component shall
have less than fifteen thousand (15,000) cycles remaining life.
(13) Each APU will be delivered in serviceable condition and shall pass
borescope inspection.
(14) Each Component (excluding the engines but including any components thereon)
will be delivered in serviceable condition with at least three thousand (3,000)
hours or cycles or twelve (12) months remaining, whichever is more limiting.
(15) The Aircraft shall be delivered painted in Lessee's livery.
<PAGE>
(16) Lessor will increase the MTOW to one hundred twenty thousand (120,000)
pounds and the MLW to one hundred seven thousand (107,000) pounds (the "Weight
Increases"). It is understood the Weight Increases are produced by Manufacturer
and may not be available on the Delivery Dates. Lessor will use best efforts to
obtain the Weight Increases (which were ordered by Lessee in November, 1998) in
a timely fashion.
<PAGE>
EXHIBIT F
to
AIRCRAFT LEASE AGREEMENT
AIRFRAME USAGE REPORT
dated __/__/__
in respect of the period from
__/__/__ to __/__/__
Number of Hours Operated Number of Cycles Operated
Airframe
Engine # 1
Serial Number:___________
Engine #2
Serial Number:___________
Landing Gear
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS...............................................1
SECTION 2 LEASE AND CONDITIONS......................................1
SECTION 3 DELIVERY AND ACCEPTANCE; TERM ............................2
SECTION 4 RENT AND RESERVES.........................................3
SECTION 5 REPRESENTATIONS AND WARRANTIES............................4
SECTION 6 POSSESSION, USE AND MAINTENANCE...........................6
SECTION 7 INFORMATION AND INSPECTION ...............................9
SECTION 8 CERTAIN COVENANTS OF LESSEE ..............................9
SECTION 9 INDEMNIFICATION .........................................10
SECTION 10 CASUALTY OCCURRENCES.....................................13
SECTION 11 INSURANCE................................................15
SECTION 12 RETURN OF AIRCRAFT AND RECORDS...........................21
SECTION 13 DEFAULT AND REMEDIES.....................................22
SECTION 14 ALIENATION...............................................23
SECTION 15 MISCELLANEOUS............................................24
EXHIBIT A...................................................................A-1
EXHIBIT B...................................................................B-1
EXHIBIT C...................................................................C-1
EXHIBIT D...................................................................D-1
EXHIBIT E...................................................................E-1
EXHIBIT F...................................................................F-1
AIRCRAFT LEASE AGREEMENT
Dated as of February 26, 1999
Between
FIRST SECURITY BANK, N.A.,
As Owner Trustee,
Lessor
and
FRONTIER AIRLINES, INC.
Lessee
One Boeing Model 737-200A Aircraft
Bearing Manufacturer's Serial Number 23007
Items marked with "*" have been omitted pursuant to a request for confidential
treatment.
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AGREEMENT dated February 26, 1999 ("Lease"), between FIRST SECURITY
BANK, N.A., not in its individual capacity but solely as owner trustee
("Lessor"), and FRONTIER AIRLINES, INC., a Colorado corporation ("Lessee").
Lessee desires to lease from Lessor and Lessor is willing to lease to
Lessee the aircraft described herein upon and subject to the terms and
conditions of this Lease. In consideration of the mutual promises herein, Lessor
and Lessee agree as follows:
SECTION 1
DEFINITIONS
Terms used in this Lease have the respective meanings specified in Exhibit
A.
SECTION 2
LEASE AND CONDITIONS
(1) Lessor hereby agrees, subject to satisfaction of the conditions set forth
herein, to lease the Aircraft to Lessee, and Lessee hereby agrees to lease the
Aircraft from Lessor, on the terms of this Lease.
(2) Lessor's obligation to lease the Aircraft hereunder to Lessee shall be
conditioned upon (i) the absence of any Default hereunder and the absence of any
materially adverse change in Lessee's financial condition or prospects from the
date hereof to the Delivery Date, and (ii) the receipt by Lessor of the
following documents on or before the Delivery Date, all of which shall be
reasonably satisfactory in form and substance to Lessor: (1) a Lease Supplement
executed by Lessee, and effective as of the Delivery Date; (2) such officer's
certificates and legal opinions relating to due authority to enter into, the
enforceability of, and absence of Defaults under this Lease as Lessor shall
require; (3) an Approved Insurance Broker's report as to the due compliance with
the insurance provisions of Section 11 hereof; (4) a certificate of an Approved
Insurance Broker evidencing the insurance as required by Section 11 hereof; (5)
a certificate in the form of Exhibit D completed, executed and delivered by
Lessee setting forth the status of the Aircraft and Engines on the Delivery
Date; and (6) such other documents and matters incident to the foregoing as
Lessor may reasonably request. (1)
<PAGE>
SECTION 3
DELIVERY AND ACCEPTANCE; TERM
(3) Delivery; Place of Delivery and Acceptance. The Aircraft is expected to be
available for delivery on or about the Estimated Delivery Date, and shall be
delivered to and accepted by Lessee at the Delivery Location.
(4) Casualty to the Aircraft Preceding Delivery; Excusable Delay. Upon a
Casualty Occurrence taking place prior to delivery of the Aircraft to Lessee,
this Lease shall terminate. If an Excusable Delay prevents the delivery of the
Aircraft beyond April 15, 1999, Lessor shall notify Lessee in writing thereof,
and at the option of Lessee, this Lease shall terminate. Lessor shall not be
responsible for the failure to deliver the Aircraft hereunder due to an
Excusable Delay.
(5) Pre-Delivery Check Flight. Prior to the Delivery Date, Lessee shall be
permitted to assign up to two representatives (one of whom may sit in the jump
seat in the cockpit) to participate as observers in a functional check flight of
not more than two (2) hour's duration, at Lessor's expense, to enable Lessee to
verify that the Aircraft satisfies the conditions set forth in Exhibit E hereto.
Lessor will provide the pilots and insurance for the functional check flight.
(6) Correction of Deficiencies. If the pre-delivery check flight reveals that
the Aircraft does not fulfill the conditions described in Exhibit E, Lessor and
Lessee shall attempt in good faith to agree upon a list of deficiencies with
respect to the Aircraft. If the parties are unable to agree upon such list, then
this Lease shall terminate. If the parties are able to agree upon such list,
then Lessor shall cure such deficiencies listed thereon during which time Lessee
may have a reasonable number of representatives to observe such corrections
being made. Upon correction of such deficiencies, Lessee shall promptly
re-inspect the Aircraft and if the Aircraft is then in compliance with the
conditions described in Exhibit E, Lessee shall accept delivery of the Aircraft.
(7) Acceptance of Aircraft. Except as may otherwise be expressly provided
pursuant to the terms of this Lease, the Aircraft is to be leased to Lessee "AS
IS," "WHERE IS" and SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND
REPRESENTATION AS SET FORTH IN SECTION 5(a) HEREOF. Upon tender of the Aircraft
for delivery hereunder by Lessor, if the Aircraft is in the condition specified
in Exhibit E, Lessee shall immediately accept delivery of the Aircraft. Upon
acceptance of the Aircraft Lessee shall thereupon indicate and confirm its
irrevocable acceptance of the Aircraft by delivery to Lessor of a duly executed
Lease Supplement, dated the Delivery Date.
<PAGE>
(8) Term of Lease. The Term of this Lease shall commence on the Delivery Date
and shall continue until the Expiration Date; provided that this Lease may be
earlier terminated or renewed pursuant to the provisions hereof. Throughout the
Term and until redelivery of the Aircraft in accordance with Section 12 hereof,
Lessee shall bear all risks of loss, theft, damage and destruction of or to the
Aircraft and every Part thereof, and no such loss, theft, damage or destruction
nor any other event, circumstance or change in Law shall impair, discharge or
frustrate any obligation of Lessee under this Lease (including, without
limitation, as to Rent or other payments), so that all such obligations shall,
save as expressly provided in Section 10 hereof, continue in full force and
effect.
SECTION 4
RENT AND RESERVES
(9) Rent. Lessee covenants and agrees to pay to Lessor, or its assigns: (i) the
Initial Basic Rent Payment Amount on the Delivery Date, (ii) Basic Rent in
consecutive installments on each Basic Rent Payment Date; (iii) the Final Basic
Rent Payment Amount on the Final Basic Payment Date; and (iv) Supplemental Rent
as the same becomes due. If a Basic Rent Payment Date shall fall on a day which
is not a Business Day, any payment due on such Basic Rent Payment Date shall be
made on the next succeeding Business Day. All Rent and other amounts payable
under this Lease shall be paid in immediately available funds, at the Payment
Location or at such other location as Lessor shall designate in writing.
<PAGE>
(10) Reserves. Separate reserve accounts shall be established by Lessor for the
Airframe, each Engine and each landing gear. On the tenth (10) calendar day of
each month during the Term, Lessee shall pay Lessor an amount calculated as the
product of the number of Flight Hours of operation during the prior calendar
month, and the Airframe Reserve Rate, Landing Gear Reserve Rate and Engine
Reserve Rate, as applicable. Subject to receipt of satisfactory invoices, Lessor
shall use amounts deposited in each reserve account to reimburse Lessee for the
actual out-of-pocket costs incurred by Lessee in completing a "C7"Check (or its
equivalent) in the case of the Airframe, overhaul or replacement in the case of
landing gear, and Engine Overhauls in the case of an Engine; provided, however,
such reimbursable costs shall not include, without limitation, costs associated
with the auxiliary power unit. Lessee shall provide Lessor with written evidence
reasonably satisfactory to Lessor as to completion of such check or overhaul in
accordance with the Maintenance Program. No portion of any reserve shall be
applied to the cost of repairing damage resulting from any accident or incident,
abuse or misuse, foreign object damage or to the cost of complying with any FAA
airworthiness directive. Lessee shall bear the cost of any check or overhaul to
the extent such cost exceeds the balance then available in the applicable
reserve; provided, however, (A) in the event the Aircraft requires a "C7" Check
within the first two and one-half (2 1/2) years of the Term, or (B) in the event
an Engine is removed within the first fifteen (15) months following the Delivery
Date due to a condition which would require such removal in accordance with the
Engine Manufacturer's maintenance manual, Lessor shall bear the cost of any "C7"
Check or the first Engine overhaul of such Engine, as the case may be, only to
the extent that such cost exceeds the balance then available in the applicable
reserve. Lessor shall be entitled to commingle money held in the reserve
accounts from time to time with its other assets and Lessee shall not be
entitled to any interest on such amounts. Any amounts remaining in the reserve
accounts at the Return Occasion shall be applied first to reduce any payment
obligation of Lessee pursuant to Exhibit C (with the balance of any reserve
account available only to offset a payment obligation with respect to the check
or overhaul for which such reserve was established), and then the balance shall
be retained by Lessor. Lessee agrees that if Lessee Defaults have occurred or
are occurring, Lessor shall be entitled, but not required, to apply any amounts
held as reserves against such default.
(11) Prohibition Against Setoff, Counterclaim, Etc. This Lease is a net lease,
and Lessee, except as otherwise expressly provided herein, shall be responsible
for the cost of delivery, possession, importation, registration, use, operation,
management, return, maintenance, repair and modification of the Aircraft and
compliance with applicable laws, regulations and airworthiness directives from
the Delivery Date until the Aircraft is returned to Lessor in accordance with
Section 12 hereof. Lessee's obligation to pay all Rent hereunder shall be
absolute and unconditional and shall not be affected or reduced by any
circumstances whatsoever (including, without limitation any right of setoff,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, the Manufacturer, the Engine Manufacturer, any seller of or person
providing services with respect to the Aircraft or any other Person, for any
reason whatsoever), it being the express intention of Lessor and Lessee that all
Rent payable hereunder shall be payable in all events, unless the obligation to
pay the same shall be terminated pursuant to the express provisions of this
Lease. Lessee hereby waives, to the extent permitted by applicable Law, any and
all rights which it may now have or which at any time hereafter may be conferred
upon it, by Law or otherwise, to terminate this Lease or any obligation imposed
upon Lessee hereunder or in relation hereto except upon the terms expressly set
forth in this Lease. Nothing contained in this Section shall be construed as a
waiver of Lessee's right to seek a separate recovery of any payment of Rent
which is not due and payable in accordance with the terms of this Lease or
monies or payments which are due and payable by Lessor under the terms of this
Lease.
SECTION 5
REPRESENTATIONS AND WARRANTIES
<PAGE>
(12) Warranties and Disclaimer of Warranties. EXCEPT AS SET OUT IN SECTION
5(b)(i), LESSOR HAS NOT AND SHALL NOT BE DEEMED TO HAVE MADE OR GIVEN AND LESSOR
HEREBY SPECIFICALLY DISCLAIMS, ANY TERM, CONDITION, COVENANT, REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, QUALITY,
DURABILITY, DESCRIPTION, CONDITION, DESIGN, OPERATION, MERCHANTABILITY, OR THE
ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, COPYRIGHT, DESIGN, OR OTHER
PROPRIETARY RIGHT, OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT,
THE ABSENCE THEREFROM OF LATENT, INHERENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS
OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE
OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE AIRCRAFT; AND LESSEE HEREBY
WAIVES, RELEASES, RENOUNCES AND DISCLAIMS EXPECTATION OF OR RELIANCE UPON ANY
SUCH WARRANTY OR WARRANTIES, IT BEING UNDERSTOOD THAT ALL CONDITIONS, WARRANTIES
AND REPRESENTATIONS (OR OBLIGATION OR LIABILITY IN CONTRACT OR IN TORT) IN
RELATION TO ANY OF THOSE MATTERS, EXPRESSED OR IMPLIED, STATUTORY OR OTHERWISE,
ARE, EXCEPT AS PROVIDED IN SECTION 5(b)(i), EXPRESSLY EXCLUDED.
(13) LESSOR REPRESENTS AND WARRANTS (IN LIEU OF ALL OTHER EXPRESS OR IMPLIED
WARRANTIES WHATSOEVER) THAT: (i) title to the Aircraft is vested in Lessor and
the Aircraft is free and clear of any and all Lessor's Liens; (ii) Lessor is a
corporation duly organized and validly existing under the Laws of the State of
Utah and is a "citizen of the United States" as defined in section 40102 of the
Transportation Code, and has the power and authority to perform its obligations
under this Lease; (iii) the making and performance by Lessor of this Lease have
been duly authorized by all necessary corporate action on the part of Lessor and
will not violate any provision of Law or its charter documents; and (iv) this
Lease has been duly entered into and delivered by Lessor, and that this Lease
does, and the Lease Supplement when executed and delivered hereunder will,
constitute legal, valid and binding obligations of Lessor, enforceable in
accordance with their respective terms.
(14) Manufacturers' Warranties. Lessor hereby authorizes Lessee to exercise for
the account of Lessor such rights as Lessor may have under any warranty, express
or implied, with respect to the Aircraft to the extent that the same may be
assigned or otherwise made available to Lessee; provided, however, that upon an
Event of Default all such rights shall immediately revert to Lessor including
all claims thereunder whether or not perfected.
<PAGE>
(15) Lessee's Representations and Warranties. Lessee hereby makes the following
representations and warranties, which representations and warranties shall
survive the execution and delivery of this Lease and the delivery of the
Aircraft: (i) Lessee is a corporation duly organized, existing and in good
standing under the Laws of Colorado and has the corporate power and authority to
carry on its business as presently conducted and to perform its obligations
under this Lease; (ii) this Lease has been duly authorized by all necessary
corporate action on the part of Lessee, and neither the execution and delivery
hereof nor the consummation of the transactions contemplated hereby nor
compliance by Lessee with any of the terms hereof will contravene any applicable
Law or result in any breach of, or constitute any default under, or result in
the creation of any Lien upon any property of Lessee under, any credit agreement
or instrument, corporate charter or by-law or other agreement or instrument to
which Lessee is a party or by which Lessee or its properties or assets are bound
or affected; (iii) Lessee has received every consent, approval or authorization,
and has given every notice, that is required for Lessee to execute and deliver
this Lease, and to perform the transactions contemplated hereby and all of which
remain valid and effective; (iv) this Lease has been duly executed and delivered
by Lessee, and this Lease does, and the Lease Supplement when executed and
delivered by Lessee will, constitute legal, valid and binding obligations of
Lessee, enforceable in accordance with their respective terms, but subject to
bankruptcy, insolvency, or other similar laws affecting creditors' rights
generally; (v) the consolidated financial statements of Lessee, including the
balance sheets and unaudited statements of income and retained earnings of
Lessee, for the current year and if available, the immediately preceding fiscal
year, copies of which have been furnished to Lessor, are prepared in accordance
with generally accepted accounting principles, and present fairly the financial
position and operations of Lessee, and subsequent to the conclusion of the last
such period, there has been no material adverse change in such position or
operations; (vi) the chief executive office or chief place of business (as such
terms are used in Division 9 of the Uniform Commercial Code) of Lessee is
located at 12015 E. 46th Avenue, #200, Denver, Colorado 80239; (vii) each of
this Lease and any other document, certificate or statement furnished to Lessor
by or on behalf of Lessee in connection with the transactions contemplated
hereby or thereby does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading; and there is no fact, to the best
knowledge of Lessee, which has not been disclosed to Lessor in writing on or
before the date of execution of this Lease and which materially adversely
affects or will materially adversely affect the ability of Lessee to carry on
its business or to perform its obligations under this Lease; and (viii) Lessor
shall be entitled to the benefits of a lessor under Title 11 U.S.C.
Section 1110 as in effect on the date hereof
SECTION 6
POSSESSION, USE AND MAINTENANCE
(16) Sublease, Assignment and Transfer. Without Lessor's prior written consent,
Lessee will not assign this Lease or sublet or transfer possession of the
Aircraft, Airframe or any Engine or install any Engine or permit any Engine to
be installed on any airframe other than the Airframe, provided that so long as
no Default shall have occurred and be continuing then Lessee, without the prior
written consent of Lessor, may: (i) deliver possession of the Aircraft, the
Airframe or any Engine to any organization for service, repair, maintenance,
testing or overhaul work; (ii) install an Engine on an airframe (other than the
Airframe) owned by Lessee free and clear of all Liens except Permitted Liens and
those which by their terms would not attach to such Engine; and (iii) install an
Engine on an airframe leased to Lessee or owned by Lessee subject to a
conditional sale or other security agreement, provided, that: (A) such airframe
is free and clear of all Liens except the rights of the parties to the lease or
conditional sale or other security agreement covering such airframe and except
Permitted Liens and the lien of any mortgage which by its terms would not apply
to such Engine; and (B) the lessor or secured party of such airframe has made an
agreement substantially similar in effect to the agreement of Lessor in Section
6(b) below whereby such lessor or secured party agrees that neither it nor its
successors or assigns will acquire or claim any right, title or interest in any
Engine by reason of such Engine being installed on such airframe. The rights of
any transferee that receives possession by reason of a transfer permitted by
this Section 6(a) shall be subject and subordinate to all the terms of this
Lease; Lessee shall remain primarily liable hereunder for the performance of all
of the terms of this Lease to the same extent as if such transfer had not
occurred; and no relinquishment of possession pursuant to the terms of this
Section 6(a) shall in any way discharge or diminish any of Lessee's obligations
to Lessor hereunder.
(17) Reciprocal Recognition of Rights. In the event Lessee shall have received
from the lessor or secured party of any airframe leased to Lessee or owned by
Lessee subject to a conditional sale or other security agreement a written
agreement complying with Section (B) of Section 6(a)(iii) hereof, and such lease
or conditional sale or other security agreement covering such airframe also
covers an engine or engines owned by the lessor under such lease or subject to a
security interest in favor of the secured party under such conditional sale or
other security agreement, Lessor hereby agrees for the benefit of such lessor or
secured party that Lessor will not acquire or claim, as against such lessor or
secured party, any right, title or interest in any such engine as the result of
such engine being installed on the Airframe at any time while such engine is
subject to such lease or conditional sale or other security agreement and owned
by such lessor or subject to a security interest in favor of such secured party.
Lessor also hereby agrees for the benefit of the mortgagee under any mortgage
complying with Section (A) of Section 6(a)(iii) hereof, that Lessor will not
acquire or claim, as against such mortgagee, any right, title or interest in any
engine subject to the lien of such mortgage as the result of such engine being
installed on the Airframe at any time while such engine is subject to the lien
of such mortgage.
(18) Lawful Insured Operations. Lessee will not permit the Aircraft to be
maintained, used or operated in violation of any Law of any Governmental Entity,
or in violation of any airworthiness certificate, or license or registration
issued by any such authority, or contrary to the Manufacturer's or Engine
Manufacturer's operating manuals or instructions for the Aircraft or the
Engines. In the event that any such Law requires alteration of the Aircraft,
Lessee shall ensure compliance therewith and shall ensure that the Aircraft is
maintained in proper condition for operation under such Laws. Lessee agrees not
to operate the Aircraft or permit the Aircraft to be operated during the Term
unless the Aircraft is covered by insurance as required by the provisions
hereof.
<PAGE>
(19) Maintenance. Lessee shall, at its own expense: (i) perform all mandatory
service, inspections, repair, maintenance, airworthiness directives, overhaul
and testing, (A) as may be required under applicable FAA rules and regulations
for compliance therewith during the Term and for a period of one hundred eighty
(180) days thereafter and in compliance with the Maintenance Program, (B) in the
same manner and with the same care as shall be the case with similar aircraft
and engines owned by or operated by or on behalf of Lessee without
discrimination and (C) so as to keep the Aircraft in as good operating condition
as when delivered to Lessee, ordinary wear and tear excepted; provided, however,
in the event the cost of performing, or causing the performance of, an
inspection resulting in the modification or terminating action being performed
pursuant to any Airworthiness Directive exceeds one hundred thousand dollars
($100,000), Lessor will reimburse Lessee for an amount equal to the AD Sharing
Formula for such cost, provided that (A) no Event of Default has occurred and is
continuing, and (B) Lessee provides evidence satisfactory to Lessor of payment
and completion of the relevant work; (ii) keep the Aircraft in such condition as
is necessary to maintain the airworthiness certification of the Aircraft in good
standing; and (iii) maintain all records, logs and other materials required by,
and in a manner acceptable to, the FAA.
(20) Registration and Insignia. The Aircraft shall be and shall remain
registered under the Transportation Code in the name of Lessor or such Person as
Lessor may designate. Upon delivery of the Aircraft, Lessee agrees to place the
Lease Identification in the cockpit in a prominent location and to place the
Lease Identification on each Engine. Lessee agrees to make such changes to the
Lease Identification as Lessor may request from time to time. Lessee will not
exercise any control or dominion over the Aircraft or operate or permit to be
operated the Aircraft until such Lease Identification has been so placed
thereon. Lessee will promptly replace any such marking which has been removed,
defaced or destroyed.
(21) Replacement of Parts. Lessee will promptly replace all Parts which may from
time to time become worn out, lost, stolen, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever. In
addition, Lessee may remove any Parts, whether or not worn out, damaged beyond
repair or permanently rendered unfit for use, provided that Lessee replaces such
Parts as promptly as practicable. All replacement Parts shall be free and clear
of all Liens, other than Permitted Liens, and shall be in as good an operating
condition as, and have a utility value and remaining warranty reasonably
approximating, the Parts replaced (assuming such replaced Parts were in the
condition and repair in which they were required to be maintained by the terms
hereof). All Parts owned by Lessor which are at any time removed from the
Aircraft shall remain the property of Lessor and subject to this Lease until
such time as such Parts shall be replaced by Parts which have been incorporated
or installed in to the Aircraft and which meet the requirements for replacement
Parts specified above. Immediately upon any replacement Part becoming
incorporated or installed into the Aircraft as above provided, (i) title to the
removed Part shall thereupon vest in Lessee, free and clear of all rights of
Lessor, (ii) title to such replacement Part shall thereupon vest solely in
Lessor and (iii) such replacement Part shall become subject to this Lease and be
deemed a Part for all purposes hereof to the same extent as the Part which it
has replaced.
<PAGE>
(22) Alterations, Modifications and Additions. Lessee shall make such
alterations and modifications and additions to the Aircraft as may be required
from time to time to meet the applicable standards of the FAA or to comply with
any Law, rule, directive, bulletin, regulation or order of any Governmental
Entity or of the manufacturer of the Aircraft, Engines or Parts. Lessee may from
time to time make alterations and modifications in and additions to the
Aircraft, provided no such alteration, modification or addition diminishes the
remaining warranty, value or utility, or impairs the condition or airworthiness,
of the Aircraft. Title to all Parts incorporated or installed in or attached or
added to the Aircraft as the result of such alteration, modification or addition
shall vest immediately in Lessor and become subject to this Lease, without the
necessity for any further act of transfer, document or notice.
SECTION 7
INFORMATION AND INSPECTION
Lessee agrees to furnish Lessor: (a) within one hundred twenty (120) days
after the close of each fiscal year of Lessee, its audited balance sheet, profit
and loss statement, and statement of stockholders' equity of Lessee (prepared on
a consolidated basis), as of the close of such fiscal year; (b) within ten (10)
calendar days following the end of each calendar month during the Term, an
Airframe Usage Report; and (c) from time to time such other information as
Lessor may reasonably request, including interim, unaudited financial
information regarding Lessee and information concerning the location, condition,
use and operation of the Aircraft. Lessee shall permit Lessor or its designee on
three (3) days' prior written notice to visit and inspect the Aircraft, its
condition, use and operation and the records maintained in connection therewith.
During such inspection, Lessor may take copies of the Aircraft Documents and
other operational records relating to the Aircraft. Lessor shall have no duty to
make any such inspection. Lessor's failure to object to any condition or
procedure observed or observable in the course of an inspection hereunder shall
not be deemed to waive or modify any of the terms of this Lease with respect to
such condition or procedure.
SECTION 8
CERTAIN COVENANTS OF LESSEE
<PAGE>
(23) Maintenance of Existence, Status and Consents. Lessee will (i) preserve and
maintain its corporate existence and such of its rights, privileges, licenses
and franchises in any jurisdiction where failure to obtain such licensing or
qualification would have a material adverse effect upon Lessee; (ii) maintain
and operate the Aircraft at all times as a Certificated Air Carrier and be
otherwise certificated and registered to the extent necessary to provide to
Lessor the benefits contemplated by Section 1110 of Title 11 of the United
States Code or any successor provision thereof; and (iii) maintain in full force
and effect all governmental consents, licenses, authorizations, approvals,
declarations, filings and registrations obtained or effected in connection with
this Lease and take such additional action as may be proper or advisable in
connection herewith. Lessee further undertakes to obtain or effect any new or
additional governmental consents, licenses, authorizations, approvals,
declarations, filings or registrations as may become necessary for the
performance of any of the terms and conditions of this Lease. Without the prior
written consent of Lessor, which consent shall not be unreasonably withheld,
Lessee shall not consolidate with, merge with or merge into any other Person or
convey, transfer or lease substantially all of its assets as an entirety to any
other Person. Without prior written notice to Lessor, Lessee will not change its
principal place of business or chief executive office.
(24) Payment of Taxes. Lessee will pay or cause to be paid all Taxes which are
payable by Lessee upon any property belonging to it, prior to the date on which
penalties attach thereto and prior to the date on which any lawful claim, if not
paid, would become a Lien upon any of the material property of Lessee.
(25) Liens. Lessee shall not directly or indirectly create, incur, or suffer to
exist any Lien on the Aircraft or any Engine or any interest therein, except:
(a) the respective rights of Lessor and Lessee as herein provided; (b) Lessor's
Liens; (c) Liens for Taxes either not yet due or being contested in good faith
by appropriate proceedings and so long as adequate reserves are maintained with
respect to such Liens; and (d) inchoate materialmen's, mechanics', workmen's,
repairmen's, employees' or other like Liens arising in the ordinary course of
business, which either are not delinquent or are being contested in good faith
by Lessee, so long as the Aircraft or such Engine is not in danger of being
lost, sold, confiscated, forfeited or seized as a result of any such Lien.
Lessee shall promptly take such action as may be necessary to duly discharge any
Lien (except for the Liens referred to in Sections (a) and (b) above) arising at
any time with respect to the Aircraft or any Engine. Lessee shall promptly pay
and discharge when due, or make adequate provision for all debts, claims,
liabilities or obligations whatsoever created by it, or arising as a result of
any matter concerning it, which may give rise to any Lien.
(26) Perfection of Title and Further Assurances. If the filing or recording of
this Lease or any other document or instrument is reasonably necessary to
protect the interest of Lessor, Lessee, at its own cost and expense and upon
request by Lessor, shall cause the same to occur. At the request of Lessor,
Lessee shall furnish to Lessor an opinion of counsel or other evidence
satisfactory to Lessor of each such filing or refiling and recordation or
re-recordation. Lessee will promptly and duly execute and deliver to Lessor such
further documents and assurances and take such further actions as it may from
time to time reasonably request in order to more effectively carry out the
intent and purpose of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor hereunder.
SECTION 9
INDEMNIFICATION
<PAGE>
(27) General Indemnity. Lessee agrees to defend, indemnify and hold harmless the
Indemnitees on demand from and against any and all Expenses (regardless of when
the same are made or incurred): (i) which may at any time be suffered or
incurred directly or indirectly as a result of or connected with (A) the
possession, performance, management, ownership, registration, control,
maintenance, condition, service, repair, overhaul, leasing, use or operation of
the Aircraft, any Engine or any Part, (B) the delivery or redelivery of the
Aircraft, any Engine or Part, or (C) the occurrence of any Default, whether or
not the Expenses may be attributable to any defect in the Aircraft, any Engine
or any Part or to its design, testing or use or otherwise, and regardless of
whether they arise out of or are attributable to any act or omission of any
Indemnitee; and/or (ii) which may at any time be suffered or incurred as a
consequence of any design, article or material in the Aircraft, any Engine or
any Part or its operation or use constituting an infringement of patent,
copyright, trademark, design or other proprietary right, or a breach of any
obligation of confidentiality owed to any Person in respect of any of the
matters referred to in this paragraph; but excluding any Expenses in relation to
a particular Indemnitee to the extent that such Expenses (A) are covered
pursuant to another indemnity provision of this Lease or (B) arise solely as a
result of the gross negligence or wilful misconduct of that Indemnitee or (C)
arise solely as a result of a Lessor Lien. The foregoing indemnities will
continue in full force following the Expiration Date notwithstanding any breach
or repudiation by Lessor or Lessee of this Lease or any termination of the
leasing of the Aircraft hereunder.
<PAGE>
(28) Tax Indemnity.
(1) Indemnity. All payments by Lessee to or on behalf of any
Indemnitee shall be free of withholdings of any nature whatsoever(including,
without limitation, withholding taxes, monetary transfer fees, sales, use and
excise taxes, VAT, income taxes (other than that, on the net income of Lessor)
and any similar taxes and charges) and in the event any withholding is required,
Lessee shall pay an additional amount such that the net amount actually received
by the person entitled to receive such payment will under any circumstances and
in any event, after such withholding, equal the full amount of the payment then
due. Lessee shall pay when due and indemnify and hold each Indemnitee harmless
from all Taxes, howsoever levied or imposed, whether levied or imposed upon or
asserted against Lessor, Lessee, the Aircraft or any part thereof or interest
therein, or otherwise, by any federal, state or local taxing authority in the
United States of America or by any government or taxing authority of or in a
foreign country or of or in a territory or possession of the United States or by
any international taxing authority, upon or with respect to or based upon or
measured by or as a result of or in connection with (i) the Aircraft or any part
thereof or interest therein, (ii) the use, operation, maintenance, possession,
condition, control, occupancy, servicing, installation, transportation, storage,
substitution, sale, recording, documentation, importation, exportation,
modification, location, repair, abandonment, replacement, delivery,
registration, deregistration, repossession, improvement, ownership, leasing,
subleasing, manufacture, rental, settlement of any insurance claim, return,
transfer of title, transfer of possession, or other disposition of the Aircraft
or any part thereof or interest therein, (iii) the rentals, receipts, earnings
or gains arising from the Aircraft or any part thereof or interest therein, (iv)
any amount payable pursuant to the Lease or any related agreement, (v) the Lease
or any related agreement or any future amendment, supplement, waiver or consent
with respect to any thereof, or the execution, delivery, recording or
performance of any thereof or (vi) otherwise arising from, with respect to or in
connection with the transactions contemplated by the Lease or any related
agreement, except to the extent provided in Section 9(b)(ii) hereof. Each
payment or indemnity payable hereunder shall include any amount necessary to
hold the recipient of the payment or indemnity harmless on an after-tax basis
from all Taxes required to be paid by such recipient with respect to such
payment or indemnity.
<PAGE>
(2) Exclusions. Lessee shall not be required to pay any indemnity
pursuant to Section 9(a) with respect to any of the following: (i) any Tax to
the extent attributable solely to an event or circumstance occurring prior to
the Delivery Date; (ii) any Tax imposed as a result of a voluntary transfer,
assignment or other disposition by Lessor of the Aircraft or the Lease unless
such transfer, assignment or other disposition shall occur (x) at any time when
an Event of Default under the Lease shall have occurred and be continuing (or
would be continuing but for the exercise of remedies), or (y) in connection or
as a result of with any termination of the Lease; (iii) any Tax to the extent
attributable solely to any event, circumstance or period of time that occurs
after the Aircraft has been redelivered to Lessor pursuant to Section 12 hereof
(under circumstances not involving a repossession pursuant to Section 13(b)
hereof) unless any such act or event shall itself result from or be attributable
to an act or omission of Lessee which occurred prior to or concurrently with the
redelivery of the Aircraft and the discharge of Lessee's obligations under the
Lease; and (iv) any Tax that is imposed by any state or local government or
taxing authority in the United States and that is imposed on or measured by the
gross or net income, gross or net receipts, capital or net worth of an
Indemnitee; provided that the exclusion described in this subparagraph (iv)
shall not apply to (A) Taxes that are or are in the nature of sales, use,
rental, value-added, license, excise or property Taxes, or (B) any Tax to the
extent incurred by such Indemnitee as a result of (1) the use or location of the
Aircraft or any Engine or any part of any thereof in the jurisdiction imposing
the Tax or (2) the situs of organization, any place of business or any activity
of Lessee, any affiliate of Lessee or any Person having custody, possession or
use of the Aircraft or any Engine or any part of any thereof through Lessee in
the jurisdiction imposing the Tax or (3) the execution, delivery, filing,
registration, recording or enforcement of the Lease, or any instrument,
certificate or other document executed pursuant to the Lease, in the
jurisdiction imposing the Tax.
(3) Payment. All Taxes indemnified under this Section 9(b) shall be
paid by Lessee (to the extent permitted by applicable Law, unless otherwise
directed by the relevant Indemnitee) directly to the appropriate taxing
authority on or before the time (and in the manner) prescribed by applicable
Law. All other amounts shall be paid to the relevant Indemnitee within 30 days
after receipt of a written demand therefor from such Indemnitee accompanied by a
written statement describing in reasonable detail the Taxes that are the subject
of such indemnity and the computation of the indemnity being demanded.
(4) Miscellaneous. In case any report or return is required to be
made with respect to any Tax for which Lessee would be required to indemnify an
Indemnitee under this Section 9(b), Lessee will either make such report or
return in such manner as will show the ownership of the Aircraft in Lessor and
send a copy of such report or return to the affected Indemnitee or will notify
the affected Indemnitee of such requirement and make such report or return in
such manner as shall be reasonably satisfactory to such Indemnitee. If actual
notice is given by any taxing authority to Lessor that a report or return is
required to be filed with respect to any such Taxes referred to in this Section
9(b), Lessor shall promptly notify Lessee of such required report or return.
Lessor agrees to respond to any reasonable request of Lessee for information
within the control of Lessor with respect to the filing of any report or return,
but Lessee agrees to pay any reasonable costs, fees or other charges of
independent counsel or independent accountants incurred in connection with such
request. Lessee agrees that within sixty (60) days after the close of each
fiscal year of Lessor it shall provide Lessor with any information reasonably
requested by Lessor, including information regarding the use and location of the
Aircraft during such fiscal year.
SECTION 10
CASUALTY OCCURRENCES
<PAGE>
(29) Casualty Occurrence with Respect to the Airframe. Within five (5) days
after a Casualty Occurrence with respect to the Airframe and any Engine then
installed thereon, Lessee shall give Lessor written notice of such occurrence.
On or before thirty (30) days after the date of the Casualty Occurrence with
respect to the Aircraft, Lessee shall pay to Lessor in immediately available
funds the sum of (i) the Casualty Value of the Aircraft computed as of the date
of payment less an amount equal to the daily equivalent of Basic Rent (computed
on the basis of a 365-day year) for each day during the period commencing with
the day after payment of such Casualty Value and extending to, but excluding,
the Basic Rent Payment Date immediately following payment of such Casualty
Value, and (ii) all Supplemental Rent, other than amounts paid pursuant to
Section (i), computed as of the date of payment. Upon such payment (A) the
obligation of Lessee to make further payments of Basic Rent hereunder shall
terminate, (B) this Lease shall terminate with respect to the Aircraft and (C)
Lessor will transfer to Lessee, without recourse or warranty, all of Lessor's
right, title and interest, if any, in and to the Airframe and Engines (if any)
suffering the Casualty Occurrence, as well as all of Lessor's right, title and
interest in and to any Engine constituting part of the Aircraft but not
installed thereon at the time of the Casualty Occurrence.
(30) Casualty Occurrence with Respect to an Engine. Upon a Casualty Occurrence
with respect to an Engine only, Lessee shall give Lessor prompt written notice
thereof and shall, within forty-five (45) days after such occurrence, convey to
Lessor, as replacement for the Engine suffering a Casualty Occurrence, title to
a Replacement Engine. Each Replacement Engine shall be free of all Liens (except
Permitted Liens). Upon full compliance by Lessee with the terms of this
paragraph, Lessor will transfer to Lessee title to the Engine which suffered the
Casualty Occurrence. Prior to or at the time of any such conveyance, Lessee, at
its own expense, will promptly (i) furnish Lessor with a full warranty bill of
sale, in form and substance reasonably satisfactory to Lessor, with respect to
such Replacement Engine; (ii) cause a supplement hereto, in form and substance
reasonably satisfactory to Lessor, subjecting such Replacement Engine to this
Lease, to be duly executed by Lessee, and recorded pursuant to applicable Law;
(iii) furnish Lessor with such legal opinions and other documents as Lessor may
reasonably request in connection with the consummation of the transactions
contemplated by this Section 10(b), in each case in form and substance
satisfactory to Lessor. Upon full compliance by Lessee with the terms of this
Section 10(b), Lessor will transfer to Lessee all of the right, title and
interest in the Engine which suffered the Casualty Occurrence, and such
Replacement Engine shall be deemed an "Engine" as defined herein.
(31) Application of Proceeds and Payments. Any payments received at any time by
Lessor or by Lessee from any insurer under any policy of insurance (other than
liability insurance) shall be applied in the manner specified in Sections 11(m),
11(n) or 11(o) hereof as applicable. Any payments received at any time by Lessor
or Lessee with respect to a Casualty Occurrence will be applied as follows: (i)
if such payments are received as a result of a Casualty Occurrence with respect
to the Aircraft, such payment up to the amount of the Casualty Value shall be
paid to Lessor, or if Lessee has already paid Lessor the Casualty Value, such
payment shall be applied by Lessor to reimburse Lessee; or (ii) if such payments
are received as a result of a Casualty Occurrence with respect to an Engine
which is being replaced pursuant to Section 10(b), such payments shall be paid
over to, or retained by, Lessee if Lessee shall have fully performed the terms
of Section 10(b) hereof.
<PAGE>
(32) Application in Default. Any amount referred to in Section (i) or (ii) of
Section 11(c) which is otherwise payable to Lessee shall not be paid to Lessee,
or, if it has been previously paid to Lessee, and not yet applied by Lessee as
permitted or required hereunder, shall be delivered from Lessee to Lessor, if at
the time of such payment a Default shall have occurred and be continuing. In
such case, all such amounts shall be paid to and held by Lessor as security for
the obligations of Lessee, or, at the option of Lessor, applied by Lessor toward
payment of any of Lessee's obligations at the time due hereunder, as Lessor may
elect. At such time as there shall not be continuing any such Default, all such
amounts at the time held by Lessor in excess of the amount, if any, which Lessor
has elected for application as provided above, shall be paid to Lessee.
SECTION 11
INSURANCE
(33) Obligation to Insure. From the Delivery Date until the termination of the
Lease and redelivery of the Aircraft to Lessor, Lessee shall, at its own cost
and expense, effect and maintain or cause to be effected and maintained in full
force and effect insurances with respect to the Aircraft that comply with the
provisions of this Section 11. Lessee agrees that such insurances shall be
carried with Approved Insurers. Lessee further agrees that such insurances shall
reflect prudent practices in the international aviation insurance market for air
carriers operating the same type of aircraft as the Aircraft on similar routes.
(34) Public Liability and Property Damage Insurance. Lessee will carry and
maintain in effect, at its own expense, comprehensive public liability insurance
covering aircraft liability including bodily injury and property damage,
passenger, baggage, cargo and mail, and general liability (including products
and completed operation) for a combined single limit on any one occurrence of
not less than the amount applicable to similar passenger aircraft and engines
which comprise Lessee's fleet, and in any event not less than the amount under
"Public Liability and Property Damage Insurance" as set forth on Exhibit A
hereto (or such higher amounts as Lessor may from time to time reasonably
require). Lessee shall not discriminate against the Aircraft in providing such
insurance.
(35) Required Policy Designations Relating to Comprehensive Public Liability
Insurance. The policies evidencing the insurance required under Section 11(b)
shall be endorsed to include paragraph 2 of AVN67B with each Indemnitee and
Lender named as a contract party in AVN67B, shall cover "war risks and allied
perils" in accordance with extended coverage endorsement AVN52C and shall to the
extent not in conflict with AVN67B:
(1) provide that all the provisions thereof, except the limits of
liability, shall operate to give each Additional Insured the same
protection as if there were a separate policy covering each
insured; and
(2) be primary and without right of contribution from other insurance
that may be available to any other Additional Insured or Lessee.
<PAGE>
(36) Insurance with Respect to the Aircraft. Lessee, at its own expense, will
maintain in effect:
(1) "hull all risks" insurance for loss of or damage to the Aircraft
(including all flight and ground risks) on an agreed value basis
in an amount not less than the Casualty Value;
(2) "all risks" and "war risks and allied perils" insurance on the
Engines and Parts while not installed on the Airframe on an
agreed value basis in an amount not less than their full
replacement value; and
(3) "hull war and allied perils" insurance on the Aircraft covering
risks excluded from the "hull all risks" policy to the fullest
extent available from the leading international insurance
markets, including confiscation or requisition by the state of
registration, on an agreed value basis for an amount not less
than the Casualty Value.
(37) Required Policy Designations and Provisions Relating to Insurance Against
Loss or Damage. Each and any policy of insurance obtained and maintained
pursuant to Section 11(d), and each and any policy obtained in substitution or
replacement for any such policies, shall be provided by policies that shall be
endorsed to include paragraph 1 of AVN67B with Lessor and Lender as contract
parties and shall to the extent not in conflict with AVN67B:
(1) include a loss payable clause that provides that all insurance
proceeds in the event of a Casualty Occurrence shall be payable
to Lessor or its designee and that all other insurance proceeds
shall be paid in accordance with the terms of this Lease to such
parties as may be necessary to repair the Aircraft;
(2) provide in the event of separate insurances being arranged
to cover the "hull all-risks" insurance and the "hull war-risks"
insurance that the underwriters subscribing to such insurance
agree that in the event of any dispute as to whether a claim is
covered by the "hull all-risks" or "hull war-risks" policy, such
claim be settled on a 50/50 claim funding basis in accordance
with AVS103 (or its equivalent) or under either the "hull
all-risks" or "hull war-risks" policy;
(3) be subject to such exclusions and deductibles as Lessor may
reasonably approve, provided that in no event shall the
deductible under the "hull all-risks" and "hull war-risks"
insurance exceed the Deductible Amount; and
(4) provide that all insurance proceeds shall be payable in Dollars.
<PAGE>
(38) Revised Policy Designations and Provisions Relating to All Insurance. The
policies evidencing the insurance required under this Section 11 shall be
endorsed to include paragraph 3 of AVN67B with Lessor and Lender with respect to
hull insurance and each Additional Insured with respect to liability insurance
be named as contract parties in AVN67B, shall name the Additional Insureds and
shall, to the extent not in conflict with AVN67B:
(1) designate the Additional Insureds as additional insureds and loss
payees;
(2) provide that the insurance shall not be invalidated, so far as
concerns any Additional Insured, by any action or inaction or
omission (including misrepresentation and nondisclosure) of any
person or party that results in a breach of any term, condition
or warranty of such policy; provided, that the Additional Insured
so protected has not caused, contributed to or knowingly condoned
the action, inaction or omission, as the case may be;
(3) specifically reference this Lease;
(4) provide for worldwide coverage (subject only to such exceptions
as are customary in insurance coverage carried by air carriers
operating aircraft of the same type as the Aircraft);
(5) provide that upon payment of any loss or claim to or on behalf
of any Additional Insured, the respective insurer shall to the
extent and in respect of such payment be thereon subrogated to
all legal and equitable rights of the Additional Insured
indemnified hereby (but not against any other Additional
Insured); provided, that such insurer shall not exercise such
rights without the consent of the indemnified Additional Insured,
such consent not to be reasonably withheld;
(6) provide that neither Lessor nor Lender shall be liable for any
premiums in respect thereof and that the insurers shall waive any
right of set-off or counterclaim against Lessor or Lender except
in respect of unpaid premiums in respect of the Aircraft; and
<PAGE>
(7) provide that the insurers shall promptly notify Lessor and Lender
in the event of cancellation of, or any material change in, the
insurance or any act or omission or any event that might
invalidate or render unenforceable the insurances or in the event
that any premium shall not have been paid when due and that the
insurances shall continue unaltered for the benefit of each
Additional Insured for at least thirty (30) days after written
notice by registered mail of such cancellation, change, event or
non-payment of premium thereof shall have been received by Lessor
and Lender except in the case of war risks for which seven (7)
day notice (or such period as may be customarily available in
respect of war risks or allied perils) will be given.
(39) Information.
(1) On or before the Delivery Date and promptly after each renewal of
the insurances, Lessee shall provide Lessor and Lender with
certificates of insurance and a broker's letter of undertaking
that (i) name each of Triton Aviation Services V LLC, First
Security Bank, N.A., NationsBank, N.A., and their respective
officers, directors, shareholders, agents and employees and their
respective successors and assigns as "additional insureds", (ii)
evidence to the satisfaction of Lessor that the insurances are
and will continue in full force after the Delivery Date or the
renewal date (as the case may be) for such period as shall then
be stipulated and (iii) contain such other certifications and
undertakings as are customarily provided to lessors and
mortgagees by insurance brokers acting for air carriers.
(2) Lessee shall from time to time upon request from Lessor (i)
provide to it evidence reasonably satisfactory to it that any and
all premiums payable in respect of the insurances have been paid
in accordance with the terms of the relevant policy and (ii)
provide or cause its broker to provide a list of the insurers
with whom the insurances are carried and the coverages provided
by each of them.
(3) Lessee shall furnish such information regarding the status of
renewal negotiations as may from time to time be reasonably
requested by Lessor. In addition, Lessee shall arrange for its
brokers (i) to confirm to Lessor not later than five (5) days
prior to the renewal date of the insurances, that negotiations
for such renewal are at an advanced state and that there is no
reason to suppose that the insurances will not be renewed at the
relevant date in terms that will comply with the provisions of
this Lease and (ii) to furnish to Lessor on or prior to the
renewal date, the renewal certificates of insurance, reinsurance
(if applicable) and brokers' letters of undertaking, each in
English and in form and substance satisfactory to Lessor.
<PAGE>
(4) Lessee shall furnish, or cause to be furnished, to Lessor and
Lender on the Delivery Date and thereafter as and when required
by Lessor and upon each transfer of the Aircraft or assignment of
rights hereunder as permitted by this Lease, certificates and
brokers letter of undertaking (and, if further requested, of its
insurers) that confirm that the requirements of this Section 11
are being complied with.
(5) Lessee shall, at the request of Lessor, make copies of the
policies and endorsements and any amendments thereto with respect
to the insurance available to Lessor (or its authorized
representatives) for inspection by any representative of Lessor
at the office of Lessee or its insurance brokers during normal
business hours.
(40) Additional Insurance; No Lien.
(1) Lessee shall not, without the prior written consent of Lessor,
maintain insurances with respect to the Aircraft or any Engine,
other than as required under this Lease if it would prejudice
recovery under the insurance required hereunder.
(2) Lessor may from time to time require Lessee at no cost to Lessor
to effect such other insurances, or such variations to the terms
of the existing insurances, as Lessor may reasonably require in
order to fully protect the interests of the Additional Insureds.
(3) Lessee shall not create or permit to exist any Lien over the
insurances required by this Lease, or its interest therein, save
as constituted by this Lease.
(41) Failure to Insure. If at any time Lessee fails to maintain in full force
and effect insurances in compliance with any provision of this Section 11,
Lessor shall be entitled but not obligated (without prejudice to any other
rights that it may have or acquire under this Lease by reason of such failure):
(1) to pay any premiums due or to effect or maintain insurances
satisfactory to Lessor or otherwise remedy such failure in such
manner as Lessor considers appropriate, and Lessee shall
immediately reimburse Lessor in full for any amount so expended
by Lessor; and/or
(2) 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 Lessor until such failure is remedied.
<PAGE>
(42) Assignment. If Lessor transfers the Aircraft or assigns its rights
hereunder as permitted by this Lease, Lessee will, upon request, promptly
procure that the transferee or assignee (including, without limitation, any
lender) shall be added as a further named insured to any of the insurances
referred to in this Section 11 so as to enjoy the same rights and protection as
Lessor may have from time to time under such insurances. In addition, if Lessor
transfers the Aircraft or such rights and thereafter ceases to be Lessor (a
"Transferor"), Lessee shall, at the request of such Transferor and at Lessees
expense, effect and maintain for the benefit of such Transferor the insurance
required by Section 11(c) for such period (not exceeding two years) as in
Transferor may request and shall ensure that the Transferor shall be named as an
additional insured thereunder.
(43) Reinsurance. Any reinsurance will be maintained with reinsurers and brokers
approved by Lessor. Such reinsurance will contain each of the following terms
and will in all other respects (including amount) be satisfactory to Lessor.
(1) the same terms as the original insurance;
(2) a cut through and assignment clause satisfactory to Lessor; and
(3) 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.
(44) Settlement of Claims. Lessee will not settle or permit settlement of any
claims arising under any of the insurances referred to in Section 11 without the
prior written consent of Lessor or its designee and will not settle or permit
settlement of any claims under such insurance without such consent if an Event
of Default has occurred and is continuing.
(45) Application of Insurance Proceeds for a Casualty Occurrence. It is agreed
that insurance payments which arise from any policy of insurance carried by
Lessee and received as the result of the occurrence of a Casualty Occurrence
shall be applied as follows: (i) if such payments are received with respect to a
Casualty Occurrence relating to the Airframe and Engines or engines installed on
the Airframe, so much of such payments as shall not exceed the amounts due under
Section 10(a) hereof shall be paid to Lessor, and the balance to Lessee; and
(ii) if such payments are received with respect to a Casualty Occurrence
relating to an Engine under circumstances contemplated by Section 11(d) hereof,
such payment shall be adjusted with Lessee (provided that Lessee has not
breached any warranty, declaration or condition contained in the applicable
insurance policy) and paid over to Lessee, provided that Lessee shall have fully
performed the terms of Section 10(b) hereof.
<PAGE>
(46) Application of Insurance Proceeds for Other than a Casualty Occurrence. The
insurance payments for any property damage loss to the Airframe or any Engine
not constituting a Casualty Occurrence, or to any Part, will be held by Lessor
until Lessee furnishes Lessor with satisfactory evidence that the repairs or
replacement property Lessee is required to perform or obtain in accordance with
the terms of Section 6(f) of this Lease have been made or obtained by Lessee.
Upon receipt of such evidence of repair or replacement, Lessor shall pay Lessee
the amount of the insurance payment received with respect to such loss.
(47) Application in Default. Any amount referred to in Sections 11(e)(i), 11(m)
or 11(n) which is otherwise payable to Lessee shall not be paid to Lessee, or,
if it has been previously paid to Lessee, and not yet applied by Lessee as
permitted or required hereunder, shall be delivered by Lessee to Lessor, if at
the time of such payment, a Default shall have occurred and be continuing. In
such case, all such amounts shall be held by Lessor as security for the
obligations of Lessee, or, at the option of Lessor, applied by Lessor toward
payment of any of Lessee's obligations at the time due hereunder. At such time
as there shall not be continuing any such Default, all such amounts at the time
held by Lessor in excess of the amount, if any, which Lessor has elected for
application as provided above, shall be paid to Lessee.
SECTION 12
RETURN OF AIRCRAFT AND RECORDS
(48) Return. On the Expiration Date, Lessee, at its own expense, shall return
the Aircraft to Lessor in the condition specified on Exhibit C hereto at the
Return Location, fully equipped with all required Parts and Engines, duly
installed thereon, together with the Aircraft Documents and records which are
complete and acceptable to the FAA, and at no cost to Lessor, all service
bulletin kits furnished without charge by a manufacturer for installation on the
Aircraft which have not been so installed.
(49) Records. Six months prior to the Expiration Date (and in an updated form
upon the Return Occasion), Lessee will provide Lessor with a technical report in
form and substance reasonably requested by Lessor, and, in addition, upon
Lessor's request, will make copies of (i) drawings of the interior configuration
of the Aircraft both as it presently exists and as it will exist at return, (ii)
the airworthiness directive status list, (iii) service bulletin incorporation
list, (iv) rotable controlled, hard-time and life limited component listings,
(v) listing of Lessee-initiated modifications and alterations, (vi) interior
material burn certificates, (vii) Maintenance Program, (viii) complete work
scope for the checks, inspections and other work to be performed prior to
return, (ix) current Engine disk sheets and (x) any other data which is
reasonably requested by Lessor. In addition to the foregoing, upon the Return
Occasion, Lessee shall deliver to Lessor all Aircraft Documentation.
<PAGE>
(50) Final Inspection. Upon the Return Occasion, Lessee shall make the Aircraft
available to Lessor for a functional check flight and detailed inspection, at
Lessee's expense, in order to verify that the condition of the Aircraft complies
with the requirements set forth herein (the "Final Inspection"). Lessee shall
give Lessor not less than ten (10) days prior written notice of the commencement
date of the "C" Check required by Exhibit C. Lessor shall have the right to
appoint a representative who may observe (i) the Final Inspection, (ii) any
inspections conducted in accordance with Exhibit C, and/or (iii) the maintenance
conducted in connection with or as a consequence of any such inspections. The
functional test flight shall be conducted, at Lessee's expense, using a
qualified pilot and not more than three (3) technical representatives selected
by Lessor (one of whom may sit in the jump seat in the cockpit), in conjunction
with Lessee's flight crew, shall be up to two (2) hours duration, shall conform
with Lessee's standard operation check flight procedures, shall be covered by
Lessee's insurance policy required pursuant to Section 11, and shall otherwise
be of such scope as is necessary to demonstrate the airworthiness of the
Aircraft and proper functioning of all systems and components. The Final
Inspection shall commence on or before the Expiration Date and shall continue on
consecutive days until all activity required above to be conducted during the
Final Inspection has been concluded. To the extent that any portion of the Final
Inspection extends beyond the Expiration Date, the Term shall be deemed to have
been automatically extended, and the obligation to pay Rent hereunder continued
on a daily basis until the Final Inspection shall have been concluded.
(51) Corrections and Subsequent Corrections. If the Aircraft or any Engine fails
upon the Return Occasion to conform to any requirement imposed by this Lease,
Lessor, at its option, may continue the Lease in effect in the manner provided
for in Section 12(c) above with regard to automatic extension until such time as
the Aircraft is brought up to the condition required by this Lease, or accept
the return of the Aircraft and thereafter have any such nonconformance
corrected. Any expense incurred by Lessor for such correction shall become
Supplemental Rent payable by Lessee upon demand. Lessee's obligations to pay
such Supplemental Rent shall survive the passage of the Expiration Date or other
termination of this Lease.
SECTION 13
DEFAULT AND REMEDIES
(52) Events of Default. Any one or more of the following occurrences or events
shall constitute an Event of Default: (i) Lessee shall fail to make any payment
of Rent to Lessor when due and such payment shall be overdue for a period of two
(2) Business Days; (ii) Lessee shall fail to obtain and maintain any insurance
required under the provisions of Section 11 hereof, or shall operate the
Aircraft outside of the scope of the insurance coverage so maintained; (iii) any
representation or warranty made by Lessee herein or in any document or
certificate furnished Lessor in connection herewith or therewith or pursuant
hereto is incorrect at the time given in any material respect; (iv) any
bankruptcy, insolvency or similar proceeding is commenced by or against Lessee;
or (v) Lessee shall fail to perform or observe any other covenant, condition or
agreement hereunder and such failure shall continue for a period of five (5)
Business Days after written notice thereof is given by Lessor to Lessee.
<PAGE>
(53) Remedies. Upon the occurrence of any Event of Default Lessor may, at its
option and without notice to Lessee, exercise one or more of the following
remedies as Lessor in its sole discretion shall elect: (i) demand that Lessee,
and Lessee shall upon the written demand of Lessor and at Lessee's expense,
immediately return the Aircraft to Lessor in the manner specified in such
notice; (ii) enter upon the premises where the Aircraft is located and take
immediate possession of and remove the same; (iii) cancel Lessee's leasehold
interest in the Aircraft under this Lease effective upon dispatch of written
notice to Lessee, and store, sell or lease to others the Aircraft, all free and
clear of any rights of Lessee; (iv) demand that Lessee, and Lessee shall upon
the written demand of Lessor, pay as damages for the breach hereof an amount
equaling the sum of: (1) all Rent due and payable hereunder; (2) all Expenses
incurred by Lessor as a result of Lessee's breach of this Lease; and (3) such
additional amount as shall be sufficient to place Lessor in the same economic
position, on an after-tax basis, as Lessor would have been in if Lessee had
timely performed each of its obligations under this Lease; and/or (v) proceed by
appropriate court action or actions, either at Law or in equity, to enforce
performance by Lessee of the applicable covenants of this Lease and to obtain
the benefit of any remedies available to Lessor hereunder or under applicable
Law for breach hereof.
In addition to the foregoing, Lessor shall be entitled to exercise such
other rights and remedies as may be available under applicable Law and Lessee
shall be liable on an after-tax basis for, and shall pay Lessor on demand: (1)
interest on all unpaid amounts at the Interest Rate, from the due date until the
date of payment in full; (2) all reasonable legal fees and other reasonable
costs and expenses incurred by Lessor by reason of the occurrence of any Event
of Default or the exercise of Lessor's remedies with respect thereto; and (3)
all reasonable expenses, disbursements, costs and fees incurred in (A)
repossessing, storing, preserving, shipping, maintaining, repairing and
refurbishing the Aircraft, the Airframe, any Engine or Part to the condition
required by Section 12 hereof and (B) preparing the Aircraft, the Airframe, an
Engine or Part for sale or lease, advertising the sale or lease of the Aircraft,
the Airframe, an Engine or Part and selling or releasing the Aircraft, the
Airframe, an Engine or Part.
No remedy referred to in this Section 13(b) is intended to be exclusive,
but, to the extent permissible hereunder or under applicable Law, each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at Law or in equity; and the exercise or beginning of
exercise by Lessor of any one or more of such remedies shall not preclude the
simultaneous or later exercise by Lessor of any or all of such other remedies.
No express or implied waiver by Lessor of any Default or Event of Default shall
in any way be, or be construed to be, a waiver of any future or subsequent
Default or Event of Default.
SECTION 14
ALIENATION
<PAGE>
Lessor shall have the right to assign, sell or encumber any interest of
Lessor in the Aircraft or this Lease and/or the proceeds hereof subject to the
rights of Lessee under the provisions of this Lease; provided, however, in the
case of assignment for security, Lessee shall be reimbursed for any costs
reasonably incurred by Lessee in connection therewith. To effect or facilitate
any such assignment, sale or encumbrance, Lessee agrees to provide such
agreements, consents, conveyances or documents as may be reasonably requested by
Lessor, which in the case of an assignment other than for security shall include
an unrestricted release of Lessor from its obligations hereunder. Lessee
acknowledges that an assignment, sale or encumbrance of Lessor's interest
hereunder would not have the effect of altering the terms of this Lease relating
to the rights and obligations of Lessee. Lessee agrees that it will not assert
against an assignee any claim or defense which it may have against Lessor. The
agreements, covenants, obligations, and liabilities contained herein including,
but not limited to, all obligations to pay Rent and indemnify each Indemnitee
are made for the benefit of each Indemnitee and their respective successors and
assigns.
SECTION 15
MISCELLANEOUS
(54) Severability and Construction. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. To the extent permitted by Law,
Lessee hereby waives any provisions of Law which renders any provisions hereof
prohibited or unenforceable in any respect. This Lease shall constitute an
agreement of lease, and nothing herein shall be construed as conveying to Lessee
any right, title or interest in the Aircraft or any Engine or Part except as a
lessee only. Lessor and Lessee agree that this Lease is to be treated as a lease
for U.S. federal income tax purposes.
(55) Governing Law; Jurisdiction. This Lease shall in all respects be governed
by, and construed in accordance with, the Laws of the State of California.
Lessee hereby irrevocably consents that any legal action or proceeding against
it or any of its assets with respect to the Lease may be brought in any
jurisdiction where Lessee or any of its assets may be found, or in any court of
the State of California or any Federal court of the United States of America
located in San Francisco, California, as Lessor may elect, and by execution and
delivery of this Lease, Lessee hereby irrevocably submits to and accepts with
regard to any such action or proceeding, for itself and in respect of its
assets, generally and unconditionally, the jurisdiction of the aforesaid courts.
Lessee further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified airmail, postage prepaid, to Lessee at its
address set forth on Exhibit A hereto. The foregoing, however, shall not limit
the rights of Lessor to serve process in any other manner permitted by Law or to
bring any legal action or proceeding or to obtain execution of judgment in any
jurisdiction. Lessee hereby irrevocably waives, to the fullest extent permitted
by Law, any objection which Lessee may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this Lease
brought in the State of California, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in the State of
California has been brought in an inconvenient forum.
<PAGE>
(56) Notices. All notices required under the terms and provisions hereof shall
be in writing, shall be sent to Lessor or Lessee at their respective addresses
set forth on Exhibit A hereto (or such other addresses as the parties may
designate from time to time in writing) and, except as otherwise provided
herein, shall become effective upon the earlier of actual receipt or (i) in the
case of a letter, the fifth day following posting, and (ii) in the case of a
facsimile transmission on the day immediately following the date of dispatch.
(57) Lessor's Right to Perform for Lessee. If Lessee fails to perform or comply
with any covenant, agreement or obligation contained herein, Lessor shall have
the right but not the obligation to so perform or comply for Lessee, and the
reasonable expenses of Lessor incurred in connection therewith, together with
interest thereon at the Interest Rate, shall be payable by Lessee to Lessor (as
Supplemental Rent) upon demand. The taking of any such action by Lessor shall
not constitute a waiver or release of any obligation of Lessee under this Lease,
nor a waiver of any Default which may arise out of Lessee's nonperformance of
such obligation, nor an election or waiver by Lessor of any remedy or right
available to Lessor hereunder.
(58) Counterparts. This Lease may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. To the extent, if any, that this Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction) no security interest in this Lease may be
created through the transfer or possession of any counterpart other than the
counterpart which has been marked "Original" on the signature page thereof.
(59) Quiet Enjoyment. Lessor covenants that so long as an Event of Default shall
not have occurred and be continuing, Lessee shall quietly enjoy the Aircraft and
all rents, revenues, profits and income thereto, without interference by Lessor,
or by any Person lawfully claiming by or through Lessor.
(60) Brokers. Neither Lessor nor Lessee have utilized the services of any agent,
broker or similar third party representation in connection with the transactions
contemplated by this Lease and each party agrees to indemnify and hold the other
harmless from and against any and all claims, suits, damages, costs and expenses
(including, but not limited to reasonable attorneys' fees) asserted by any
agent, broker or other third party for any commission or compensation based upon
the lease of the Aircraft, if such claim, damage, cost or expense arises out of
any action or alleged action by the indemnifying party, its employees or agents.
(61) Time is of the Essence. Time and strict and punctual performance are of the
essence with respect to each provision of this Lease.
<PAGE>
(62) DISCLAIMER OF CONSEQUENTIAL DAMAGES. LESSEE AGREES THAT IT SHALL NOT BE
ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY
OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES (AS SUCH TERM IS DEFINED IN
SECTION 10520(B) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE) AS A RESULT OF ANY
BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR
WARRANTIES OF LESSOR CONTAINED IN THIS LEASE OR THE OTHER RELATED AGREEMENTS.
(63) Security Deposit. Lessor hereby acknowledges the receipt of an initial
security deposit in the Initial Amount and Lessee hereby agrees to deposit with
Lessor on or before thirty (30) days prior to the Estimated Delivery Date, a
final installment of the security deposit in the Further Additional Amount
(collectively, the "Security Deposit"). The Security Deposit shall be
non-refundable during the Term hereof; provided that the Security Deposit shall
be promptly refunded by Lessor to Lessee in the event that Lessor shall fail to
tender the Aircraft for delivery in accordance with Section 3 of this Lease on
or prior to May 30, 1999, despite Lessee's satisfaction of all conditions to
such tender, and Lessee elects to terminate this Lease. Such sums are received
by Lessor as security for the timely and faithful performance by Lessee of all
of Lessee's obligations under this Lease, and Lessee hereby grants Lessor a
security interest therein and in all other sums deposited under this Section
15(j). Lessor shall be entitled to commingle the Security Deposit with its other
funds, and Lessee shall not be entitled to any interest or other earnings
thereon. If Lessee is in Default hereunder, in addition to all other rights
Lessor shall have under the California Uniform Commercial Code as a secured
party, Lessor may use, apply or retain all or any portion of the Security
Deposit in partial payment for sums due to Lessor by Lessee, to compensate
Lessor for any sums it may in its discretion advance as a result of a Default by
Lessee, or to apply toward losses or expenses Lessor may suffer or incur as a
result of Lessee's Default. If Lessor uses or applies all or any portion of such
Security Deposit, such application shall not be deemed a cure of any Defaults,
and Lessee shall within five days after written demand therefore deposit with
Lessor in cash an amount sufficient to restore the Security Deposit to its
original sum and the failure of Lessee to do so shall be a material breach of
this Lease by Lessee. Provided Lessee is not in Default under this Lease, the
principal amount of such Security Deposit, without interest, and less any costs
incurred by Lessor in connection with the termination of the Lease or return of
the Aircraft and any amounts owed by Lessee to Lessor under this Lease or
otherwise, shall be returned to Lessee on the Expiration Date, provided that
Lessee shall have returned the Aircraft in compliance with Section 12 hereof.
(64) Costs. Except as otherwise provided herein, Lessor and Lessee each shall
pay its own costs and expenses incurred in connection with the negotiation,
documentation and performance of its obligations under this Lease.
(65) Entire Agreement; Modification or Revision. This Lease is intended to be a
complete and exclusive statement of the terms of the agreement of the parties
hereto, and this Lease supersedes any prior or contemporaneous agreements,
whether oral or in writing. Neither this Lease nor any term of this Lease may be
modified, rescinded, changed, waived, discharged or terminated except by a
writing signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provisions of this Section 15(l) by their signatures below.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee, each pursuant to due authority,
have each caused this Lease to be executed by their duly authorized officers as
of the day and year first above written.
LESSOR:
FIRST SECURITY BANK, N.A.,
not in its individual capacity
but solely as owner trustee
By:______________________________
Name:____________________________
Its:_____________________________
LESSEE:
FRONTIER AIRLINES, INC.
By:______________________________
Name:____________________________
Its:_____________________________
CERTAIN PROCEEDS OF THIS LEASE ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF
NATIONSBANK, N.A., AS AGENT, AND ANY SUCCESSOR AGENT, FOR ONE OR MORE FINANCIAL
INSTITUTIONS
<PAGE>
EXHIBIT A
to
Aircraft Lease Agreement
DEFINITIONS AND VALUES
Part I -- General
Additional Insureds shall mean Lessor, Beneficiary, Lender and their respective
officers, directors, shareholders, agents and employers and their respective
successors and assigns.
Aircraft shall mean the Airframe together with (a) the Engines, whether or not
installed on the Aircraft, (b) all Parts or components thereof, (c) spare parts
or ancillary equipment or devices furnished with the Aircraft under this Lease,
(d) all Aircraft Documents, and (e) all substitutions, replacements and renewals
of any and all thereof.
Aircraft Documents shall mean the items identified on Schedule 2 to Exhibit D,
together with all additions and replacements.
Airframe shall mean (a) the Boeing model 737-200A aircraft having Manufacturer's
serial number 23007, but not including any engine installed thereon, and (b) any
and all Parts so long as the same shall be incorporated or installed on or
attached to the Airframe, or so long as title thereto shall remain vested in
Lessor in accordance with the terms hereof, after removal from the Airframe.
Airframe Usage Report shall mean a monthly report furnished to Lessor by Lessee
in substantially the form attached hereto as Exhibit F showing the number of
Flight Hours of operation for the Aircraft during the preceding month.
Approved Insurance Broker shall mean any reputable aviation insurance broker of
internationally recognized responsibility and standing approved by Lessor in its
sole discretion.
Approved Insurer shall mean any reputable aviation underwriter of
internationally recognized responsibility and standing approved by Lessor in its
sole discretion.
Basic Rent Payment Date shall mean the 5th calendar day of each month during the
Term commencing with the date of the first occurring calendar day of the Term
but excluding the Final Basic Rent Payment Date.
<PAGE>
Beneficiary shall mean Triton Aviation Services V LLC, a California limited
liability company, and its successors and assigns.
Business Day shall mean any day other than a Saturday, Sunday or other day on
which banking institutions in San Francisco, California are authorized or
required by Law to be closed.
"C" Check shall mean a "C" check in accordance with the Maintenance Program.
"C7" Check shall mean the heaviest maintenance inspection, complete block
overhaul, including the twenty thousand (20,000) hour structural inspection
items. For purposes of this Lease, the "C7" Check shall be the equivalent of a
"D" check.
Casualty Occurrence shall mean any of the following events with respect to the
Aircraft, Airframe or any Engine: (a) the actual or constructive total loss of
such property (including any damage to such property which results in an
insurance settlement on the basis of a total loss, or requisition for use or
hire which results in an insurance settlement on the basis of a total loss); (b)
such property being destroyed, damaged beyond repair or permanently rendered
unfit for normal use for any reason whatsoever; (c) the requisition of title, or
other compulsory acquisition, capture, seizure, deprivation, confiscation or
detention for any reason of such property by any Governmental Entity or
purported Governmental Entity (whether de jure or de facto); or (d) the
hijacking, theft, condemnation, confiscation, seizure or requisition for use or
hire of such property which deprives any Person permitted by this Lease to have
possession and/or use of such property of such possession and/or use for more
than 30 days. A Casualty Occurrence with respect to the Aircraft shall be deemed
to have occurred if a Casualty Occurrence occurs with respect to the Airframe. A
Casualty Occurrence with respect to any Engine shall not, without loss of the
Airframe, be deemed a Casualty Occurrence with respect to the Aircraft.
Certificated Air Carrier means any Person (except the United States Government)
that is a citizen of the United States of America (as defined in Section 40102
of the Transportation Code) holding an air carrier operating certificate issued
pursuant to Chapter 447 of the Transportation Code for the operation of aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of cargo.
Component shall mean each time controlled, cycle controlled or calendar
controlled component of the Aircraft.
Default shall mean an Event of Default or event which would constitute an Event
of Default but for the lapse of time or the giving of notice or both.
Delivery Conditions shall mean the conditions in respect of the Aircraft set
forth on Exhibit E.
Delivery Date shall mean the date on which the Aircraft is delivered to and
accepted by Lessee for purposes of this Lease.
<PAGE>
Delivery Location: Dalfort Aerospace in Dallas, Texas.
Dollars shall mean lawful currency of the United States of America.
Engine shall mean each of the two (2) Pratt & Whitney model JT8D-15A engines
installed on or furnished with the Aircraft on the Delivery Date, bearing Engine
Manufacturer's serial numbers 717108 and 709092, respectively, and any
Replacement Engine which may from time to time be substituted therefor pursuant
to Section 10; together in each case with any and all Parts incorporated or
installed in or attached thereto or any and all Parts removed therefrom so long
as title thereto remains vested in Lessor in accordance with the terms hereof
after removal from such Engine. Except as otherwise set forth herein, at such
time as a Replacement Engine shall be so substituted, such replaced Engine shall
cease to be an Engine hereunder. The term "Engines" means, as of any date of
determination, all Engines then leased hereunder.
Engine Manufacturer: Pratt & Whitney.
Engine Overhaul shall mean a complete overhaul (hot section or cold section
refurbishment and life limited part replacement) of an Engine.
Estimated Delivery Date: April 15, 1999.
Event of Default shall have the meaning specified in any one or more clauses in
Section 13(a).
Excusable Delay shall mean any of the following causes: (a) act of God or the
public enemy, (b) fires, floods, explosions, earthquakes, strikes, epidemics or
quarantine restrictions, (c) inability of a maintenance facility to complete its
maintenance activities, or (d) any other cause to the extent it is beyond the
control of Lessor and not occasioned by its fault or negligence, but only for
such length of time as the delivery of the Aircraft is reasonably prevented by
such cause or causes.
Expenses means any claims, proceedings, losses, liabilities, damages (whether
direct, indirect, special, incidental or consequential), suits, judgments,
costs, expenses, fees, penalties or fines (whether civil or criminal) of every
nature and kind, including any of the foregoing arising or imposed with or
without Indemnitee's fault or negligence, whether passive or active or under the
doctrine of strict liability.
Expiration Date shall mean the fifth (5th) anniversary of the Delivery Date.
FAA shall mean the Federal Aviation Administration of the United States
Department of Transportation or any successor.
Final Basic Payment Date shall mean the last occurring 5th calendar day of the
Term.
<PAGE>
Flight Hours shall mean (i) in the case of the Airframe and landing gear, the
actual number of hours or fractions thereof that the Aircraft is in flight (from
takeoff to landing) as recorded in the Aircraft's log book, and (ii) in the case
of an Engine, the actual number of hours or fractions of thereof that such
Engine is in operation (from takeoff to landing of the Airframe on which such
Engine is installed) as recorded in the Aircraft's log book.
Governmental Entity shall mean and include (a) any national government, or
political subdivision thereof or local jurisdiction therein; (b) any board,
commission, department, division, organ, instrumentality, court, or agency of
any entity described in (a) above, however constituted; and (c) any association,
organization, or institution of which any entity described in (a) or (b) above
is a member or to whose jurisdiction any such entity is subject or in whose
activities any such entity is a participant but only (except for purposes of
defining Law below) to the extent that any of the preceding have jurisdiction
over the Aircraft or its operations.
Indemnitee shall mean Lessor, Beneficiary, each affiliate and Tax Affiliate of
Lessor and Beneficiary, each successor and assign of each of the foregoing and
each director, officer, employee and agent of each of the foregoing.
Law shall mean and include (a) any statute, decree, constitution, regulation,
order, judgment or other directive of any Governmental Entity; (b) any treaty,
pact, compact or other agreement to which any Governmental Entity is a signatory
or party; (c) any judicial or administrative interpretation or application of
any Law described in (a) or (b) above; and (d) any amendment or revision of any
Law described in (a), (b) or (c) above.
Lease shall mean this Lease, each Lease Supplement, and any and all amendments,
revisions, supplements and modifications thereto.
Lease Identification: "OWNED BY AND LEASED FROM FIRST SECURITY BANK, N.A., AS
OWNER TRUSTEE AT 79 SOUTH MAIN STREET, SALT LAKE CITY, UTAH 84111, U.S.A., AND
SUBJECT TO SECURITY INTEREST IN FAVOR OF NATIONSBANK, N.A., AS AGENT, AND ANY
SUCCESSOR AGENT, FOR ONE OR MORE FINANCIAL INSTITUTIONS."
Lease Supplement shall mean the Lease Supplement, substantially in the form of
Exhibit B hereto, entered into between Lessor and Lessee.
Lender shall mean NationsBank, N.A., as agent, and any successor agent, for one
or more financial institutions.
<PAGE>
Lessee's Address: Frontier Airlines, Inc.
- ----------------
12015 E. 46th Avenue, #200
Denver, Colorado 80239
Telephone: (303) 371-7400
Facsimile: (303) 371-7007
Attn: Director, Aircraft Mngmt
Lessor's Address: First Security Bank, N.A.
- ----------------
79 South Main Street
Salt Lake City, Utah 84111
Telephone: (801) 246-5819
Facsimile: (801) 246-5053
Attn: Corporate Trust Department
with a copy to: Triton Aviation Services V LLC
c/o Triton Aviation Services Ltd
55 Green Street, Suite 500
San Francisco, CA 94111
Telephone: (415) 956-6311
Facsimile: (415) 398-9184
Attn: Mr. John E. Flynn
Lessor's Liens shall mean Liens arising as a result of (a) claims against Lessor
not related to the transactions contemplated by this Lease; or (b) acts of
Lessor, not contemplated and expressly permitted under this Lease; or (c) Taxes
imposed against Lessor which are not indemnified against by Lessee pursuant to
Section 9(b); or (d) claims against Lessor arising out of the voluntary transfer
by Lessor of all or any part of its interests in the Aircraft or this Lease,
other than a transfer pursuant to Sections 10 or 13(b) of this Lease.
Lien shall mean any mortgage, pledge, lien, charge, encumbrance, lease, exercise
of rights, security interest, claim or right of detention or sale.
Maintenance Program shall mean Lessee's FAA approved maintenance program as in
effect from time to time for the Aircraft.
Manufacturer: The Boeing Company.
<PAGE>
Parts shall mean all appliances, components, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature (other than
complete Engines or engines), which may now or from time to time be incorporated
or installed in or attached to the Airframe or any Engine. Except as otherwise
set forth herein, at such time as a replacement part shall be substituted for a
Part in accordance with Section 10 hereof, the Part so replaced shall cease to
be a Part hereunder.
Payment Location: Bank of America Illinois, 231 South La Salle Street, Chicago,
Illinois 60697, for the account of Triton Aviation Services V LLC, Account No.
79-51523, ABA 071-000039.
Permitted Liens shall mean Liens which are permitted by Section 8(c) hereof.
Person shall mean and include any individual person, corporation, limited
liability company, partnership, trust, estate, unincorporated organization,
association or Governmental Entity.
Rent shall mean the Initial Rent Payment Amount, Basic Rent, the Final Basic
Rent and Supplemental Rent collectively.
Replacement Engine shall mean an engine of the same Engine Manufacturer and
model, and having equivalent value, utility, modification and remaining warranty
status as the Engine it is intended to replace under Section 10(b) hereof, or,
at Lessee's option, an engine of the same Engine Manufacturer as such Engine but
of an improved model, and otherwise of an equivalent value and utility and
suitable for installation and use on the Airframe without impairing the value or
utility of the Airframe.
Return Location: such location as may be agreed to between Lessor and Lessee.
Return Occasion shall mean the event that occurs when possession of the Aircraft
is returned from Lessee to Lessor at the end of the Term of this Lease or upon
Lessor taking possession pursuant to Section 13(b).
Security Deposit has the meaning ascribed thereto in Section 15(j).
Supplemental Rent shall mean any and all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay hereunder to
Lessor, including without limitation, (a) any payment of Casualty Value; (b) any
payment of indemnity required by Section 9 hereof; (c) any payment of reserves
pursuant to Section 4(b) hereof; and (d) to the extent permitted by applicable
Law, interest accruing daily at the Interest Rate (all computations of interest
under this Lease to be made on the basis of a 365-day year for the actual number
of days elapsed, compounded monthly) calculated: (i) on any part of any
installment of Basic Rent not paid on the due date thereof for the period the
same remains unpaid and (ii) on any Supplemental Rent not paid when due
hereunder until the same is paid.
<PAGE>
Tax Affiliate shall mean (a) in the case of the entity that is the Beneficiary
on the Delivery Date and in the case of any successor or direct or indirect
transferee thereof that is (or is treated as) a partnership for the United
States Federal income tax purposes, each general partner, limited partner or
member (as the case may be) of the Beneficiary and (b) in the case of any such
general partner, limited partner or member which itself is (or is treated as) a
partnership for United States Federal income tax purposes, each general partner,
limited partner or member thereof (as the case may be).
Taxes shall mean any and all present and future taxes, levies, assessments,
duties, imposts, fees, withholdings and other government charges or of any
nature, together with any penalties, additions to tax, fines, charges and/or
interest thereon or computed by reference thereto.
Term shall mean the term of this Lease specified in the Lease Supplement,
commencing on the Delivery Date and ending on the Expiration Date.
Transportation Code means Title 49 of the United States Code.
<PAGE>
Part II -- Certain Proprietary and Confidential Terms and Values.
AD Sharing Formula shall be as follows: P= C x (N-R)
N
Where "N" equals the Term in months; "R" represents the
remainder of the Term in months after completion of the
modification/termination action; "C" equals the cost of the
modification/termination action in excess of * and "P" equals
the Lessor's share of any cost.
Airframe Reserve Rate: * Airframe Flight Hour.
Basic Rent Payment Amount: * per month in advance.
Casualty Value: *
Deductible Amount: *
Engine Reserve Rate: * per Engine, per Engine Flight Hour.
Final Basic Rent Payment Amount: The Dollar amount obtained by multiplying the
Per Diem Rent Rate by the number of days from and including the Final Basic Rent
Payment Date to and including the Expiration Date.
Further Additional Amount: * payable in cash but as may be exchanged by Lesse
at any time prior to the day immediately preceding the Delivery Date for a
letter of credit of equal amount issued from a financial institution acceptable
to Beneficiary.
Initial Amount: * paid in cash, receipt of which is hereby acknowledged by
Lessor, but as may be exchanged by Lessee at any time prior to the day
immediately preceding the Delivery Date for a letter of credit of equal amount
issued from a financial institution acceptable to Beneficiary.
Initial Basic Rent Payment Amount: The Dollar amount obtained by multiplying the
Per Diem Rent Rate by the number of days from Delivery Date to the first Basic
Rent Payment Date.
Interest Rate: Citibank, N.A.'s prime rate plus 3% per annum, but not to exceed
the maximum amount permitted by Law.
<PAGE>
Landing Gear Reserve Rate: * per Airframe Flight Hour.
Per Diem Rent Rate: *
Public Liability and Property Damage Insurance: *
<PAGE>
EXHIBIT B
to
Aircraft Lease Agreement
LEASE SUPPLEMENT NO. 1
LEASE SUPPLEMENT NO. 1, dated , 1999, between FIRST SECURITY BANK, N.A.,
not in its individual capacity but solely as Owner Trustee ("Lessor"), and
FRONTIER AIRLINES, INC., a Colorado corporation ("Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of February 26, 1999 (herein called the "Lease" and the
defined terms therein being hereinafter used with the same meaning). The Lease
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 Lease as and when delivered by Lessor to Lessee in
accordance with the terms thereof.
The Lease relates to the Aircraft, Parts and Engines as more precisely
described below. A counterpart of the Lease is attached hereto and this Lease
Supplement and the Lease shall form one document.
In consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease and Lessee
hereby accepts and leases from Lessor under the Lease, that certain Boeing model
737-200A commercial jet aircraft, comprised of the Airframe having
Manufacturer's serial number 23007 and the two Pratt & Whitney JT8D-15A Engines
having Engine Manufacturer's serial numbers 717108 and 709092, respectively
(collectively, the "Delivered Aircraft").
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Term for the Delivered Aircraft shall commence on the Delivery Date
and shall end on the Expiration Date, which shall be , 2004. The Initial Basic
Rent Payment Amount is due and payable on the date hereof and the Final Basic
Rent Payment Date shall be _________________ 5, 2004.
<PAGE>
4. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and
each Engine installed thereon or belonging thereto have been duly marked in
accordance with the terms of Section 6(e) of the Lease, (ii) Lessee has accepted
the Delivered Aircraft for all purposes hereof and of the Lease, and (iii)
Lessee has inspected the Delivered Aircraft and the Delivered Aircraft satisfies
the conditions set forth in the Lease.
5. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement to the same extent as if fully set forth
herein.
6. This Lease Supplement may be executed in any number of counterparts,
each of such counterparts, except as provided in Section 15(e) of the Lease,
shall for all purposes be deemed to be an original; and all such counterparts
shall together constitute but one and the same Lease Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No. 1 to be duly executed as of the day and year first above written.
LESSOR,
FIRST SECURITY BANK, N.A.
not in its individual capacity
but solely as owner trustee
By:_______________________________
Name:_____________________________
Its:______________________________
LESSEE,
FRONTIER AIRLINES, INC.
By:_______________________________
Name:_____________________________
Its:______________________________
CERTAIN PROCEEDS OF THIS LEASE ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF
NATIONSBANK, N.A., AS AGENT, AND ANY SUCCESSOR AGENT, FOR ONE OR MORE FINANCIAL
INSTITUTIONS
<PAGE>
EXHIBIT C
to
Aircraft Lease Agreement
RETURN CONDITION REQUIREMENTS
A. Certificate of Airworthiness Matters.
Upon the Return Occasion, the Aircraft shall possess a valid FAA
Certificate of Airworthiness and meet the requirements for U.S. domestic
operation under FAR Part 121, without restriction (including, without
limitation, compliance with Stage III requirements).
B. General Condition of Aircraft At Return.
(1) All Aircraft documentation will have been maintained in
English and in accordance with the rules and regulations of the FAA.
(2) The Aircraft shall be in working order, with all pilot
discrepancies and deferred maintenance items cleared.
(3) The Aircraft interior will be clean by scheduled commercial
airline standards and shall otherwise be returned in the same condition as at
the Delivery Date. The cockpit shall be "touched up" in accordance with standard
international airline practice and placards replaced as required.
(4) The Aircraft will be airworthy and all airworthiness
directives requiring compliance prior to return and for a period of one hundred
eighty (180) days thereafter will have been performed on the Aircraft prior to
the Expiration Date.
(5) The Aircraft will be in full compliance with the
Manufacturer's Corrosion Prevention and Control Program ("CPCP") specified for
the model type by the Manufacturer.
C. Checks Prior to Return. Immediately prior to the return of the Aircraft to
Lessor, Lessee at its expense will:
(1) At the option of Lessor, either (i) perform at an FAA-approved
repair station, the next due full and complete zonal, systems and structural
check ("C" or its equivalent) in accordance with the Maintenance Program,
sufficient to clear the Aircraft for operation until the next scheduled full and
complete zonal, systems and structural check under the Maintenance Program, or
(ii) pay Lessor an amount in Dollars representing the average of two (2) bids
given for the cost of conducting such check(s) from two (2) independent FAA
repair stations.
<PAGE>
(2) Remove Lessee's exterior markings, including all exterior
paint, by stripping (or, at Lessor's option, pneumatically scuff/sanding) the
paint from the Airframe and properly strip, clean, reseal, refinish, prepare
(including application of alodine or another corrosion inhibitor) and prime the
surfaces to be painted, all in accordance with the Manufacturer's and paint
manufacturer's recommendations. Lessee will then repaint the Airframe white.
Such painting will be accomplished in such a manner as to result in a uniformly
smooth and cosmetically acceptable aerodynamic surface. As an alternative to
repainting the Airframe white as required hereunder, Lessee may instead elect to
pay an amount equal to the cost of such repainting. All external placards, signs
and markings will be properly attached, free from damage, clean and legible.
(3) Clean the exterior and interior of the Aircraft.
(4) Perform full and complete hot section and cold section video
borescope on each Engine and its modules in accordance with the Engine
Manufacturer's maintenance manual, with Lessor or its representatives entitled
to be present. Lessee will provide evidence (photographic or video) to Lessor's
satisfaction that such inspection does not reveal any condition which would
cause the Engine or any module to be unserviceable. Lessee will, at its expense,
correct any discrepancies which may be discovered during such inspection in
accordance with the guidelines set out by the Engine Manufacturer. No Engine
will be on watch for any reason.
(5) If the Engine historical and technical records and/or
condition trend monitoring data, of any Engine (including the auxiliary power
unit), indicate an acceleration in the rate of deterioration in the performance
of an Engine or an increase in oil consumption, Lessee will correct, to Lessor's
satisfaction, such conditions which are determined to have exceeded Engine
Manufacturer's maintenance manual tolerances or otherwise be causing such
accelerated rate of deterioration.
(6) In accordance with Manufacturer's maintenance manual,
accomplish a maximum power assurance run on the Engines and accomplish
condition, acceleration and bleed valve scheduling checks on the Engines. Lessee
will record and evaluate the Engine performance with Lessor and/or its
representative entitled to be present. The performance and all operating
parameters of each Engine will be within the limits specified in the
Manufacturer's maintenance manual so as to ensure that the Engine can be
operated on-wing for a period of at least as great a duration as that shown with
respect to such Engine on the Delivery Status Certificate as of the Delivery
Date, regardless of the operating environment of the Engine.
(7) In the event the Engine historical and technical records,
borescope inspection, trend monitoring and other checks specified in paragraphs
(5), (6) and (7) above result in a dispute with respect to whether an Engine
meets the requirements of this Lease, Lessee and Lessor will consult with the
Engine Manufacturer and follow the Engine Manufacturer's recommendations
(including the accomplishment of an Engine test cell operational check) with
regard to determining if such Engine complies with the requirements of this
Lease and the manner in which any discrepancies from the requirements of this
Lease will be rectified.
<PAGE>
D. Part Lives. The condition of the Aircraft and installed systems will be as
follows:
(1) The Aircraft shall be returned with no more time since the
last "C7" Check including the 20,000 hour structural inspection items or the
equivalent heaviest maintenance inspection (complete block overhaul) as provided
at the Delivery Date. Lessee may return the Aircraft with more time since last
"C7" Check provided Lessee pays Lessor the difference between the time since the
last "C7" Check upon delivery and the actual time since "C7" Check upon return,
times the Airframe Maintenance Reserve Amount. However, in no event shall the
Aircraft have less than one "C" Check interval remaining until the next "C7"
Check. Airframe Maintenance Reserves may be used to offset this amount.
(2) Each Engine shall be returned with the same time remaining or
more time remaining until the next restriction as at the Delivery Date. Each
Engine shall have no more time since last heavy shop visit, last hot section
refurbishment and last cold section refurbishment as at the Delivery Date.
Engine disk sheets shall be used for reference.
(3) Each landing gear will be serviceable. Each landing gear shall
be returned with the same amount of time remaining or more time remaining until
the next restriction as at the Delivery Date. Lessee may return a landing gear
with less time remaining until the next restriction provided Lessee pays Lessor
the difference between the time remaining until the next restriction upon
delivery and the time remaining until the next restriction upon return times the
Landing Gear Reserve Rate. Landing Gear Reserves may be used to offset this
amount. However, in no event shall any single landing gear have less than one
(1) "C" Check interval remaining.
(4) Each APU will be returned in serviceable condition and shall
pass borescope.
(5) Each Component (excluding the Engines but including any
components thereon) will be returned in serviceable condition with at least
3,000 hours or cycles or twelve (12) months remaining, whichever is more
limiting.
<PAGE>
EXHIBIT D
to
Aircraft Lease Agreement
CERTIFICATE AS TO STATUS OF AIRCRAFT
FIRST SECURITY BANK, N.A., not in its individual capacity, but
solely as owner trustee ("Lessor"), and FRONTIER AIRLINES, INC., a Colorado
corporation ("Lessee"), hereby certify as follows:
1. Lessor and Lessee are parties to that certain Aircraft Lease
Agreement dated February 26, 1999 (the "Lease"), with respect to the Boeing
737-200A commercial jet aircraft bearing manufacturer's serial number 23007 and
current Federal Aviation Administration registration number N237TR. Capitalized
term not otherwise defined herein shall have the meanings assigned to them in
the Lease.
2. Lessor and Lessee acknowledge and agree that the status of the
Airframe and the Engines on the Delivery Date are as set forth in Schedule 1
hereto, that the Aircraft, together with the Aircraft Documents described on
Schedule 2 hereto, are delivered by Lessor to Lessee in accordance with the
Lease on the date of this Certificate and that the Aircraft and Aircraft
Documents have been technically accepted by Lessee in accordance with the
provisions of the Lease.
INWITNESS WHEREOF, Lessor and Lessee have caused this Certificate
to be duly executed as of this day of , 1999.
LESSOR,
FIRST SECURITY BANK, N.A.,
not in its individual capacity
but solely as owner trustee
By:__________________________
Name:________________________
Its:___________________________
LESSEE,
FRONTIER AIRLINES, INC.
By:___________________________
Name:_________________________
Its:____________________________
<PAGE>
SCHEDULE 1
TO
CERTIFICATE AS TO STATUS OF AIRCRAFT
Aircraft Status
on The Delivery Date
Airframe Heaviest Check ("C7" Check or Equivalent):
Interval: _____ Hrs. (____ months)
Time Remaining: _________ Hrs.
Airframe "C" Check (or Equivalent):
Interval: ______ Hrs.
Time Remaining: ______ Hrs.
Landing Gear Overhaul:
Interval:
______ cycles Left Gear
______ cycles Right Gear
______ cycles Nose Gear
______ cycles Center Gear
Time Remaining:
_____ cycles Left Gear
_____ cycles Right Gear
_____ cycles Nose Gear
_____ cycles Center Gear
<PAGE>
Engines Time Remaining to First Restriction:
See attached engine disk sheets attached as Schedule 3 for Engines
delivered on the Delivery Date.
APU TT TC TSO
SN P_____ _____ hr _____ cy ____ hrs
CSO Limiter
Fuel on Board at Delivery:
_____ Gal. U.S.
<PAGE>
SCHEDULE 2
TO
CERTIFICATE AS TO STATUS OF AIRCRAFT
AIRCRAFT DOCUMENTS (Estimated)
A. CERTIFICATES
o FAA Certificate of Airworthiness
B. AIRCRAFT STATUS RECORDS
o Log Books
o Airframe Maintenance Status Report
o Supplemental Structural Inspection Document Status
(if applicable)
o Manufacturer's Service Bulletin Status Report
o Airworthiness Directive Compliance Report
(terminated and repetitive)
o Modification Status Report List
(documents will be provided upon request)
o Last Weighing Report
o List of Life Limited Components with remaining
hours/cycles
C. AIRCRAFT MAINTENANCE RECORDS (last heavy maintenance visits)
o Test Flight Reports
o X-ray pictures
o Last annual check and heaviest maintenance check Work Cards
D. AIRCRAFT HISTORY RECORDS
o Aircraft Maintenance History Cards
o Service Difficulty Report
o Accident or Incident Report (Major Structural Repair)
<PAGE>
E. ENGINE RECORDS (for each engine)
o Engine time and cycle records
o Last overhaul and repair documents
(including FAA Forms 337)
o Airworthiness Directive Compliance Report
(terminated and repetitive)
o Manufacturer's Service Bulletin Status Report
o List of Time Controlled Components with remaining
hours and cycles
o Modification Status Report
o Engine Disc Sheets
o Engine Build Specifications
F. APU RECORDS
o Last Overhaul and Repair Documents
(including modification status)
o Airworthiness Directive Compliance Report
(terminated and repetitive)
o Manufacturer's Service Bulletin Status Report
o List of Time Controlled Components with remaining
hours/cycles
o Modification Status Report
G. COMPONENT RECORDS
o Time Controlled Component Historical Records with Installation
and Serviceability Tags
H. MANUALS
o Airplane Flight Manual
(Manufacturer Approved, FAA Approved)
o Flight Crew Operating Manual
o Weight and Balance Manual
o Wiring Diagram Manual
(microfilm and hard copy if available)
o Illustrated Parts Catalog (microfilm)
o Aircraft Maintenance Manual (microfilm)
o Manufacturer's Engine Maintenance Manual and any
approved engineering changes, as applicable
<PAGE>
I. MISCELLANEOUS TECHNICAL DOCUMENTS
o Maintenance Program Specifications
o Interior Configuration Drawings
o Original Delivery Documents
o Loose Equipment Inventory
<PAGE>
SCHEDULE 3
TO
CERTIFICATE AS TO STATUS OF AIRCRAFT
<PAGE>
EXHIBIT E
to
Aircraft Lease Agreement
DELIVERY CONDITION REQUIREMENTS
On the Delivery Date, the Aircraft shall be delivered in "as
is" condition; provided, however, the Aircraft shall meet the following
conditions:
(1) The Aircraft shall be in compliance with the requirements for domestic
operation in the United States, will meet the requirements of FAA Part 121,
shall have a current and valid FAA Certificate of Airworthiness, will have LGW
Stage III (Nordam hushkit) installed thereon, and will have flight data recorder
systems installed which conform to the requirements of FAR 121.344(b)(1) or
(b)(2), as applicable.
(2) The records required for Lessee to operate the Aircraft and bridge the
Aircraft onto Lessee's maintenance program will be in English.
(3) The Aircraft will be in working order with all pilot discrepancies and
deferred maintenance items cleared.
(4) The Aircraft will be airworthy and all AD's requiring compliance on the
Delivery Date and for a period of one hundred eighty (180) days thereafter, will
be accomplished. The Aircraft will be in full compliance with the CPCP program.
(5) The Aircraft shall be clean by scheduled commercial airline standards. The
interior will be delivered in a one hundred nineteen (119) seat standard class
passenger configuration with a minimum seat pitch of 31 inches. Lessor will
install galleys recommended by Lessee subject to timing and availability
thereof.
(6) The Aircraft shall have next scheduled "C" Check performed in accordance
with the Boeing MPD maintenance program. The Aircraft will be bridged onto the
Boeing MPD maintenance program.
(7) Each Engine shall be delivered in serviceable condition. Each Engine shall
have at least three thousand (3,000) hours or cycles (whichever is more
limiting) of life remaining as described on the engine disk sheets.
<PAGE>
(8) Each Engine shall have had a full and complete hot section and cold section
video borescope performed on such Engine and its modules in accordance with the
Engine Manufacturer's maintenance manual. Lessor will provide evidence
(photographic or video) to Lessee's satisfaction that such inspection does not
reveal any condition which would cause the Engine or any module to be
unserviceable. Lessor will, at its expense, correct any discrepancies which may
be discovered during such inspection in accordance with the guidelines set out
by the Engine Manufacturer. No Engine will be on watch for any reason.
(9) If the Engine historical and technical records and/or condition trend
monitoring data, of any Engine (including the auxiliary power unit), indicate an
acceleration in the rate of deterioration in the performance of an Engine or an
increase in oil consumption, Lessor will correct, to Lessee's satisfaction, such
conditions which are determined to have exceeded Engine Manufacturer's
maintenance manual tolerances or otherwise be causing such accelerated rate of
deterioration.
(10) In accordance with Manufacturer's maintenance manual, accomplish a maximum
power assurance run on the Engines and accomplish condition, acceleration and
bleed valve scheduling checks on the Engines. Lessor will record and evaluate
the Engine performance with Lessee and/or its representative entitled to be
present. The performance and all operating parameters of each Engine will be
within the limits specified in the Manufacturer's maintenance manual so as to
ensure that the Engine can be operated on-wing for a period of at least as great
a duration as that shown with respect to such Engine on the Delivery Status
Certificate as of the Delivery Date, regardless of the operating environment of
the Engine.
(11) In the event the Engine historical and technical records, borescope
inspection, trend monitoring and other checks specified in paragraphs (8), (9)
and (10) above result in a dispute with respect to whether an Engine meets the
requirements of this Lease, Lessee and Lessor will consult with the Engine
Manufacturer and follow the Engine Manufacturer's recommendations (including the
accomplishment of an Engine test cell operational check) with regard to
determining if such Engine complies with the requirements of this Lease and the
manner in which any discrepancies from the requirements of this Lease will be
rectified.
(12) Each landing gear shall have no less than three thousand (3,000) hours
remaining to the next scheduled overhaul and no landing gear component shall
have less than fifteen thousand (15,000) cycles remaining life.
(13) Each APU will be delivered in serviceable condition and shall pass
borescope inspection.
(14) Each Component (excluding the engines but including any components thereon)
will be delivered in serviceable condition with at least three thousand (3,000)
hours or cycles or twelve (12) months remaining, whichever is more limiting.
(15) The Aircraft shall be delivered painted in Lessee's livery.
<PAGE>
(16) Lessor will increase the MTOW to one hundred twenty thousand (120,000)
pounds and the MLW to one hundred seven thousand (107,000) pounds (the "Weight
Increases"). It is understood the Weight Increases are produced by Manufacturer
and may not be available on the Delivery Dates. Lessor will use best efforts to
obtain the Weight Increases (which were ordered by Lessee in November, 1998) in
a timely fashion.
<PAGE>
EXHIBIT F
to
AIRCRAFT LEASE AGREEMENT
AIRFRAME USAGE REPORT
dated __/__/__
in respect of the period from
__/__/__ to __/__/__
Number of Hours Operated Number of Cycles Operated
Airframe
Engine # 1
Serial Number:___________
Engine #2
Serial Number:___________
Landing Gear
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS.....................................................1
SECTION 2 LEASE AND CONDITIONS............................................1
SECTION 3 DELIVERY AND ACCEPTANCE; TERM ..................................2
SECTION 4 RENT AND RESERVES...............................................3
SECTION 5 REPRESENTATIONS AND WARRANTIES..................................4
SECTION 6 POSSESSION, USE AND MAINTENANCE.................................6
SECTION 7 INFORMATION AND INSPECTION .....................................9
SECTION 8 CERTAIN COVENANTS OF LESSEE ....................................9
SECTION 9 INDEMNIFICATION ...............................................10
SECTION 10 CASUALTY OCCURRENCES...........................................13
SECTION 11 INSURANCE......................................................15
SECTION 12 RETURN OF AIRCRAFT AND RECORDS.................................21
SECTION 13 DEFAULT AND REMEDIES...........................................22
SECTION 14 ALIENATION.....................................................23
SECTION 15 MISCELLANEOUS..................................................24
EXHIBIT A..................................................................A-1
EXHIBIT B..................................................................B-1
EXHIBIT C..................................................................C-1
EXHIBIT D..................................................................D-1
EXHIBIT E..................................................................E-1
EXHIBIT F..................................................................F-1
AIRCRAFT LEASE AGREEMENT
between
Indigo Aviation AB (publ)
as Lessor
and
Frontier Airlines, Inc
as Lessee
Dated as of 15 March 1999
Aircraft Make and Model: One Boeing 737-3L9
Aircraft Manufacturer's Serial Number: 26440
Aircraft Registration Mark: N310FL
Engines Make and Model: CFM56-3B2
Engines Serial Numbers: 726422 and 726492
To the extent, if any, that this Agreement constitutes chattel paper under the
Uniform Commercial Code in any jurisdiction, no security interest in this
Agreement may be created through the transfer and possession of any counterpart
other than the original counterpart of this Agreement, so identified by the
signature of Lender on the receipt set forth on the signature page of such
original counterpart.
Items marked with "*" have been omitted pursuant to a request for confidential
treatment.
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS................................................................2
1.1 Definitions............................................................2
1.2 Construction..........................................................12
2. REPRESENTATIONS AND WARRANTIES............................................14
2.1 Lessee's Representations and Warranties...............................14
2.2 Lessor's Representations and Warranties...............................17
2.3 Survival of Representations and Warranties............................18
3. CONDITIONS PRECEDENT......................................................18
3.1 Lessor's Conditions Precedent.........................................18
3.2 Waiver................................................................20
3.3 Lessee's Conditions Precedent.........................................20
3.4 Waiver................................................................22
4. DELIVERY CONDITION AND INSPECTION OF AIRCRAFT.............................22
4.1 Lessee Selection of Aircraft..........................................22
4.2 Condition at Delivery.................................................22
4.3 Lessee Inspection and Acceptance Flight...............................22
4.4 Delivery of Aircraft to Lessee........................................22
4.5 Lessee's Failure to take Delivery.....................................23
5. LEASE TERM................................................................23
5.1 Initial Lease Term and Base Lease Term................................23
5.2 Extension Lease Option................................................23
5.3 Expiry Date...........................................................23
5.4 Survival of Certain Lessee Obligations................................24
5.5 Risk..................................................................25
6. DELIVERY..................................................................25
6.1 Location and Time of Delivery.........................................25
6.2 Delay or Failure in Delivery..........................................25
7. RENT......................................................................27
7.1 Initial Rent Dates....................................................27
7.2 Amount of Initial Rent................................................27
7.3 Basic Rent Period.....................................................27
7.4 Time of Payment of Basic Rent.........................................27
7.5 Amount of Basic Rent..................................................27
7.6 Maintenance Reserves..................................................28
7.7 Supplemental Rent for Excess Cycles...................................28
8. SECURITY DEPOSIT..........................................................28
8.1 Security Deposit......................................................28
8.2 Letter of Credit......................................................28
8.3 Lessor's Rights.......................................................28
9. MAINTENANCE RESERVES......................................................29
9.1 Amount................................................................29
9.2 Payments..............................................................29
9.3 Adjustment............................................................29
9.4 Release of Maintenance Reserves.......................................30
9.5 Costs in Excess of Maintenance Reserves...............................31
9.6 Reimbursement after Expiry Date.......................................31
10. PAYMENTS.................................................................32
10.1 Account for Lessee Payments..........................................32
10.2 Default Interest.....................................................32
10.3 Absolute Obligations.................................................32
10.4 Application of Payments to Lessor....................................33
10.5 Currency Indemnity...................................................33
10.6 Set-off..............................................................34
10.7 Time for Payments....................................................34
11. LESSOR'S COVENANTS.......................................................34
11.1 Quiet Enjoyment......................................................34
11.2 Lessor Obligations Following Expiry Date.............................34
12. LESSEE'S COVENANTS.......................................................35
12.1 Duration.............................................................35
12.2 Information..........................................................35
12.3 Lessor Visits........................................................37
12.4 Periodic Estoppel Certificates.......................................37
12.5 Airport and Navigation Charges.......................................37
12.6 Operation of Aircraft................................................38
12.7 Areas of Operation...................................................38
12.8 Non-Prejudicial Action...............................................39
12.9 Non-Representation of Lessor.........................................39
12.10 Inspection..........................................................39
12.11 Registration........................................................41
12.12 Name Plates.........................................................41
12.13 Geneva Convention...................................................42
12.14 Merger and Shareholding.............................................42
12.15 Ownership...........................................................42
12.16 Maintenance of Principal Business Place.............................43
12.17 Maintenance of Flight Records.......................................43
13. POSSESSION...............................................................43
13.1 No Relinquishment of Possession......................................43
13.2 Copy of Sublease.....................................................46
13.3 Lessee Primarily Liable..............................................46
13.4 Recognition of Rights................................................47
14. SECURITY INTERESTS.......................................................47
14.1 Title................................................................47
14.2 No Security Interests................................................47
14.3 Base of Aircraft.....................................................47
14.4 Notice to Lessor.....................................................47
14.5 Procure Release......................................................48
15. MAINTENANCE AND REPAIR...................................................48
15.1 General Obligations..................................................48
15.2 Specific Obligations.................................................49
16. REPLACEMENT OF PARTS.....................................................50
16.1 Replacement of Parts.................................................51
16.2 Title to Replacement Parts...........................................51
16.3 Pooling of Parts.....................................................51
16.4 Alterations..........................................................52
16.5 Removal of Parts.....................................................53
16.6 Substitution of Engine...............................................53
16.7 Temporary Removal of Parts...........................................54
16.8 Parts Incapable of Transfer..........................................56
17. MANUFACTURER'S WARRANTIES................................................56
17.1 Authorization........................................................56
17.2 Proceeds.............................................................57
17.3 Agreements with Manufacturers........................................57
17.4 No Operation Contrary to Warranties..................................57
18. DISCLAIMERS..............................................................58
18.1 General..............................................................58
18.2 As Is, Where Is......................................................58
18.3 Waiver of Warranty of Description....................................59
18.4 Lessee Acknowledgement...............................................59
18.5 Lessee Waiver........................................................59
18.6 Lessee Examination of Aircraft.......................................59
18.7 No Lessor Liability for Losses.......................................60
18.8 Exclusion............................................................60
18.9 Waiver...............................................................60
18.10 No Waiver...........................................................61
18.11 Confirmation........................................................61
19. INDEMNITIES..............................................................61
19.1 General Indemnity....................................................61
19.2 Exception to General Indemnity.......................................62
19.3 Time of Payment......................................................62
19.4 Survival of General Indemnity........................................62
19.5 Notice to Lessee.....................................................62
20. TAXATION.................................................................63
20.1 Gross-up.............................................................63
20.2 Tax Indemnity........................................................63
20.3 Value Added Taxes....................................................65
20.4 Taxation of Indemnity Payments.......................................65
20.5 Benefit of Indemnities...............................................65
20.6 Lessor Indemnification...............................................65
20.7 Survival of Tax Indemnities..........................................66
20.8 Mitigation and Co-operation..........................................66
20.9 Furnishing Forms.....................................................66
21. INSURANCE................................................................66
21.1 Insurances...........................................................66
21.2 Reinsurance..........................................................68
21.3 Requirements.........................................................68
21.4 Insurance Covenants..................................................68
21.5 Renewal of Insurances................................................70
21.6 Failure to Insure....................................................70
21.7 Continuation of Insurances...........................................71
21.8 Application of Insurance Proceeds....................................71
21.9 Pursuit of Claims....................................................72
22. TOTAL LOSS AND REQUISITION...............................................72
22.1 Total Loss Prior to Delivery.........................................72
22.2 Total Loss After Delivery............................................72
22.3 Total Loss of Engines................................................73
22.4 Requisition..........................................................73
23. REDELIVERY...............................................................75
23.1 Redelivery of Aircraft...............................................75
23.2 Final Inspection.....................................................76
23.3 Discrepancies........................................................76
23.4 Non-compliance.......................................................76
23.5 Acknowledgement......................................................77
23.6 Storage etc..........................................................77
24. EVENTS OF DEFAULT........................................................77
24.1 Notice...............................................................77
24.2 Events...............................................................78
24.3 Lessor's Rights......................................................81
24.4 Default Payments.....................................................82
24.5 Cumulative Rights....................................................83
25. ASSIGNMENT AND TRANSFER..................................................83
25.1 By Lessee............................................................83
25.2 By Lessor............................................................83
25.3 Assignment to Lender.................................................84
25.4 Lessee Co-operation..................................................84
25.5 Lessor Includes Lessor's Assignee and Lender.........................84
26. MISCELLANEOUS PROVISIONS.................................................85
26.1 Rights Cumulative, Waivers...........................................85
26.2 Delegation...........................................................85
26.3 Expenses.............................................................85
26.4 Time of Essence......................................................86
26.5 Entire Agreement.....................................................86
26.6 Further Assurances...................................................86
26.7 Language.............................................................86
26.8 Variation............................................................86
26.9 Invalidity of any Provision..........................................86
26.10 Survival............................................................87
26.11 Reimbursement.......................................................87
26.12 Press Releases......................................................87
26.13 Power of Attorney...................................................87
26.14 Usury Laws..........................................................87
26.15 Confidentiality.....................................................88
26.16 Counterparts........................................................88
26.17 Bankruptcy..........................................................88
27. NOTICES..................................................................89
28. GOVERNING LAW AND JURISDICTION...........................................90
28.1 New York Law.........................................................90
28.2 Non-exclusive Jurisdiction in New York...............................90
28.3 Service of Process Agent.............................................90
28.4 Waiver...............................................................90
SCHEDULES
Schedule 1 Aircraft Specification 102
Annexure 1Aircraft Documents 104
Schedule 2 Certain Business Terms 107
Schedule 3 Insurance Requirements 110
Schedule 4 Delivery Conditions 115
Schedule 5 Acceptance Certificate 123
Schedule 6 Officer's Certificate 126
Schedule 7 Letter of Authority 128
Schedule 8 Power of Attorney 129
Schedule 9 Opinion of Lessee Counsel 130
Schedule 10 Monthly Aircraft Utilisation and Status Report 135
Schedule 11 Letter of Quiet Enjoyment 137
Schedule 12 Return Conditions 138
Schedule 13 Return Acceptance Certificate 145
Annexure 1Aircraft Documents 148
Annexure 2Discrepancies 151
Schedule 14 Lease Supplement 152
<PAGE>
THIS AGREEMENT is made as of 15 March 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, ("Lessor"); 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 ("Lessee").
WHEREAS
Owner Trustee holds title to the Aircraft for the benefit of Lessor;
Owner Trustee, as headlessor, leases the Aircraft to Lessor under the terms of
the Headlease Agreement;
In consideration of and subject to the mutual covenants, terms and conditions
contained in this Agreement, Lessor hereby agrees to lease to Lessee and Lessee
hereby agrees to lease from Lessor the Aircraft for the Lease Term and the
parties further agrees as follows:
<PAGE>
1. DEFINITIONS
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 Schedule 1 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 an airport used for the movement of aircraft);
Airport Charges means all charges incurred in connection with the landing,
parking or taking-off of aircraft at airports or for the use of, or for services
provided at, airports;
Airworthiness Directive means an airworthiness directive or other mandatory
requirement issued by the FAA or any other Aviation Authority or Government
Entity;
APU means the auxiliary power unit installed on the Aircraft on the Delivery
Date and any replacement auxiliary power unit installed in accordance with this
Agreement, title to which is transferred to Owner Trustee;
Assignment of Insurances means the assignment by Lessee to Lessor, or at the
request of Lessor, to Lender, of all of Lessee's rights, title and interest in
and to the Insurances with respect to the Aircraft (other than the Insurances
relating to liability) or any other form of Security Interest in favour of
Lessor, Owner Trustee or Lender in and to the Insurances with respect to the
Aircraft;
Aviation Authority means all and any of the authorities, government departments,
committees or agencies which under the laws of the State of Registration shall
from time to time:
(a) have control or supervision of civil aviation in that state; or
(b) have jurisdiction over the registration, airworthiness or operation
of, or other matters relating to, the Aircraft;
Base Lease Expire Date means the date falling 65 months from the Initial Lease
Expiry Date.;
Base Lease Term means the period commencing on the day following the Initial
Lease Term and ending on Base Lease Expiry Date.;
Basic Rent means all amounts payable pursuant to Clause 7.5;
Basic Rent Period means each period ascertained in accordance with Clause 7.3;
Business Day means any day (other than a Saturday or Sunday or holidays
scheduled by law) on which banks are open for foreign exchange business in
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 items (a complete "block" 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, 3% percent 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 Lessor to Lessee pursuant to Clause 6
Delivery Date means the date on which Delivery occurs;
Delivery Location means Munich, Germany or such other location as the parties
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 Lessor elects to tender to Lessee, whether or
not installed on the Airframe on the 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 Lessee 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 24.2;
Expiry Date means the date determined in accordance with Clause 5.3;
Extension Lease Expiry Date has the meaning ascribed to it in Schedule 2;
Extension Lease Option means the option set out in Clause 5.2;
Extension Lease Term means the period commencing on the day following the Base
Lease Expiry Date and ending on the Extension Lease Expiry Date;
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;
Headlease Agreement means the aircraft headlease agreement entered into between
Owner Trustee and Lessor dated as of even date hereof and which is being filed
with FAA simultaneously herewith;
Indemnitees means Lessor, Owner Trustee, Lender or any other person identified
by Lessor to have an interest in the Transaction Documents and their respective
successors and assigns, shareholders, subsidiaries, affiliates, partners,
contractors, directors, officers, servants, agents and employees;
Initial Lease Term means the period commencing on the Delivery Date and ending
on the Initial Lease Expiry Date;
Initial Lease Expiry Date has the meaning ascribed to it in Schedule 2;
Initial Rent means all amounts payable pursuant to Clause 7.2 ;
Initial Rent Dates means the dates pursuant to Clause 7.1;
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;
Lease Term means the Initial Lease Term, the Base Lease Term and, upon exercise
of the Lease Extension Option, the Extension Lease Term;
Lender means any person or persons notified by Lessor to Lessee as providing
financing to Owner Trustee or Lessor 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);
Lessor Lien means:
(a) any Security Interest from time to time created by or through
Lessor 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 Lessor not related to the
transactions contemplated by or permitted under this Agreement;
(c) any Security Interest in respect of the Aircraft for Lessor 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 Lessor that constitutes a breach by Lessor of this Agreement;
or
(f) any Security Interest that results from any indebtedness,
liability or other obligation arising by, through or under Lessor
or any of the Indemnitees and that is not indemnified against by
Lessee under this Agreement;
Lessor Taxes means Taxes:
(a) imposed as a result of activities of Lessor in the jurisdiction
imposing the liability unrelated to this Agreement or the
operation of the Aircraft by Lessee;
(b) imposed on the net income, profits or gains of Lessor (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 Delivery Date or any period
commencing after the Expiry Date;
Letter of Credit has the meaning ascribed to it in Clause 8.2;
LIBOR means the rate per annum which is the offered rate (if any) appearing on
page 3750 of the Telerate screen (or any replacement page) which displays
British Bankers Association Interest Settlement Rates for deposits in Dollars
equal, or as close as practicable, to the period for which such rate is to be
determined at 11:00 a.m. (London time) on the relevant date;
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 Lessor may, in its absolute descretion, from time to
time approve in writing;
Maintenance Program means Lessee's maintenance program as approved by the
Aviation Authority provided in compliance with the MPD or such other maintenance
program as Lessor may, in its absolute discretion, approve in writing;
Maintenance Reserves means all amounts payable pursuant to Clause 9.1;
Manufacturer means the Boeing Company, a Delaware Corporation with its principal
office in 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 Lessor (or any parent company,
subsidiary, associate or affiliate of Lessor) and Lessee (or any subsidiary,
associate or affiliate of Lessee);
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 Lessee
pursuant to this Agreement;
Permitted Air Carrier has the meaning ascribed to it in Clause13.1.1;
Permitted Lien means:
(a) any lien for Lessee 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 Lessee liens arising out of judgements or awards with respect
to which at the time (i) an appeal proceedings for review is being
contested diligently and in good faith and (ii) a stay of
execution shall have been secured (and remains in force);
(d) any Lessor Lien; and
(e) any Security Interest over the Aircraft created by Lessee with the
written consent of Lessor,
but only if (in the case of (a), (b) and (c)) (i) adequate resources are
available for the payment of those Taxes or obligations and (ii) such
proceedings, or the continued existence of the lien, do not involve any danger
(in the reasonable opinion of Lessor or Lender) of the sale, forfeiture or other
loss of the Aircraft or any interest therein;
Present Lessee means Maersk Air;
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 Lessor or such other location as Lessor and Lessee may agree;
Rent means Initial Rent or Basic Rent, as the case may be, and Supplemental
Rent;
Rent Date means the Initial Rent Dates and the day preceding each Basic Rent
Period;
Replacement Engine means an engine complying with Clause 16.6;
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;
Side Letter means the Side Letter No. 1 to this Agreement between Lessor and
Lessee (a copy of which has not been included in the FAA counterpart of this
Agreement);
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;
Supplemental Rent means any and all amounts, liabilities and obligations (other
than Initial Rent and Basic Rent) which Lessee assumes, agrees or is otherwise
obligated to pay Lessor 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 Lessee and/or
operation thereof for a period of thirty (30) consecutive days or
longer;
(e) any sale of the Aircraft in connection with a Lessee bankruptcy
whether by an administrator, trustee or court;
(f) any other occurrence not permitted under this Agreement that
deprives Lessee 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 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 Lease Agreement;
(b) the Acceptance Certificate;
(c) the Assignment of Insurances;
(d) the acknowledgement by Lessee of the security assignment or the
pledge of, inter alia, this Agreement in favour of the Lender and
any documents duly executed pursuant to any of the foregoing by
Lessee or Lessor;
(e) the Lease Supplement; and
(f) 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) Lessor or Lessee include any assignee or successor in
title to the Lessor or the Lessee 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, judgement, legislation, order,
ordinance, regulation, statute, treaty or other
legislative measure in any jurisdiction or any present
or future directive, regulation, request or requirement
in each case, whether or not having the force of law
but, if not having the force of law, the compliance
with which is in accordance with the general practice
of persons to whom the directive, regulation, request
or requirement is addressed;
(x) month are references to a period starting on one day in
a calendar month and ending on the day preceding the
numerically corresponding day in the next calendar
month (and references to months shall be construed
accordingly).
(xi) any statute or other legislative provision or
regulation shall be read to include any statutory or
legislative or administrative modification or
re-enactment thereof, or any substitution therefor;
(xii) the words "including" or "include" are used herein
without limitation to mean by way of example;
(xiii) the words "Agreement", "hereof", "herein" and
"hereinafter" refer to this entire Agreement; and
(xiv) the word "or" is used inclusively to mean "and/or".
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 Lessee's Representations and Warranties
Lessee represents and warrants to Lessor as of execution of this
Agreement and each other Transaction Document, as of the Delivery
Date and as of each date on which Rent is paid hereunder each of
the following representations and warranties.
(i) Corporate Status: Lessee 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
Lessee 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: Lessee's Board of Directors has authorized
Lessee 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
Lessee and represent the valid, enforceable and binding
obligations of Lessee except as enforceability may be
limited by bankruptcy, insolvency, reorganization or
other laws of general application affecting the
enforcement of creditors' rights. When executed by
Lessee at Delivery, the same will apply to the
Acceptance Certificate.
(iv) No Breach: The execution and delivery of the
Transaction Documents, the consummation by Lessee of
the transactions contemplated herein and by the other
Transaction Documents and compliance by Lessee with the
terms and provisions hereof do not and will not
contravene any law applicable to Lessee, or result in
any breach of or constitute any default under or result
in the creation of any Security Interest upon any
property of Lessee, 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 Lessee
is a party or by which Lessee or its properties or
assets may be bound or affected. When executed by
Lessee at Delivery, the same will apply to the
Acceptance Certificate.
(v) Filings: Except for the filing or recording of this
Agreement with the FAA, 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, Lessor and Lender in the Aircraft or any
Transaction Document.
(vi) Licenses: Lessee 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 Lessee before
any court or administrative agency against or affecting
Lessee that, if adversely determined, would have a
material adverse effect on the financial condition or
business of Lessee 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, Lessee will
not be required to deduct any withholding or other Tax
from any payment it may make under this Agreement.
(ix) No restrictions on Payments: As of the date of
execution of this Agreement, there are under the laws
of the State of Incorporation no present restrictions
on Lessee to make the payments required by this
Agreement.
(x) General Obligations: The obligations of Lessee under
this Agreement are direct, general and unconditional
obligations of Lessee and rank or will rank at least
pari passu with all other present and future unsecured
and unsubordinated obligations (including contingent
obligations) of Lessee, with the exception of such
obligations as are mandatorily preferred by law.
(xi) Tax Returns: All necessary returns have been delivered
by Lessee to all relevant taxation authorities in the
State of Incorporation and Lessee is not in default in
the payment of any taxes due and payable.
(xii) No Material Adverse Effect: Lessee is not in default
under any agreement to which it is a party or by which
it may be bound 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 Lessee threatened against it or its
assets that would have a material adverse effect on the
business, assets or condition (financial or otherwise)
of Lessee.
(xiii) No Default under this Agreement: At the time of
execution of this Agreement, no Default has occurred
and is continuing.
(xiv) Financial Statements: The balance sheet and other
financial statements for Lessee for the financial year
which ended 31st of March 1998 were prepared in
accordance with accounting principles consistently
applied and generally accepted in the State of
Incorporation.
(xv) 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 Lessee or any of its assets.
(xvi) Continuation of Business: Lessee 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.
(xvii) No Immunity: In any proceedings taken in the State of
Incorporation in relation to the Transaction Documents
it would not be entitled to claim for itself or any of
its assets any immunity from suit, execution,
attachment or other legal process.
(xviii) Information: All information furnished by or on behalf
of the Lessee 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 Lessee have been disclosed to the Lessor.
(xix) 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 duly certified US
Air Carrier.
(xx) Principal Place of Business: Lessee's principal place
of business and chief executive office are located at
the address specified in the preamble of this
Agreement.
(xxi) Flight Records: Lessee's flight records are located at
Lessee's principal place of business on the address
stated in Clause 27.
(xxii) Year 2000 Compliance: Lessee 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 Lessee, or its suppliers,
customers and vendors, may be unable to recognise 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 Lessor's Representations and Warranties
Lessor represents and warrants to Lessee as of the Delivery Date
each of the following representations and warranties.
(i) Title to Aircraft: Lessor warrants that title to the
Aircraft will be vested in Owner Trustee and the
Aircraft shall be free and clear of any and all
Security Interest except for the Security Interests of
Owner Trustee and Lessor under the Headlease Agreement
and of Lender.
(ii) Organisational Status: Lessor is a company created and
validly existing under the laws of Sweden, and has the
organisational 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 even
date herwith, by and between Owner Trustee and Lessor
(the "Trust Agreement") has been duly authorized,
validly executed and delivered on the part of Lessor,
is legally binding upon Lessor, 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 Lessor 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 Lessor is a party have been duly
executed and delivered by Lessor and represent the
valid, enforceable and binding obligations of Lessor
except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other laws of general
application affecting the enforcement of creditors'
rights.
(vi) No Breach: The execution and delivery of the
Transaction Documents, the consummation by Lessor of
the transactions contemplated herein and compliance by
Lessor with the terms and provisions hereof do not and
will not contravene any law applicable to Lessor, or
result in any breach of or constitute any default under
or result in the creation of any Security Interest upon
any property of Lessor, 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 Lessor is a party or by which
Lessor or its properties or assets may be bound or
affected.
2.3 Survival of Representations and Warranties
All of the foregoing Lessee's and Lessor's representations and
warranties shall survive the execution and delivery of this
Agreement and the Delivery of the Aircraft.
3. CONDITIONS PRECEDENT
3.1 Lessor's Conditions Precedent
Lessor's obligation to deliver and lease the Aircraft to Lessee
under this Agreement is subject to satisfaction of each of the
following conditions.
3.1.1 Receipt by Lessor from Lessee on or prior to the Delivery Date of
the following, each in form and substance reasonably satisfactory
to Lessor:
(i) Officer's Certificate: A certificate of an officer of
Lessee 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
Lessee 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 Lessee for the financial year ended
March 31 1998;
(iv) Licences: Copies of Lessee's air transport license and
air operator's certificate 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
Lessor);
(vi) Insurances: Evidence that the Insurances are in place
together with an insurance broker's letter of
undertaking (in a form acceptable to Owner Trustee,
Lessor and Lender) addressed to Owner Trustee, Lessor
and Lender;
(vii) Opinions: Legal opinions from:
(a) Counsel to Lessee addressed to Owner Trustee,
Lessor and Lender substantially in the form
of Schedule 9 and otherwise in a form and
substance acceptable to Owner Trustee, Lessor
and Lender; and
(b) Special FAA counsel to Lessee addressed to
Owner Trustee, Lessor and Lender confirming
that this Agreement and other appropriate
documents have been filed with the FAA;
(viii) Security: Receipt by Lessor 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 Lessee to such
addressees as requested by Lessor;
(x) Power of Attorney: A power of attorney in the form of
Schedule 8 duly executed by Lessee; and
(xi) Others: Any other documents, approvals, consents,
certificates that Lessor or Lender may reasonably
require.
3.1.2 The representations and warranties of Lessee 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 Lessor's Conditions Precedent are for the sole benefit of
Lessor and may be waived or deferred by Lessor in whole or in part
and with or without conditions. If any of the Conditions Precedent
are not satisfied on the Delivery Date and Lessor (in its absolute
discretion) nonetheless agrees to deliver the Aircraft to Lessee,
Lessee shall ensure that such Conditions Precedent are fulfilled
within fifteen (15) days after the Delivery Date, and Lessor may
treat the failure of Lessee to do so as an Event of Default.
3.3 Lessee's Conditions Precedent
Lessee's obligation to accept and lease the Aircraft from Lessor
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 Lessee from Lessor on or prior to the Delivery Date
of the following, each in form and substance reasonably
satisfactory to Lessee:
(i) Evidence of Authority: Certified copies of evidence of
appropriate action approving the execution, delivery
and performance of the Transaction Documents by Lessor
and of the person or persons authorized to sign the
Transaction Documents on behalf of Lessor or any other
documents to be delivered to Lessee by Lessor;
(ii) Specimen signatures: A certificate of an officer of
Lessor setting out the names and signatures of the
persons authorized to sign on behalf of Lessor the
Transaction Documents and any documents to be delivered
by Lessor pursuant hereto contemporaneously herewith;
and
(iii) Transaction Documents: Originals of this Agreement and
the Side Letter (duly executed by Lessor).
3.3.3 The representations and warranties of Lessor under Clause 2.2 shall be
correct and would be correct if repeated on Delivery.
3.4
<PAGE>
Waiver
The Lessee's Conditions Precedent are for the sole benefit of
Lessee and may be waived or deferred by Lessee in whole or in part
and with or without conditions.
4. DELIVERY CONDITION AND INSPECTION OF AIRCRAFT
4.1 Lessee Selection of Aircraft
IN ADDITION TO THE DISCLAIMERS IN CLAUSE 18, LESSEE REPRESENTS AND
WARRANTS TO LESSOR THAT LESSEE HAS USED ITS OWN JUDGEMENT IN
SELECTING THE AIRCRAFT AND HAS DONE SO BASED ON ITS SIZE, DESIGN
AND TYPE. LESSEE ACKNOWLEDGES THAT LESSOR 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, Lessor has advised
Lessee 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 Lessee Inspection and Acceptance Flight
Lessor will arrange with Present Lessee for Lessee to perform such
ground inspection of the Aircraft prior to the Scheduled Delivery
Date as is reasonable. Lessor will procure that Lessee may have up
to two (2) observers on board the Aircraft during the redeliver
acceptance flight from the Present Lessee. Lessee acknowledges
that, as between it and Lessor, 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 Lessee
Subject to Lessee having complied with the conditions set out in
Clause 4.2, or the waiver thereof by Lessor, Lessor will deliver
the Aircraft to Lessee at the Delivery Location. Provided that the
Aircraft is in the condition required by Clause 4.2, upon the
tender of the Aircraft by Lessor to Lessee, Lessee will accept the
Aircraft and the date of tender by Lessor to Lessee will be deemed
to be the Delivery Date for all purposes under this Agreement,
including, but not limited to, the commencement of Lessee's
obligation to pay Rent hereunder. Lessee shall execute and deliver
the Acceptance Certificate to Lessor on the Delivery Date.
4.5 Lessee's Failure to take Delivery
If Lessee 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 Lessor in the condition required hereunder, Lessee
will indemnify Lessor for all costs and expenses, directly or
indirectly, incurred by Lessor as a result thereof.
5. LEASE TERM
5.1 Initial Lease Term and Base Lease Term
Lessor shall lease the Aircraft to Lessee and Lessee shall take
the Aircraft on lease in accordance with this Agreement for the
duration of the Initial Lease Term and the Base Lease Term and,
subject to Clause 5.2, the Extension Lease Term.
5.2 Extension Lease Option
So long as no Default has occurred and is continuing hereunder
both on the date of exercise of the option and from such date to
the commencement date of the Extension Lease Term, Lessee will
have the option (the Extension Lease Option) to extend the Base
Lease Term under this Agreement for the period of the Extension
Lease Term. In order to exercise such option, Lessee must give
written notice to Lessor not less than nine (9) months prior to
the Base Lease Expiry Date.
5.3 Expiry Date
The Expiry Date shall be the Base Lease Expiry Date or, if Lessee
has exercised the Lease Extension Option, the Extension Lease
Expiry Date subject to the following provisions:
(i) If Lessor, acting in accordance with Clause 3.2,
notifies Lessee that it is terminating this Agreement,
Lessee 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 Lessee has
complied with all its obligations hereunder;
(ii) If Lessor, upon an Event of Default, exercises its
rights in accordance with Clause 24.3 and terminates
the leasing of the Aircraft to Lessee under this
Agreement, Lessee 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
Lessee 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 Lessee has paid to Lessor the Agreed Value and
all other sums due from Lessee to Lessor 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 Lessor
shall have accepted redelivery of the Aircraft and
Lessee 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 Lessor
in accordance with that clause.
5.4 Survival of Certain Lessee Obligations
5.4.1 For the avoidance of doubt, in respect of Clauses 5.3 (i), (ii),
(v) and (vi) the obligations of Lessee 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 Lessor
of the Aircraft in the condition required under Clause 23.1, and
in respect of Clause 5.3 (iv) such obligations shall continue
until payment of the Total Loss Proceeds.
5.4.2 The obligations of Lessee set forth in Clauses 12.5, 12.17, 19, 20
and 21.7 and any other obligations of Lessee 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.
5.5 Risk
5.5.1 Throughout the Lease Term and until redelivery of the Aircraft in
the condition required under Clause 23.1, Lessee shall bear all
risks of loss, theft, damage, confiscation and destruction of or
to the Aircraft and every part thereof.
5.5.2 If the Aircraft is lost, stolen, confiscated, damaged, destroyed
or otherwise rendered unfit and unavailable for use, Lessor 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 Lessor, its employees or agents.
6. DELIVERY
6.1 Location and Time of Delivery
Lessor will deliver the Aircraft to Lessee at the Delivery
Location on or about the Scheduled Delivery Date, which is the
date when Present Lessee shall redeliver the Aircraft to Lessor.
Lessor will notify Lessee from time to time and in a as timely
manner as is possible of any changes to the Scheduled Delivery
Date.
6.2 Delay or Failure in Delivery
6.2.1 Lessee and Lessor expressly acknowledge that Delivery of the
Aircraft to Lessee is subject to and conditioned upon delivery of
the Aircraft by Present Lessee to Lessor. Lessor will not be
liable for any loss or expense, or any loss of profit, arising
from any delay or failure in Delivery to Lessee unless such delay
or failure arises as a direct consequence of the gross negligence
or wilful default of Lessor, and in no event will Lessor be liable
for any delay or failure that is caused by any failure, breach or
delay on the part of Present Lessee.
6.2.2 If a delay, not caused by Lessor's or Lessee'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 Lessor will repay to Lessee under this
Agreement any prepaid Rent the amount of Security Deposit, if
paid, and 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 Initial Rent Dates
Shall be the Initial Rent Dates (first and second) determined in
accordance with Schedule 2.
7.2 Amount of Initial Rent
The Initial Rent shall be the amounts set out as Initial Rent in
Schedule 2.
7.3 Basic Rent Period
The first Basic Rent Period shall commence on the day following
the Initial Lease Expiry Date and each subsequent Basic Rent
Period shall commence on the date succeeding the last day of the
previous Rent Period within the Base Lease Term (and Extension
Lease Term, if applicable). 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.
7.4 Time of Payment of Basic Rent
Lessee shall pay Basic Rent to Lessor or to its order in advance
on each Rent Date. Lessee shall initiate payment adequately in
advance of each Rent Date to ensure that Lessor 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.
7.5 Amount of Basic Rent
The Basic Rent payable on each Rent Date during the Base Lease
Term and the Extension Lease Term, if applicable, shall be the
amount set out as Basic Rent in Schedule 2.
7.6 Maintenance Reserves
Lessee will pay to Lessor Maintenance Reserves in accordance with
Clause 9 as Supplemental Rent, based on Lessee's use of the
Aircraft during the Lease Term.
7.7 Supplemental Rent for Excess Cycles
Lessee shall pay to Lessor Supplemental Rent based on Lessee's
operation of the Aircraft in the amount and at the times set forth
in Schedule 2.
8. SECURITY DEPOSIT
8.1 Security Deposit
Lessee shall pay to Lessor 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 Lessee of its obligations under
the Transaction Documents and the Other Agreements.
Upon Lessor'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 payable during the Initial
Lease Term and, if applicable, during the Base Lease Term.
8.2 Letter of Credit
Lessee shall provide Lessor with an additional Security Deposit in
the form of an irrevocable, assignable, standby letter of credit
in favour of Lessor in the amount and issued by a major US Bank
and in the form and substance acceptable by Lessor. The Letter of
Credit will serve as security for the performance by Lessee of its
obligations under the Transaction Documents and the Other
Agreements.
8.3 Lessor'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 Lessor elsewhere
in this Agreement or under applicable law in respect of the
Security Deposit or Letter of Credit, Lessor may immediately, or
at any time thereafter, without prior notice to Lessee, 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 Lessee
under the Transaction Documents or the Other Agreements, in such
order as Lessor 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 Lessor exercises the rights described in Clause 8.3.1, Lessee
shall, following a demand in writing from Lessor, 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 Lessee acknowledges that Lessor may commingle all or any part of
the Security Deposit with its general funds and that no interest
shall accrue in favour of Lessee in respect of the Security
Deposit.
8.3.4 Lessor'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
Lessee shall during the Lease Term pay Maintenance Reserves to
Lessor in the amount set forth in Schedule 2.
9.2 Payments
9.2.1 Lessee 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 Lessee acknowledges that Lessor may commingle all or any part of
the Maintenance Reserves with its general funds and that no
interest shall accrue in favour of Lessee in respect of the
Maintenance Reserves.
9.2.3 Lessor'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 Lessee 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
Lessor will reimburse Lessee from the actual Airframe Maintenance
Reserves, if paid by Lessee, 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
Lessor will reimburse Lessee from the actual Engine Maintenance
Reserves, if paid by Lessee, 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 resulting in
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
Lessor will reimburse Lessee from the actual Landing Gear
Maintenance Reserves, if paid by Lessee, 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
Lessor will reimburse Lessee from the actual APU Maintenance
Reserves, if paid by Lessee, 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, Lessee has no right to payment of any
amount from the Maintenance Reserves not paid in cash by Lessee
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 Lessor as its sole
property.
9.5 Costs in Excess of Maintenance Reserves
Lessee 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
Lessee may not submit any invoice for reimbursement from the
Maintenance Reserves after the Expiry Date unless on or prior to
such date Lessee has notified Lessor in writing that such
outstanding invoice will be submitted after the Expiry Date and
the anticipated amount of such invoice. So long as Lessee has
provided such notice to Lessor, Lessee may then submit such
outstanding invoice at any time within three (3) months after the
Expiry Date; provided, however, if Lessee contests any such
invoice and provides Lessor 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 Lessee Payments
All payments by Lessee to Lessor under this Agreement will be made
for value on the due date in dollars and in same day funds to:
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.'s account
ABA reference 021000238, account number 65830747 with
Morgan Guaranty Trust Company of New York
23 Wall Street
New York, New York
United States of America
Att. Mr Richard Polkerman, reference Corporate Finance
Reference Maersk-Indigo
or to such other account as Lessor may from time to time notify to
Lessee in writing.
10.2 Default Interest
If Lessee fails to pay any amount payable under this Agreement on
the due date, Lessee shall pay to Lessor 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 Lessee to Lessor, 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.
10.3 Absolute Obligations
This Agreement is a net lease and Lessee'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 Lessor or
Lessee 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 Lessee'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, reorganisation,
arrangement, readjustment of debt, dissolution,
liquidation or similar proceedings by or against Lessor
or Lessee 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
Lessee under this Agreement.
10.4 Application of Payments to Lessor
If any sum paid to Lessor or recovered by Lessor in respect of the
liabilities of Lessee under this Agreement is less than the amount
then due, Lessor may apply that sum to amounts due under this
Agreement in such proportions and order and generally in such
manner as Lessor may determine.
10.5 Currency Indemnity
If under any applicable law, whether as a result of judgement
against Lessee or the liquidation of Lessee 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"), Lessee 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 Lessor against the amount of the shortfall. For the
purposes of this sub-Clause "rate of exchange" means the rate at
which the Lessor is able on the relevant date to purchase the
contractual currency in London or any other place Lessor may
reasonably choose with the other currency.
10.6 Set-off
Lessor may set-off any matured obligation owed by Lessee under the
Transaction Documents or any Other Agreements against any
obligation, whether or not matured, owed by Lessor to Lessee.
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. Lessor's covenants
11.1 Quiet Enjoyment
Provided no Default has occurred and is continuing, Lessor shall
not, and no one claiming by or through the acts or omissions of
Lessor or Owner Trustee shall, interfere with the quiet use,
possession and enjoyment of the Aircraft by Lessee during the
Lease Term. Lessor 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 Lessee during the
Lease Term, provided no Default has occurred and is continuing.
11.2 Lessor Obligations Following Expiry Date
Within five (5) Business Days after:
(i) redelivery of the Aircraft to Lessor in accordance with
and in the condition required by this Agreement; or
(ii) payment received by Lessor of the Agreed Value
following a Total Loss after the Delivery Date; or in
each case such later time as Lessor is reasonably
satisfied that Lessee has irrevocably paid to Lessor
all amounts that may then be outstanding or become
payable under the Transaction Documents and the Other
Agreements, Lessor shall (provided that no Default has
occurred and is continuing):
(a) pay to Lessee an amount equal to the balance
of the Security Deposit, if any, paid by
Lessee under this Agreement and then held by
Lessor; and
(b) pay to Lessee 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 Lessor
and Lessee as to the amount due to Lessee,
Lessor shall nevertheless pay to Lessee such
amount as in Lessor's reasonable judgement is
not in dispute or is in excess of the amount
Lessor's claim is due; and
(c) return the Letter of Credit.
12. lessee's covenants
12.1 Duration
Lessee shall perform and comply with its undertakings and
covenants in this Agreement and the other Transaction Documents at
all times during the Lease Term. All such undertakings and
covenants shall, except where expressly otherwise stated, be
performed at the expense of Lessee.
12.2 Information
12.2.1 Lessee shall notify Lessor 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 Lessee shall furnish to Lessor:
(i) as soon as available, but not in any event later than
ninety (90) days after the last day of each financial
year of Lessee, its audited consolidated balance sheet
as of such day and its audited consolidated profit and
loss statement for the year ending on such day prepared
in accordance with generally accepted accounting
principles in the State of Incorporation;
(ii) as soon as available, but not in any event later than
forty-five (45) days after the last day of each quarter
of Lessee, its unaudited consolidated balance sheet as
of such day and its unaudited consolidated profit and
loss statement for the quarter ending on such day
prepared in accordance with generally accepted
accounting principles in the State of Incorporation;
(iii) such information as may reasonably be requested by
Lessor 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
Lessor concerning the location, condition, use and
operation of the Aircraft; and
(v) such other information and documents regarding Lessee's
business and financial condition as Lessor may from
time to time reasonably request.
12.2.3 Lessee shall promptly notify Lessor 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 Lessee'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
causes by, or in connection with, the Aircraft which is
expected to give rise to any loss or liability on the
part of the Lessor 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 Lessee might reasonably
be expected to involve the Lessor in any loss or
liability.
(vii) promptly notify Lessor in the event Lessee 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 Lessee 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 Lessor Visits
Lessor may visit, upon reasonable notice, Lessee's premises to
discuss Lessee's general affairs and finances with Lessee's
principal officers.
12.4 Periodic Estoppel Certificates
Lessee will, within ten (10) Business Days after receipt of
written notice from Lessor (which will not occur more often than
four (4) times in any calendar year), execute, acknowledge and
deliver to Lessor 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 Lessee's
knowledge, any uncured defaults on the part of Lessor
hereunder, or specifying such defaults if there are any
claimed by Lessee; and
(iii) acknowledging that Lessee has no claims against Lessor
by reason of the condition of the Aircraft as of the
Delivery Date or arising subsequent thereto to the date
of such statement.
If Lessee 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 Lessee.
12.5 Airport and Navigation Charges
12.5.1 Lessee 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 holdharmless Lessor in
respect of the same. This indemnity will continue in full force
and effect notwithstanding the termination or expiration of this
Agreement. Lessee 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 Lessor, Lessee will provide Lessor with a list of
the airports to which the Aircraft or Lessee's other aircraft are
regularly operated. Lessee hereby authorises any Aviation
Authority, any airport or any other creditor claiming rights on
the Aircraft or Lessee's other aircraft to confirm the status of
Lessee's payments to such creditor for the Aircraft and its other
aircraft, as and when requested by Lessor. To evidence this
authority, Lessee will at Lessor's request execute one or more
authorities substantially in the form of Schedule 7.
12.6 Operation of Aircraft
Lessee 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, Lessee 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 Lessee 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 Lessor or its interest in the
Aircraft. In particular, Lessee will ensure that the Aircraft at
all times during the Lease Term is operated by duly qualified
pilots and aircrew employees, and is not used to transport
contraband or illegal narcotics or hazardous or perilous cargo
(other than pursuant to applicable FAA and carrier regulations).
The Aircraft may be used or operated in flight crew conversion,
training for Lessee's own employees and for experimental flights;
provided, however, prior to any such flights Lessee shall notify
Lessor and shall deliver to Lessor evidence that insurance
coverage is in effect for such flights.
12.7 Areas of Operation
Lessee 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
Lessee shall not do anything that, or omit to do anything the
omission of which, prejudices any right Lessor 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.
12.9 Non-Representation of Lessor
Lessee shall not at any time represent Lessor, 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 Lessee or as having any operational interest
in or responsibility for the Aircraft.
12.10 Inspection
Lessor 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 Lessee
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 Lessee as an airline. Lessee agrees to reimburse
the out-of-pocket expenses of Lessor 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 Lessee shall in all cases pay or
reimburse Lessor for the costs of such inspection or survey if
Lessor is required by law or change of law to make an inspection
or survey. Lessor 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. Lessee shall provide Lessor with such
information regarding the present and anticipated location and
regarding the condition of the Aircraft as Lessor may reasonably
require. For the purposes mentioned in this Clause 12.10 and
subject to the limitations herein contained, Lessor and any
inspector may gain access to the Aircraft, including the Aircraft
Documents. Lessee 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
Lessor, Lessor may at the cost and expense of Lessee, itself
arrange for such repairs to be carried out. Lessee shall on demand
reimburse the costs and expenses incurred by Lessor in effecting
such repairs.
12.11 Registration
12.11.1 Lessee 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 Aviation Authority (to the extent that
the Aviation Authority permits registration in that manner) as
follows:
(i) Owner Trustee as owner;
(ii) the first priority security interest of Lender
(iii) Lessor's interest, by filing the Lease Supplement
according to Schedule 14;
(iv) Lessee as operator of the Aircraft and maintain or
provide the maintenance of such registration
throughout the Lease Term. Lessee 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.
Lessee will not take any action or omit to take any
action that will invalidate any such registration or
recordation. Lessee shall provide Lessor as soon as
available with evidence of such registration.
12.11.2 Lessee shall at its own expense provide that at all times during
the Lease 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.
12.12 Name Plates
On the Delivery Date or as soon thereafter as is reasonably
practicable, Lessee 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 Lessor stating the Aircraft type, manufacturer's
serial number and current registration letters of the Aircraft and
denoting the name of (i) Lessor as lessor (ii) Owner Trustee as
owner trustee and (iii) Lender as mortgagee. Except as above
provided Lessee 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 Lessee (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 colours and insignia on the Airframe.
12.13 Geneva Convention
Whenever the State of Registration is a signatory state that has
ratified the Geneva Convention, Lessee 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, Lessor and
Lender to the Aircraft by every other signatory state that has
ratified the Geneva Convention.
12.14 Merger and Shareholding
Lessee will not sell its business to or operate its business in
any other corporate form or entity (the new entity) unless (a)
such new entity is solvent and duly organised and existing under
the law of the State of Incorporation or any federal state
thereof, if applicable, and the new entity has executed and
delivered to Lessor an agreement in form and substance acceptable
to Lessor 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 Lessee and the
creditworthiness of such new entity does not, in Lessor'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. Lessee will
give Lessor 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 Lessor's
approval. Lessee shall reimburse Lessor within ten (10) days of
Lessor's invoice for all out-of-pocket expenses incurred by Lessor
as a result of such proposed merger whether or not Lessor approves
and whether or not it actually occurs.
12.15 Ownership
Title to the Aircraft will be and remain vested in Owner Trustee.
Lessee will have no right, title or interest in the Aircraft
except as provided for in this Agreement. Lessee 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
Lessee 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. Lessee shall hold and
preserve such records and files concerning the Transaction
Documents and shall permit representatives of Lessor at any time
during normal business hours to inspect and make abstracts from
such records and files. Lessee shall give Lessor at least thirty
(30) days prior written notice of any change in Lessee's principal
place of business and chief executive office, and shall co-operate
with Lessor in executing and delivering all such documents as
Lessor may reasonably request which are required or desirable as a
result of such change of principal place of business of Lessee.
12.17 Maintenance of Flight Records
Lessee 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, Lessor, Owner Trustee and Lender. Lessee shall give
Lessor 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
Lessee 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) Lessee continues to be fully
responsible to Lessor for all its obligations hereunder and (iii)
Lessee in advance, obtains written acknowledgement(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 Lessor, Lessee 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 Lessee in the ordinary course of its business with
a commercial air operator which is approved by Lessor in writing
and on terms and conditions that Lessor 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,
Lessee 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 organisation for service, repair, maintenance or Overhaul work
on the Airframe or such Engine or any part thereof or for
alterations or modifications in or additions to the Airframe or
such Engine to the extent required or permitted by the terms of
Clauses 16.4 and 16.5;
13.1.3 install an Engine on an airframe owned by Lessee and operated by
and under the operating control of flight crew engaged by Lessee
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 Lessee that is owned
by or leased or subleased to Lessee and/or subject to any security
agreement, provided that (i) such airframe is free and clear of
all Security Interests except the rights of the parties to any
security agreement covering such airframe and except Permitted
Liens and any Security Interests or rights of the type permitted
by sub-paragraphs (ii) and (iii) of Clause 13.1.3 and (ii) Lessee
shall have obtained from the sublessor or secured party, as
relevant, of such airframe a written agreement, which may be in
the sublease agreement or security agreement in respect of such
airframe, in form and substance satisfactory to Lessor (it being
understood that an agreement from such sublessor or secured party
to substantially the same effect as the agreement of Lessor set
forth in the final sentence of Clause 13.4 shall be deemed to be
satisfactory to Lessor), whereby such Lessor 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 Lessee, leased or
subleased to Lessee, or purchased by Lessee, 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 Lessee and in
such event Lessee 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 Lessee, 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 sublessee shall acknowledge that its
rights are subordinate to Lessor's rights under this
Agreement and the rights of Lender under any finance
document or security document entered into between
Owner Trustee or Lessor in relation to the Aircraft;
13.1.7 sublease the Aircraft or Airframe to any wholly-owned subsidiary
of Lessee on terms that the Aircraft or Airframe is not operated
by, and does not remain under the operational control of, flight
crew engaged by Lessee 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 sublessee and the proposed form of the
sublease is approved by Lessor and Lender in writing,
which approval will not be unreasonably withheld or
delayed provided all the following conditions set out
in this Clause 13.1.7 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 Lessor and/or Owner Trustee and/or
Lender and the sublessee shall acknowledge that its
rights are subordinate to Owner Trustee's, Lessor'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
sublessee is to maintain such insurances during the
term of such sublease, it shall have furnished to
Lessor all such documents, evidence and information
relating to such insurances which Lessee is required to
furnish or cause to be provided to Lessor under this
Agreement;
(v) if the Aviation Authority for the duration of the
sublease is to be other than the FAA, Lessor and Lender
approves the change of registration and Lessor receives
(x) an opinion of counsel in the State of Registration
in form and substance reasonably satisfactory to Lessor
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 Lessee under Clause 13.1.6 or Clause
13.1.7 Lessee shall provide Lessor with a copy of such executed
sublease.
13.3 Lessee Primarily Liable
Notwithstanding anything contained in Clause 13.1, Lessee 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 Lessee's obligations hereunder.
13.4 Recognition of Rights
If Lessee shall have obtained from the sublessor or secured party
of any engine subleased to Lessee or owned by Lessee subject to
any Security Interest, a written agreement complying with the
terms of sub-paragraph (ii) of Clause 13.1.4, Lessor hereby agrees
for the benefit of such sublessor or secured party that Lessor
shall not acquire or claim, as against such sublessor or secured
party, any right, title or interest in any such engine as a result
of such engine being installed on the Airframe at any time while
such engine is subject to such sublease or security agreement and
owned by such sublessor or subject to a Security Interest in
favour of such secured party and Lessor shall, at the request of
Lessee, confirm such agreement in writing for any such sublessor
or secured party.
14. Security Interests
14.1 Title
Lessee shall not do, or permit to be done, any act, which might
reasonably be expected to jeopardise the interest of Owner
Trustee, Lessor or Lender. Lessee 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
Lessee shall not create, incur or permit to subsist over the
Aircraft or any part thereof or over the Transaction Documents any
Security Interest other than Permitted Liens.
14.3 Base of Aircraft
Lessee 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 Lessor
Lessee shall notify Lessor:
(i) as and when it becomes aware of the same, of any
Security Interest (x) (excluding Permitted Liens)
arising over the Aircraft or any Engine or other major
part thereof or (y) (in the case of all Security
Interests including Permitted Liens) exercised over the
Aircraft or any Engine or other major part thereof or
(z) of any arrest or detention or purported or
attempted arrest or detention of the Aircraft; and
(ii) promptly on request of Lessor, 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
Lessee 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 Lessee shall, or procure that any sublessee will, at its own expense
at all times during the Lease 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 Lessor), 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 Lease 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 Lessee with respect to similar
aircraft and engines operated by Lessee 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 Lessor 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 Lessor with such approval not to be
unreasonably withheld.
15.2 Specific Obligations
Without limiting Clause 15.1, Lessee agrees that the performance
by Lessee or any 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 Lessee schedules to adopt within
the Lease 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 Lessee's fleet in
service bulletin compliance (including method of
compliance) or other maintenance matters. Lessee will
not discriminate against the Engines with respect to
overhaul build standards and life limited part
replacements;
(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 utilising
maintenance and quality control procedures approved by
the Aviation Authority and that the repair agency
provides a complete record of all work performed during
the course of such Overhaul and certifies that such
Overhaul was accomplished, that the equipment is
airworthy and released for return to service and that
the Overhaul was in conformity with the original type
design.
16. replacement of parts
16.1 Replacement of Parts
Lessee 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,
Lessee 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 Lessee
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 Lessee.
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 Lessee, 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 Lessee'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 Lessee, 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
Lessee 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, Lessee 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 Lessee may deem
desirable in the proper conduct of its business, including,
removal of Parts (for purposes of this Clause 16.4, Obsolete
Parts) which Lessee 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 Lessor
shall be required under any circumstances to pay directly for any
alteration, modification or addition to the Aircraft or to
reimburse Lessee for the cost thereof. Any other alterations other
than those permitted according to Clause 16.5 require Lessor'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, Lessee may remove, or permit the
removal of, at any time during the Lease Term, any Part, provided
that (a) such Part is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in
or attached to the Airframe or any Engine at the time of Delivery
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 Lessee, free and clear of all rights of Owner Trustee, Lender
and Lessor 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, Lessee shall have the
right at its option at any time, on at least thirty (30) days
prior written notice to Owner Trustee, Lender and Lessor, 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 Lessor, assuming that such Engine was in the
condition and repair required to be maintained by the terms of
this Agreement and Lessee shall deliver such documents including a
bill of sale and opinion of counsel as to title and recordation
with the FAA, as Lessor 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
Lessee free and clear of all rights of Owner Trustee,
Lender and Lessor, 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
Lessee shall be entitled, so long as no Default shall have
occurred which has not been remedied or waived to the reasonable
satisfaction of Lessor, 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 Lessee, 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 Lessee
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) Lessee shall have notified Lessor 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) Lessee 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 Lessor shall otherwise agree in writing, be kept and
maintained by the Lessee or any 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 Lessor on
the Expiry Date.
17. Manufacturer's warranties
17.1 Authorization
17.1.1 With effect from Delivery, Lessor authorises Lessee to exercise
such rights as Lessor 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 Lessee notifying Lessor in writing of any
warranty claim of a material nature and keeping Lessor
continuously informed of the development of such warranty claim.
To the extent that the same may not be available to Lessee,
Lessor agrees to, at the sole cost and expense of Lessee, enforce
such rights as Lessor may have with respect thereto for the
benefit of Lessee. Lessor shall also have the right, rather than
enforcing or making such claim on behalf of Lessee under such
warranties, to appoint Lessee as its agent for such purpose, and
in such instance, Lessee 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. Lessee
shall not be entitled to exercise its authorisation hereunder
while a Default is continuing (during which time all such rights
shall revert to Lessor and Lessor hereby agrees to exercise and
enforce such rights during such period).
17.1.2 Lessee shall give Lessor prompt written notice of any warranty
claim that is settled with Lessee 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 Lessor otherwise
consents in writing. Any cash payments to Lessee in respect of
warranty claims that (either with Lessor'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
Lessee for the costs incurred for any such repair or remedy, and
which are not in respect of compensation for loss of use of the
Aircraft, an Engine or Part during the Lease Term due to a defect
covered by such warranty, shall be for Lessor's account.
17.2 Proceeds
So long as no Default has occurred and is continuing, Lessor
agrees, subject to Clause 17.1, to co-operate with Lessee to cause
any proceeds from any warranty referred to in Clause 17.1 to be
paid directly to Lessee, and, if any such proceeds are nonetheless
paid to Lessor, Lessor agrees to remit promptly such proceeds to
Lessee. However, while a Default is continuing, Lessor may
immediately:
(i) retain for its own account any such proceeds previously
paid to Lessor which would have been remitted to Lessee
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
Lessor, rather than to Lessee.
Once the Default is cured, Lessor shall reimburse Lessee 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 Lessee, Lessee 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
Lease Term to ensure that the benefit of any of those
warranties that have not expired is vested in Lessor.
17.4 No Operation Contrary to Warranties
Lessee shall not operate the Aircraft contrary to the terms of any
warranty referred to in Clause 17.1.1, provided that Lessor has
advised Lessee of the terms of such warranties.
18. Disclaimers
18.1 General
LESSOR AND LESSEE AGREE THAT THE DISCLAIMERS, WAIVERS AND
CONFIRMATIONS SET FORTH IN CLAUSES 18.2 THROUGH 18.11 BELOW SHALL
APPLY AS BETWEEN LESSOR AND LESSEE AT ALL TIMES DURING THE LEASE
TERM WITH EFFECT FROM LESSEE'S ACCEPTANCE OF THE AIRCRAFT BY
EXECUTION OF THE ACCEPTANCE CERTIFICATE, WHICH SHALL BE CONCLUSIVE
EVIDENCE THAT LESSEE 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 LESSEE (SAVE
AS EXPRESSLY NOTED ON THE ACCEPTANCE CERTIFICATE) AND ARE IN
SUITABLE CONDITION FOR DELIVERY TO AND ACCEPTANCE BY LESSEE.
18.2 As Is, Where Is
PRIOR TO DELIVERY HEREUNDER, LESSEE HAD THE OPPORTUNITY TO INSPECT
THE AIRCRAFT, ACCORDINGLY, LESSEE UNCONDITIONALLY ACKNOWLEDGES AND
AGREES THAT NEITHER OWNER TRUSTEE, LENDER OR LESSOR, 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
LESSEE 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 LESSOR 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 LESSOR FOR DAMAGES OR RELIEF ARISING OUT OF THE
FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTIONS OR
SPECIFICATIONS, NOTWITHSTANDING ANY ASSURANCES FROM LESSOR, THE
DIFFICULTY OF DISCOVERING ANY DEFECT OR ITS ASSUMPTION THAT ANY
NONCONFORMITY WOULD BE CURED.
18.4 Lessee Acknowledgement
LESSEE AGREES THAT IT IS LEASING THE AIRCRAFT "AS IS, WHERE IS AND
WITH ALL FAULTS".
18.5 Lessee Waiver
Lessee hereby waives as between itself and Lessor and agrees not
to seek to establish or enforce any rights and remedies, express
or implied (whether statutory or otherwise) against Lessor, Owner
Trustee, Lender or the Aircraft relating to any of the matters
mentioned in Clause 18.1 through 18.6 and the leasing thereof by
Lessor to Lessee.
18.6 Lessee Examination of Aircraft
DELIVERY BY LESSEE TO LESSOR OF THE ACCEPTANCE CERTIFICATE IS
CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE'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 WITHOUT DEFECT (WHETHER OR NOT DISCOVERABLE AT DELIVERY) AND
IN EVERY WAY SATISFACTORY TO LESSEE.
18.7 No Lessor Liability for Losses
Lessee agrees that Lessor will not be liable to Lessee, any
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 Lessor
or Owner Trustee or their agents or representatives excepting only
Lessor's or Owner Trustee or their respective agents' or
representatives' gross negligence or wilful misconduct.
18.8 Exclusion
Neither Owner Trustee, Lender, nor Lessor shall have any
obligation or liability whatsoever to Lessee, any sublessee or any
other person whether arising in contract, tort or otherwise and
whether arising by reference to negligence or strict liability of
Lessor, 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.
18.9 Waiver
Lessee hereby waives, as between itself and Owner Trustee, Lender
and Lessor, all its rights in respect of any warranty or
representation, express or implied, on the part of Owner Trustee,
Lender or Lessor and all claims against Owner Trustee, Lender or
Lessor howsoever and whenever arising at any time in respect of or
out of the matters referred to in Clause 18.
18.10 No Waiver
Nothing in this Clause 18 or elsewhere in this Agreement will be
deemed to be an waiver by Lessee of any rights it may have against
the Manufacturer, the Engine Manufacturer or any other person.
18.11 Confirmation
Lessee confirms that the foregoing provisions of this Clause 18
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.
19. Indemnities
19.1 General Indemnity
Lessee agrees to defend, indemnify and hold harmless on an after
Tax basis each of the Indemnitees on demand from and against any
and all Losses arising from events occurring during the Lease
Term:
(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 Lessee or by misrepresentation of or breach of
warranty by Lessee; 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 Lessee, or anyone acting by or through
Lessee, 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
wilful misconduct of such Indemnitee; or
(ii) arises as a direct result of Lessor Taxes, a Lessor
Lien or a wilful breach by Lessor of its obligations
under any of the Transaction Documents; or
(iii) constitutes a Tax or liability for Taxes.
19.3 Time of Payment
Lessee 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 Lessor or Lessee of the terms of this Agreement, the
termination of the lease of the Aircraft to Lessee under this
Agreement or the repudiation by Lessor or Lessee of this
Agreement.
19.5 Notice to Lessee
Lessor shall promptly after obtaining actual knowledge thereof
notify the Lessee of any claim as to which indemnification is
sought; provided that a failure to so notify will not diminish or
relieve Lessee of any obligations hereunder, unless such failure
materially adversely affects Lessee's defence of such claim and
directly results in a material increase in liability of the Lessee
in respect of such claim or prevents it from materially reducing
liability therefor, in which case the Lessee 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 Lessee 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 Lessor Taxes, unless Lessee is
required by law to make any such deduction or withholding.
20.1.2 If any Taxes, except Lessor Taxes, are required to be deducted or
withheld from any amount payable hereunder, Lessee shall pay to
Lessor 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 Lessor on the date of
such payment, after deduction or withholding for all such Taxes,
will be equal to the amount that Lessor would have received if
such Taxes had not been deducted or withheld.
20.1.3 If any payment is made by Lessee under Clause 19.2 and Lessor 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 Lessor in respect of or calculated with reference to
the deduction or withholding giving rise to such payment, Lessor
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 Lessor 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
Lessee such amount as Lessor shall reasonably have determined to
be attributable to the relevant deduction or withholding.
20.2 Tax Indemnity
20.2.1 Lessee shall indemnify Lessor on demand against all Taxes (other
than Lessor Taxes) levied or imposed against or upon Lessor,
Lessee 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 Lessor 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 Lessor's gross negligence
or wilful misconduct; or
(iv) relates to any deduction or withholding on any payment
to be made to Lessor 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 Lessor, other than by Lessor to Lessee, or
by any party claiming by or through Lessor 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 Lessor becomes aware of any claim against Lessor for any Loss
that Lessee is required to pay or indemnify against pursuant to
this Clause 20.2, Lessor shall as soon as is reasonably
practicable notify Lessee in writing of such claim. If requested
in writing by Lessee that it wishes Lessor to contest such claim,
Lessor will consult with Lessee with a view to determining whether
there are grounds for contesting such claim. Lessor will consider
in good faith any representation made by Lessee in this respect.
Lessor 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 Lessor shall bring such proceedings in the event
that tax counsel reasonably acceptable to Lessor in the relevant
jurisdiction provides Lessor 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 Lessee. Further Lessor 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 Lessor or, if so
directed by Lessor, directly to the relevant taxing authority,
promptly after receipt by Lessee of a written demand therefor.
20.3 Value Added Taxes
The Rent and other amounts payable by Lessee 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, Lessee will pay all such tax or duty and
indemnify Lessor 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 Lessee 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) Lessee 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 Lessee to
any person other than such Indemnitee are treated as taxable in
the hands of such Indemnitee, Lessee 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
Lessor) under this Agreement are given to Lessor on behalf of that
Indemnitee.
20.6 Lessor Indemnification
Without prejudice to Clause 20.5, Lessor shall be entitled (but
not obliged) to indemnify Indemnitees (other than Lessor) on terms
equivalent to the indemnities given by Lessee under this Agreement
and the obligations of Lessee to Lessor shall extend to
reimbursement of Lessor of any amount properly paid by Lessor to
such other Indemnitee provided always that nothing in this Clause
20.6 shall operate to increase the obligations or liabilities of
Lessee.
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 Lessor or
Lessee of the terms of this Agreement, the termination of the
lease of the Aircraft to Lessee under this Agreement or the
repudiation by Lessor or Lessee of this Agreement.
20.8 Mitigation and Co-operation
In any case where Lessee 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, Lessor shall at the written request of
Lessee, without limiting, reducing or otherwise qualifying the
rights of Lessor and the Security Interest of Lender, consult with
Lessee in good faith as to such steps which Lessor and Lessee can
mutually accept and agree upon in order to mitigate or avoid the
effects of such circumstances. In case Lessor and Lessee can not
agree within a period of thirty (30) days after Lessee has made a
written request, Lessor shall not have any further obligation
towards Lessee.
20.9 Furnishing Forms
Lessor agrees to furnish, and to procure that any other Indemnitee
furnishes to Lessee, or to such other person as Lessee may
designate, at Lessee'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 Lessee 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 Lessee shall, at its own expense, maintain in full force and
effect during the Lease Term insurances in respect of the Aircraft
that, subject to this Clause 21, comply with the requirements set
out in Schedule 3 (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 Lessor, 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 Lessee are not Lessor's sole remedy and
protection under this Agreement as the obligations of Lessee are
in excess of the requirements of the Insurances.
21.2 Reinsurance
Any reinsurance will be maintained with reinsurers and brokers
approved by Lessor, 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
Lessor:
(i) The same terms as the original insurance;
(ii) A cut-through and assignment clause satisfactory to
Lessor;
(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. Lessor 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 Lessor
and Lender continue to be protected. Lessee shall procure that
such changes are effected.
21.4 Insurance Covenants
Lessee 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 Lessor 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 create any Security Interests over the Insurances
except pursuant to the Assignment of Insurances;
(vii) 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;
(viii) 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;
(ix) not knowingly effect or authorise the placement of
insurance covering the same subject matter as that
covered by the Insurances (except on a contingent or
other secondary basis); and
(x) furnish to Lessor:
(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 Lessor of each sum
payable under or in connection with any
required policy;
(c) on request, such evidence as the Lessor may
require of the Lessee'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
Lessee shall commence renewal procedures at least thirty (30) days
prior to expiry of any of the Insurances, and provide to Lessor:
(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 Lessor 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 Lessor may reasonable request
be provided by the insurance broker at least fifteen
(15) days before such expiry.
21.6 Failure to Insure
If Lessee fails to maintain the Insurances in compliance with this
Agreement, Lessee 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 Lessor of the non-compliance of the
Insurances and provide Lessor with full details of any
steps which Lessee 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 Lessor under this
Agreement:
(a) to pay the premiums due or to effect and
maintain insurances satisfactory to Lessor
and substantially the same as the Insurances
required hereunder or otherwise remedy
Lessee's failure in such manner, including to
effect and maintain an "owner's interest"
policy, as Lessor considers appropriate. Any
sums so expended by Lessor will become
immediately due and payable by Lessee to
Lessor together with interest thereon at the
Default Rate, from the date of expenditure by
Lessor up to the date of reimbursement by
Lessee; and
(b) at any time while such failure is continuing
to require the Aircraft to remain at any
airport or to proceed to and remain at any
airport designated by Lessor until the
failure is remedied to Lessor's satisfaction.
21.7 Continuation of Insurances
Lessee agrees to effect and maintain at Lessee'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 Lessee or Lessor continues to have any interest in the
Aircraft.
21.8 Application of Insurance Proceeds
As between Lessor and Lessee:
(i) all insurance payments received as the result of a
Total Loss occurring during the Lease Term will be paid
to Lessor or to Lender pursuant to the terms of any
security given by Owner Trustee and Lessor;
(ii) all insurance proceeds of any damage or loss to the
Aircraft, any Engine or any Part occurring during the
Lease Term not constituting a Total Loss and in excess
of the Damage Notification Threshold will be paid to
Lessor and applied in payment (or to reimburse Lessee)
for repairs or replacement property, upon Lessor being
satisfied that the repairs or replacement have been
effected in accordance with this Agreement; 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 Lessor to
be applied toward payment of any amounts which may be
or become payable by Lessee in such order as Lessor
sees fit or as Lessor may elect.
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 Lessor 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 Lessor will repay to
Lessee 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, Lessee shall pay the Lessor
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 Lessor of the Agreed Value and all
other amounts which may be or become payable to Lessor under this
Agreement, Lessor shall direct Owner Trustee to transfer to Lessee
all of Owner Trustee's and Lessor'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 Lessor Liens), and
Lessor shall procure the execution and delivery of such bills of
sale and other instruments as Lessee may reasonably request to
evidence such transfer, free and clear of all rights of Owner
Trustee and Lessor and (y) any other rights in respect of the
Aircraft or any part thereof or any further requisition or
insurance proceeds in respect thereof. Lessee shall indemnify
Owner Trustee and Lessor for all fees, expenses and Taxes incurred
by Owner Trustee and Lessor in connection with any such transfer.
22.2.3 If a Total Loss of the Aircraft or the Airframe occurs during the
Lease Term, Lessee'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 Lessee (as to indemnity
or otherwise) under this Agreement; and Lessor and, if not already
recovered, Lessee 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), Lessee shall give Lessor prompt written
notice thereof and Lessee shall replace the Destroyed Engine as
soon as reasonably possible by procuring that Owner Trustee
acquires, at Lessee'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 Lessee agrees to take such action as Lessor 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. Lessee's obligation to pay Rent shall continue
in full force and effect, but an amount equal to the Total Loss
Proceeds received by Lessor 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 Lessor's right to deduct therefrom any amounts then due
and payable by Lessee under this Agreement, be paid to Lessee.
22.3.3 Immediately upon the effectiveness of such substitution, and
without further act, title to the replaced Engine shall thereupon
vest in Lessee, in an as-is, where-is condition, free and clear of
all rights and Security Interests of Owner Trustee, Lender and
Lessor 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 Lessee will not be released from any of its
other obligations under the Agreement (other than
operational obligations with which Lessee is unable to
comply solely by virtue of the requisition);
(ii) so long as no Default or Event of Default has occurred
and is continuing, Lessee shall be entitled to any hire
paid by the requisitioning authority in respect of the
Lease Term;
(iii) Lessee 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 Lessor 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 Lessee
satisfies the Return Conditions provided that:
(i) the obligations of Lessee 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, Lessee 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), Lessee shall be obliged to redeliver
the Aircraft to Lessor in accordance with Clause 23;
(iii) provided no Default or Event of Default is continuing,
Lessee shall be entitled to receive and retain any
requisition payments made in respect of the Aircraft;
and
(iv) Lessee shall indemnify Lessor for any Losses which
Lessor suffers (Lessor undertakes to use its reasonable
best efforts to mitigate such Losses) as a result of
Lessee returning the Aircraft to Lessor after the
Expiry Date.
23. Redelivery
23.1 Redelivery of Aircraft
On the Redelivery Date, Lessee shall, unless a Total Loss has
occurred, redeliver the Aircraft and the Aircraft Documents to
Lessor at Lessee'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 lease will be extended and Lessee'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 Lessor 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 Lessor. At the
time of the redelivery of the Aircraft:
(i) the Aircraft shall be free and clear of all Security
Interests other than Lessor 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 Lessor may request that Lessee has had
timely notice of and that Lessor has agreed to pay for;
provided, however, that if compliance with Lessor'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 Lessee's compliance with Lessor's request; and
(v) any service bulletin kits which are allocated to the
Aircraft at no charge by the Manufacturer and not
delivered to Lessor as at the Redelivery Date will be
shipped to a location specified by Lessor at Lessee's
cost.
For the avoidance of doubt, Lessee will not be responsible for any
inaccuracy or incompleteness in the Aircraft Documents that
pertains to any period prior to Delivery, provided always that the
foregoing shall not in any way be construed as a waiver by Lessor
of Lessee's obligations to keep, maintain and update the Aircraft
Documents during the Lease Term in accordance with the other
provisions of this Agreement.
23.2 Final Inspection
Immediately prior to redelivery of the Aircraft, Lessee shall make
the Aircraft available to Lessor 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 Lessor 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
Lessee 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 Lessee has complied with the
provisions of this Clause 23.3, Lessee shall redeliver the
Aircraft to Lessor at Lessee'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)), Lessee shall at Lessor's option:
(i) immediately rectify the non-compliance and to the
extent the non-compliance extends beyond the Redelivery
Date, the Lease Term will be automatically extended
until the non-compliance has been rectified and Lessee
shall be required to pay Rent to Lessor 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 Lessor; or
(ii) redeliver the Aircraft to Lessor and indemnify Lessor,
and provide cash to Lessor in an amount reasonably
satisfactory to Lessor as security for that indemnity,
against the cost of putting the Aircraft into the
condition required by this Agreement.
23.4.2 Lessor's option in Clause 23.4 is not available to Lessor provided
that (i) Lessee has notified Lessor of its intent to rectify the
non-compliance prior to the Redelivery Date and (ii) Lessee will
in the reasonable opinion of Lessor be able to rectify such
non-compliance on or before Redelivery Date.
23.4.3 For the avoidance of doubt, Lessor shall not be entitled to
exercise its option under Clause 23.4.1 and Lessee 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.
23.5 Acknowledgement
Provided Lessee has complied with its obligations under this
Agreement, following redelivery of the Aircraft by Lessee to
Lessor at the Redelivery Location, the parties shall execute an
acknowledgement confirming that Lessee has redelivered the
Aircraft to Lessor in accordance with this Agreement substantially
in the form of Schedule 13.
23.6 Storage etc.
Notwithstanding the performance in full by Lessee of all its
obligations under this Clause 23, Lessor may require Lessee to
continue to lease the Aircraft from Lessor for a period of up to
thirty (30) days from the Expiry Date. During this period, Lessee
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 Lessee's storage facilities
and to continue insurances in respect of the Aircraft at Lessee's
cost. Such parking and storage is being made at the risk of Lessor
and Lessee shall have no liability for Losses except for any
Losses arising out of Lessee's gross negligence or wilful
misconduct arising during such period. Lessee also agrees during
this period to ferry/fly the Aircraft to such location as Lessor
may require. Lessee will not otherwise utilise the Aircraft during
this period. Any out of pocket costs or expenses incurred by
Lessee during this period with respect to the Aircraft for
storage, insurance or such ferry/flight shall be reimbursed by
Lessor to Lessee promptly after demand and upon receipt by Lessor
of an invoice and documentation, reasonably satisfactory to
Lessor, of such costs and expenses.
24. Events of default
24.1 Notice
Lessee will promptly notify Lessor if Lessee 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: Lessee 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 Lessor (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: Lessee fails to take Delivery of the Aircraft
when obligated to do so under the terms of this
Agreement; or
(iv) Redelivery: Lessee fails to return the Aircraft to
Lessor on the Redelivery Date in accordance with Clause
23; or
(v) Breach: Lessee 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 Lessee in the
Transaction Documents or in any certificate, statement
or opinion delivered by it hereunder or in connection
herewith is incorrect, inaccurate or misleading in any
respect which Lessor considers material 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 Lessee
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 Lessor) 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 Lessor may prejudice
the rights of Lessor under this Agreement or in the
reasonable opinion of Lessor may have a material
adverse effect on Lessee's obligation to perform its
obligations under this Agreement; or
(viii) Registration:
(a) the Registration of the Aircraft is cancelled
other than as a result of an act or omission
of Lessor or another Indemnitee including
Owner Trustee and Lessor or an affiliate of
the Owner Trustee and Lessor;
(b) Lessee ceases to be an US Air Carrier
authorised to transport passengers in common
carrier; or
(c) the Aircraft ceases to be "based and
primarily used in the United States" within
the meaning of the 14 Code of Federal
Regulations 47.9: or
(ix) Possession: Lessee abandons the Aircraft or the
Engines, or Lessee 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: Lessee 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 Lessee which in the reasonable
opinion of Lessor may have a material negative impact
on Lessee's ability to perform its obligations
hereunder; or
(xii) Cross Default: Any Financial Indebtedness of Lessee (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 Lessee
(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: Lessee 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 Lessee or a substantial part of Lessee's
property relating to the bankruptcy, liquidation,
reorganisation or protection from creditors of Lessee.
If instituted by Lessee or done by the Lessee, the same
will be an immediate Event of Default. If instituted by
another person, the same will be an Event of Default if
not dismissed, remedied or relinquished within 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 Lessee or a
substantial part of its property or if a substantial
part of its property is to be sequestered. If
instituted by Lessee or done by the Lessee, the same
will be an immediate Event of Default. If instituted by
another person, the same will be an Event of Default if
not dismissed, remedied or relinquished within twenty
(20) days; or
(xvi) Air Navigation Charges: Any competent authority has
unpaid Air Navigation Charges due from Lessee (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 Lessee (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 Lessee and
Lessor or another lessor or sublessor that either (i)
shares the same general partner or controlling
shareholder with Lessor or (ii) whose beneficiary
shares the same general partner or controlling
shareholder with Lessor; or
(xix) Sublessee: Any approved sublessee acts so as to prevent
present or future performance by Lessee of its
obligations under this Agreement.
24.3 Lessor's Rights
24.3.1 Upon the occurrence of any Event of Default, all rights of Lessee
under this Agreement and with respect to the Aircraft will
immediately cease and terminate, but without prejudice to the
continuing obligations of Lessee under this Agreement. Without
prejudice and in all cases in addition to any other rights of
Lessor under this Agreement or under applicable law, Lessor may
upon the occurrence of any Event of Default exercise all or any of
the following rights at its option:
(i) require that Lessee immediately move the Aircraft to a
location specified by Lessor;
(ii) for Lessee's account do anything that may reasonably be
required to cure any default and recover from Lessee
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 Lessee shall
comply therewith, all without liability to Lessor 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
Lessor pursuant to any Other Agreements to any amounts
due.
24.3.2 Whether or not Lessor shall have exercised, or shall thereafter
any timer exercise, any of its rights under Clause 24.3.1 (i) or
(iv) above with respect to all or any part of the Aircraft,
Lessor, by written notice to Lessee specifying payment date not
earlier than ten (10) days from the date of such notice, may
demand that Lessee pay to Lessor, and Lessee shall pay Lessor, on
the payment date specified in such notice as liquidated damages
and not as a penalty (in lieu of the instalments of Rent due for
periods commencing on or after the payment date in such notice),
any unpaid instalments of Rent due for periods prior to the
payment date specified in such notice plus the present value of
the remaining instalments of Rent during the Lease 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, Lessee shall
be liable for the amounts set forth in Clause 24.4 (ii ) and (iii)
24.3.3 If an Event of Default occurs, Lessor may sell or re-lease or
otherwise deal with the Aircraft at such time and in such manner
as Lessor considers appropriate in a commercially reasonable
manner, free and clear of any interest of Lessee as if this
Agreement had never been entered into and as if Lessee had never
made any payments hereunder. While an Event of Default is
continuing, Lessee will not operate the Aircraft without the
consent of Lessor.
24.3.4 If an Event of Default has occurred and is continuing, Lessor may
take all steps necessary to de-register the Aircraft in and export
the Aircraft from the State of Registration.
24.4 Default Payments
Lessee 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 Lessor 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 Lessor for any loss of or damage to Lessor's
residual interest in the Aircraft.
All costs and expenses referred to in the preceding
sentence shall be payable by Lessee upon demand by
Lessor 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 Lessor at law or in equity. The
exercise or beginning of exercise by Lessor of any one or more of
such remedies shall not preclude the simultaneous or later
exercise by Lessor of any or all such other remedies. No express
or implied waiver by Lessor 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 Lessee
No assignment, novation, transfer or Security Interest may be made
by Lessee 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 Lessor
Subject to Lessee's rights pursuant to this Agreement, Lessor may
at any time and without Lessee's consent sell, assign or transfer
its rights and interest hereunder and under the other Transaction
Documents to a third party, (Lessor's Assignee). Lessor will in
good faith co-operate with Lessee to ensure minimum practical
disturbance or cost in connection with such assignment or transfer
of rights and interest hereunder. Lessee agrees to co-operate in
good faith with Lessor in such sale, assignment or transfer and
provide Lessor and Lessor's Assignee with such reasonable
assistance as Lessor may require, including but not limited to
assisting in any of Lessor's and Lessor's Assignee's efforts to
minimise 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 Lessee's cost, Lessee will continue to name
Owner Trustee, Lessor and Lender as additional insureds in
accordance with the insurance requirements set out in Clause 21.
25.3 Assignment to Lender
Subject to Lessee's rights under this Agreement, Owner Trustee 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 Lessee of an acknowledgement from or on behalf of
Lender relating to quiet enjoyment by Lessee of the Aircraft as
referred to in Clause 25.4.2.
25.4 Lessee Co-operation
25.4.1 On request by Lessor, Lessor's Assignee, Owner Trustee or Lender,
Lessee will, at Lessee's sole expense, promptly execute all such
documents as Lessor, Lessor's Assignee, Owner Trustee or Lender
may reasonably require (including such estoppel certificate as
referred to in Clause 12.4 to confirm Lessee's obligations under
this Agreement and the other Transaction Documents), to obtain
Lessee'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 over the
Aircraft, this Agreement, the other Transaction Documents or any
other agreement related to the Aircraft. Lessee will promptly
provide all other reasonable assistance and co-operation at
Lessor's expense to Lessor, Lessor'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 the
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
Lessee's obligations.
25.4.2 Lessor will obtain for the benefit of Lessee an acknowledgement
from any Lessor's Assignee or Lender, so long as no Default has
occurred and is continuing hereunder, such person will not
interfere with Lessee's quiet, peaceful use and enjoyment of the
Aircraft, substantially in the form of Schedule 11 or such other
form as Lessor's Assignee or Lender may reasonably require.
25.5 Lessor Includes Lessor's Assignee and Lender
Wherever the term "Lessor" is used in this Agreement in relation
to any of the provisions relating to registration, title,
disclaimer, indemnity and insurance respectively, the term
"Lessor" will be deemed to include Lessor's Assignee and Lender.
26. Miscellaneous Provisions
26.1 Rights Cumulative, Waivers
The rights of Lessor under this Agreement are cumulative, may be
exercised as often as Lessor considers appropriate and are in
addition to Lessor's rights under the general law. The rights of
Lessor against Lessee 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 Lessor'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
Lessor 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
Lessor in its absolute discretion thinks fit.
26.3 Expenses
So long as the Aircraft is tendered for Delivery to Lessee
pursuant to this Agreement, Lessee shall pay to Lessor on demand:
(i) all reasonable expenses including legal, professional,
and out-of-pocket expenses incurred or payable by
Lessor in connection with any amendment to or extension
of or other documentation requested by Lessee in
connection with, or the granting of any waiver or
consent under this Agreement or the monitoring of
compliance by Lessee with this Agreement, but in the
case of such monitoring of compliance, only if upon
such monitoring Lessee is found to be in Default under
this Agreement; and
(ii) all expenses including legal, survey and other costs
payable or incurred by Lessor following a Default in
connection with the enforcement of or preservation of
any of Lessor'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 Lessor.
26.4 Time of Essence
The time stipulated in this Agreement for all payments by Lessee
to Lessor and for the prompt performance of Lessee'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 Lessor and Lessee 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 Lessor and Lessee reasonably
consider to be in furtherance of the commercial intent of the
parties under the Transaction Documents including, without
limitation, such action as may be required properly to transfer
title to engines and parts as contemplated in this Agreement in
compliance with the laws of the lex situs of the relevant engine
or part at the relevant time.
26.7 Language
All notices to be given under this Agreement will be in English.
All documents delivered to Lessor pursuant to this Agreement will
be in English or, if not in English, will be accompanied by a
certified English translation. If there is any inconsistency
between the English version of this Agreement and any version in
any other language, the English version will prevail.
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 Lessor and Lessee.
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 Lessee which arise or are
attributable to circumstances occurring during the Lease Term
shall survive, and remain in full force and effect,
notwithstanding the expiration or other termination of this
Agreement or the leasing of the Aircraft hereunder.
26.11 Reimbursement
If Lessee defaults in the performance of any of its obligations
under this Agreement that can be rectified by the spending of
money, Lessor shall be entitled (but not obliged) to expend money
to rectify such matter and Lessee shall reimburse Lessor on demand
the money so expended. Any expenditure by Lessor pursuant to this
Clause 26.11 shall not prejudice the rights of Lessor 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
Lessee hereby irrevocably appoints Lessor 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, Lessee has executed the
power of attorney in the form of Schedule 8. Lessee will take all
steps required under the laws of the State of Registration to
provide such power of attorney to Lessor.
26.14 Usury Laws
Notwithstanding anything to the contrary in the Transaction
Documents, Lessee will not be obligated to pay Default Interest or
other interest in excess of the maximum non-usurious interest
rate, as in effect from time to time, which may by applicable law
be charged, contracted for, reserved, received or collected by
Lessor in 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 Lessee will pay Default Interest at the
highest lawful rate until the Default Interest which is paid by
Lessee 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
Lessor and Lessee 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, Lessee
and Lessor will co-operate with one another to obtain confidential
treatment as to the 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 Lessor 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 Lessor 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:
Lessor: INDIGO AVIATION AB (publ)
Address: Sodra Forstadsgatan 4, SE-211 43 Malmo, Sweden
Attention: Legal Department
Facsimile: +46 40 302350
Lessee: FRONTIER AIRLINES, INC.
Address: 12015 e. 46th Avenue, Denver Colorado,
United States of America
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
28.2.1 Each of Lessor and Lessee (a) irrevocably submit to the
non-exclusive jurisdiction of the Supreme Court of the State of
New York, New York City County, and the United States Districts
Court for the Southern District of New York for the purposes of
any suit, action, or other proceeding arising out of this
agreement of 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 defence or otherwise
any claim that it is not personally subject to the jurisdiction of
the abovenamed courts; that the suit, action or proceedings is
brought in an inconvenient forum, that venue is improper or that
this agreement or the other Transaction Documents or the subject
matter hereof or thereof may not be enforced in or by such court.
Nothing herein contained shall prevent either party from bringing
suit in any other appropriate jurisdiction.
28.3 Service of Process
28.3.1 With respect to actions, suits and proceedings brought in the
courts named in Clause 28.2. each of Lessor and Lessee 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 Waiver
Lessee and Lessor hereby waive the right to a trial by jury.
<PAGE>
SIGNATURE PAGE
IN WITNESS whereof the parties hereto have executed this Agreement on the date
showed at the beginning of this Agreement.
SIGNED on behalf of INDIGO AVIATION AB (publ)
By: ___________________________
Name: ___________________________
Title: ___________________________
SIGNED on behalf of FRONTIER AIRLINES, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
Receipt of the "original" counterpart of this Agreement is hereby acknowledged.
<PAGE>
SCHEDULE 1
AIRCRAFT SPECIFICATION
Model Boeing 737-3L9
Serial Numbers 26440
Current Registration D - ADBB
New Registration Mark N310FL
Line Number 2234
Date of Manufacture March, 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 71,989
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, G3, G4B Henshall
Stowages G7 Henshall
Lavatories Three
1 Forward, 2 Aft Boeing Standard
AIRFRAME AND ENGINE STATUS (As of March 2, 1999)
AIRFRAME
Total Hours 17,231
Total Cycles 16,044
Time to D Check (7C+SI) 5,169
AIRFRAME MAINTENANCE PROGRAM
CHECK SCHEDULE
A Check 250 hours
I Check 500 hours
C Check 3,600 hours or 15 months
D Check 22,400 hours
ENGINES
Serial Number 726422 726492
Total Hours 16,837 16,837
Total Cycles 15,616 15,616
Next Limiter LPT Con Support LPT Con Support
Cycles Remaining 8,185 8,185
Hours Since Shop Visit 2 2
LANDING GEAR
Right/Left Main 16,044 Cycles/17,231 hours
Nose 16,044 Cycles/17,231 hours
Overhaul limit 22,400 hours
<PAGE>
NAVIGATIONAL, COMMUNICATION, ELECTRONIC SYSTEMS,
FURNISHING & EQUIPMENT LIST
DESCRIPTION MANUFACTURER MODEL OR PART NUMBER QTY
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 MK V 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.
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
- - Noise Certificate
- - Radio License
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 Datas 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)
<PAGE>
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
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 for components
replace since delivery from Boeing
H. Manuals
1. Airplane Flight Manual
2. Quick Reference Handbook
1. Aircraft Operating Manual
1. Weight and Balance Manual Supplement
1. Wiring Diagram Manual (microfilm)
1. Illustrated Parts Catalog (microfilm)
1. Aircraft Maintenance Manual (microfilm)
1. CFMI Illustrated Parts Catalog
1. Vendor Manual Seats
1. Vendor Manual Galleys
1. Vendor Manual Ovens
1. Vendor Manual Coffeemakers
<PAGE>
I. Miscellaneous Technical Documents
- - Maintenance Program Specifications/Requirements
- - Interior Configuration Drawings
- - Loose Equipment Inventory List
- - Delivery documentation ex Boeing
- Export Certificate of Aircraft
- 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 *
2. Basic Rent
The Basic Rent payable on each Rent Date during the Base Lease
Term and the Extension Lease Term shall be * .
3. Damage Notification Threshold
Damage Notification Threshold means * .
4. Engine Agreed Value
Engine Agreed Value means for each engine * .
5. Extension Lease Expiry Date
Extension Lease Expiry Date means, upon exercise of the Extension
Option, the date falling twelve (12) months from the Base Lease
Expiry Date or such other date as Lessor and Lessee may agree in
writing.
6. Initial Lease Expiry Date
Initial Lease Expiry Date means the 14th of May 1999.
7. Initial Rent and Initial Rent Dates
o From Delivery until 14th of April 1999, the Initial Rent
shall be * payable on the 15th of April 1999 (First
Initial Rent Date); and
o from 15th of April 1999 until Initial Lease Expiry Date,
the Initial Rent shall be the lesser of:
(a) * per flight hour for each hour flown during the
period commencing on the 15th of April and
ending on Initial Lease Expiry Date; and
(b) * payable as follows: (i)on the First Initial
Rent Date: * (ii) on the date falling ten (10)
days after the Initial Lease Expiry Date (Second
Initial Rent Date); the remaining amount.
8. Letter of Credit
The Lessee shall provide the Lessor with an additional Security
Deposit in form of an irrevocable, assignable standby letter of
credit in the amount of issued at least three days prior to
Scheduled Delivery Date by a major US Bank in a form and
substance acceptable by Lessor (the Letter of Credit).
9. Maintenance Reserves
Lessee shall during the Lease Term pay the following Maintenance
Reserves to Lessor:
(i) Airframe Maintenance Reserve
* for each Flight Hour that the Airframe is operated;
(ii) Engine Maintenance Reserve
* for each Flight Hour that each Engine is operated;
(iii) Landing Gear Maintenance Reserve
* for each Flight Hour that the Aircraft is operated;
(iv) APU Maintenance Reserve
* for each Flight Hour that the APU is operated.
The amounts payable by Lessee to the Maintenance Reserves as set
out herein shall be subject to escalation on each of the
anniversary dates of the first day of the Base Lease Term with *
per year.
<PAGE>
10. Minimum Liability Coverage
Minimum Liability Coverage means * on each occurrence.
11. Scheduled Delivery Date
Scheduled Delivery Date means 31st of March 1999 or such other
date as the parties may mutually agree and Lessor may be able to
deliver the Aircraft to Lessee.
12. Security Deposit
Lessee has paid to Lessor a cash Security Deposit in the amount
of * and shall provide Lessor with additional Security Deposit
according to Clause 8 of this Schedule 2.
The cash Security Deposit of * will be credited to the payment of
Rent payable by Lessee during the Initial Lease Term, and, if
applicable, during the Base Lease Term. The Security Deposit will
be non-refundable in the event of failure by Lessee to take
delivery of the Aircraft in accordance with this Agreement.
13. Supplemental Rent for Excess Cycles
If on each of the anniversary dates of the first day of the Base
Lease Term, based on the previous twelve (12) months period (or
portion thereof) of the Base Lease 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 five (1.5)
Flight Hours to one (1) Cycle, Lessee will pay Lessor as
Supplemental Rent * for each Cycle the Aircraft actually operated
during such twelve (12) months 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 Base Lease Term each
year and such Supplemental Rent will be due and payable by Lessee
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 Lessor on the basis
of advice received from an independent insurance adviser believe
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 Lessor 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 Lessor or at the request of Lessor
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 Lessor and the Lessee.
The relevant policy shall provide that such payments shall only
made provided the same are in compliance with all applicable laws
and regulations.
(b) 50/50 Provision: if separate hull "all risks" and "war risks"
insurances are arranged, include a 50/50 provision in accordance
with market practice AVS. 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$500,000 (or the minimum deductible amount carried
under the airline's insurance policy if less than US$500,000).
(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.
1.3 Terms of Liability Insurance
All required liability insurances will:
(a) cover at least such risks as are customarily insured against in
the airline industry and names the additional assured as
additional named insured for their respective rights and interest;
(b) be in form and substance in accordance with sound international
airline practice (having regard to the type of aircraft or engines
involved);
(c) provide that upon payment of any loss or claim by the insurers in
accordance with the endorsement relating to the relevant policy
naming the additional assured as additional assureds, the insurers
shall to the extent and in respect of such payment be thereupon
subrogated to all legal and equitable rights of the additional
assured indemnified under such endorsement relating to the
Insurances (but not against any additional assured) and further
provides that the insurers shall not exercise such rights without
the consent of those additional assured such consent not to be
unreasonably withheld and at the expense of the insurers such
additional assured shall do all things reasonably necessary to
assist the insurers to exercise the said rights;
(d) provide that except in respect of any provision for automatic
termination or cancellation specified in the policy or any
endorsement thereof, cover for the interests added by the
endorsement relating to the relevant policy may only be cancelled
or materially altered in a manner adverse to the additional
assured by the giving of not less than thirty (30) days (but seven
(7) days or such lesser period as may be customarily available in
respect of War risks) notice in writing to the insurance brokers
and that notice shall be deemed to commence from the date such
notice is given by the insurers and that such notice will not be
given at the normal expiry date of the policy or any endorsement;
(e) is primary without right of contribution from any other insurance
which may be available to the additional assured;
(f) subject to the provisions naming the additional assured as
additional assured, operates in all respects as if a separate
policy had been issued covering each additional assured;
(g) provides that non 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 737-300 aircraft in each
case in respect of any one claim;
(j) contains a provision insuring (to the extent of the risks covered
by the policy) the indemnity provisions of security document
entered into in favour of the Lender; and
(k) specifically refers to any security document entered into in
favour 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) Acknowledgement: 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;
(d) Breach of Warranty: provide that, in relation to the interests of
each of the additional assureds, the Insurances will not be
invalidated by any act or omission, including misrepresentation
and non-disclosure, by Lessee, or any other person provided that
such additional assureds regardless of any breach or violation by
Lessee, or any other person other than the respective additional
assured seeking protection of any warranty, declaration or
condition, contained in such Insurances has not caused or
contributed to or knowingly condoned the said act or omission;
(e) Subrogation: provide that upon payment of any loss or claim by the
insurers in accordance with the endorsement relating to the
relevant policy naming the additional assured as additional
assureds, the insurers shall to the extent and in respect of such
payment be thereupon subrogated to all legal and equitable rights
of the additional assured indemnified under such endorsement
relating to the Insurances (but not against any additional
assured) and further provides that the insurers shall not exercise
such rights without the consent of those additional assured such
consent not to be unreasonably withheld and at the expense of the
insurers such additional assured shall do all things reasonably
necessary to assist the insurers to exercise the said rights;
(f) Premiums: provide that the additional assureds will have no
obligation or responsibility for the payment of any premiums due
but reserve the right to pay the same should any of them elect so
to do and that the insurers will not exercise any right of set-off
or counter-claim in respect of any premium due against the
respective interests of the additional assureds other than
outstanding premiums relating to the Aircraft, any Engine or Part
the subject of the relevant claim;
(g) Cancellation/Change: provide that the Insurances will continue
unaltered for the benefit of the additional assureds for at least
thirty (30) days after written notice by registered mail or telex
of any cancellation, change, event of non-payment of premium or
instalment thereof has been sent to Lessor, except in the case of
war risks for which 7 days or such lesser period as is or may be
customarily available in respect of war risks or allied perils
will be given 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;
(h) Indemnities: accept and insure the indemnity provisions of this
Agreement to the extent of the risks covered by the policies (it
being understood that certain matters listed in Clause 20.1.1:
registration, import, Overhaul, deregistration, export,
manufacture, design and testing and (c) are not covered).
(i) Endorsement: contains an endorsement naming:
(i) the Lender as loss payee in the case of a Total Loss;
(ii) the Lender as loss payee in the case where the amount
payable by the insurers upon any claim other than in
respect of Total Loss is greater than US$5,000,000; and
(iii) the Lessor as loss payee in the case where the amount
payable by the Insurers upon any claim other than in
respect of a Total Loss is less than US$5,000,000
unless and until the Lender notifies the insurance
brokers or the insurers that an Event of Default has
occurred, in which event the loss payee shall be the
Lender;
(j) specifically refer to each loan agreement or charge between the
Lessor and any Lender.
1.5 Deductibles
Lessee shall be responsible for any and all deductibles under the
Insurances.
1.6 AVN 67B
Notwithstanding the foregoing, if Lessee 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.
<PAGE>
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 Lease 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 inspection
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.
F. Fuel tanks will be free from contamination.
Engines:
Each Engine will have at least 5,000 hours remaining until next anticipated
performance restoration shop visit and have at least a minimum of 8,000 hours
and 8,000 cycles 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 3,000 hours remaining until the next
inspection or overhaul.
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 Lesseeobservers, as
designated by Lessor, on board during such Demonstration Flight.
<PAGE>
Records:
Documentation required to receive a United States Standard Certificate of
Airworthiness will be in English or translated into English prior to delivery.
TCAS:
TCAS will be installed prior to Delivery, subject to the Side Letter.
Aircraft Documentation:
The Aircraft Documents 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. (Lessee), to INDIGO AVIATION AB (publ) (Lessor), pursuant to the
Aircraft Lease Agreement dated 15 March 1999 between Lessor and Lessee (the
Lease). Capitalized terms used in this Certificate shall have the meanings given
to such terms in the Lease.
1. Details of acceptance
Lessee hereby confirms to Lessor that Lessee has at _____o'clock on this ___ day
of ______, at _____ accepted the following, in accordance with the provisions of
the Lease:
(a) Airframe
Type: _____ Reg.: _____ S/N: _____
(b) Engines
Type: _____ S/N No.1: _____ S/N No. 2: _____
(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 Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
Right Main ____ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
Left Main ____ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
(e) Equipment Check List: as per list signed by Lessor and Lessee and
attached hereto; and
(f) Aircraft Documents List: as per list signed by Lessor and Lessee
and attached hereto; and
(g) Place of Acceptance: ______________
2. Confirmation
Lessee confirms to Lessor that as at the time indicated above, being the
Delivery Date:
(a) the representations and warranties contained in Clause 2.1 of the
Lease are hereby repeated;
(b) the Aircraft is insured as required by the Lease; and
(c) Lessee's authorised technical experts have inspected the Aircraft
and the Aircraft Documents to ensure that the Aircraft and the
Aircraft Documents conform to Lessee's requirements. The Aircraft
and the Aircraft Documents are in accordance with the
specifications of the Lease and satisfactory in all respects.
3. Fuel at Delivery
3.1 Fuel on board at Delivery: ____ kilos (___ gallons).
3.1 Annexed hereto is details of any damage to the Aircraft as at
Delivery.
3.1 The Airframe, Engines and Parts had the following Flight
Hours/Cycles at Delivery:
(a) Airframe:
Total hours Total landings Since last "C" Check Since last "A" Check
_________ ________ ______ Flight Hours ______ Flight Hours
______ Cycles ______ Cycles
<PAGE>
(b) Engines:
Position Serial No. Total Flight Total Cycles Since last shop Since last
Hours 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, Lessee has, by its duly authorised representative, executed
this Certificate on the date specified in paragraph 1 above.
Lessee: FRONTIER AIRLINES, INC.
By: _________________________
Title: _________________________
Annexure 1 Aircraft Documents
Annexure 2 Aircraft Equipment List
Annexure 3 Damage Chart
<PAGE>
SCHEDULE 6
CERTIFICATE OF DIRECTOR
OF
FRONTIER AIRLINES, INC.
I, _____________________, do hereby certify that:
1. I am a duly and acting Director 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 Directors of the Company at a
meeting duly called and held in [ ] approving the execution, delivery
and performance of the Aircraft Lease Agreement dated as of 15 March
1999 between Indigo Aviation AB (publ) as lessor and the Company as
lessee (the "Lease") and the other Transaction Documents (as defined
in the Lease) 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 Lease 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 director 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 ____________.
<PAGE>
SCHEDULE 7
FORM OF LETTER OF AUTHORITY
[ Addressee ]
AUTHORITY
This Authority is given on _________.
Pursuant to an Aircraft Lease Agreement (the Lease) dated as of 15 March 1999,
made between Indigo Aviation AB (publ) as lessor (Lessor) and Frontier Airlines,
Inc. as lessee (Lessee) relating to one (1) Boeing 737-3L9 aircraft bearing
manufacturer's serial number 26440 and registration mark N310FL (the Aircraft),
Lessee will operate the Aircraft during the term of the Lease.
Lessee hereby irrevocably authorises yourselves, during the term of the Lease,
to disclose to Lessor 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 Lessee on the date
such request, from time to time, is made.
IN WITNESS WHEREOF a duly authorised representative of Lessee 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. (Lessee) refers to the Aircraft Lease
Agreement dated as of 15 March 1999, as amended and supplemented from time to
time (the Lease) between, Indigo Aviation AB (publ) (Lessor) and Lessee with
respect to one (1) Boeing 737-3L9 Aircraft bearing manufacturer's serial number
26440 and registration mark N310FL (the Aircraft).
In consideration of the sum of US$ 1 paid by Lessor to Lessee (the receipt and
sufficiency of which is hereby acknowledged), Lessee irrevocably appoints Lessor
(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 Lease) upon the lawful termination of the Lease
of the Aircraft;
AND generally to do any and all such acts and things and to execute under seal
or hand (as appropriate) and deliver any and all documents under seal or under
hand (as appropriate) as may be requested or required for such deregistration
and export;
AND Lessee 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 Lessee 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 Lessee 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
Note: This form is made on the assumption that the State of Incorporation
and the State of Registration are the same [herein "State"].
FORM OF OPINION OF LESSEE COUNSEL
to be addressed to [ Lessor ]
and
[ Lender ]
We have acted as counsel in [ Country of Lessee ] as counsel to [Name of Lessee]
("Lessee") in connection with an aircraft lease agreement dated [ ] and made
between [ Name of Lessor ] as Lessor and Lessee as the lessee in respect of one
[ Type of Aircraft ] bearing manufacturer's serial number [ ] (the "Aircraft")
(the "Lease") and owned by Lessor, and have examined a copy of the following
documents;
(i) the Lease;
(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 Lease shall have the same meaning herein.
On the basis on the foregoing we are of the opinion that:
(a) Lessee 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 Lessee, or to wind up Lessee or commence any
other insolvency proceedings with respect to Lessee or to have
Lessee dissolved by merger;
(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 Lease and the transactions
contemplated by the Lease and the Lease constitutes the legal
binding obligations of the Lease, enforceable against the Lessee
in accordance with its terms;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease does not and will not:
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee;
or
(iii) result in the creation of any Security Interest upon
any property of Lessee, 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 Lessee is a party or by which Lessee or its
properties or assets may be bound or affected;
(d) Lessee has obtained all authorizations, consents, licences,
approvals and registrations necessary to be obtained from any
governmental or other regulatory authorities in [ State ] to
enable Lessee:
(i) to enter into and perform the transactions contemplated
by the Lease;
(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 Lease.
(e) no registration, recording, filing or notarisation 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 Lease, or the
priority, if any, of the respective rights of Lessor and Lender
under the Lease other than [please advise if applicable] and no
other instrument is required to ensure the priority,
enforceability and validity of the obligations of Lessee under the
Lease and the Lease 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 Lessor and no other steps are necessary or
desirable to record or perfect either Lessor'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 Lessor and will upon registration constitute a valid and
perfected security over the Aircraft under the laws of [ State ];
(h) upon termination of the Lease in accordance with its terms
(whether on expiry or earlier termination) Lessor 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
Lessee 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 Lessee and the obligations on the part of Lessee
contained therein, assuming them to be valid and binding according
to the laws of Sweden, are valid and legally binding on and
enforceable against Lessee under the laws of [ State ] and in the
courts of [ State ];
(j) the obligations of Lessee 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 Lessee, 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
Lessor's interest in the Aircraft except for the express rights of
possession of Lessee under the Lease;
(l) the Lease does not grant to Lessee any title rights in the
Aircraft, nor does it give Lessee any capability of passing valid
title to a purchaser or to create a mortgage over the Aircraft;
(m) Lessee, 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 Lessee;
the entry into and performance of the Lease Agreement by the
company constitute private and commercial acts;
(n) there is no application usury or interest limitation law in
[ State ] which restricts the recovery of payments of Default
Interest in accordance with the Lease;
(o) Lessee 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
Lessee, threatened against it or its assets which would have a
material adverse effect on the business, assets or condition
(financial or otherwise) of Lessee;
(p) the financial position of Lessee 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 Lessor 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
Lessee 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 Lessor in connection with the
signature, entering into, registration or performance of the Lease
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 Lease Agreement;
(ii) registration of title or ownership: [ ]; and
(iv) registration of the mortgages in the [ Name of
Authority ]: [ ].
(t) Lessor will not violate any law or regulation in [ State ] nor
become liable to tax in [ State ] by reason of Lessor entering
into the Lease with Lessee, 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 recognised and applied by the courts of
[ State ];
(v) Lessee's submission to the jurisdiction of the courts of [Relevant
Court(s) ] in the Lease is its legally valid and binding
obligation;
(w) any judgement by the courts of [ Relevant Court(s) ] against
Lessee which is enforceable in [ Relevant jurisdiction of
Court(s)] is enforceable against Lessee in [ State ] provided [
advise conditions ];
(x) [If relevant] Lessee's submission to arbitration in accordance
with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce in the Lease is its legally
valid and binding obligation;
(y) [If relevant] any award by the arbitrators against Lessee, will be
enforceable and confirmed by any competent [ State ] Court, as
provided by the [ State ] law concerning confirmation of
arbitration award by courts, without re-examination or
re-litigation of the matter;
(z) there is no withholding tax or other tax to be deducted from any
payment whatsoever which may be made by the Lessee to the Lessor
under the Lease; the provisions in the Lease providing for the
full compensation of the Lessor by the Lessee for any amount so
withholding (and any amount withheld on such additional
compensation) is legally binding upon Lessee and enforceable in
accordance with the laws of [ State ].
<PAGE>
SCHEDULE 10
MONTHLY AIRCRAFT UTILISATION AND STATUS REPORT
To: Indigo Aviation AB (publ)
From: Frontier Airlines, Inc.
Aircraft Type: Boeing 737-3L9
Registration Mark: N310FL
Serial Number: 26440 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:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Landing Gear: Time Since Time Since Cycles Since Cycles Since New:
Overhaul: New: Overhaul:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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: .......................................................................
................................................................................
<PAGE>
- --------------------------------------------------------------------------------
Hours/Cycles x US$ Per Fligh = Reserve payment
During Month Hour/Cycle
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Airframe: Hours: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Original Engine Hours: x =
Serial Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Original Engine Serial
Number: Hours: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Engines: Hours: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LLP: Hours: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Landing Gear: Cycles: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APU: Hours: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 11
FORM OF QUIET ENJOYMENT LETTER
From: [ Lender ]
To: [ Lessee ]
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 Lease Agreement dated [ ] between [ ] as
lessor (Lessor) and [ ] as lessee (Lessee) in relation to the Aircraft and the
Engines (the Lease), we, the undersigned, hereby undertake that we shall not by
our own acts interfere with Lessee's rights under the Lease during the Lease
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 Lease) 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.
<PAGE>
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 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
5,000 hours remaining until next anticipated performance restoration shop visit
and have at least a minimum of 5,000 hours and 5,000 cycles 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.
Lessee will notify Lessor in writing not less than six (6) months prior to the
Redelivery Date to discuss and agree upon the pre-redelivery 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.
<PAGE>
Landing Gear:
Each Landing Gear will have at least 3,000 hours remaining until the next
inspection or overhaul.
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.
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 Lessor, on board during such Demonstration Flight.
Records:
Documentation delivered to lessee at Delivery will be returned to Lessor along
with the up to date Aircraft Maintenance Records that the Lessee has collected
during the Lease Term.
Aircraft Documentation
Lessee 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 Lessor at the Redelivery Date.
<PAGE>
SCHEDULE 13
RETURN ACCEPTANCE CERTIFICATE
1. Frontier Airlines, Inc. (Lessee) and Indigo Aviation AB (publ)
(Lessor) have entered into an Aircraft Lease Agreement dated 15
March 1999, (Lease). Unless otherwise defined, capitalised terms
used herein will have the meanings set forth in the Lease.
2. Lessor has this _____ day of ______ (Time: _____) at _______
received from Lessee possession of:
(a) one (1) Boeing 737-3L9 Aircraft, bearing manufacturer's serial
number 26440, registration mark N310FL together with two (2)
CFM56-3B2 engines bearing serial numbers 726422 and 726492, 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:
Position Serial No. Total Flight Total Cycles Since last Since last
Hours shop visit Engine
Performance
Restoration
Visit
_____ _____ _____ ______ ____ Flight _____Flight
Hours Hours
____ Cycles ____ Cycles
<PAGE>
Time Remaining to next life limited part removal
Flight Hours Cycles
MSN: _____ _____
MSN: _____ _____
(c) APU:
MSN Total Flight Hours Flight Hours/ Cycles Flight Hours/Cycles
remaining until next remaining on turbine and
HSI 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 Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
Right Main ____ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
Left Main ____ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
(e) Status of components or Parts with time/Cycle and calendar limits (see
attached sheet);
(f) Fuel on board at 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 Lessor subject to:
(a) the provisions of the Lease; and
(b) correction by Lessee of the discrepancies specified in Annex 2
hereto (which correction Lessee hereby undertakes to perform as
soon as reasonably possible).
6. Subject to Paragraph 7, the leasing of the Aircraft by Lessor to
Lessee pursuant to the Lease is hereby terminated without
prejudice to Lessee's continuing obligations under the Lease
including, without limitation, Clauses 19 and 20.
7. Lessee represents and warrants that during the term of the Lease
all maintenance and repairs to the Airframe and Engines were
performed in accordance with the requirements contained in the
Lease. Lessee further confirms that all of its obligations under
the Lease whether accruing prior to the date hereof or which
survive the termination of the Lease by their terms and accrue
after the date hereof, will remain in full force and effect until
all such obligations have been satisfactorily completed. Lessee
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
authorised 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
- - Noise Certificate
- - Radio License
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 Datas 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
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 for components
replace since delivery from Boeing
H. Manuals
1. Airplane Flight Manual
2. Quick Reference Handbook
1. Aircraft Operating Manual
1. Weight and Balance Manual Supplement
1. Wiring Diagram Manual (microfilm)
1. Illustrated Parts Catalog (microfilm)
1. Aircraft Maintenance Manual (microfilm)
1. CFMI Illustrated Parts Catalog
1. Vendor Manual Seats
1. Vendor Manual Galleys
1. Vendor Manual Ovens
1. Vendor Manual Coffeemakers
<PAGE>
I. Miscellaneous Technical Documents
- - Maintenance Program Specifications/Requirements
- - Interior Configuration Drawings
- - Loose Equipment Inventory List
- - Delivery documentation ex Boeing
- - Export Certificate of Aircraft
- - 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
LEASE SUPPLEMENT
LEASE SUPPLEMENT NO. 1 d ated March __, 1999, between Indigo Aviation AB (publ)
(the "Lessor") and FRONTIER AIRLINES, INC. (the "Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of March 15, 1999 (herein called the "Lease" and the defined
terms therein being hereinafter used with the same meaning). The Lease 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 Lease as and when delivered by Lessor to Lessee in
accordance with the terms thereof.
The Lease relates to the Aircraft, Parts and Engines as more specifically
described below. A counterpart of the Lease is attached hereto and this Lease
Supplement and the Lease shall form one document.
In consideration of the premises and other good and sufficient consideration,
Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease and
Lessee hereby accepts and leases from Lessor under the Lease, that
certain used Boeing Model 737-3L9 Aircraft bearing FAA
Registration Mark N310FL, including the Airframe bearing
manufacturers serial number 26440 and the two (2) CFM
INTERNATIONAL CFM 56-3B2 Engines bearing manufacturer's serial
numbers 726422 and 726492 described in Schedule 1 herewith
("Delivered Aircraft").
2. The Delivery Date of the Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Lease Term for the Aircraft shall commence on the Delivery
Date and shall end on the Lease Expiry Date.
4. The amount of Rent for the Aircraft is set forth in the Lease and
is payable as provided in the Lease.
5. Lessee hereby confirms to Lessor 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 Lease,
(ii) Lessee has inspected the Aircraft and the Aircraft satisfies
the conditions set forth in the Lease and (iii) Lessee has
accepted the Aircraft for all purposes hereof and of the Lease.
6. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same
extent as if fully set forth herein.
7. This Lease Supplement may be executed in any number of
counterparts, each of such counterparts, except as provided on the
front page of the Lease, shall for all purposes be deemed to be an
original; and all such counterparts shall together constitute but
one and the same Lease Supplement.
8. This Lease Supplement has been delivered in New York.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to the
Lease to be duly executed as of the day and year first above written.
LESSOR,
INDIGO AVIATION AB (publ)
By:
Title:
LESSEE,
FRONTIER AIRLINES, INC.
By:
Title:
AIRCRAFT LEASE AGREEMENT
Dated as of April 16, 1999
BETWEEN
C.I.T. LEASING CORPORATION
as Lessor
AND
FRONTIER AIRLINES, INC.
as Lessee
Concerning:
One Boeing 737-300 Aircraft
With
Two CFM56-3B2 Engines
FAA Registration Number N312FL
Manufacturer's Serial Number 24569
Items marked with "*" have been omitted pursuant to a request for confidential
treatment.
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT, dated as of April 16, 1999
(this "Lease"), between C.I.T. LEASING CORPORATION, a Delaware corporation, and
its successors and assigns ("Lessor"), and Frontier Airlines, Inc., a Colorado
corporation ("Lessee").
W I T N E S S E T H :
WHEREAS, Lessor owns one (1) Boeing 737-300 Aircraft more
particularly described on Exhibit A hereto; and
WHEREAS, Lessee desires to lease from Lessor and Lessor is
willing to lease to Lessee the Aircraft upon the terms and conditions set forth
in this Lease;
NOW, THEREFORE, in consideration of the mutual covenants
herein set forth, Lessor and Lessee hereby agree as follows:
ARTICLE 1
DEFINITIONS
Unless the context requires otherwise, the following terms
shall have the following meanings for all purposes of this Lease and such
meanings shall be equally applicable to both the singular and the plural forms
of the terms defined:
"Aeronautics Authority" shall mean, as the context requires,
the United States Department of Transportation, the FAA and/or the Administrator
of the United States Federal Aviation Administration, or any person,
governmental department, bureau, commission or agency succeeding to the
functions of any of the foregoing.
"Aircraft" shall mean the Airframe together with the Engines,
the Landing Gear, and, where applicable, shall also include the Aircraft
Documents and all Capital Improvements or parts which may be made to, installed
on or incorporated into the Aircraft, including, but not limited to, those
required pursuant to any Airworthiness Directive.
"Aircraft Documents" shall mean the items identified in
Appendix I B. to the Lease Supplement and delivered to Lessee on the Delivery
Date and all such other items which may be acquired or prepared by Lessee
relating to its use, operation and maintenance of the Aircraft during the term
of this Lease, including the Aircraft Records, all of which shall be maintained
in the English language.
"Aircraft Records" shall mean all historical maintenance
records and other records delivered with the Aircraft for maintenance
accomplished prior to the Delivery Date and current maintenance records and
other records for work accomplished subsequent to the Delivery Date including,
but not limited to, documents, manuals (revised up to and including the most
current revisions issued by the Manufacturer), data, overhaul records, log
books, original Aircraft and Engine delivery documents, Life Limited Part
traceability to "zero time since new", FAA Form 8130-3 or other FAA approved
serviceable parts tags, FAA forms, teardown reports for Time Controlled Parts
which have been overhauled or replaced during the Term, modification records,
inspection records (including NDT documentation such as x-ray and eddy current),
documentation of AD compliance, time logs showing Aircraft and Engine Flight
Hours and Cycles on any given date during the Term, and all other documentation
pertaining to the Aircraft, Engines and Parts.
"Airframe" shall mean the Boeing 737-300 aircraft (except for
the Engines) more specifically described on Exhibit A hereto and the Lease
Supplement, together with all Landing Gear, the APU, and any and all Parts
relating thereto.
"Airworthiness Directive" or "AD" shall mean any Airworthiness
Directive issued by the FAA or any Manufacturer's mandatory service bulletin and
in each case applicable to aircraft, engines or parts of the same type as the
Aircraft, the Engines or the Parts.
"APU" shall mean the auxiliary power unit installed in the
Airframe.
"Basic Rent" shall mean the rent for the Aircraft payable
throughout the Term pursuant to Section 3.1 hereof and specified on Exhibit H
hereto.
"Business Day" shall mean any day other than a Saturday,
Sunday or day on which commercial banking institutions in New York, New York and
Denver, Colorado are authorized by law to be closed.
"Capital Improvement" shall mean any permanent alteration,
modification, addition, accession, replacement or other type of improvement
which is made to the Airframe, Engines, or any Part thereof, including, but not
limited to, the addition of any Parts or avionics, the performance of
Airworthiness Directives and upgrading of Engines and aircraft flight operation
or safety technology where such improvements increase the value or operating
life of the Aircraft, Engines, or any Part thereof, and for which Lessor is
eligible to take depreciation or cost recovery deductions based on the cost of
such improvements.
"Capital Improvement AD" shall have the meaning given such
term in Section 9.3(b) hereof.
"Capital Improvement Cost Sharing Formula" shall have the
meaning given such term in Section 9.3(b) hereof.
"Checks" shall mean A-Checks, B-Checks, C-Checks and D-Checks,
or their equivalent, and all structural inspections and corrosion inspections,
which are required to be performed on the Aircraft in connection with the
Maintenance Program for the Aircraft.
"Claims" shall have the meaning given such term in Section
13.1 hereof.
"Cycle" shall mean one take-off and landing for the Aircraft.
""D" Check Airframe Reserve" shall have the meaning given such
term in Exhibit G hereto.
"Default" shall mean any event or condition which, with the
lapse of time or the giving of notice or both, would constitute an Event of
Default.
"Delivery Date" shall mean the date on which Lessee accepts
the Aircraft under the terms of this Lease, which date shall be set forth in the
Lease Supplement, or such other date as may be agreed by Lessor and Lessee.
Subject to the satisfaction of the conditions set forth in Section 2.3 hereof,
the Delivery Date for the Aircraft is presently estimated to be on or about May
10, 1999.
"Dollars" or "$" shall mean the lawful currency of the United
States of America.
"Engine Life Limited Parts Reserve" shall have the meaning
given such term of Exhibit G hereto.
"Engine Reserve" shall have the meaning given such term on
Exhibit G hereto.
"Engines" shall mean each of the two CFM56-3B2 engines
described on Exhibit A hereto and in the Lease Supplement, or any replacement of
any thereof, together with any and all Parts related thereto.
"Event of Default" shall have the meaning given such term in
Section 17.1 hereof.
"Event of Loss" shall mean, with respect to any Item of
Equipment, any of the following events: (A) the loss of such Item of Equipment
or the use thereof due to theft, disappearance, destruction, damage beyond
repair or rendition of such Item permanently unfit for normal use for any reason
whatsoever; (B) any damage to such Item which results in an insurance settlement
with respect to such Item on the basis of an actual or constructive total loss;
(C) the condemnation, confiscation or seizure of, or requisition of use or the
prohibition under any applicable Law of the use of the Aircraft for commercial
transportation of passengers for a period in excess of 60 days, or such shorter
period ending on the last day of the Term, or on the date on which an insurance
settlement on the basis of total loss shall occur, of such Item of Equipment; or
(D) the condemnation, confiscation or seizure of, or requisition of, title to
such Item of Equipment. An Event of Loss with respect to the Aircraft shall be
deemed to have occurred if an Event of Loss occurs with respect to the Airframe
which is part of the Aircraft.
"Excusable Delay" shall mean any delay in delivery of the
Aircraft hereunder not occasioned by the fault or negligence of a party hereto
and due to or arising from any cause beyond such party's reasonable control,
including, without limitation, (i) acts of the public enemy, civil war,
insurrection or riots, or quarantine restrictions, strikes, lockouts, or labor
stoppages and/or (ii) fires, floods, explosions, earthquakes, acts of nature or
epidemics and/or (iii) delays relating to any maintenance work performed on the
Aircraft or any part thereof prior to delivery hereunder.
"Expiration Date" shall mean the last day of the Term of this
Lease or such other date on which the Term of this Lease may be terminated or
extended pursuant to the terms hereof.
"FAA" shall mean, as the context requires, the United States
Federal Aviation Administration and/or the Administrator of the United States
Federal Aviation Administration, or any person, governmental department, bureau,
commission or agency succeeding to the functions of either of the foregoing.
"Flight Hour" shall mean each hour or part thereof, measured
to two decimal places, elapsing from the moment the wheels of the Airframe leave
the ground on take-off to the moment when the wheels of the Airframe touch the
ground on landing.
"Governmental Authority" shall mean and include (a) the FAA;
(b) any national government, or political subdivision thereof or local
jurisdiction therein; (c) any board, commission, department, division, organ,
instrumentality, court, or agency of any entity described in (b) above, however
constituted; and (d) any association, organization, or institution of which any
entity described in (b) or (c) above is a member or to whose jurisdiction any
such entity is subject or in whose activities any such entity is a participant
but only (except for purposes of defining Law below) to the extent that any of
the preceding have jurisdiction over the Aircraft or its operations.
"Hereby", "herein", "hereof", "hereunder", and other like
words shall refer to this Lease as originally executed or as amended, modified
or supplemented pursuant to the applicable provisions hereof, including, without
limitation, as supplemented by the Lease Supplement.
"Indemnitee" shall mean Lessor and its affiliates, officers,
directors, successors, permitted assigns, agents, employees, officers and
servants.
"Initial Deposit" shall have the meaning given such term in
Section 3.5(a) hereof.
"Insured Value" shall mean the amount set forth on Exhibit H
hereto.
"Item of Equipment" or "Item" shall mean the Airframe, the
Landing Gear, any of the Engines, the APU or any of the Parts.
"Landing Gear" shall mean the complete strut assembly,
consisting of the inner and outer cylinders, of each main landing gear and the
nose landing gear and all associated Parts that comprise each landing gear
assembly, as listed in the Manufacturer's illustrated parts catalogue for the
Airframe, but excluding rotable parts (which include, without limitation, tires,
brakes, actuators and switches).
"Landing Gear Reserve" shall have the meaning given such term
on Exhibit G hereto.
"Law" shall mean and include (a) any statute, decree,
constitution, regulation, order, judgment or other directive of any Governmental
Authority, (b) any treaty, pact, compact or other agreement to which any
Governmental Authority is a signatory or party, (c) any judicial or
administrative interpretation or application of any Law described in (a) or (b)
above, and (d) any amendment or revision of any Law described in (a), (b) or (c)
above.
"Lease" shall mean this Aircraft Lease Agreement between
Lessor and Lessee, as the same may be amended, modified or supplemented from
time to time.
"Lease Supplement" shall mean a Lease Supplement in
substantially the form of Exhibit B hereto.
"Lessee's Actual Cost" shall mean Lessee's cost incurred in
performing an obligation under this Lease determined as follows: (i) if such
obligation is performed by a third party, then Lessee's Actual Cost shall be the
actual charges of such third party paid by Lessee (without markups or overhead
by Lessee); and (ii) if Lessee elects that such obligation be performed by
Lessee, then Lessee's Actual Cost shall be Lessee's cost for labor and
materials.
"Lien" shall mean any mortgage, pledge, lien, charge,
encumbrance, lease, exercise of rights, security interest or claim.
"Life Limited Part" shall mean any Item of Equipment that has
a predetermined life limit, calculated in Flight Hours, Cycles or calendar time
as determined by the Aeronautics Authority or the Manufacturer and which
requires such Item of Equipment to be discarded upon reaching such life limit.
"Maintenance Program" shall mean the FAA-approved maintenance
program for the Aircraft and Engines, as the same may be modified from time to
time pursuant to the terms hereof including scheduled maintenance, conditional
monitored maintenance and on-condition maintenance of the Airframe, Engine and
Parts of the Aircraft. Upon request by the Lessor, a copy of the Maintenance
Program shall be made available to the Lessor.
"Maintenance Reserves" shall mean the amounts to be paid by
Lessee to Lessor pursuant to the terms of Exhibit G hereto, including, where
applicable, the "D" Check Airframe Reserve, each Engine Reserve, each Engine
Life Limited Parts Reserve and the Landing Gear Reserve.
"Manufacturer" shall mean, in the case of the Airframe, Boeing
Aircraft Company, in the case of the Engines, CFM International, Inc., and in
the case of any Part, Landing Gear and APU, the manufacturer of such Part,
Landing Gear or APU.
"Operative Agreements" shall mean each of this Lease, the
Lease Supplement, the Tax Indemnity Agreement and any other agreements,
documents or certificates executed and delivered in connection with the
transactions contemplated under this Lease.
"Parts" shall mean any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature or any Capital Improvements (other than Engines, Landing Gear, APU and
temporary replacement parts as provided in Section 9.4 hereof), which may from
time to time be incorporated or installed in or attached to the Airframe or any
Engine or which have been removed therefrom where title remains in the Lessor.
"Past Due Rate" shall mean interest at the rate per annum
equal to 18%, subject to the maximum rate permitted by Law calculated on the
basis of a year of 360 days and actual days elapsed.
"Permitted Liens" shall mean those Liens permitted pursuant to
Section 14 hereof.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, limited liability company, Governmental Authority or other entity of
whatever nature.
"Prior Period" shall have the meaning given such term in
Paragraph (a) of Exhibit G hereto.
"Related Transactions" shall mean any and all leases and
financings between Lessor or any affiliate of Lessor, as lessor or secured
party, and Lessee or any affiliate of Lessee, as lessee or borrower.
"Rent" shall mean the Basic Rent and Supplemental Rent payable
throughout the Term for the Aircraft pursuant to Article 3 hereof.
"Rent Payment Date" shall mean the first day of each calendar
month during the Term hereof, on which day the payment of Basic Rent is due and
payable.
"Rent Period" shall mean each of the consecutive calendar
months throughout the Term, commencing on and including the first day of each
calendar month and ending on and including the last day of each calendar month;
provided that the first Rent Period shall commence on the Delivery Date and
shall end on the last day of the calendar month in which the Delivery Date
occurs.
"Security Deposit" shall have the meaning given such term in
Section 3.5(a) hereof.
"Security Letter of Credit" shall have the meaning given such
term in Section 3.5(f) hereof.
"Supplemental Rent" shall mean all amounts, liabilities and
obligations (other than Basic Rent and Maintenance Reserves) which Lessee
assumes or agrees to pay to Lessor hereunder or under any other Operative
Agreement or in connection herewith or therewith, whether pursuant to a letter
agreement, stipulation or other agreement, including, without limitation, (a)
any payment of Insured Value, (b) any payment of indemnity required by Sections
10 and 13 hereof (but excluding Maintenance Reserves), (c) any additional
maintenance obligations, and (d) interest as permitted.
"Tax Indemnity Agreement" shall mean the Tax Indemnity
Agreement dated as of the date hereof, between Lessor and Lessee.
"Taxes" shall have the meaning given such term in Section 10.1
hereof.
"Term" shall have the meaning given such term in Section 3.3
hereof.
"Time Controlled Part" shall mean any Item of Equipment that
has a predetermined time limit or interval in accordance with the Maintenance
Program or as required by the Aeronautics Authority, which requires such Item of
Equipment to be discarded, overhauled, or recertified upon reaching such time
limit or interval.
"Transportation Act" shall mean 49 U.S.C. ss.40101 et. seq.,
as amended, as in effect on the date of this Lease, or any successor or
substitute legislation at the time in effect and applicable.
"Watch Item" shall mean any special inspection generated by
airframe or component condition with inspection intervals determined by original
equipment manufacturers that do not coincide with routine periodic inspection
intervals, Airworthiness Directives, mandatory service bulletins, service
bulletins or fleet campaign directives, where such additional inspection shall
be required at an interval of less than (i) a full C Check or (ii) 3,500 Flight
Hours, whichever is greater.
"Wet Lease" shall mean any arrangement whereby Lessee agrees
to furnish the Aircraft to a third party pursuant to which (i) Lessee's crew at
all times shall maintain full operational control of the Aircraft, (ii) the
Aircraft shall be operated solely by regular employees of Lessee possessing all
current appropriate FAA certificates and licenses (it being understood that
cabin attendants need not be regular employees of Lessee), (iii) the insurance
required under Article 12 hereof shall remain in full force and effect, (iv) the
Aircraft shall be maintained by Lessee in accordance with its normal maintenance
practices and as required by the terms of this Lease, and (v) the term of any
such Wet Lease does not extend beyond the remaining Term of this Lease.
ARTICLE 2
DELIVERY AND ACCEPTANCE
2.1. Time and Place. (a) Lessor hereby agrees to lease the
Aircraft and the Aircraft Documents to Lessee, and Lessee hereby agrees to lease
the Aircraft and the Aircraft Documents from Lessor, pursuant to and in
accordance with the terms of this Lease as supplemented by the Lease Supplement.
(b) Subject to the satisfaction of the conditions set
forth in Section 2.3 hereof and the occurrence of an Excusable Delay, Lessor
shall deliver on the Delivery Date the Aircraft, together with all Aircraft
Documents, to Lessee at Marana, Arizona. Upon such delivery and subject to all
the other terms and conditions of this Lease, Lessee shall accept the Aircraft,
together with the Aircraft Documents relating thereto, and thereupon the
Aircraft and Aircraft Documents shall be deemed subject to this Lease. Lessee
shall indicate and confirm its acceptance of the Aircraft and Aircraft Documents
by the execution and delivery to Lessor of the Lease Supplement. Lessor shall
not be obligated to deliver the Aircraft to Lessee unless the conditions set
forth in Section 2.3 hereof are satisfied on or
before May 10, 1999.
(c) Lessee acknowledges that Lessor, at Lessor's cost
has provided Lessee with an adequate test flight
of the Aircraft. A technical representative for both Lessor and Lessee shall
prepare and sign a list of discrepancies of an airworthy nature or discrepancies
from the delivery requirements of Exhibit I hereto (excluding any discrepancies
relating to any Time Controlled Part) in the Aircraft systems and components
found during such test flight which exceed maintenance manual allowable limits.
To the extent not already accomplished by Lessor, such discrepancies are to be
corrected at Lessor's expense, at Lessee's Actual Cost, with all Parts necessary
for such correction to be supplied by Lessor and approved by Lessor and all such
corrections to be performed by Lessee with Lessee providing or procuring all
labor for such purpose. Lessee agrees that it will indemnify and hold harmless
Lessor and each Indemnitee from and against all claims, demands, liabilities,
losses and judgments, including attorney's fees, costs and expenses incident
thereto, which may be suffered by, accrued against, charged to or recoverable
from Lessor and/or any Indemnitee by reason of loss of or damage to property or
by reason of injury or death, or action or inaction of Lessee or any
representative of Lessee during such test flight.
(d) Lessor's obligation to lease the Aircraft and the
Aircraft Documents hereunder to Lessee, in addition to those conditions set
forth in Section 2.3 hereof, shall be conditioned upon (i) the absence of any
Default or Event of Default hereunder on the Delivery Date, (ii) the absence of
any materially adverse change in Lessee's financial condition from the date
hereof to the Delivery Date, (iii) the absence of any Excusable Delay, and (iv)
the absence of an Event of Loss having occurred
with respect to the Aircraft.
(e) Except as specifically stated in this Lease,
including Exhibit I hereto, the Aircraft shall be delivered to Lessee "AS IS,"
"WHERE IS" and SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND
REPRESENTATION SET FORTH IN SECTION 4.1 HEREOF. Upon the tender and delivery by
the Lessor, provided the conditions precedent described in Section 2.3 have been
satisfied, Lessee shall accept delivery of the Aircraft. Upon acceptance of the
Aircraft, Lessee shall thereupon indicate and confirm acceptance of the Aircraft
by execution and delivery of the Lease Supplement which shall be dated the
Delivery Date. The execution and delivery of the Lease Supplement shall
constitute conclusive and irrebuttable proof of delivery and acceptance.
(f) In the event of an Event of Loss with respect to
the Aircraft prior to the Delivery Date, Lessor shall promptly notify Lessee in
writing. This Lease shall terminate upon receipt by Lessee of such written
notice. In the event of an Excusable Delay which prevents the delivery of the
Aircraft hereunder for more than sixty (60) days beyond the estimated Delivery
Date, at the option of Lessor or Lessee, this Lease shall terminate upon receipt
by the other party of written notice thereof from the party wishing to terminate
this Lease (provided that such Excusable Delay is beyond the control of and is
not occasioned by the fault or negligence of Lessee). All Security Deposits and
other prepayments with respect to this Lease shall be returned to Lessee upon
any such termination. Neither Lessor nor Lessee shall be liable for the failure
to deliver the Aircraft hereunder due to an Excusable Delay, provided that such
Excusable Delay is beyond the control of and is not occasioned by the fault or
negligence of such party.
2.2. A Lease Only. At all times during the Term, full legal
title to all Items of Equipment and the Aircraft Documents shall remain vested
in Lessor to the exclusion of Lessee, notwithstanding the delivery of the
Aircraft to, and the possession and use thereof, by Lessee.
2.3. Conditions to Delivery of the Aircraft. Lessor's
obligation to deliver and lease the Aircraft to Lessee hereunder shall be
subject to Lessor having received the following on or before the Delivery Date:
(1) (i) an amount equal to the first month's Basic
Rent and (ii) the Security Deposit;
(2) written evidence of appropriate corporate action
of Lessee certified by an officer of Lessee duly authorizing or
ratifying the lease of the Aircraft hereunder and the execution,
delivery and performance of this Lease, together with an incumbency
certificate as to the Person or Persons authorized to execute and
deliver said certification and the Lease on behalf of Lessee;
(3) the Lease Supplement, in substantially the same
form as Exhibit B, and the Tax Indemnity Agreement, each completed,
duly executed and delivered by Lessee, and dated and effective as of
the Delivery Date;
(4) a favorable opinion signed by Lessee's General
Counsel, dated the Delivery Date, in substantially the form annexed as
Exhibit D hereto, and including such other matters as may be reasonably
requested by Lessor or Lessor's counsel;
(5) an opinion letter, substantially in the form of
Exhibit E hereto, executed by an independent aircraft insurance broker
reasonably acceptable to Lessor, as to Lessee's compliance with the
relevant insurance provisions of this Lease and a certificate of
insurance signed by such insurance broker which evidences the relevant
insurance required by Article 12 hereof which certificate of insurance
shall include the relevant special provisions set forth on Exhibit F
hereto;
(6) a certificate signed by a duly authorized officer
of Lessee, dated the Delivery Date, to the effect that:
(A) the representations and warranties of
Lessee contained in Section 4.2 hereof, are true and correct
on and as of such date as though made on and as of such date,
and all authorizations and approvals of, giving of notice to,
and filings and recordings with, all regulatory bodies and
authorities which may be conditions to the validity or
enforceability of this Lease or Lessee's performance of the
terms hereof have been duly accomplished; and
(B) no Default or Event of Default has
occurred and is continuing or would result from the lease of
the Aircraft;
(7) evidence satisfactory to Lessor confirming that
this Lease and the Lease Supplement have been duly filed with the FAA;
(8) a favorable opinion from McAfee & Taft, special
FAA counsel to Lessor, addressed to Lessor , as to completion of the
due filing of this Lease, the Lease Supplement and each other agreement
or instrument anticipated to be recorded with the FAA, pursuant to the
Transportation Act and related rules and regarding such other matters
as Lessor may reasonably request;
(9) one or more Form UCC-1 Uniform Commercial Code
Financing Statements signed by Lessee, as debtor, in form and substance
acceptable to Lessor for filing in any and all recordation offices
necessary to evidence or perfect Lessor's interest in the Aircraft and
Items of Equipment;
(10) evidence reasonably satisfactory to Lessor that
Lessee has obtained such licenses, operator's certificates or other
documents from each appropriate Governmental Authority as may be
required to operate the Aircraft as an air carrier under applicable
Law, including but not limited to, approval by the FAA;
(11) if applicable, a duly executed Security Letter
of Credit, in a form satisfactory to Lessor; and
(12) such other documents or conditions or financial
information as Lessor or Lessor's counsel may reasonably request, in
form and substance satisfactory to Lessor and Lessor's counsel.
2.4. Aircraft Configuration, etc. The Aircraft shall be
delivered "as is, where is" in the configuration used by the previous operator
of the Aircraft and shall conform to the requirements set forth in Exhibit I
hereto. Lessee shall be permitted to change the interior configuration,
including replacement of interior Parts such as seats, seat covers, and
carpeting at no cost to Lessor. All requirements necessary to bridge the
Aircraft onto the Maintenance Program shall be accomplished by Lessee at the
sole cost and expense of Lessee, including without limitation, replacement of
hard time parts whether due to (x) accumulated time since last overhaul, or (y)
lack of documentation. Notwithstanding anything herein to the contrary, Lessor,
at its sole cost and expense, shall cause the Aircraft on the Delivery Date: (i)
to have windshear and TCAS installed thereon; and (ii) to have a current United
States Certificate of Airworthiness issued by the FAA.
ARTICLE 3
RENT AND TERM
3.1. Basic Rent. Lessee covenants and agrees to pay to Lessor
the Basic Rent as set forth on Exhibit H hereto throughout the Term, payable in
consecutive installments on each Rent Payment Date during the Term of this
Lease.
3.2. Maintenance Reserves and Supplemental Rent. Lessee shall
pay to Lessor the Maintenance Reserves pursuant to the terms of Section 5.7 and
Exhibit G hereof, respectively. Lessee shall pay to Lessor any and all
Supplemental Rent within five (5) Business Days after demand or, if longer, such
other relevant period as may be provided herein. In the event of any failure on
the part of Lessee to pay any Maintenance Reserves or Supplemental Rent, Lessor
shall have all rights, powers and remedies provided for herein or by law or
equity or otherwise in the case of nonpayment of Basic Rent. Lessee also shall
pay to Lessor, on demand, as Supplemental Rent to the extent permitted by
applicable Law, interest at the Past Due Rate (i) on any part of any installment
of Basic Rent not paid when due for any period for which the same shall be
overdue and (ii) on any payment of Maintenance Reserves or Supplemental Rent
(excluding interest at the Past Due Rate payable under clause (i) above) not
paid when due until the same shall be paid, in each case commencing on the due
date and including such date thereof if such payment is not received by the time
specified in this Article 3.
3.3. Term. Except as otherwise provided herein, the Aircraft
shall be leased to Lessee hereunder for a term of Eighty-Four (84) months,
commencing on the Delivery Date and ending at 3:00 p.m. New York, New York time
on the day which is the seventh (7th) annual anniversary of the Delivery Date
(the "Term").
3.4. Place of Payment. Each payment of Rent, Maintenance
Reserves and the Security Deposit shall be made by Lessee to Lessor by wire
transfer of immediately available funds to The Chase Manhattan Bank, N.A., 270
Park Avenue, New York, New York 10017, for The CIT Group, Account No.
116-003855, ABA No. 021-000-021, identifying the source of such payment, not
later than 3:00 p.m. New York City time on the date due. If any payment
hereunder is due on a day which is not a Business Day, such payment shall be due
and payable on the next preceding Business Day.
3.5. Security Deposit. (a) Lessor acknowledges the receipt of
Two Hundred Ten Thousand Dollars ($210,000) (the "Initial Deposit") representing
partial payment of the amount described on Exhibit H hereto as the Security
Deposit Amount. The Initial Deposit shall be held until the Delivery Date at
which time Lessee shall provide to Lessor a security deposit (the "Security
Deposit") under this Lease in the amount of the Security Deposit Amount as set
forth on Exhibit H hereto. The Security Deposit shall be made in cash or in the
form of a Security Letter of Credit that satisfies the requirements of Section
3.5(f) hereof. The Initial Deposit shall be promptly returned by Lessor to
Lessee upon the issuance of such a Security Letter of Credit. The Security
Deposit shall be nonrefundable during the Term, and shall be held by Lessor as
security for (i) the timely and faithful performance by Lessee of all of
Lessee's obligations under this Lease (including, but not limited to, any
prepetition or postpetition obligations of Lessee in connection with any
proceeding or other action involving Lessee under any bankruptcy, insolvency or
reorganization Law of any jurisdiction and compliance with all return conditions
specified herein and on Exhibit C hereto), (ii) all payments of Rent and
Maintenance Reserves due and owing from time to time, (iii) any and all damages
incurred by Lessor which may arise as a result of the breach or rejection of the
Lease, whether or not in connection with a motion to lift stay or a motion to
assume or reject the Lease, including, without limitation, overdue interest,
costs of preservation or protection of the Aircraft and costs of repossession
and (iv) all attorney's fees incurred by Lessor in connection with any of the
above, whether or not litigation is instituted and whether incurred before or
after the filing by or against Lessee of a petition under Chapter 7 or Chapter
11 of the Bankruptcy Code.
(b) Lessee hereby grants to Lessor a s ecurity
interest in the Security Deposit and in all other sums deposited pursuant to
this Section 3.5. Lessee agrees to execute and file with the appropriate
Governmental Authorities any and all documents necessary or reasonably requested
by Lessor to evidence and perfect such security interest in favor of Lessor.
(c) Upon the occurrence of an Event of Default
hereunder, in addition to all of the other rights that Lessor may have under the
New York Uniform Commercial Code as a secured party, Lessor may use, apply or
retain all or any portion of the Security Deposit in partial payment for sums
due to Lessor by Lessee, to compensate Lessor for any sums it may in its
discretion advance as a result of a Default by Lessee, or to apply toward losses
or expenses Lessor may suffer or incur as a result of Lessee's Default
hereunder. If Lessor uses or applies all or any portion of such Security
Deposit, such application shall not be deemed a cure of any Default or Event of
Default, and Lessee shall within five (5) days after written demand therefor
deposit with Lessor in cash an amount sufficient to restore the Security Deposit
to its original sum as set forth in Exhibit H hereto and the failure of Lessee
to do so shall be a material breach of this Lease by Lessee.
(d) The Security Deposit shall be held by Lessor in a
segregated account at Fleet Bank in New York. Provided no Default or Event of
Default shall have occurred and be continuing, Lessor shall credit to the
Security Deposit interest thereon at the commercial rate of interest as is
customarily available to Lessor from time to time, as is in effect on the first
day of each calendar quarter during the Term. Such interest shall be credited on
the tenth Business Day of each calendar quarter and on the date on which the
Security Deposit is returned to Lessee. Any interest earned on the Security
Deposit shall become part of the Security Deposit and shall be held and applied
by Lessor as provided herein.
(e) Provided Lessee is not in Default under this
Lease and no Event of Default shall have occurred and be continuing, the
Security Deposit shall be returned to Lessee (i) promptly after the termination
of this Lease in the event that this Lease is terminated prior to the Delivery
Date, or (ii) within one month following the later of the Expiration Date and
Lessee's return of the Aircraft in compliance with Article 16 hereof, together
in either case with interest, if any, earned thereon.
(f) In lieu of a cash Security Deposit, Lessee may
deliver to Lessor, on or after the Delivery Date, an unconditional and
irrevocable letter of credit in a form satisfactory to Lessor, in the amount of
not less than the Security Deposit Amount set forth on Exhibit H, hereto and
issued by an issuer bank acceptable to Lessor (the "Security Letter of Credit").
The Security Letter of Credit shall remain in full force and effect during the
Term hereof and for not less than thirty (30) days following the expiration of
the Term. Lessor may draw upon all or a portion of the amount of the Security
Letter of Credit upon (i) the occurrence of an Event of Default hereunder or
(ii) in the event that the Letter of Credit has not been renewed and a
replacement letter of credit delivered to Lessor not less than thirty (30) days
prior to the expiration date of such Letter of Credit, and Lessor may use, apply
or retain all or any portion of the funds paid pursuant to the Security Letter
of Credit to the same extent as provided in the paragraph (a) above with respect
to the cash Security Deposit by delivering a certificate to the issuer stating
that a drawing by Lessor is authorized under the terms of this Lease. If Lessor
draws upon all or any portion of the Security Letter of Credit, such application
shall not be deemed a cure of the Default or Event of Default for which such
amount was applied until Lessee shall cause (within five (5) Business Days after
written demand therefor) the Security Letter of Credit to be reinstated to its
original amount or cause a replacement letter of credit to be issued in the
amount of not less than the Security Deposit amount set forth on Exhibit H
hereto, and the failure of Lessee to do so shall be a material breach of this
Lease by Lessee. For the avoidance of doubt, Lessee's reinstatement of the
Security Letter of Credit shall not cause the cure of any Default or Event of
Default which would not have been curable in full by Lessor's drawing on the
then-available stated amount of the Security Letter of Credit. After expiration
of the Term of this Lease, and provided that Lessee has been discharged of its
obligations hereunder, including but not limited to, return conditions pursuant
to Section 16 hereof and Exhibit C hereto, Lessor shall return the Security
Letter of Credit to Lessee for cancellation.
3.6 Time is of the Essence. Time and strict and punctual
performance are of the essence with respect to each provision of this Lease.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES; COVENANTS OF THE PARTIES
4.1. Lessor's Representations and Warranties. LESSOR LEASES
THE AIRCRAFT AND AIRCRAFT DOCUMENTS TO LESSEE "AS IS, WHERE IS", EXCEPT AS
OTHERWISE PROVIDED HEREIN. LESSOR HAS NOT AND SHALL NOT BE DEEMED TO HAVE MADE
(WHETHER BY VIRTUE OF HAVING LEASED THE AIRCRAFT AND AIRCRAFT DOCUMENTS UNDER
THIS LEASE, OR HAVING ACQUIRED THE AIRCRAFT AND AIRCRAFT DOCUMENTS, OR HAVING
DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS
UNDER OR IN RELATION TO THIS LEASE OR OTHERWISE), AND LESSOR HEREBY SPECIFICALLY
DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE
OR LIEN STATUS (EXCEPT AS HEREIN BELOW PROVIDED), AIRWORTHINESS, CONDITION,
DESIGN, OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE
LIKE, OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT AND AIRCRAFT
DOCUMENTS, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT,
THE ABSENCE THEREFROM OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE,
OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED
(INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING
OR USAGE OF TRADE), WITH RESPECT TO THE AIRCRAFT AND AIRCRAFT DOCUMENTS; AND
LESSEE HEREBY WAIVES, RELEASES, RENOUNCES AND DISCLAIMS EXPECTATION OF OR
RELIANCE UPON ANY SUCH WARRANTY OR WARRANTIES. LESSOR SHALL NOT HAVE ANY
RESPONSIBILITY OR LIABILITY TO LESSEE OR ANY OTHER PERSON, WHETHER ARISING IN
CONTRACT OR TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR
OTHERWISE, FOR (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE, OR PART OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE
IN CONNECTION THEREWITH, (ii) THE USE, OPERATION OR PERFORMANCE OF THE AIRCRAFT
OR ANY RISKS RELATING THERETO, (iii) ANY INTERRUPTION OF SERVICE, LOSS OF
BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES OR (iv) THE DELIVERY,
OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE
AIRCRAFT. THE WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS SECTION 4.1 ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER,
EXPRESS OR IMPLIED, AND LESSOR SHALL NOT BE DEEMED TO HAVE MADE ANY OTHER
WARRANTIES, EXCEPT THAT: Lessor represents, warrants and covenants that it has
good title to the Aircraft and Aircraft Documents, and the right and corporate
power to lease the Aircraft (including all Items of Equipment) and Aircraft
Documents to Lessee hereunder; and, so long as Lessee keeps and performs each
and every covenant to be kept and performed by it hereunder, Lessor, or anyone
claiming by or through Lessor or claiming title to the Aircraft, any Item of
Equipment or the Aircraft Documents, shall not interfere with Lessee's quiet
enjoyment of the Aircraft and Aircraft Documents; provided, however, that Lessor
and prospective purchasers and lessees may inspect the Aircraft and Aircraft
Documents at their own expense as long as such inspection does not interfere
with Lessee's operation or maintenance of the Aircraft. During the term of this
Lease, Lessee is authorized to enforce in its own name such rights as Lessor may
have with respect to the Aircraft under any warranty (express or implied),
service policy or product agreement to the extent that the same may be assigned
or otherwise made available to Lessee and, to the extent that the same may not
be so assigned or otherwise made available to Lessee, Lessor agrees to use
reasonable efforts, at Lessee's expense, to enforce such rights as Lessor may
have with respect thereto for the benefit of Lessee; provided, however, that
upon the occurrence of a Default or an Event of Default all such rights shall
immediately and unconditionally revert to Lessor.
4.2. Representations and Warranties of the Parties. Except as
otherwise provided in this Section, each party represents and warrants to the
other, as to itself, that:
(a) (i) such party is a corporation duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation, and (ii) Lessee only represents and warrants that it (A) is and
covenants that throughout the Term it will remain duly certificated as an air
carrier of passengers under the laws of the United States of America; and (B)
operates and will throughout the Term continue to operate the Aircraft in
accordance with the rules and regulations of the FAA as an air carrier holding a
certificate issued under ss. 44705 of the Transportation Act;
(b) the execution and delivery by such party of this
Lease, the Lease Supplement, and any other Operative Agreement the consummation
by such party of the transactions contemplated herein and therein and compliance
with the terms and provisions hereof and thereof are within such party's
corporate powers, do not and will not result in a violation of such party's
articles of incorporation or by-laws as currently in effect; and do not and will
not conflict with, or result in a breach of any term or provision of, or
constitute a default under, or result in the imposition of any Lien upon the
Lease or any Item of Equipment under, any indenture, mortgage, or other
agreement or instrument to which such party is a party or by which it or any of
its properties, is or may be bound, or any existing applicable law, rule or
regulation, or any judgment, order or decree, of any government, governmental
instrumentality or court having jurisdiction over such party or any of its
properties;
(c) Lessee only represents and warrants that, upon
its delivery hereunder, none of the Aircraft, Airframe, Landing Gear, Engines or
any Part thereof, shall be or become subject to any Lien except for such, if
any, as is permitted by Article 14 hereof;
(d) this Lease, the Lease Supplement and the other
Operative Agreements have each been duly authorized by such party, this Lease,
the Lease Supplement and the other Operative Agreements has been duly executed
and delivered by such party, and this Lease and the Tax Indemnity Agreement are
and the Lease Supplement will be, upon due execution and delivery thereof, a
legal, valid and binding obligation of such party, enforceable against such
party in accordance with its terms, except as such enforceability may be further
limited by bankruptcy; insolvency, reorganization and other laws of general
application affecting the enforcement of creditors' rights;
(e) Lessee only represents and warrants that Lessee
has received every consent, approval or authorization of, and has given every
notice to, each Governmental Authority having jurisdiction with respect to the
execution, delivery or performance of this Lease (including all monetary and
other obligations hereunder) that is required in order for Lessee to execute and
deliver this Lease and the other Operative Agreements and each other document to
which Lessee is a party, and to perform the transactions contemplated hereby and
thereby and each such consent, approval or authorization is valid and effective
and has not been revoked;
(f) Lessee only represents and warrants that there
are no suits or proceedings pending or, to the knowledge of Lessee, threatened
in any court or before any regulatory commission, board or other administrative
governmental agency against or affecting Lessee which will have a materially
adverse effect on the current business or financial condition of Lessee;
(g) Lessee only represents and warrants that, except
for the filing for recordation of this Lease and the Lease Supplement with the
FAA and the filing of any Uniform Commercial Code financing statements required,
and the placing on the Aircraft and on each Engine of the plates containing the
legends referred to in Section 5.6 hereof, no further filing or recording of
this Lease or of any other document and no further action, are necessary or
desirable under the Laws of any Governmental Authority in order to (i) fully
protect and establish Lessor's title to, interest in and property rights with
respect to the Aircraft and Aircraft Documents as against Lessee or any third
party claiming through Lessee and to ensure that the property rights of Lessor
therein will have priority in all respects over the claims of all creditors of
Lessee, or (ii) ensure the validity, effectiveness and enforceability of this
Lease, the Lease Supplement and the other Operative Agreements;
(h) Lessee only represents and warrants that it has
delivered to Lessor a true, complete and correct copy of the Lessee's financial
statements for the period ended March 31, 1998 together with an independent
auditor's report with respect thereto, and Lessor represents that it has
reviewed such financial statements and, assuming they are accurate, finds such
financial statements to be acceptable;
(i) Lessee only represents and warrants that there
are no withholding or other Taxes to be deducted from any payment to be made by
Lessee under this Lease;
(j) Lessee only represents and warrants that Lessee
is not in default in the performance of its material obligations for the payment
of indebtedness for borrowed money or on any other material lease obligations;
and
(k) Lessee only represents and warrants that, upon
the commencement of a Chapter 11 proceeding under the Bankruptcy Code by or
against Lessee, Lessor shall be entitled to the benefit of Title 11 U.S.C.
Section 1110 as in effect on the date hereof with respect to the Aircraft.
ARTICLE 5
POSSESSION; USE; LAWFUL INSURED OPERATIONS; MAINTENANCE;
REGISTRATION AND INSIGNIA; MAINTENANCE RESERVES
5.1. Possession. During the Term, the Items of Equipment and
the operations performed therewith shall, subject to applicable Laws of any
Governmental Authority including, but not limited to, FAA regulations, be under
the exclusive control of Lessee, subject to the rights of Lessor hereunder.
Without the prior written consent of Lessor, Lessee shall not sublease or
otherwise deliver, relinquish or transfer possession of the Aircraft, the
Airframe, the Aircraft Documents or any Item or Items of Equipment; provided,
however, that, so long as no Default or Event of Default shall have occurred and
be continuing, Lessee may, without the written consent of Lessor but subject to
the other provisions of this Lease:
(i) deliver possession of the Aircraft, the Airframe,
any Engine or any Part thereof or any Item of Equipment to the
Manufacturer thereof or an FAA-certified maintenance facility
for service, repair, modifications, alterations, maintenance
or overhaul work required by the terms hereof;
(ii) install any Engine on an airframe owned by
Lessee which airframe shall be free and clear of all Liens,
except: (A) Liens permitted hereby and those which apply only
to the engines (other than the Engines), appliances, parts,
instruments, appurtenances, accessories, furnishings and other
equipment (other than Parts) installed on such airframe (but
not to such airframe as an entirety); or (B) mortgage Liens or
other security interests, provided, that the applicable
security documents provide that such Engine shall not become
subject to the Lien of such mortgage or security interest,
notwithstanding the installation thereof on such airframe;
(iii) install any Engine on an airframe leased to
Lessee or purchased by Lessee subject to a conditional sale or
other security agreement, provided that such airframe is free
and clear of all Liens, except: (A) the rights of the parties
to the lease or conditional sale or other security agreement
covering such airframe, or their assignees; (B) Liens of the
type permitted by clause (ii) above; and (C) such lease,
conditional sale or other security agreement effectively
provides that such Engine shall not become subject to the lien
of such lease, conditional sale or other security agreement,
notwithstanding the installation thereof on such airframe; or
(iv) enter into a Wet Lease of the Aircraft.
Lessee will not permit any Item of Equipment (other than Parts as provided
herein) to be utilized on any aircraft not within Lessee's fleet of aircraft. No
relinquishment of possession pursuant to the terms of this Section 5.1 shall in
any way discharge or diminish any of Lessee's obligations to Lessor hereunder or
constitute a waiver of Lessor's rights and remedies hereunder.
5.2. Assignment by Lessee. Lessee shall not assign any
interest in this Lease or any of its rights hereunder or in any Item of
Equipment, and any such purported assignment shall be void ab initio.
5.3. Use. Lessee shall use the Aircraft and any Item of
Equipment solely in commercial operations for which Lessee is duly authorized
and strictly in accordance with the terms of this Lease. Lessee shall not use,
or permit the use of, any Item of Equipment for any purpose for which it is not
suitable. The Aircraft shall always remain in passenger configuration. Lessee
shall comply with FAA regulations relating to the transport of restricted
articles. Lessee shall pay for and provide all electric power, oil, fuel and
lubricant consumed by and required for the operation of the Aircraft.
5.4. Lawful Insured Operations. The Aircraft shall be operated
at all times in compliance with all applicable Federal Aviation Regulations,
including, but not limited to, Part 121 thereof. Lessee will not cause or permit
the Aircraft or any Item of Equipment to be maintained, used or operated in
violation of any Law or Governmental Authority having jurisdiction or contrary
to any Manufacturer's operating manuals and instructions, or, in the case of the
Aircraft and the Engines, in violation of any airworthiness certificate or
registration relating thereto. Lessee agrees not to operate any Item of
Equipment, or suffer or permit such Item to be operated (i) unless such Item is
covered by insurance required by the terms of this Lease, (ii) contrary to the
terms of the insurance required by the provisions of Article 12 hereof or (iii)
in any area excluded from coverage by any insurance required by the terms of
Article 12 hereof.
5.5. Maintenance. (a) Lessee, at its own expense, shall cause
the Items of Equipment to be serviced, repaired, overhauled, tested and
maintained in compliance with all applicable Federal Aviation Regulations,
including, but not limited to, Part 121 thereof (i) by personnel in accordance
with FAA requirements, (ii) in accordance with the Maintenance Program and the
operations and maintenance manuals of the Manufacturers thereof (including,
without limitation, an FAA approved or Manufacturer's recommended program for
the prevention and treatment of corrosion), (iii) so as to keep such Item in as
good operating condition and appearance as when delivered to Lessee hereunder,
ordinary wear and tear excepted, (iv) so as to keep such Item in such operating
condition as may be necessary to cause the airworthiness certificate of such
Item to be maintained in good standing at all times under the applicable rules
and regulations of the Aeronautics Authority, (v) so as to keep it airworthy and
fit for scheduled commercial passenger service in the United States and each
other jurisdiction in which Lessee will operate the Aircraft, and (vi) so that
it will not discriminate against the Aircraft (as compared to other aircraft of
the same type owned or operated by Lessee) in respect of the Maintenance Program
and maintenance, other than withdrawal of the Aircraft from use and operation as
is necessary to prepare the Aircraft for return to Lessor upon the expiration or
termination of this Lease.
(b) Without limiting the foregoing, Lessee shall
cause, at its expense, all maintenance Checks to be performed on the Aircraft as
they become due, with no fleet discrimination with respect to the Aircraft. Any
damage, defects or corrosion discovered during any Check shall be permanently
repaired in accordance with the Maintenance Program and the structural repair
manual for the Aircraft at the sole expense of Lessee. Lessee shall provide
Lessor with ten (10) days prior notice of scheduled C and D Checks. Lessor shall
have the right to have representatives present during such Checks who shall
consult with Lessee's representatives as to the work being performed during such
Checks. Lessee, at its own expense, shall furnish Lessor upon return of the
Aircraft and at such times during the Term as Lessor shall reasonably request,
originals of all Aircraft Records with a certificate signed by an officer of
Lessee, affirming that all the maintenance work represented by such Aircraft
Records was performed by Lessee or a then FAA authorized repair station approved
to maintain Boeing 737-300 type aircraft and a certificate affirming that the
maintenance work represented by such records was performed in accordance with
the Maintenance Program. Lessee, at its own expense, shall also maintain (in the
English language) all Aircraft Documents and other materials required by the
FAA, or any other applicable Aeronautics Authority, including Aircraft Documents
required to be maintained in respect of each Item of Equipment, in a manner
acceptable to the FAA, or any other applicable Aeronautics Authority and
promptly furnish to Lessor upon Lessor's request such information as may be
required to enable Lessor to file any reports required to be filed with any
Governmental Authority because of Lessor's ownership of the Aircraft. All
Aircraft Documents, including Aircraft Records and documentation of maintenance
accomplished on the Airframe, Engines and Parts shall be in the English language
and shall be retained by Lessee until the Expiration Date, at which time all
Aircraft Records and Aircraft Documents shall be returned to Lessor in original
form.
(c) Lessee will not allow the Flight Hours:Cycle
ratio for the operation of the Aircraft during the Term to fall below a ratio of
2:1. To the extent the Flight Hours:Cycle ratio falls below 2:1, the applicable
rate of the Maintenance Reserves shall be adjusted in accordance with paragraph
(f) of Exhibit G hereto.
(d) No Time Controlled Part shall be removed from the
Aircraft unless (i) such Time Controlled Part must be removed and replaced in
accordance with the Maintenance Program or (ii) such Time Controlled Part is
re-installed on the Aircraft within a reasonable period of time based on
Lessee's schedule but in any event not to exceed 72 hours after such removal.
Any Time Controlled Part which is removed in accordance with the Lessee's
Maintenance Program shall be replaced with a part of the same manufacture and an
equivalent or later part number equal to the replaced Part and be completely
interchangeable as to the form, fit and function and shall be airworthy.
5.6. Registration and Insignia. Upon delivery of the Aircraft,
Lessee agrees to place the following lease identification in the cockpit in a
prominent location and to place such lease identification on each Engine on a
metal plate and in a prominent location near such Engine's data plate: "Leased
from C.I.T. Leasing Corporation, as owner and Lessor." Lessee agrees to make
such changes to such lease identification as Lessor may reasonably request from
time to time. Lessee shall not take or permit any action inconsistent with the
continued registration of the Aircraft in Lessor's name under the Transportation
Act. Lessee shall not remove, or cause or permit the removal of, any plate, disc
or other similar device affixed to the Airframe or any Engine indicating
Lessor's ownership thereof. If any of the same shall come to be removed, Lessee
shall promptly affix a replacement therefor, at its own expense, it being
understood that such identification should be maintained (A) in the cockpit of
the Airframe, in a prominent location adjacent to the airworthiness certificate
for the Aircraft, and (B) on each Engine, in a prominent location near such
Engine's data plate. Lessee shall not allow the name of any other Person,
association or corporation to be placed on the Airframe or any Engine as a
designation that might be interpreted as a claim of ownership or of any interest
therein; provided, however, that Lessee may cause the Airframe to be lettered or
otherwise marked in an appropriate manner for convenience of identification of
the interest of Lessee therein.
5.7. Maintenance Reserves. Lessee agrees to pay to Lessor
Maintenance Reserves with respect to the Aircraft during the Term in accordance
with Exhibit G hereto. All Maintenance Reserves shall be applied in accordance
with the applicable provisions of Exhibit G hereto. No interest shall accrue
with respect to Maintenance Reserves.
5.8. Application of Reserves Upon Aircraft Return. Any amounts
remaining in the "D" Check Airframe Reserve, Engine Reserves, the Engine Life
Limited Parts Reserves, Landing Gear Reserve, and any other Maintenance Reserve
established from time to time hereunder after application of the monies held in
any such Maintenance Reserve in accordance with Exhibit G hereto upon the return
of the Aircraft pursuant to Section 16 hereof shall be retained by Lessor.
5.9. Concerning Reserves. (a) At the time Lessee pays amounts
into the "D" Check Airframe Reserve, the Engine Reserves, the Engine Life
Limited Parts Reserves, the Landing Gear Reserve, and any other Maintenance
Reserve established from time to time, as the case may be, Lessee shall provide
to Lessor a certificate as to the computation of each such payment, duly
executed on behalf of Lessee by the records manager or other duly authorized
employee of Lessee, certifying the number of Airframe Flight Hours and Cycles
for the Aircraft during the Prior Period, the number of Engine Cycles and Engine
Flight Hours for each Engine during the Prior Period, and the number of Flight
Hours and Cycles for each Landing Gear during the Prior Period, as the case may
be. From time to time, Lessor shall have the right, during normal business hours
at its own expense, on reasonable prior notice to Lessee, to cause its agents to
review the appropriate records of Lessee to determine the accuracy of such
certificates. In the event a discrepancy is determined as a result of such
review, Lessor shall notify Lessee in writing thereof and Lessee shall make up
any deficiency in its payments to Lessor within five (5) Business Days of such
notice.
(b) Pursuant to the New York Uniform Commercial Code,
Lessee hereby grants to Lessor a possessory security interest in the "D" Check
Airframe Reserve, each Engine Reserve, such Engine Parts Reserve the Landing
Gear Reserve and any other Maintenance Reserve established from time to time
hereunder as security for all obligations of Lessee under this Lease, including,
without limitation, the obligations of Lessee to maintain and return the
Aircraft, Airframe, Engines and each Item of Equipment in the condition required
by this Lease. Lessee agrees to execute and file, at Lessee's expense, with the
appropriate Governmental Authorities any and all documents necessary or
reasonably requested by Lessor to evidence and perfect such security interest in
favor of Lessor. Upon and following an Event of Default, and in addition to all
other rights Lessor may have under this Lease and as a secured party under the
New York Uniform Commercial Code, Lessor may (but shall not be obligated to)
use, apply or retain all or any portion of the "D" Check Airframe Reserve, the
Engine Reserves, the Engine Life Limited Parts Reserves, the Landing Gear
Reserve, and any other Maintenance Reserve established from time to time
hereunder as follows: (i) first, to compensate Lessor for any sums it may in its
discretion advance to perform any of Lessee's obligations to maintain and return
the Aircraft, Airframe, Engines, Landing Gear and Aircraft Documents in the
condition required under this Lease; and (ii) the balance in the "D" Check
Airframe Reserve, the Engine Reserves, the Engine Life Limited Parts Reserves,
the Landing Gear Reserve, and any other Maintenance Reserve established from
time to time hereunder, if any, to apply toward losses, damages or expenses that
Lessor may suffer or incur as a result of Lessee's failure to perform any other
obligation under this Lease. In the event Lessor uses, applies or retains all or
any portion of the "D" Check Airframe Reserve, the Engine Reserves, the Engine
Life Limited Parts Reserves, the Landing Gear Reserve, and any other Maintenance
Reserve as stated above, then Lessee shall immediately reimburse each such
Reserve for all amounts used, applied or retained by Lessor.
(c) Lessee acknowledges that it has no property
interest in any Maintenance Reserve and agrees that
Maintenance Reserves shall not be deemed property of Lessee.
(d) Lessee shall not assign, hypothecate or otherwise
transfer its residual interest, if any, in
Maintenance Reserves.
ARTICLE 6
INSPECTION; FINANCIAL AND AIRCRAFT INFORMATION
6.1. Inspection. During the Term, Lessee shall furnish to
Lessor such information concerning the location, condition, maintenance, use and
operation of the Items of Equipment and Aircraft Documents as Lessor may
reasonably request including, without limitation, a copy of the Maintenance
Program of Lessee and a copy of the related FAA approved operation
specifications. Lessee shall permit any Person (including prospective purchasers
or lessees of the Aircraft) designated in writing by Lessor, at Lessor's
expense, to (i) visit and inspect the Items of Equipment, the Aircraft
Documents, the portions of the Maintenance Program relating to the maintenance
status of the Aircraft, the condition, use and operation of the Items of
Equipment and the Aircraft Records maintained in connection therewith and, at
Lessor's expense, to make copies of such Aircraft Records as Lessor may
designate and (ii) inspect the Aircraft for corrosion, including, if necessary,
removal of floor boards to facilitate such inspection. Lessor 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. Any inspection shall occur at a
reasonable time, provided that such inspection does not interfere with Lessee's
operating commitments.
6.2. Financial Information. (a) Lessee agrees that it will
maintain its financial statements in a manner which fairly presents its
financial condition and that the results of its operations and changes in its
financial position will be accounted for in accordance with generally accepted
accounting principles consistently applied.
(b) Lessee agrees to furnish to Lessor during the Term (i)
within forty-five (45) days after each fiscal quarter of Lessee, copies of the
balance sheet, profit and loss statement, retained earnings statements, income
statements, and cash flow statement of Lessee for such fiscal quarter, certified
as true and correct by the Chief Financial Officer of Lessee, and (ii) from time
to time such other information as Lessor may reasonably request.
(c) Lessee agrees to furnish to Lessor during the Term (i)
within ninety (90) days after the end of the fiscal year, copies of the balance
sheet, profit and loss statement, retained earnings statements, income
statements, and cash flow statement of Lessee for such fiscal year, certified as
true and correct by the Chief Financial Officer of Lessee, (ii) comparative
figures for the previous fiscal year and (iii) from time to time such other
information as Lessor may reasonably request.
(d) Lessee agrees to provide all other information reasonably
requested by Lessor with respect to the financial condition, operations,
business and property of Lessee or any of its Affiliates.
6.3. Aircraft Information. During the Term, Lessee agrees to
furnish or cause to be furnished to Lessor the following information, in
writing, with respect to the Aircraft: (i) on a monthly basis, within ten (10)
days following the last day of each Rent Period a monthly utilization report
with respect to the Aircraft, Engines, Landing Gear, APU and Parts reflecting
the Flight Hours and Cycles of operation thereof, (ii) within twenty-four (24)
hours of the occurrence or detection thereof, any accident or incident
information with respect to the Airframe or any of the Engines in circumstances
where the resulting damage to the Aircraft from such accident or incident to the
Airframe or any of the Engines exceeds $100,000.00, (iii) promptly upon the
request of Lessor, the status of any claims for damages (whether with respect to
any Airframe or Engine or any other Item of Equipment, or against Lessor or
Lessee) arising out of the use, operation, lease, sublease, sub-sublease or
condition of the Airframe, Engines or any other Item of Equipment and/or the
amount of taxes paid with respect thereto, (iv) upon request, those portions of
the Maintenance Program relating to the maintenance status of the Aircraft, and
(v) from time to time such other information as Lessor may reasonably request,
including information concerning the location, condition, use and operation of
the Aircraft and the Engines.
6.4 Other Information. Lessee agrees that it will furnish to
Lessor:
(a) immediately upon the occurrence of a Default or an Event
of Default, a written notice specifying the nature of the Default or Event of
Default and what action Lessee is taking or proposes to take with respect
thereto;
(b) such other information as Lessor may reasonably request
concerning Lessee, the Airframe, Engines or any other Item of Equipment in order
to enable Lessor to determine whether the covenants, terms, and provisions of
this Lease and the other Operative Agreements have been complied with including,
without limitation, such information requested by Lessor as may be required to
enable Lessor to file any reports required to be filed with any Governmental
Authority as a result of Lessor's interest in any Item of Equipment; and
(c) prompt written notice of the issuance by any court or any
regulatory authority of any injunction, order or decision prohibiting or having
the effect of prohibiting, restraining or limiting any of the transactions
contemplated by this Lease or the other Operative Agreements, or the institution
of any litigation or other proceedings seeking any such injunction, order or
other restraint.
ARTICLE 7
COVENANTS
7.1. Lessee's Covenants. Lessee covenants and agrees that,
during the Term:
(a) Lessee will preserve and maintain (i) its
corporate existence, and (ii) all of its rights, privileges and
franchises in every jurisdiction in which the character of the property
owned or the nature of the business transacted by it makes licensing or
qualification necessary.
(b) Lessee will pay or cause to be paid all Taxes,
assessments and governmental charges or levies imposed upon it or upon
its income and profits, or upon any property belonging to it, prior to
the date on which penalties attach thereto and all lawful claims,
which, if not paid, might become a Lien or charge upon the property of
Lessee; provided, however, that Lessee shall not be required to pay any
such Tax, assessment, charge, levy or claim the payment of which is
being contested in good faith and by appropriate proceedings with
adequate reserves. Lessee shall not permit the sale, forfeiture or loss
of any Item of Equipment or interest therein in the course of or as a
result of any such proceedings.
(c) Lessee will operate the Aircraft and will remain
duly qualified to operate the Aircraft under applicable Law.
(d) Lessee undertakes to maintain in full force and
effect all governmental consents, licenses, authorizations, approvals,
declarations, filings and registrations obtained or effected in
connection with this Lease and every document or instrument
contemplated hereby and to take all such additional action as may be
proper or advisable in connection herewith or therewith. Lessee further
undertakes to obtain or effect any new or additional governmental
consents, licenses, authorizations, approvals, declarations, filings or
registrations as may become necessary for the performance of any of the
terms and conditions of this Lease or any other document or instrument
contemplated hereby.
(e) Lessee shall not consolidate or merge with or
into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets in one transaction or a series of
transactions to, any Person unless:
(i) the corporation formed by or surviving
any such consolidation or merger (if other than Lessee), or to
which such sale, lease, conveyance or other disposition shall
have been made, assumes in writing all of the obligations of
Lessee under this Lease;
(ii) immediately after the transaction no
Default or Event of Default exists;
(iii) the corporation formed by or surviving
any such consolidation or merger, or to which such sale,
lease, conveyance or other disposition shall have been made,
shall have a Consolidated Net Worth (immediately after the
transaction) equal to or greater than the Consolidated Net
Worth of Lessee immediately preceding the transaction.
"Consolidated Net Worth" means the consolidated equity of the
common stockholders of Lessee and its consolidated
subsidiaries determined on a consolidated basis in accordance
with generally accepted accounting principles set forth in the
opinions and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the
accounting profession; and
(iv) the Person formed by or surviving any
such consolidation or merger (if other than Lessee), or to
which such sale, lease, conveyance or other disposition shall
have been made, (x) is a corporation organized and existing
under the laws of the United States of America, any state
thereof or the District of Columbia, (y) shall, upon
completion of such consolidation or merger, be an air carrier
holding a certificate issued under ss. 44705 of the
Transportation Act and (z) shall be a "citizen of the United
States" as defined in such Act.
ARTICLE 8
NO SET-OFF, COUNTERCLAIM, ETC.
8.1. No Set-off, Counterclaim, etc. This Lease is a net lease.
Lessee's obligation to pay all Rent and Maintenance Reserves payable hereunder
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any set-off, counterclaim,
recoupment, defense or other right which Lessee may have against Lessor or any
other Person for any reason whatsoever (whether in connection with the
transactions contemplated hereby or any other transactions), including, without
limitation, any breach by Lessor of its warranties, agreements or covenants
contained herein, (ii) any defect in the title, registration, airworthiness,
condition, design, operation, or fitness for use of, or any damage to or loss or
destruction of, the Aircraft, or any interruption or cessation in the use or
possession thereof by Lessee for any reason whatsoever, (iii) any Liens with
respect to the Aircraft, (iv) any bankruptcy, insolvency, reorganization, (v)
any Taxes, or (vi) any other circumstance, happening, or event whatsoever,
whether or not unforeseen or similar to any of the foregoing. Lessee hereby
waives, to the extent permitted by applicable Law, any and all rights which it
may now have or which at any time hereafter may be conferred upon it, by statute
or otherwise, to terminate, cancel, quit or surrender this Lease except in
accordance with the express terms hereof. Without limiting any of Lessee's
rights under the next sentence, each payment of Rent or Maintenance Reserves
made by Lessee to Lessor shall be final and Lessee will not seek to recover any
part of such payment from Lessor for any reason whatsoever except manifest
error. Nothing in this Section shall be construed to prevent Lessee, after
complying with this Article 8, from pursuing any claim it may have against
Lessor or any other Person in such court of law or otherwise as Lessee may deem
appropriate.
ARTICLE 9
REPLACEMENT OF PARTS;
ALTERATIONS, MODIFICATIONS AND ADDITIONS
9.1. Replacement of Parts. Lessee, at its own cost and
expense, shall promptly replace all Parts which may from time to time become
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing, Lessee
may remove any Part, whether or not worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use;
provided that Lessee shall replace such Part as promptly as practicable and
available. All replacement Parts (a) shall be free and clear of all Liens,
except those permitted under Article 14 hereof, (b) shall be in as good
operating condition as, and shall have a value, utility and maintenance status
at least equal to, the Parts replaced, assuming such replaced Parts were in the
condition and repair required to be maintained by the terms hereof, and (c)
shall have documentation certifying compliance with all applicable FAA
regulations, including, without limitation, (i) FAA Form 8130-3 or other FAA
approved serviceable tags indicating time since overhaul, and overhaul or repair
by an FAA certified repair station, (ii) overhaul records, (iii) documentation
of modification status and compliance with applicable Airworthiness Directives,
and (iv) any other appropriate documentation.
9.2. Title to Replaced and Replacement Parts. All Parts
removed from the Airframe and any of the Engines shall remain the property of
Lessor and subject to this Lease, no matter where located, until such time as
such Parts shall be replaced by Parts which have been incorporated or installed
in or attached to the Airframe or an Engine and which meet the requirements for
replacement Parts specified in Section 9.1 above, at which time title to such
replaced Part shall automatically vest in Lessee. Immediately upon any
replacement Part becoming incorporated, installed or attached to any Item of
Equipment, such replacement Part shall become the property of Lessor and shall
become subject to the terms of this Lease.
9.3. Alterations, Modifications and Additions. (a) General.
Except as required below or by Section 5.5 hereof, Lessee shall not make any
permanent alteration, modification or addition to the Airframe (including, but
not limited to, galleys, lavatories or avionics) or any of the Engines without
the prior written consent of Lessor.
Lessee will make such alterations, modifications and additions
to the Airframe, the Engines and the Parts as may be required from time to time
to meet the applicable mandatory service bulletins of the Manufacturer and to
comply with Airworthiness Directives which require inspection or terminating
action during the Term, and to comply with all regulations of the FAA which
require compliance during the Term.
(b) Airworthiness Directives.
(i) For the purpose of this Lease, Lessor and Lessee
agree that the accomplishment of terminating action for any AD which
requires mandatory terminating action during the Term, shall be deemed
to be a Capital Improvement (a "Capital Improvement AD") with respect
to the Aircraft. In the event Lessee elects to terminate any AD that
does not require terminating action during the Term, Lessee shall be
solely responsible for the cost of terminating such AD.
(ii) Notwithstanding the foregoing paragraph (i)
(except with respect to the second sentence thereof), in connection
with the accomplishment of any Capital Improvement AD during the Term,
Lessee shall be solely responsible for the first $150,000 of the cost
of terminating each such Capital Improvement AD. With respect to
terminating any Capital Improvement AD, for which the cost of such
terminating action is in excess of $150,000, (x) Lessee shall be
responsible for paying an amount equal to the first $150,000 plus an
amount determined using the Capital Improvement Cost Sharing Formula
(hereinafter defined) for any amount in excess of $150,000 and (y)
Lessor shall be responsible for an amount equal to the balance thereof
as a Capital Improvement to the Aircraft.
Any amount in excess of the first $150,000 to terminate each
such Capital Improvement AD shall be shared by Lessee and Lessor as set
forth below using the following formula (the "Capital Improvement Cost
Sharing Formula"):
LC = AMT x (84 - NME)
----------------
84
Where
LC = Lessee's share of the cost in excess of $150,000
AMT = Amount in excess of $150,000 to terminate AD
NME = Number of months Lease has been in effect
The cost of accomplishing any Capital Improvement AD, shall
consist of Lessee's Actual Cost of labor and materials to accomplish
each such Capital Improvement AD and shall be determined exclusive of
all other costs incurred during any refurbishment or other work
accomplished during the same maintenance visit. If Lessee performs the
accomplishment of any Capital Improvement AD at its facility with its
employees, then the cost of accomplishing such Capital Improvement AD
shall be calculated at Lessee's Actual Cost of labor and material
without mark-up.
Lessee shall be solely responsible for (x) the cost of
accomplishing all AD's for which there is no terminating action, or for
which the accomplishment of such terminating action is optional during
the Term and (y) for the first $150,000 of the cost to terminate each
Capital Improvement AD during the Term.
With respect to any Capital Improvement AD for which Lessor's
cost shall exceed $150,000 using the Capital Improvement Cost Sharing
Formula, Lessor shall have the option to (x) instruct Lessee to pay the
cost of such Capital Improvement AD up to and including $150,000 (which
Lessee shall pay), and to utilize the Capital Improvement Cost Sharing
formula for the cost of such Capital Improvement AD for the excess
amount, or (y) in circumstances where Lessor's cost would exceed
$200,000, instruct Lessee not to accomplish such Capital Improvement AD
and terminate this Lease on the mandatory compliance date of the
Capital Improvement AD with no further liability to Lessor under this
Lease, provided, that Lessee shall be obligated to (x) pay Lessor all
Rent due up to the date of such termination and (y) return the Aircraft
in compliance with Section 16 except to the extent any noncompliance
with Section 16 relates to such Capital Improvement AD. Notwithstanding
the preceding sentence, in the event Lessor instructs Lessee not to
accomplish such Capital Improvement AD, Lessee may elect to accomplish
such Capital Improvement AD at its sole cost and expense, and continue
this Lease in effect, with no further liability to Lessor with respect
to such Capital Improvement AD accomplishment.
(iii) In the case of accomplishment of a Capital
Improvement AD with respect to an Engine, APU or Landing Gear during a
shop visit for such Engine, APU or Landing Gear, the cost of each such
Capital Improvement AD shall be determined exclusive of all other costs
incurred during any refurbishment or other work accomplished during the
same shop visit.
(iv) With respect to any Capital Improvement AD
relating to an Engine (an "Engine Capital Improvement AD") where the
accomplishment of such Engine Capital Improvement AD by Lessee is the
sole cause for removal of such Engine, the cost in excess of $150,000
to accomplish such Engine Capital Improvement AD shall be subject to
the provisions of paragraph (b) (ii) above. Notwithstanding anything to
the contrary in this Lease, the cost of performing such Engine Capital
Improvement AD shall only consist of the cost of disassembly,
accomplishment of such mandatory terminating action as required by such
AD, reassembly, and test cell run. All costs associated with all other
work accomplished on such Engine during such shop visit such as
removal, transportation, refurbishment, and reinstallation shall be
paid for by Lessee.
(v) For the purpose of determining applicability of
the AD Cost Sharing Formula in regard to any Aging Aircraft AD
requiring terminating action, all service bulletins listed in such
Aging Aircraft AD shall be cumulatively considered to be a single
Capital Improvement AD with respect to cost to accomplish required
terminating action.
9.4. Title to Parts. Subject to the provisions hereof, title
to all Parts incorporated or installed in or attached or added to each Item of
Equipment as the result of any alteration, modification or addition shall,
without further act, vest in Lessor and become subject to this Lease; provided,
however, that so long as no Default or Event of Default shall have occurred and
be continuing, at any time during the Term, Lessee may remove any such Part from
an Item of Equipment; provided that (A) such Part is in addition to and not in
replacement of or in substitution for, any Part originally incorporated or
installed in or attached to such Item at the time of delivery thereof hereunder
or any Part in replacement of, or substitution for, any such original Part, (B)
such Part is not required to be incorporated or installed in or attached or
added to such Item by the FAA, or any other Governmental Authority or pursuant
to the terms hereof, and (C) such Part can be removed from such Item without
diminishing or impairing the value, utility or airworthiness which such Item
would have had at such time had such alteration, modification or addition not
occurred. Upon the removal by Lessee of any such Part as above provided, the
area from which such Part was removed shall be restored to the better of (i) the
condition such area was in immediately prior to the installation of such Part,
or (ii) the condition such area is required to be in under the terms set forth
in this Lease and title thereto shall, without further act, vest in Lessee, and
such Part shall no longer be deemed a Part hereunder. Any Part not removed by
Lessee as above provided prior to the return of the respective Item of Equipment
to Lessor hereunder shall become the property of Lessor.
ARTICLE 10
TAX INDEMNITY
10.1. Scope. Lessee agrees that, except as otherwise provided
below, all payments by Lessee in connection with the transactions contemplated
by this Lease, the Lease Supplement and the other Operative Agreements shall be
free of all withholdings of any nature whatsoever (including, without
limitation, withholding taxes, monetary transfer fees, or similar taxes and
charges), and in the event any withholding is required, except as otherwise
provided below, Lessee shall pay the same together with such additional amount
as is required so that each such payment shall be, under any circumstances and
in any event, in the amount as set forth or referred to herein. Lessee shall pay
and hold each Indemnitee harmless from liability for any and all sales, use,
business, gross or net income, personal property, license, documentation,
transfer, fuel, leasing, occupational, value added, excess profits, excise,
gross or net receipts, franchise, stamp, environmental and other taxes, levies,
imposts, withholding taxes, charges, fees, assessments or duties of any nature,
together with any penalties, fines, charges, additions to tax or interest
thereon imposed by any taxing authority whether domestic or foreign
(collectively, "Taxes") imposed during the Term against or in respect of Lessor,
any Indemnitee or any Item of Equipment, by any Federal, state or local
government or taxing authority in the United States of America, or by any
foreign country or any taxing authority or governmental subdivision thereof,
upon or with respect to, based upon or measured by any Item of Equipment or
interest therein, or upon the purchase, ownership, delivery, leasing,
possession, use, operation (including, but not limited to, landings and
take-offs), return or other disposition thereof, or upon the rentals, receipts
or earnings arising therefrom (including, without limitation, the Rent or the
Maintenance Reserves) or otherwise with respect to or in connection with the
transactions contemplated by this Lease, the Lease Supplement and the other
Operative Agreements; and any out-of-pocket costs and expenses attributable to
any of the foregoing incurred by any Indemnitee; provided, however, that Lessee
shall have no such obligation with respect to (i) Taxes (other than sales, use,
rental, value added and similar taxes) imposed by the Federal Government of the
United States of America upon or with respect to, based on or measured by, the
gross or net income of any Indemnitee including any minimum tax, surtax or
similar tax, (ii) Taxes which are based upon or measured by the net income,
capital, net worth, franchise, or similar conduct of business taxes which are
imposed on any Indemnitee by any state or local taxing authority in the United
States of America, the Federal Government of the United States of America, or
any foreign jurisdiction where such Indemnitee is organized or doing business
(other than as a result of the transactions contemplated by this Agreement),
(iii) Taxes imposed as a result of a transfer or other disposition by Lessor of
the Aircraft or any Part thereof or interest therein, or any interest in the
Rent or the Maintenance Reserves or any part thereof, unless such sale,
transfer, mortgage, pledge or disposition occurs by reason of the exercise of
Lessor's remedies under this Lease after the occurrence of a Default or an Event
of Default, (iv) Taxes imposed as a direct and primary result of Lessor's or any
Indemnitee's gross negligence or willful misconduct, (v) Taxes which accrue or
arise prior to the Delivery Date or subsequent to the Expiration Date and return
of the Aircraft to Lessor pursuant to Section 16 hereof, and (vi) Taxes
attributable to payments or distributions from Lessor to any Indemnitee.
10.2. Report. In case of any report or return to be made with
respect to any obligation of Lessee under this Article 10 or arising out of this
Article 10, Lessee will either (i) make such report or return in such manner as
will show the ownership in Lessor of each Item of Equipment, and send a copy of
such report or return to the relevant Indemnitee or (ii) notify the relevant
Indemnitee of such requirement and make such report or return in such manner as
shall be satisfactory to such Indemnitee. Lessee shall, at its own expense, duly
file all required reports and returns respecting all Taxes paid or indemnified
against by Lessee pursuant to Section 10.1 to the extent Lessee is permitted to
do so; provided, however, that if the same must be filed by an Indemnitee,
Lessee will advise such Indemnitee of the necessity of filing the same and, in
sufficient time before the same are due, furnish such Indemnitee with a
completed copy thereof and funds in the amount required to be submitted,
together with any additional information and records relating thereto as such
Indemnitee may reasonably request. Lessee shall hold such Indemnitee harmless
from and against any liabilities, obligations, losses, damages, penalties,
claims, actions, suits and costs arising out of any insufficiency or inaccuracy
in any information in such report or return filed or supplied by Lessee. Lessee
shall make available to each Indemnitee such information and records as are
maintained by Lessee regarding the location, operation or use of the Aircraft.
If any Indemnitee reasonably requests additional information relating to any
Item of Equipment or the operation, use or location thereof, Lessee shall make
available such other information and records as it maintains in the ordinary
course of business.
10.3. After-Tax Nature of Indemnity.
(a) Lessee further agrees that, with respect to any
indemnity payment under this Lease, including, but not limited to, this Article
10 and Article 13 hereof, such indemnity payment shall include any amount
necessary to hold each Indemnitee harmless on an after-tax basis from all Taxes
required to be paid by such Indemnitee with respect to such indemnity payment
under the Laws of any Federal, state or local government or taxing authority in
the United States of America, or under the Laws of any taxing authority or
governmental subdivision of a foreign country.
(b) For purposes of this Section 10.3, calculations
made on an after-tax basis shall be made assuming the maximum statutory rates
applicable to the recipient for the relevant year, after taking into account
deductions attributable to the imposition of other taxes (such as state and
local taxes), which would similarly be calculated on the basis of the maximum
statutory rates for which such deduction was available for the applicable year.
10.4. Payment of Taxes and Indemnities. Lessee shall, to the
extent permissible, pay all Taxes directly and shall reimburse each Indemnitee
for all Taxes paid or payable by such Indemnitee within ten (10) days of receipt
of written notice that reimbursement for such amount is due. Lessee shall pay
all indemnities and other amounts due hereunder within ten (10) days of receipt
of written notice that such indemnity or other amount is due.
10.5. Contest. If a written claim is made against any
Indemnitee for any Taxes for which Lessee is responsible under Section 10.1
hereof, such Indemnitee shall promptly notify Lessee. Without prejudice to any
other rights Lessee may have in connection therewith (including, without
limitation, any claim for damages for a failure to give notice specified in the
preceding sentence), the failure to provide such notice shall not affect
Lessee's obligations hereunder to such Indemnitee unless such failure shall
preclude the contest of such claim. If reasonably requested by Lessee in writing
within 30 days after such notification, and upon determination that the amount
of the claim exceeds $25,000 and that the action to be taken will not, in the
sole opinion of Lessor, result in any material danger of the sale, forfeiture or
loss of, or the creation of any Lien on the Aircraft or any interest therein (or
in the event of such material danger of such sale, forfeiture, loss or Lien,
Lessee shall have failed to obtain a bond satisfactory to such Indemnitee in
such Indemnitee's sole discretion), such Indemnitee shall, upon receipt of an
indemnity reasonably satisfactory to it at the sole expense of Lessee (including
without limitation, all reasonable costs, expenses, losses, legal and
accountant's fees and disbursements, penalties and interest), in good faith
contest the validity, applicability or amount of such Taxes by, in such
Indemnitee's sole discretion, (i) resisting payment thereof, (ii) not paying the
same except under protest, if protest is necessary and proper, and (iii) if
payment is made, using reasonable efforts to obtain a refund thereof in
appropriate administrative or judicial proceedings; provided, however, that such
Indemnitee shall not be required to take any action to contest a claim unless
(w) Lessee provides an opinion of tax counsel of nationally recognized standing
selected by Lessee and reasonably satisfactory to such Indemnitee, to the effect
that there is a reasonable basis under the standard set forth in ABA Formal
Opinion 85-352 or any applicable successor thereto in law and fact for
contesting such proposed adjustment, which opinion shall be obtained at Lessee's
sole cost and expense, (x) in the event that the subject matter of the contest
is of a continuing nature and has previously been decided adversely pursuant to
the contest provisions of this Section 10.5 by the highest court to which an
appeal was taken, there has been a change in the law (including, without
limitation, amendments to statutes or regulations, administrative rulings and
court decisions) after such claim shall have been so previously decided and such
Indemnitee shall have received an opinion of independent tax counsel selected by
such Indemnitee, which opinion shall be obtained at Lessee's sole expense, to
the effect that, as a result of such change it is (at least) as likely as not
that the position which such Indemnitee or Lessee, as the case may be, will
assert in any contest of such Tax would prevail, (y) prior to the commencement
of any contest, Lessee shall have delivered to such Indemnitee a written
acknowledgment of its obligation to fully indemnify such Indemnitee to the
extent the contest is not successful and (z) in no event shall such Indemnitee
be required to appeal an adverse judicial determination to the United States
Supreme Court. Any contest required pursuant to the preceding sentence shall, at
the option of such Indemnitee, be conducted by such Indemnitee or Lessee in the
name of Lessee or such Indemnitee. If any contest involves payment of the Tax in
question, Lessee shall either make such payment directly to the appropriate
authority or advance to such Indemnitee sufficient funds (on an interest-free
basis) to make such payment. Lessee agrees to give such Indemnitee reasonable
notice of any contest prior to the commencement thereof.
If an Indemnitee shall obtain an actual refund or credit of all or any part of
any Taxes paid by Lessee, such Indemnitee shall pay to Lessee the amount of such
refund or credit (taking into account any tax savings resulting therefrom), net
of any expenses incurred by such Indemnitee and not already paid or reimbursed
by Lessee, and any interest fairly attributable thereto plus an amount equal to
the Tax savings realized by such Indemnitee as a result of any payment to Lessee
pursuant to this paragraph; provided, however, that such amount shall not be
payable before Lessee shall have made all payments and indemnities to such
Indemnitee then due under this Lease; and, provided, further, however, that the
aggregate amount of all payments with respect to any Taxes made by such
Indemnitee pursuant to this sentence shall not exceed the aggregate amount of
all payments made by Lessee to such Indemnitee pursuant to this Article 10 with
respect to such Taxes.
Notwithstanding anything to the contrary herein, if a Default or Event of
Default shall have occurred and be continuing, Lessee shall not be entitled, and
Lessor shall not be obligated, to commence or to continue any contest hereunder.
Lessee shall not be deemed to be in default under any of the indemnification
provisions of this Article 10 while it or an Indemnitee diligently prosecutes
such contest pursuant to this Section 10.5.
Nothing contained in this Section 10.5 shall require any Indemnitee to contest
or permit Lessee to contest a claim which it would otherwise be required to
contest pursuant to this Section 10.5 if such Indemnitee shall waive payment by
Lessee of any amount that might otherwise be payable by Lessee under Section
10.1 by way of indemnity in respect of such claim.
10.6. Lessor. The term "Lessor" for purposes of this Article
10 shall include the affiliated group of corporations and each member thereof
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended) of which Lessor is or shall become a member if such group shall file a
consolidated United States federal income tax return.
10.7. Survival. The provisions of this Article 10 shall
survive the expiration or termination of this Lease.
ARTICLE 11
EVENTS OF LOSS
11.1. With Respect to the Aircraft. Upon the occurrence of an
Event of Loss with respect to the Aircraft, Lessee shall forthwith (and in any
event within two (2) Business Days after such occurrence) give Lessor written
notice of such Event of Loss, and Lessor and Lessee shall proceed diligently and
cooperate fully with each other in the recovery of any and all proceeds of
insurance applicable thereto. Unless Lessor elects to offer a Replacement
Aircraft pursuant to (and as defined in) Section 11.4 hereof, upon the earlier
of the date (a) which is 90 days after the occurrence of such an Event of Loss
or (b) on which insurance proceeds are received with respect to such Event of
Loss, Lessee shall pay to Lessor the Insured Value of the Aircraft. At such time
as Lessor shall have received the Insured Value for such Aircraft, Lessor shall
transfer to Lessee all of Lessor's right, title and interest, "as is, where is,"
without recourse or warranty, express or implied, in and to (i) the Aircraft,
(ii) all claims for damage to the Aircraft, if any, against third persons
arising from the Event of Loss (unless any insurance carrier requires that such
claims be assigned to it), (iii) the Maintenance Reserves, and (iv) all rights
to any insurance claims and proceeds under all insurance, except liability
insurance, maintained by Lessee hereunder, all without representation, recourse
or warranty of any kind whatsoever. Upon the payment of the Insured Value, all
Basic Rent (if any), Supplemental Rent and Maintenance Reserves then due and
owing, Lessee's obligation to pay such amount shall cease, and this Lease shall
terminate. Lessee shall be entitled to receive all insurance proceeds from
policies maintained by Lessee applicable to the Aircraft over and above the
Insured Value, if any, as compensation for the loss of Lessee's leasehold
interest in the Aircraft.
11.2. With Respect to an Engine. Upon the occurrence of an
Event of Loss with respect to an Engine under circumstances in which there has
not occurred an Event of Loss with respect to the Aircraft, Lessee shall
forthwith (and in any event within two (2) Business Days after such occurrence)
give Lessor written notice thereof and Lessee shall replace such Engine as soon
as reasonably possible, but in any event, before the end of the Term by duly
conveying to Lessor, free and clear of all Liens, title to another CFM56-3B2
engine of the same or an improved model acceptable to Lessor and suitable for
installation and use on the Airframe, which engine shall have a value, utility
and maintenance status at least equal to, and be in as good operating condition
as, the Engine with respect to which such Event of Loss shall have occurred
(considering in the aggregate, but not limited to, all life-limited engine
components and time since last heavy maintenance and/or time since last hot
section refurbishments), assuming such Engine was of the value and utility and
in the condition and repair as required by the terms hereof immediately prior to
the occurrence of such Event of Loss, and subject to an inspection by Lessor of
such replacement engine and related historical records. Upon acceptance by
Lessor in its sole discretion, such replacement engine and historical records
shall be deemed an "Engine" and "Aircraft Records," respectively, as defined
herein for all purposes hereunder. Lessee agrees to take such action and execute
and deliver such documents, including, but not limited to (a) cause a warranty
bill of sale, duly executed by the Seller of such Replacement Engine, to be
delivered to Lessor, (b) cause a Lease Supplement subjecting such Replacement
Engine to this Lease, duly executed by Lessee, to be delivered to Lessor for
execution and, upon such execution, to be filed for recordation with the FAA
pursuant to the Transportation Act, (c) furnish Lessor with evidence of
compliance with the insurance provisions of Section 11 with respect to the
Replacement Engine, (d) furnish Lessor with a certificate or certification of a
qualified independent aircraft appraiser reasonably satisfactory to Lessor
certifying that the Replacement Engine has a value and utility (and, provided
that no Event of Default is occurring or continuing without regard to hours and
cycles until overhaul) at least equal to the Engine so replaced (assuming the
Engine to be replaced was in the condition and repair required by the terms
hereof immediately prior to the occurrence of such Event of Loss), (e) furnish
Lessor with an officer's certificate signed by an officer of Lessee certifying
that, upon consummation of such replacement, no Event of Default will exist
hereunder, and (f) a bill of sale, supplement hereto and legal opinions, as
Lessor may reasonably request in order that any such replacement Engine shall be
duly and properly titled in the name of Lessor and leased hereunder to the same
extent as any Engine replaced thereby. Upon such replacement, Lessor shall
transfer to Lessee all of Lessor's right, title and interest, "as is, where is,"
without recourse or warranty, express or implied, in and to (i) such Engine,
(ii) all claims for damage to such Engine, if any, against third persons arising
from the Event of Loss (unless any insurance carrier requires that such claims
be assigned to it), and (iii) all rights to any insurance claims and proceeds
under all insurance, except liability insurance, maintained by Lessee hereunder,
all without representation, recourse or warranty of any kind whatsoever.
Maintenance Reserves maintained by Lessor with respect to such Engine shall be
allocated to the Engine Reserve and Engine Life Limited Parts Reserve maintained
with respect to the Replacement Engine.
11.3. Application of Payments from Governmental Authorities.
Payments received by Lessor or Lessee from any Governmental Authority or entity
with respect to an Event of Loss resulting from the condemnation, confiscation
or seizure of, or requisition of title to the Aircraft, the Airframe or an
Engine, shall be retained by Lessor, if received by Lessor, or promptly paid
over to Lessor, if received by Lessee, up to the Insured Value (plus any amounts
of Rent and Maintenance Reserves then due and owing). At such time as Lessor has
received such amounts in full, Lessor shall promptly remit the excess, if any,
of such payments to Lessee. Payments received by Lessor or Lessee from any
Governmental Authority or entity with respect to a requisition of use during the
Term of the Aircraft, the Airframe or an Engine shall be allocated promptly
between Lessor and Lessee such that Lessor shall enjoy such portion thereof as
relates to periods other than the Term and Lessee shall (provided no Default or
Event of Default has occurred and is continuing hereunder) promptly enjoy such
portion thereof as relates to the Term or any portion of the Term, provided
Lessee continues to pay Rent to Lessor as required by the terms hereof.
11.4. Application of Payments During Existence of Event of
Default. Any amount referred to in this Section 11 which is payable or
creditable to or retainable by Lessee shall not be paid or credited to or
retained by Lessee if, at the time of such payment, credit or retention, an
Event of Default shall have occurred and be continuing hereunder but shall be
paid to and held by Lessor as security for the obligations of Lessee under this
Lease and, if Lessor declares this Lease to be in default pursuant to Section 18
hereof, applied against Lessee's obligations hereunder as and when due and at
such time as there shall not be continuing any such Event of Default, such
amount shall be paid to Lessee to the extent no previously applied in accordance
with the terms hereof.
11.5. Replacement Aircraft.
(a) Lessor may, at i ts option, offer to lease to
Lessee, as a replacement for an Airframe and Engines with respect to which an
Event of Loss has occurred, a Boeing 737-300 airframe (the "Replacement
Airframe") and two engines of the same make and model as such Engines (or other
engines of the same or another manufacturer suitable for installation and use on
the Replacement Airframe; the "Replacement Engines" and, together with the
Replacement Airframe, the "Replacement Aircraft"). Such Replacement Aircraft
shall be in passenger configuration, duly certified as an airworthy aircraft by
the FAA and in good operating condition, but in any event in at least as good
operating condition and repair as the Aircraft immediately prior to the
occurrence of such Event of Loss, having a useful life and utility comparable to
that of the Aircraft to be replaced immediately prior to the occurrence of such
Event of Loss, and otherwise satisfactory to Lessee. Lessee shall take such
action as Lessor may reasonably request to facilitate the lease of the
Replacement Aircraft to Lessee hereunder.
(b) For all purposes hereof, the Replacement Airframe
and each Replacement Engine shall be deemed part of the property leased
hereunder. The Replacement Airframe shall be deemed an "Airframe" as defined
herein, each Replacement Engine shall be deemed an "Engine" as defined herein;
and the Replacement Airframe and each Replacement Engine shall be deemed part of
such Aircraft to the same extent as was the Airframe or Engine, as the case may
be, replaced thereby. Any Engine not installed on the Airframe when such Event
of Loss occurred shall continue to be the property of Lessor and leased
hereunder as part of such Aircraft. Lessee's acceptance of a Replacement
Aircraft shall not result in any change in Basic Rent or Insured Value.
ARTICLE 12
INSURANCE
12.1. Public Liability and Property Damage Liability
Insurance. Lessee, at its own expense, shall maintain in effect comprehensive
third party aircraft liability insurance against bodily injury and property
damage losses arising from ground, flight and taxiing exposures, including, but
not limited to, passenger legal liability, cargo liability, contractual
liability and products liability insurance, during the Term in an amount not
less than $500,000,000 for any one occurrence with respect to the Aircraft and
Items of Equipment. Such policy shall include war and allied risks in accordance
with standard market practice (currently "The Extended Coverage Endorsement-AVN
52C"). Any such liability insurance shall not be subject to a deductible. All
such policies shall be maintained in effect with insurers and/or reinsurers of
recognized reputation and responsibility, satisfactory to Lessor. Any policies
of insurance carried in accordance with this Section 12.1 and any policies taken
out in substitution or replacement for any of such policies shall: (1) name
Lessor and its successors and assigns, and their respective directors, officers
and employees as additional insureds (the "Additional Insureds"); (2) provide
that in respect of the respective interests of the Additional Insureds, such
policies of insurance shall insure the Additional Insureds regardless of any
breach or violation of any warranty, declarations or conditions contained in
such policies by Lessee or any other Person; (3) provide that if the insurers
cancel such insurance for any reason whatever, or the same is allowed to lapse
for nonpayment of premium, or if there is any material change in policy terms
and conditions, such cancellation, lapse or change shall not be effective until
thirty (30) days after receipt by Lessor of telecopied written notice from such
insurers of such cancellation, lapse or change (and with respect to war risk
insurance, seven (7) days or such shorter period as shall be customary on the
London market for such insurance in such area of the world, or ten (10) days in
the event of nonpayment of premium); (4) provide that the Additional Insureds
shall have no responsibility for any premiums, commissions, warranties or
representations in connection with such insurance; (5) waive any rights of
setoff, counterclaim or deduction, whether by attachment or otherwise, and all
rights of subrogation against the Additional Insureds and their successors,
assigns, agents, officers, employees and servants; and (6) provide that all
payments shall be made in Dollars. Each liability policy shall (i) be primary
without right of contribution from any other insurance which is carried by the
Additional Insureds and (ii) expressly provide that all of the provisions
thereof, except the limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured, without, however, increasing
the aggregate limit of liability for the coverage or permitting claims
recoverable under the hull policy to be recoverable as liability claims, and
(iii) to the extent of any reinsurance, include a cut-through provision
permitting Lessor to file claims and to obtain payment directly from the
reinsurers.
12.2. Insurance Against Loss or Damage to the Aircraft.
(a) Lessee, at its own expense, shall maintain in
effect with insurers of recognized reputation and responsibility satisfactory to
Lessor: (A) all-risk ground and flight aircraft hull insurance covering the
Aircraft (including taxiing exposures); (B) all-risk coverage with respect to
any Engines, Parts or Landing Gear while removed from the Aircraft insured for
their replacement cost; and (C) war risk and hijacking (including
political/non-political hijacking) and acts of terrorism coverages, if operating
outside the Continental United States or Canada, including, but not limited to,
coverage against the additional exposures of confiscation, expropriations,
nationalization or seizure, including the government of registry (if other than
the United States), including a "50/50 clause" between the all-risk hull and war
risk coverages. War risk coverage shall include loss of and/or damage to the
Aircraft caused by: (i) war, invasion, acts of foreign enemies, hostilities
(whether war be declared or not), civil war, rebellion, revolution,
insurrection, martial law, military law, military or usurped power or attempts
at usurpation of power; (ii) strikes, riots, civil commotions or labor
disturbances; (iii) any act of one or more Persons, whether or not agents of a
sovereign power, for political or terrorist purposes, and whether the loss or
damage resulting therefrom is accidental or intentional; (iv) any malicious act
or act of sabotage; (v) confiscation, nationalization, seizure, restraint,
detention, appropriation, expropriation, requisition of title or use, by or
under the order of any government (whether civil, military or de facto) or
public or local authority, including by the government of registry (if other
than the United States); and (vi) hijacking or any unlawful seizure or wrongful
exercise of control of the Aircraft or crew in flight (including any attempt at
such seizure or control) made by any Person or Persons on board the Aircraft
acting without the consent of Lessee.
(b) All such insurance shall be in full force and
effect on a worldwide basis, subject to such territorial exclusions as exist
under Lessee's War Risks and Allied Perils Insurance, shall be payable in
Dollars in the United States and shall be in the amount of not less than the
Insured Value set forth on Exhibit H on an agreed value basis. Any hull
insurance carried in accordance with this Section 12.2 shall not contain any
provision for self-insured amounts or a deductible, provided that such insurance
may be subject to a deductible which does not exceed $250,000 per occurrence.
Each Engine, after removal, shall be insured for not less than $3,500,000.00 on
an "agreed value basis" under a ground risks policy reasonably acceptable to
Lessor. Any policies carried in accordance with this Section 12.2 shall: (1) be
primary without right of contribution from any other insurance which is carried
by Lessor with respect to the Aircraft; (2) provide that if such insurance is
canceled for any reason whatever, or the same is allowed to lapse for
non-payment of premium or if there is any material change in policy terms and
conditions, such cancellation, lapse or change shall not be effective until
thirty (30) days after issuance to Lessor of written notice from such insurers
of such cancellation, lapse or change (and, with respect to war risk insurance,
such shorter period as shall be customary on the London market for such
insurance in such area of the world); (3) provide that partial losses of less
than $250,000.00 shall be adjusted by and payable to Lessee (so long as no
Default shall have occurred and be continuing hereunder), but that in the event
of a greater loss the entire insurance shall be adjusted by Lessee and Lessor
and payable to Lessor as sole loss payee; (4) provide that in respect of the
respective interest of the Additional Insureds in such policies the insurance
shall insure the Additional Insureds regardless of any breach or violation of
any warranties, declarations or conditions contained in such policies by Lessee
or any other Person; (5) waive any rights of set off, counterclaim or deduction,
whether by attachment or otherwise, and all rights of subrogation against the
Additional Insureds and their successors, assigns, agents, officers, employees
and servants; (6) provide that the Additional Insureds shall have no liability
for any premiums, commission, warranties or representations in connection with
such insurance; and (7) name Lessor as sole loss payee for the account of all
interests.
(c) Lessor is not under any duty or obligation to
verify the existence or adequacy of any insurance.
(d) Lessee may obtain additional hull insurance on
the Aircraft, over and above the Insured Value
hereunder, provided that it does not adversely affect the coverage required to
be maintained hereunder.
12.3. Application of Proceeds in an Event of Loss of the
Aircraft. All insurance payments received from policies maintained by Lessee as
the result of the occurrence of an Event of Loss shall be applied as provided in
Section 12.2(b)(3).
12.4. Application of Proceeds in the Absence of an Event of
Loss. As between Lessor and Lessee, insurance payments with respect to any
property damage to any Item of Equipment not constituting an Event of Loss with
respect thereto will be applied in payment of repairs or for replacement
property in accordance with the terms of Articles 5 and 9 hereof, if not already
paid by Lessee (or to reimburse Lessee for such repairs or replacements already
paid by Lessee), and any balance remaining after compliance with such Articles
with respect to such loss shall be paid to Lessee or as otherwise directed by
Lessee. Any amount which is payable to Lessee under this Article 12 shall not be
paid to Lessee if at the time of such payment a Default or an Event of Default
shall have occurred and be continuing, but shall be held by Lessor as security
for the obligations of Lessee under this Lease and the other Operative
Agreements to which it is a party and such amount shall be paid to Lessee at
such time as there no longer exists any Default or Event of Default.
12.5. Reports, etc. Lessee's insurance broker shall be
required to advise Lessor in writing promptly of any default in the payment of
any premium and of any other act or omission on the part of Lessee which might
invalidate or render unenforceable, in whole or in part, any insurance on the
Aircraft. Not less than two (2) days prior to the Delivery Date, and thereafter
at least fifteen (15) days prior to each renewal or replacement by Lessee of the
insurance required hereby, Lessee will furnish to Lessor one or more original
certificates each executed and delivered by an insurance broker appointed by
Lessee and approved by Lessor, which together shall describe in reasonable
detail insurance carried on the Aircraft and shall certify that the insurance
then maintained on the Aircraft complies with the terms of this Lease. Lessee
will cause each such approved insurance broker to agree to advise Lessor in
writing at least thirty (30) days (seven (7) days or such lesser period as may
from time to time be applicable in the case of any war risk and allied perils
coverage) prior to the non-renewal or cancellation by the underwriters for any
reason (including, without limitation, failure to pay the premium therefor) of
any such insurance or as soon as possible in respect of "non-renewal" or
automatic termination for war risk. Not less than fifteen (15) days before the
expiration or termination date of any insurance required hereunder, Lessee will
provide (or cause to be provided to) Lessor with written confirmation from
Lessee's insurance brokers certifying that renewal certificates of insurance
evidencing the renewal or replacement of such insurance pursuant to the
provisions of Article 12 hereof will be issued on or prior to the termination
date of the prior certificate of insurance coverage. Within seven (7) days after
such renewal, Lessee will furnish (or cause to be furnished) to Lessor a
certificate of such insurance coverage from such insurance broker.
12.6. Lessor's Additional Insurance. Lessor, at its option and
at its sole expense, may obtain insurance with respect to the Aircraft;
provided, that no such insurance shall have the effect of suspending, impairing,
defeating, invalidating or rendering unenforceable or reducing, in whole or in
part, the coverage of or the proceeds payable under any insurance required to be
provided and maintained by Lessee pursuant to this Article 12. Lessee shall have
no right to any proceeds of any insurance policies maintained by Lessor.
12.7. Lessee's Additional Insurance. Lessee, at its option and
at its sole expense, may obtain additional insurance with respect to the
Aircraft provided that no such insurance shall have the effect of suspending,
impairing, defeating, invalidating or rendering unenforceable or reducing, in
whole or in part, the coverage of or the proceeds payable under any insurance
required to be provided and maintained pursuant to this Article 12. Lessor shall
have no right to any proceeds of any additional insurance policies maintained by
Lessee.
12.8. Insurance Against Year 2000 Risks and Liability. Any
policies of insurance required pursuant to Section 12.1 hereof (Public Liability
and Property Damage Liability Insurance) and Section 12.2 hereof (Insurance
Against Loss or Damage to the Aircraft), consistent with industry practice and
the renewal of Lessee's current insurance policies, shall within forty-five (45)
days after the date hereof include endorsement coverage for Year 2000 risks and
liability (currently "The Date Recognition Limited Coverage Endorsement - AVN
2001/2002" or its equivalent), which shall have been obtained by Lessee by
truthful, accurate, and complete response to insurer and/or reinsurer inquiry,
including, but not limited to that required by the then current "Aerospace Date
Recognition Conformity Questionnaire" or any similar questionnaires from such
insurer and/or reinsurer.
ARTICLE 13
GENERAL INDEMNIFICATION
13.1. Scope. Lessee agrees to indemnify, reimburse and hold
harmless each Indemnitee from and against any and all claims, damages, losses,
liabilities, demands, suits, judgments, causes of action, legal proceedings,
whether civil or criminal, penalties, fines and other sanctions, and any
reasonable attorney's fees and other reasonable costs and expenses in connection
herewith or therewith, including any of the foregoing arising or imposed with or
without Lessor's fault or negligence (whether passive or active) or under the
doctrine of strict liability (any and all of which are hereafter referred to as
"Claims") which in any way may result from, pertain to or arise in any manner
out of (a) the Aircraft or this Lease, or the breach of any representation,
warranty or covenant made by Lessee hereunder, or (b) the condition,
manufacture, purchase as a result of the exercise of remedies under this Lease,
lease, acceptance under this Lease, rejection under this Lease, possession under
this Lease, return under this Lease, disposition or use, or operation of the
Aircraft either in the air or on the ground, or (c) any defect in the Aircraft
(whether or not discovered or discoverable by Lessee or Lessor) arising from the
material or any articles used therein or from the design, testing, or use
thereof or from any maintenance, service, repair, overhaul, or testing of the
Aircraft, whether or not the Aircraft is in the possession of Lessee, and
regardless of where the Aircraft may then be located, or (d) the Operative
Agreements and any other transaction, approval, or document contemplated by this
Lease or given or entered into in connection herewith; provided, however, that
Lessee shall not indemnify any Indemnitee for any Claims set forth in Section
13.5 hereof. Upon payment in full to any party indemnified hereunder of any
indemnities contained in this Article 13 by Lessee, Lessee shall be subrogated
to all rights and remedies which such indemnified party has or may have against
Manufacturers of the relevant Item of Equipment or any other Person. If any
Indemnitee or Lessee has knowledge of any Claim for which Lessee is obligated to
indemnify under this Article 13, it shall give prompt written notice thereof to
Lessee or such Indemnitee, as the case may be, but failure to give such notice
shall not relieve Lessee of its obligations hereunder and no payment by Lessee
to any Indemnitee pursuant to this Article 13 shall be deemed to constitute a
waiver or release of any right or remedy which Lessee may have against such
Indemnitee for any actual damages as a result of the failure by such Indemnitee
to give Lessee such notice.
13.2. Lessee's Release. Lessee hereby waives, and releases
each Indemnitee from, any Claims (whether existing now or hereafter arising) for
or on account of or arising or in any way connected with injury to or death of
personnel of Lessee or loss or damage to property of Lessee or the loss of use
of any property which may result from or arise in any manner out of or in
relation to the ownership, leasing, condition, use or operation of the Aircraft,
either in the air or on the ground, or which may be caused by any defect in the
Aircraft from the material or any article used therein or from the design or
testing thereof, or use thereof, or from any maintenance, service, repair,
overhaul or testing of the Aircraft regardless of when such defect may be
discovered, whether or not the Aircraft is at the time in the possession of
Lessee, and regardless of the location of the Aircraft at any such time.
13.3. Repayment. If an Indemnitee shall obtain a repayment of
any Indemnified Amount previously paid to it by Lessee, such Indemnitee shall,
so long as there exists no Default or Event of Default, promptly pay to Lessee
the amount of such repayment, together with the amount of any interest received
by such Indemnitee on account of such repayment.
13.4. Timing of Payment. Subject to the provisions of Sections
13.3 and 13.5 hereof, Lessee shall pay directly to each Indemnitee all amounts
due under this Article 13 within five (5) Business Days of the receipt of
written notice by Lessee from such Indemnitee that such payment is due.
13.5. Exclusion. Notwithstanding the foregoing provisions of
this Article 13, Lessee shall not be obligated to make any payment by way of
indemnity in respect of any Claim against an Indemnitee which (i) results from
or arises out of the willful misconduct or gross negligence of such Indemnitee,
(ii) arises out of the period before the Delivery Date or after the Expiration
Date and the return of the Aircraft in accordance with the provisions hereof
(but, in each case, not arising simultaneously therewith), and (iii) Taxes and
other amounts which are indemnified pursuant to Article 10 hereof.
13.6. After-Tax Nature of Indemnity. Lessee agrees that, with
respect to any payment or indemnity hereunder, such payment or indemnity shall
include any amount necessary to hold the Indemnitee harmless on an after-tax
basis from all Taxes (as defined in Article 10 hereof) required to be paid by
such Indemnitee with respect to such payment or indemnity under the Laws of any
Federal, state or local government or taxing authority in the United States of
America, or under the Laws of any taxing authority or governmental subdivision
of a foreign country. For purposes of this Section 13.6, calculations made on an
after-tax basis shall be made assuming the maximum statutory rates applicable to
the recipient for the relevant year, after taking into account deductions
attributable to the imposition of other taxes (such as state and local taxes),
which would similarly be calculated on the basis of the maximum statutory rates
for which such deduction was available for the applicable year.
13.7. Survival. The indemnities contained in this Article 13
shall continue in full force and effect notwithstanding the expiration or
termination of this Lease and are expressly made for the benefit of and shall be
enforceable by each Indemnitee.
ARTICLE 14
LIENS
14.1. Permitted Liens. Lessee shall not, directly or
indirectly create, incur, assume or suffer to exist any Lien on or with respect
to this Lease, any Item of Equipment or any interest therein, except (i) the
respective rights of Lessor and Lessee as herein provided, (ii) Liens which
result from Lessor's own acts or from claims against Lessor not to be paid or
indemnified against by Lessee hereunder, (iii) Liens for Taxes not yet due or
being contested in accordance with Article 10 hereof and so long as adequate
reserves are maintained with respect to such Liens, and (iv) inchoate
materialmen's, mechanics', workman's, repairmen's, employees' or other like
Liens arising in the ordinary course of business and for amounts the payment of
which is either not yet delinquent or is being contested in good faith by
appropriate proceedings. Lessee shall not be permitted to contest any Lien if
such contest gives rise to a danger of the sale, forfeiture or loss of any Item
of Equipment or any interest therein in the course of or as a result of any such
proceedings. Lessee shall promptly, at its own expense, take such action as may
be necessary to duly discharge any such Lien not excepted above if the same
shall arise at any time with respect to any Item of Equipment.
14.2. Engine Liens. Notwithstanding anything in this Lease to
the contrary, Lessor hereby agrees for the benefit of each lessor, conditional
seller, indenture trustee or secured party of any engine leased to or purchased
by Lessee which is subject to a lease, conditional sale agreement, trust
indenture or other security agreement that Lessor will not acquire or claim, as
against such lessor, conditional seller, indenture trustee or secured party, any
right, title or interest in any engine as the result of any such engine being
installed on the Airframe at any time while such engine is subject to such
lease, conditional sale agreement, trust indenture or other security agreement
and owned by such lessor or conditional seller or subject to a trust indenture
or security interest in favor of such indenture trustee or secured party. No
Engine shall be installed on any airframe unless the lease, conditional sale
agreement, trust indenture or other security agreement applicable to such
airframe contains a similar acknowledgment on the part of the lessor,
conditional seller, indenture trustee or secured party thereunder with respect
to the Engines.
ARTICLE 15
FAA RECORDATION AND FURTHER ASSURANCES
15.1. FAA Recordation.
(a) Lessor shall, at its own expense, cause this Lease
and the Lease Supplement to be kept, filed and recorded in the offices of the
FAA. Lessee shall, at its own expense, cause any and all additional instruments
which shall be executed pursuant to the terms hereof to be kept, filed and
recorded in the offices of the FAA so far as permitted by applicable Law or
regulations. Neither Lessee nor Lessor shall file or record with the FAA any
exhibit hereto which specifically states that it will be omitted from the copy
of this Lease to be filed and recorded with the FAA.
(b) If at any time subsequent to the initial recordation of
title under this Lease, any filing or recording is reasonably necessary to
protect the interest of Lessor, Lessee, at the cost and expense of the party
requesting such action, shall cause this Lease, any financing statements with
respect hereto, and any and all additional instruments which shall be executed
pursuant to the terms hereof, to be kept, filed and recorded and to be
reexecuted, refiled and re-recorded in the appropriate office or offices
pursuant to applicable Laws, to perfect, protect and preserve the rights and
interests of Lessor hereunder and in the Aircraft or any Item of Equipment. At
the reasonable request of Lessor, Lessee shall furnish to Lessor an opinion of
counsel or other evidence satisfactory to Lessor of each such filing or refiling
and recordation or re-recordation. Lessee will cooperate with making any such
filing or providing any such opinion which is to be accomplished or furnished in
order to protect the interests of Lessor, in each case at Lessor's cost and
expense.
15.2. Further Assurances. Each party hereto shall, at its
respective expense, promptly and duly execute and deliver to the other party
such further documents and promptly take such further action not inconsistent
with the terms hereof as the other party may from time to time reasonably
request in order to more effectively carry out the intent and purpose of this
Lease or to perfect and protect the rights of Lessee and Lessor and, with
respect to Lessor, remedies created or intended to be created hereunder.
ARTICLE 16
RETURN OF ITEMS AND RECORDS
16.1. Time and Place. On the Expiration Date and unless the
Aircraft has suffered an Event of Loss, Lessee, at its own expense, shall return
the Aircraft with all Items of Equipment and the "Loose Equipment" as specified
in the Lease Supplement relating to the Aircraft, Exhibit C and Schedule I to
Exhibit B hereto by delivering the same forthwith, to Lessor at such location
within the continental United States, as Lessor may request. At the time of
return, the Airframe shall have installed thereon the two Engines and shall be
in the same interior appointments and configuration as it was in on the Delivery
Date with respect thereto, unless modified with Lessor's approval, as set forth
in Section 2.4, or otherwise.
16.2. Condition. Notwithstanding anything to the contrary
herein, Lessee shall return the Aircraft to Lessor in such condition that the
Aircraft shall comply with the conditions set forth on Exhibit C hereto. Lessor
shall be given ample time and opportunity to inspect the Aircraft, the Aircraft
Documents and any other relevant information to insure that the Aircraft has
been returned in compliance with the conditions set forth in Exhibit C hereto
and shall be entitled to take a two (2) hour acceptance test flight prior to
redelivery of the Aircraft at Lessee's sole cost and expense.
16.3. Corrections and Subsequent Corrections. In the event
that the Aircraft or any Engine fails upon the return thereof hereunder to
conform to any return condition requirement imposed by this Lease and
particularly Section 16.2 and Exhibit C hereof, and without prejudice to the
right of Lessee to claim that the Aircraft did comply with such return condition
requirement, Lessee shall, at the sole option of Lessor, either (i) continue the
Lease in effect, including the obligation to pay Basic Rent hereunder, until
such time as Lessee brings the Aircraft up to the condition required by Section
16.2 hereof, or (ii) return the Aircraft to Lessor and thereafter reimburse
Lessor for all costs reasonably incurred by Lessor to have any such
nonconformance corrected, at such time as Lessor may deem appropriate at
commercial rates then charged by the Person selected by Lessor to perform such
correction. Any direct expense incurred by Lessor for such correction shall
become Supplemental Rent payable by Lessee within thirty (30) days following the
submission of a written statement by Lessor to Lessee, identifying the Items
corrected and setting forth the expense of such correction. Lessee's obligations
to pay such Supplemental Rent shall survive the expiration or termination of
this Lease.
16.4. Fuel. Upon the return of the Aircraft, Lessor shall
measure the quantity of fuel on board the Aircraft. The Aircraft shall be
returned with the same amount of fuel on board the Aircraft as on the Delivery
Date as set forth on the Lease Supplement. If the quantity of fuel measured is
less than the amount of fuel on board the Aircraft on the Delivery Date, Lessee
shall reimburse Lessor for the cost of refueling the Aircraft to the same
quantity as was on board the Aircraft on the Delivery Date.
16.5. Legal Status Upon Return. At the time of the return of
the Aircraft, the Aircraft shall be: (i) free and clear of all Liens, (ii) duly
certified as an airworthy aircraft by the FAA with a current and valid
airworthiness certificate applicable to the Aircraft, (iii) equipped and in full
airworthy condition for operation according to all applicable FAA standards
(including compliance with the requirements of FAR Part 121 in effect on the
Delivery Date) required to allow the Aircraft to be operated for commercial
transportation of passengers under applicable rules and regulations of the FAA,
(iv) duly registered in the name of Lessor with the FAA, (v) in full compliance
with the Maintenance Program, (vi) in full compliance with all applicable
federal aviation regulations and all FAA Airworthiness Directives which by their
terms require compliance on or before the Expiration Date and (vii) in
compliance with the requirements of FAA Stage III regulations, without waiver or
performance restriction.
ARTICLE 17
EVENTS OF DEFAULT
17.1. Lessee's Defaults. Any one or more of the following
events shall constitute an "Event of Default":
(a) Lessee shall fail to make any payment of Rent or
payments required pursuant to Sections 5.7 and Exhibit G hereof when due
hereunder and such failure shall continue for three (3) Business Days; or
(b) Lessee shall fail to procure and maintain any
insurance required by Article 12 hereof or shall operate the Aircraft outside
the scope of the insurance coverage maintained with respect to the Aircraft or
the Aircraft shall be operated by an entity other than Lessee; or
(c) Lessee shall fail to comply with Section 3.5
hereunder relating to the Security Deposit or the letter of credit issued
pursuant thereto shall have been withdrawn or shall expire and such letter of
credit shall not have been replaced within five (5) Business Days; or
(d) Lessee shall fail to accept delivery of the
Aircraft pursuant to Section 2.1 hereunder; or
(e) Lessee shall fail to comply with Section 14
hereunder relating to Permitted Liens; or
(f) Lessee shall fail to perform or observe in any
material respect any of the covenants, conditions or agreements performed or
observed by it under Article 5 (except payments required pursuant to Section 5.7
and Exhibit G hereof) or 16 hereof and such failure shall continue for a period
in excess of ten (10) Business Days after written notice thereof is given by
Lessor to Lessee of such failure; or
(g) Lessee shall fail to perform or observe in any
material respect any other of the covenants, conditions, or agreements to be
performed or observed by it hereunder and such failure shall continue for a
period in excess of thirty (30) days after written notice thereof is given by
Lessor to Lessee of such failure; or
(h) Any representation or warranty made by Lessee
herein, in any other Operative Agreement or in any document or certificate
furnished to Lessor in connection herewith or pursuant hereto shall prove to
have been incorrect in any material respect when made; or
(i) Lessee voluntarily suspends substantially all of
its airline operations or the franchises, concessions, permits, rights or
privileges required for the conduct of the business and operations of Lessee are
revoked, canceled or otherwise terminated, or if the operation specifications of
the Lessee are surrendered to the FAA or otherwise withdrawn or suspended, or
Lessee ceases to be an air carrier holding a certificate issued under ss. 44705
of the Transportation Act, or as a result of any of the foregoing the
preponderant business activity of Lessee shall cease to be that of a passenger
carrier; or
(j) (i) Lessee shall commence any case, proceeding or
other action (A) under any existing or future Law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or Lessee shall make a general assignment for
the benefit of its creditors, or (ii) there shall be commenced against Lessee
any case, proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or unbonded for a period
of sixty (60) days, or (iii) there shall be commenced against Lessee any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within sixty (60) days from the entry thereof, or (iv) Lessee shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above,
or (v) Lessee shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(k) Lessee shall default in the payment of any
obligation for the payment of borrowed money, for the deferred purchase price of
property or for the payment of rent or hire under any lease of aircraft which
has an aggregate principal amount or lease payment of Five Hundred Thousand
Dollars ($500,000) or more (determined in the case of borrowed money by the
amount outstanding under the agreement pursuant to which such borrowed money was
borrowed, in the case of a deferred purchase price by the remaining balance, and
in the case of a lease by the present discounted value of the remaining rent or
hire payable thereunder (ignoring any fair market renewal option not yet
exercised)) when the same becomes due if the effect of such nonpayment is to
cause or allow an acceleration of such indebtedness, and such default in payment
shall continue for a period of thirty (30) days; or Lessee shall default in the
performance of any other term, agreement or condition contained in any material
agreement or instrument under or by which any such obligation is created,
evidenced or secured, if such default results in the acceleration of such
obligation; or
(l) A final judgment for the payment of money not
covered by insurance in excess of Two Hundred Fifty Thousand ($250,000), or
final judgments for the payment of money not covered by insurance in excess of
One Million Dollars ($1,000,000) in the aggregate, shall be rendered against
Lessee and the same shall remain undischarged for a period of ninety (90) days
during which (i) execution thereof shall not be effectively stayed by agreement
of the parties involved, or stayed by court order or the pendency of an appeal
or (ii) execution thereof shall not be adequately bonded or (iii) attachments or
other Liens, except for security interests permitted hereunder, shall be
asserted against Lessee's interest in the Aircraft or this Lease; or
(m) Lessee shall default in the performance or
observance of any covenant, term or condition contained in any Related
Transaction and (i) shall not have caused such default to be cured within any
applicable grace period provided by the applicable documents, and (ii) the
effect of such default is to cause (after notice or lapse of time or both), or
to permit the lessor or secured party under such Related Transaction to
terminate such Related Transaction; or
(n) Lessee shall fail to provide in any material
respect the information to be provided by it pursuant to Section 6.3 hereof and
such failure shall continue for a period in excess of three (3) days after
written notice thereof is given by Lessor to Lessee of such failure; or
(o) Lessee shall at any time fail to maintain the
Items of Equipment in an airworthy condition, not promptly take an action
necessary to, or shall not promptly correct any discrepancy which renders the
Aircraft or any Item of Equipment unairworthy, or the certificate of
airworthiness with respect to the Aircraft shall have expired or shall have been
withdrawn; or
(p) This Lease shall cease to be or shall be asserted
by Lessee not to be, valid and binding on and enforceable against Lessee or
shall cease to be in full force and effect for any reason as a result of any
action or inaction of Lessee or Lessee shall have repudiated its obligations
hereunder.
Lessee hereby acknowledges that the occurrence of any one of
the foregoing Events of Default would represent a material default in the
performance of its obligations under this Lease.
ARTICLE 18
RIGHTS AND REMEDIES
18.1. Remedies. Upon the occurrence of any Event of Default
and at any time thereafter so long as the same shall be continuing, Lessor may,
at its option and without notice to Lessee, declare this Lease to be in default
and at any time thereafter, Lessor may exercise one or more of the following
remedies as Lessor, in its sole discretion, shall elect, to the extent available
and permitted by, and subject to compliance with any mandatory requirements of,
applicable Law then in effect:
(a) Demand that Lessee, and Lessee shall upon the
written demand of Lessor and at Lessee's expense, immediately return the
Aircraft to Lessor in the manner specified in such notice, in which event such
return shall not be delayed for purposes of complying with the return conditions
specified in Section 16 hereof (none of which conditions shall be deemed to
affect Lessor's right to possession of the Aircraft) or delay for any other
reason. Notwithstanding the foregoing, at Lessor's option, Lessee shall be
required thereafter to take such actions as would be required by the provisions
of this Lease if the Aircraft were being returned at the end of the Term hereof
and Lessor agrees to cooperate with Lessee's required actions. In addition,
Lessor, at its option and to the extent permitted by applicable Law, may enter
upon the premises where all or any part of the Aircraft is located and take
immediate possession of and, at Lessor's sole option, remove the same (and/or
any engine which is not an Engine but which is installed on the Airframe,
subject to the rights of the owner, lessor or secured party thereof) by summary
proceedings or otherwise, all without liability accruing to Lessor for or by
reason of such entry or taking of possession whether for the restoration of
damage to property, or otherwise, caused by such entry or taking, except damages
caused by gross negligence or willful misconduct. Notwithstanding anything
herein to the contrary, Lessor may institute any proceeding at law or equity.
(b) Sell at private or public sale, as Lessor may
determine, or hold, use, operate or lease to others the Aircraft and the
Aircraft Documents as Lessor in its sole discretion may determine, all free and
clear of any rights of Lessee. At any public sale of the Aircraft, Aircraft
Documents, Airframe, Engine or any Part, Lessor may bid for and purchase such
property.
(c) Whether or not Lessor shall have exercised, or
shall thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) of this Section 18.1, Lessor, by fifteen (15) days written notice
to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and
Lessee shall pay to Lessor, on the payment date reasonably specified in such
notice, as liquidated damages for loss of a bargain and not as a penalty (in
lieu of the Basic Rent due for the period commencing after the date specified
for payment in such notice), any unpaid Rent or Maintenance Reserves for the
Aircraft (prorated in the case of Basic Rent on a daily basis) to and including
the payment date specified in such notice, plus the amount, if any, by which the
aggregate Basic Rent for the remainder of the Term, discounted periodically
(equal to installment frequency) to present worth at the interest rate of four
percent (4%) per annum, exceeds the fair market rental value (determined
pursuant to the Appraisal Procedure, as defined below) of the Aircraft for the
remainder of the Term, after discounting such fair market rental value
periodically (equal to installment frequency) to present worth as of the payment
date specified in such notice at the interest rate of four percent (4%) per
annum; provided, however, that if prior to issuance of such written notice by
Lessor to Lessee, Lessor leases the Aircraft to a third party for the remainder
of the Term, for an amount which exceeds such fair market rental value as so
determined then such amount shall be utilized in lieu of such fair market value
in making the foregoing calculation with respect to the Aircraft.
For purposes of this Section 18.1(c), "Appraisal Procedure" shall mean the
following procedure for determining the "fair market rental value" of the
Aircraft. "Fair market rental value" shall mean the value determined by an
appraisal completed on an "as is" and "where is" basis. Lessor shall select an
internationally recognized independent aircraft appraiser, such as Avitas,
Avmark or B.K. Associates, who shall make a determination of fair market rental
value. The fees and expenses of the appraiser shall be paid by Lessee.
(d) In the event that Lessor, pursuant to Section
18.1(b) above, shall have relet the Aircraft under a lease which extends at
least to the date upon which the Term would have expired but for Lessee's
default, Lessor, in lieu of exercising its rights under Section 18.1(c) above
with respect to the Aircraft, may, if it shall so elect, demand that Lessee pay
Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of a bargain
and not as a penalty (in lieu of the Basic Rent for the Aircraft due after the
time of reletting) any unpaid Rent and Maintenance Reserves for the Aircraft due
up to the date of reletting, plus the amount, if any, by which the aggregate
Basic Rent would have become due over the Term, discounted periodically (equal
to installment frequency) to present worth as of the date of reletting at the
interest rate of four percent (4%) per annum, exceeds the aggregate basic rental
payments to become due under the reletting from the date of such reletting to
the date upon which the Term for the Aircraft would have expired but for
Lessee's default, discounted periodically (equal to installment frequency) to
present worth as of the date of the reletting at the interest rate of four
percent (4%) per annum.
(e) Proceed by appropriate court action or actions
either at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease and to recover damages for the breach thereof and to
rescind this Lease.
(f) Terminate this Lease by written notice, which
notice shall be effective upon dispatch, and repossess the Aircraft and Aircraft
Documents.
(g) Keep and set-off all amounts paid as the "D"
Check Airframe Reserve, the Engine Reserves, the Engine Life Limited Parts
Reserves, the Landing Gear Reserve and any other amounts held by Lessor
hereunder, or under any other Operative Agreement, all as liquidated damages and
not as a penalty.
18.2. Further Rights. In addition to the foregoing, Lessee
shall be liable during or after the exercise of any of the aforementioned
remedies for any and all accrued and unpaid Rent and Maintenance Reserves,
together with interest on such unpaid amounts at the Past Due Rate, and for all
reasonable legal fees and other costs and expenses incurred by reason of the
occurrence of any Event of Default (whether or not litigation is commenced) or
the exercise of Lessor's remedies with respect thereto, including all costs and
expenses incurred in connection with the return of any Item of Equipment in
accordance with the terms of Article 16 hereof or in placing such Item in the
condition and with airworthiness certificates as required by said Article,
subject to the provisions of Section 16.3.
18.3. Remedies Cumulative. No remedy referred to in this
Article 18 is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to Lessor
at law or in equity; and the exercise or beginning of exercise by Lessor of any
one or more of such remedies shall not preclude the simultaneous or later
exercise by Lessor of any or all of such other remedies. No express or implied
waiver by Lessor of any Event of Default shall in any way be, or be construed to
be, a waiver of any future or subsequent Event of Default.
18.4. Concerning Remedies.
(a) In effecting any repossession of the Aircraft,
the Aircraft Documents, the Airframe, an Engine or a Part, Lessor and its
representatives and agents, to the extent permitted by Law, shall: (i) have the
right to enter upon any premises where it reasonably believes the Aircraft, the
Aircraft Documents, the Airframe, an Engine or any Part to be located; (ii) not
be liable, in conversion or otherwise, for the taking of any personal property
of Lessee which is in or attached to the Aircraft, the Airframe, an Engine or
any Part which is repossessed; provided, however, that Lessor shall return to
Lessee all personal property of Lessee or any third party which was on the
Aircraft at the time Lessor repossessed the Aircraft; (iii) not be liable or
responsible, in any manner, for any inadvertent damage or injury to any of
Lessee's property in repossessing and holding the Aircraft, the Airframe, an
Engine or any Part, except for that caused by or in connection with Lessor's
gross negligence or willful acts; (iv) have the right to maintain possession of
and dispose of the Aircraft, the Aircraft Documents, the Airframe, an Engine or
any Part on any premises owned by Lessee or under Lessee's control; and (v) have
the right to obtain a key to any premises at which the Aircraft, the Aircraft
Documents, the Airframe, an Engine or any Part may be located from the landlord
or owner thereof.
(b) If reasonably required by Lessor, Lessee, at its
sole expense, shall assemble and make the Aircraft, the Airframe, each Engine or
any Part available at a place designated by Lessor in accordance with Article 16
hereof. Lessee hereby agrees that, in the event of the return to or repossession
by Lessor of the Aircraft, the Aircraft Documents, the Airframe, an Engine or
any Part, any rights in any warranty (express or implied) heretofore assigned to
Lessee or otherwise held by Lessee shall without further act, notice or writing
be assigned or reassigned to Lessor, if assignable. Lessee shall be liable to
Lessor for all reasonable expenses, disbursements, costs and fees incurred in
(i) repossessing, storing, preserving, shipping, maintaining, repairing and
refurbishing the Aircraft, the Airframe, an Engine or any Part to the condition
required by Article 16 hereof, and (ii) preparing the Aircraft, the Airframe, an
Engine or any Part for sale or lease, advertising the sale or lease of the
Aircraft, the Airframe, an Engine or any Part and selling or releasing the
Aircraft, the Airframe, an Engine or any Part. Lessor is hereby authorized and
instructed, at its option, to make reasonable expenditures which Lessor
considers advisable to repair and restore the Aircraft, the Airframe, an Engine
or any Part to the condition required by Article 16 hereof, all at Lessee's sole
expense.
(c) If Lessor is required to give prior notice to
Lessee of any of the foregoing acts, Lessee hereby covenants and agrees that a
notice sent to it by Lessor in writing in the manner set forth in Section 19.2
hereof, at least ten (10) days before the date of any such act shall be deemed
to be reasonable notice of such act.
ARTICLE 19
MISCELLANEOUS
19.1. Construction, Applicable Law; Jurisdiction.
(a) Any provision of this Lease which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The parties to this
Lease shall use their best efforts to substitute for such void provision a
valid, legal and enforceable provision which will approach as closely as
possible the intention of such void provision. To the extent permitted by Law,
Lessee hereby waives any provisions of Law which renders any provisions hereof
prohibited or unenforceable in any respect. This Lease shall constitute an
agreement of lease, and nothing herein shall be construed as conveying to Lessee
any right, title or interest in the Aircraft or any Engine or Part except as a
lessee only. No term or provision of this Lease may be changed, waived,
discharged or terminated orally, but only by a written instrument signed by the
party against which the enforcement of the change, waiver, discharge or
termination is sought. The headings and captions in this Lease are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof. Whenever required by the context hereof, the singular shall
include the plural and vice versa. Reference to this Lease shall mean this Lease
as amended or supplemented from time to time.
(b) THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO CONFLICT OF LAW PRINCIPLES.
(c) Lessee hereby irrevocably consents that any legal
action or proceeding against it or any of its assets with respect to this Lease
may be brought in any jurisdiction where Lessee or any of its assets may be
found, or in any court of the State of New York or any Federal Court of the
United States of America located in New York, New York, United States of
America, or both, as Lessor may elect, and by execution and delivery of this
Lease, Lessee hereby irrevocably submits to and accepts with regard to any such
action or proceeding, for itself and in respect of its assets, generally and
unconditionally, the jurisdiction of the aforesaid courts. Lessee irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified airmail, postage prepaid, to Lessee at its address set forth in
Section 19.2 hereof. The foregoing, however, shall not limit the right of Lessor
to serve process in any other manner permitted by Law or to bring any legal
action or proceeding or to obtain execution of judgment in any jurisdiction.
Lessee further agrees that final judgment against Lessee in any action or
proceeding in connection with this Lease shall be conclusive and may be enforced
in any other jurisdiction within or outside the United States of America by suit
on the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and the amount of Lessee's indebtedness. Lessee hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
Lessee may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Lease brought in the State of New
York, and hereby further irrevocably waives any claim that any such suit, action
or proceeding brought in the State of New York has been brought in an
inconvenient forum.
19.2. Notices. All notices provided for herein shall be in
writing and shall be deemed to have been given when delivered personally, when
telexed or telecopied, when deposited with an overnight courier service, or, if
deposited in the United States mail, when received, addressed as follows:
If to Lessee: Frontier Airlines, Inc.
12015 East 46th Avenue, Suite 200
Denver, Colorado 80239-3116
Attn: Director, Aircraft Management
Telecopy No. (303) 371-7007
With a copy to the General Counsel
Telecopy No. (303) 371-9669
If to Lessor: C.I.T. Leasing Corporation
c/o The CIT Group/Capital
Finance, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: Al Oliver
Vice President
Telecopy No. (212) 536-9401
With a copy to the General Counsel
Telecopy No. (212) 536-1388
or to such other address as any party may designate for itself by written notice
to the other party.
19.3. Lessor's Right to Perform. If Lessee fails to perform
any of its obligations hereunder, Lessor may (but shall not be obligated to)
discharge such obligation, and the amount of the expenses of Lessor incurred in
connection with such discharge shall be payable by Lessee upon demand, together
with interest at the Past Due Rate from the date such expenses were incurred.
19.4. Counterparts. This Lease may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. To the extent,
if any, that this Lease constitutes chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction) no
security interest in this Lease may be created through the transfer or
possession of any counterpart other than the counterpart which has been marked
"Original" on the signature page thereof. All counterparts other than the
"Original" shall be marked "Duplicate" or "Duplicate Original."
19.5. Assignment by Lessor. Lessor, at Lessor's expense, shall
have the absolute right to transfer or assign to any Person, firm, corporation
or other entity any or all of Lessor's rights, obligations, benefits and
interests under this Lease, including, without limitation, the right to receive
Rent and Maintenance Reserves or any other payment due under this Lease, the
right to transfer or assign title to any Item of Equipment or to transfer or
assign the right to purchase any Item of Equipment and the right to make all
waivers and agreements, to give all notices, consents and releases, to take all
action upon the occurrence of any Event of Default, or to do any and all other
things which Lessor is or may become entitled to do under this Lease; provided,
however, that Lessee acknowledges that, if Lessor should sell or transfer to a
third party all of Lessor's interest under this Lease and in the Items of
Equipment, Lessor shall thereupon be relieved of all of its obligations
hereunder and Lessor's transferee shall succeed to all of Lessor's rights,
interests and obligations under this Lease as though Lessor's transferee had
been the initial lessor hereunder; provided, however, that, in the event of a
transfer or assignment of a security interest in any Item of Equipment, Lessor
shall remain liable hereunder. Any assignment, pledge or other conveyance, for
security or otherwise, of this Lease by Lessor shall be subject to Lessee's
rights under this Lease and shall not be effective unless and until Lessee shall
have been given notice of such assignment identifying the assignee or transferee
hereof and Lessee shall have received confirmation in writing, reasonably
acceptable to Lessee, that such transferee accepts all responsibilities of
Lessor under this Lease, including but not limited to, confirmation of Lessee's
right to quiet enjoyment of the Aircraft as set forth in Section 19.11 hereof.
Any assignment by Lessor shall be made subject to the assignee's agreement to
maintain all Maintenance Reserves in one or more escrow accounts unless
otherwise expressly agreed by Lessee. The agreements, covenants, obligations and
liabilities contained herein, including, but not limited to, all obligations to
pay Rent and Maintenance Reserves and indemnify an Indemnitee are made for the
benefit of each Indemnitee and their respective successors and assigns.
19.6. Survival. The representations, warranties, covenants,
agreements and indemnities of Lessee set forth in this Lease, and Lessee's
obligations hereunder, shall survive the Expiration Date to the extent required
for full performance and satisfaction thereof.
19.7. Entire Agreement. This Lease (including all Exhibits
hereto), each Lease Supplement executed pursuant hereto and the other Operative
Agreements constitute the entire agreement between Lessor and Lessee regarding
the Aircraft and there are no other prior or contemporaneous written or oral
understandings between Lessor and Lessee with regard to the subject matter
hereof and thereof.
19.8. Successors and Assigns. This Lease shall be binding on
and shall inure to the benefit of Lessee, Lessor and their respective successors
and permitted assigns.
19.9. Brokers. Lessee and Lessor each agree to indemnify and
hold each other harmless from and against any and all claims, suits, damages,
costs and expenses (including, but not limited to, reasonable attorneys' fees)
asserted by any agent, broker or other third party for any commission or
compensation of any nature whatsoever based upon the lease of the Aircraft;
provided, however, that Lessee or Lessor, as the case may be, shall be solely
responsible for all claims, suits, damages, costs and expenses asserted by any
agent, broker or other third party for any commission or compensation of any
nature whatsoever, where such agent, broker or third party was retained by
Lessee or Lessor, as the case may be.
19.10. Transaction Costs. Whether or not the transactions
contemplated hereby are consummated, each party hereto agrees to pay its own
costs and expenses incurred in connection with the preparation, execution and
delivery of this Lease and any other documents delivered in connection herewith,
including without limitation the fees, expenses and disbursements of legal
counsel to such party. In addition, Lessor agrees to pay the attorneys' fees,
expenses, and disbursements of the counsel identified in Section 2.3(8). Each of
Lessor and Lessee agrees to pay the reasonable costs and expenses of the other
party incurred in connection with the entering into or giving or withholding of
any future waiver, supplement or amendment or other action with respect to the
Lease or any other document delivered in connection therewith that it may
request, except that from and after (i) the occurrence and continuation of an
Event of Default, or (ii) the filing by or against Lessee of a petition under
Chapter 7 or Chapter 11 of the United States Bankruptcy Code or any other
circumstances described in Section 17.1(j) hereof, all of such costs shall be
borne by Lessee irrespective of whether such costs are incurred after the
commencement or inception of any such filing or the occurrence of any other
circumstance described in Section 17.1(j) hereof and whether or not litigation
is commenced with respect thereto.
19.11. Quiet Enjoyment. Lessor covenants that so long as an
Event of Default shall not have occurred and be continuing, Lessee shall quietly
enjoy the Aircraft and all rents, revenues, profits and income thereto, without
interference by Lessor or by any Person lawfully claiming by or through Lessor;
provided, however that Lessor and prospective purchasers and lessees may inspect
the Aircraft and Aircraft Documents at their own expense as long as such
inspection does not unreasonably interfere with Lessee's operation or
maintenance of the Aircraft.
19.12. Time Is of the Essence. Time and strict and punctual
performance are of the essence with respect to each provision of this Lease.
19.13. Confidentiality. Lessee and Lessor agree to and shall
keep confidential this Lease and the terms hereof, all Aircraft Documents and
other data or materials relating to the Aircraft supplied to Lessee by Lessor,
or at the request of Lessor, hereunder and will not disclose, transfer or
otherwise impart any such information to any other Person, except (i) as may be
required by Law or pursuant to any litigation, (ii) to its affiliates, permitted
assigns, officers, executives, employees and agents, (iii) to its financial,
accounting or legal advisors who are under a duty to or agree to hold such
information confidential, or (iv) with respect to any information which is
generally available to the public at the time of disclosure.
19.14. DISCLAIMER OF CONSEQUENTIAL DAMAGES. LESSEE AND LESSOR
EACH AGREE THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND
WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES AS
A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OR LESSEE, AS THE CASE MAY
BE, OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR OR LESSEE,
AS THE CASE MAY BE, CONTAINED IN THIS LEASE.
19.15. Tax Treatment. Lessor and Lessee acknowledge that this
Lease is to be treated as a lease for Federal income tax purposes.
19.16 Waiver of Jury Trial. LESSEE AND LESSOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE BOTH PARTIES
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS LEASE OR THE RELATIONSHIP ESTABLISHED HEREUNDER.
19.17. Dating. Although this Lease is dated for convenience
and for the purpose of reference as of the date first set forth above, this
Lease shall be effective on the latest date of execution by the parties hereto.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this
Lease to be duly executed by their authorized officers as of the date first
above written.
C.I.T. LEASING CORPORATION,
Lessor
By:______________________________
Title:___________________________
FRONTIER AIRLINES, INC.,
Lessee
By:______________________________
Title:
<PAGE>
EXHIBIT A
to
AIRCRAFT LEASE AGREEMENT
DESCRIPTION OF AIRCRAFT AND ENGINES
1. One Boeing 737-3L9 Aircraft bearing FAA Registration Number N312FL and
Manufacturer's serial number 24569, together with two (2) CFM56-3B2
engines, bearing Manufacturer's serial numbers 725373 and 724422,
respectively.
<PAGE>
B-3
EXHIBIT B
to
AIRCRAFT LEASE AGREEMENT
FORM OF LEASE SUPPLEMENT
THIS LEASE SUPPLEMENT dated _________ __, 1999 (this "Lease
Supplement"), between C.I.T. LEASING CORPORATION, as Lessor ("Lessor"), and
FRONTIER AIRLINES, INC., as Lessee ("Lessee").
W I T N E S S E T H :
WHEREAS, Lessor and Lessee have heretofore entered into that
certain Aircraft Lease Agreement, dated as of April 16, 1999 (the "Lease"),
which provides for the execution and delivery of a Lease Supplement in
substantially the form hereof for the purpose of leasing the Items of Equipment
in accordance with the terms thereof;
NOW, THEREFORE, in consideration of the premises, and pursuant
to Article 2 of the Lease, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used herein which are defined in the
Lease shall have, for all purposes hereof, the respective meanings given them in
the Lease.
2. Lessor hereby delivers and leases to Lessee, and Lessee
hereby accepts and leases from Lessor under the Lease, as hereby supplemented,
the Items of Equipment as follows:
A. Aircraft: One (1) Boeing 737-3L9 Aircraft
consisting of the following:
(i) Airframe Registration No. N312FL
Manufacturer's Serial No. 24569
(ii) Engines: Two (2) CFM56-3B2 engines
(each of which engines has 750 or
more rated takeoff horsepower or the
equivalent thereof), installed on
said Airframe, bearing,
respectively, the following
Manufacturer's Serial Nos.:
Engine Manufacturer's
Position Serial No.
1 725373
2 724422
(iii) Other Equipment and Manuals:
Such other Equipment (if any) and
Manuals as are described in Appendix I hereto.
B. Maintenance Status:
(i) Airframe:
Total Airframe Hours: 22,040
Total Airframe Cycles: 21,111
(ii) Engines:
Position 1
Manufacturer's Serial No.: 725373
1. Total Hours: 19,423
2. Total Cycles: 18,767
Position 2
Manufacturer's Serial No.: 724422
1. Total Hours: 17,117
2. Total Cycles: 17,113
Lessee confirms that the Items of Equipment have been examined
by its duly appointed and authorized representatives and the Aircraft Documents
conform to the information set forth above.
3. The Delivery Date of the Items of Equipment is the date of
this Lease Supplement, as set forth in the opening paragraph hereof, and the
Items of Equipment are hereby delivered and accepted on such date at _____ a.m.
____________________ Time at __________________.
4. The term "Insured Value" for the Aircraft shall be as set
forth on Exhibit H to the Lease.
5. The amount of fuel on board the Aircraft at the time of
delivery is _____________________.
6. Lessee hereby confirms to Lessor that (i) the Aircraft and
each Engine installed thereon or belonging thereto have been duly marked in
accordance with the terms of Section 5.6 of the Lease, (ii) Lessee has accepted
the Aircraft for all purposes hereof and of the Lease, (iii) Lessee has
inspected the Aircraft and the Aircraft satisfies all of the delivery conditions
set forth in the Lease (including, without limitation, those set forth on
Exhibit I to the Lease), (iv) the information set forth herein and on Appendix 1
hereto pertaining to the Aircraft are correct as of the date hereof, and (v)
this Lease Supplement has been duly executed and delivered by Lessee.
7. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
8. This Lease Supplement may be executed in any number of
counterparts, each of which counterparts, except as otherwise provided in
Section 19.4 of the Lease, shall for all purposes be deemed to be an original;
and all such counterparts shall together constitute but one and the same Lease
Supplement.
9. THIS LEASE SUPPLEMENT SHALL IN ALL RESPECTS BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO
CONFLICT OF LAW PRINCIPLES.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this
Lease Supplement to be duly executed by their authorized officers on the date
first above written.
C.I.T. LEASING CORPORATION,
Lessor
By:_________________________________
Title:______________________________
FRONTIER AIRLINES, INC.,
Lessee
By:_________________________________
Title:______________________________
<PAGE>
APPENDIX I
TO
LEASE SUPPLEMENT
A. AVIONICS INVENTORY1
MAJOR AVIONICS EQUIPMENT QTY P/N MODEL
Marker Receiver 1 522-2996-018 5124
Dual VHF Nav Receiver 2 822-0761-001 51RV-4B
Transceiver Rad Alt 2 622-3890-021 860F-4
Tape Reproducer 1 RDAX 7308-D1
SELCAL Decoder 1 N1401C
Transceiver Weather Radar 1 622-132-106
GPW Computer 1 965-0648-004
DME Transceiver 2 622-2921-006 860E-5
ATC Transponder 2 622-7878-201 TPR720
ADF Receiver 2 777-1492-005 51Y-7
Flight Manage Comp 1 168925-06-001 U5-OE
HF Transceiver 1 622-5377-001 D5722
VHF Transceiver 2 622-5219-004 VHF 700
Cockpit Voice Recorder 1 93A100-80
Flight Data Recorder 1 980-4100DXUN
Flight Data Acquisition Unit 1 ED41A210
<PAGE>
APPENDIX I
TO
LEASE SUPPLEMENT
B. MANUALS INCLUDED WITH AIRCRAFT2
<PAGE>
APPENDIX I
TO
LEASE SUPPLEMENT
C. LOOSE EQUIPMENT3
Item Description Quantity
<PAGE>
APPENDIX I
TO
LEASE SUPPLEMENT
D. COMPONENTS MAINTAINED ON HARD TIME4
Part Time Remaining
No. Nomenclature Interval To Overhaul
<PAGE>
EXHIBIT C
to
AIRCRAFT LEASE AGREEMENT
RETURN CONDITION REQUIREMENTS
In addition to the requirements set forth in Article 16 of the
Lease, on or before the Expiration Date, or earlier termination of the Lease,
Lessee, at Lessee's expense, shall return the Aircraft to Lessor, at any airport
in the continental United States as selected by Lessor, and in compliance with
all of the following provisions:
GENERAL
(1) The Aircraft shall be airworthy and have therefore been
maintained and operated in accordance with Articles 5 and 9 of the Lease with
the same care and consideration for the technical condition of the Aircraft as
if it were to have been kept in continued regular service by Lessee.
(2) The Aircraft exterior shall be washed and the interior
shall be clean. The cockpit shall be clean with paint and placards in good
condition.
(3) The Aircraft shall have installed the full complement of
Engines (as used herein the term "Engines" includes engines for which title will
be transferred to Lessor pursuant to Article 11 of the Lease) and other Items of
Equipment as would remain installed on the Aircraft were Lessee to continue
operating the same in continued regular passenger service, each such Item
functioning in accordance with its intended use.
(4) The Aircraft shall comply with the Manufacturer's original
FAA approved type certificate specifications, as revised up to the Expiration
Date, together with any modifications installed in accordance with supplemental
type certificates approved by the FAA and acceptable to Lessor.
(5) The Aircraft, Engines, Landing Gear, APU, and Parts
(appliances) shall comply with all applicable FARs and Airworthiness Directives
affecting such model aircraft, engines, landing gears, auxiliary power units,
and parts (appliances) which by their terms require compliance on or before the
Expiration Date, notwithstanding any waiver, deviation or time extension
obtained by Lessee from the FAA or otherwise. Any alternate method of compliance
obtained by Lessee to comply with any AD shall have been approved by the FAA
without restriction or limitation, and shall be acceptable to the FAA for use by
any other operator of the Aircraft.
(6) The Aircraft shall have a current and effective FAA
certificate of airworthiness and shall comply with all FAR requirements for
passenger operation as a transport category commercial aircraft in accordance
with all applicable FARs, including without limitation FAR Part 121.
(7) Cockpit windows shall have no crazing or delamination that
exceed maintenance manual allowable limits, and passenger compartment windows
shall have no crazing . All equipment and furnishings in the interior of the
Aircraft which are defective, damaged, or excessively worn shall be repaired or
replaced by Lessee.
(8) The Aircraft shall have no leakage of fuel, oil, hydraulic
fluid, or water.
(9) The Aircraft and Engines shall be in compliance with all
Manufacturer's service bulletins issued at the time of return, to the same
extent that Lessee has accomplished such service bulletins on similar model
aircraft and engines of the same manufacture in Lessee's fleet, without
discrimination.
(10) The Aircraft (including each Engine, Landing Gear, APU,
and Part) shall not have any open, deferred or placarded maintenance items or
Watch Items, nor shall they have any Flight Hour, Cycle, or calendar time
extensions, waivers, or non-transferable alternate methods of compliance.
(11) At the end of the Term, upon the request of Lessor,
Lessee shall obtain an Export Certificate of Airworthiness for the Aircraft for
export to such country as designated by Lessor. Lessor shall be responsible for
the cost of modifying the Aircraft to comply with the import requirements of
such other country.
(12) Prior to the Expiration Date, all repairs accomplished
during the Term of a temporary or interim nature, including repairs using blind
fasteners (except to the extent that the use of blind fasteners is considered a
permanent repair in accordance with the Manufacturer's structural repair manual
for the Aircraft) and those requiring repetitive inspections or future
upgrading, shall be upgraded to a permanent repair and all external doublers
(scab patches) installed during the Term (except to the extent that installation
of a doubler is the only approved repair or where a flush repair is not
practical due to inaccessibility of the area), shall be replaced with flush
repairs, all in accordance with the applicable Manufacturer's maintenance
manual, structural repair manual, or other FAA approved data.
(13) Lessee shall deliver to Lessor, at no cost to lessor, all
service bulletin kits furnished without charge by a Manufacturer for
installation on the Aircraft which have not been so installed together with
appropriate instructions for installation provided with such kits. In the event
such installation kits were purchased or manufactured by Lessee, Lessor shall
have the exclusive right to purchase such kits at Lessee's Actual Cost for a
period of one hundred eighty (180) days after return of the Aircraft and the
non-exclusive right to purchase such kits thereafter.
AIRFRAME
(1) Lessee shall provide documentation evidencing full
compliance with the Manufacturer's recommended corrosion prevention and control
program ("CPCP"), or such other corrosion prevention and control program
approved by the FAA for the Aircraft.
(2) The Aircraft shall be returned fresh from Lessee's next
due "C" Check pursuant to Lessee's Maintenance Program which shall include all
structural inspection requirements which would require accomplishment within
3,500 Flight Hours or Cycles, or within 15 calendar months after the Expiration
Date, and with all discrepancies permanently repaired. The "C" Check shall
include all lesser Checks. Lessee shall give Lessor not less than ten (10) days
prior written notice of the commencement date of such "C" Check. During the
performance of such "C" Check, Lessor shall be entitled to have representatives
present in order to verify that such "C" Check complies with the requirements
set forth herein.
(3) The time remaining to the next scheduled Airframe block
overhaul ("D" Check, or an equivalent Check in the event the Maintenance Program
uses different terminology) shall not be less than fifty percent (50%) of the
allowable time (Flight Hours, Cycles, and calendar time) between such scheduled
block overhauls.
(4) Each of the Time Controlled Parts (excluding those which
are internal Engine Parts and internal Landing Gear Parts (as delineated in the
Boeing 737-300 MPD) but including any Life Limited Parts) on (i) the Aircraft,
(ii) the Engines and (iii) the Landing Gear, shall have remaining the same
amount of time (whether Flight Hours, Cycles or calendar time) with respect to
its next regularly scheduled overhaul, restriction, or other required
maintenance, as was remaining on the Delivery Date. In the event any of the Time
Controlled Parts fail to meet the requirements set out in the preceding
sentence, either Lessee or Lessor shall pay to the other party a financial
adjustment for any such Time Controlled Part as determined by the following
formula:
FA = TRD -- TRR x CO
TBO
Where
FA = Financial adjustment to be paid
pursuant to this Section. The
financial adjustment shall be paid
by Lessee to Lessor if the value for
FA is determined to be positive in
accordance with the formula set out
above. The value of the financial
adjustment shall be paid by Lessor
to Lessee if the value for FA is
determined to be negative in
accordance with the formula set out
above.
TRD = Time remaining at the Delivery
Date to the next regularly scheduled
overhaul, restriction, or other
required maintenance, for the
applicable Time Controlled Part.
TRR = Time remaining at the date of
return of the Equipment to the next
regularly scheduled overhaul,
restriction, or other required
maintenance, for the applicable Time
Controlled Part.
TBO = Average time between regularly
scheduled overhauls, restrictions,
or other required maintenance for
the applicable Time Controlled Part.
CO = Average cost of the overhaul,
restriction, or other required
maintenance for the applicable Time
Controlled Part.
INTERIOR
(1) The Aircraft, shall be in the same configuration
(including, but not limited to, interior seating configuration, galleys and
lavatories) as when such Aircraft was originally delivered to Lessee hereunder,
unless otherwise consented to by Lessor, in its sole discretion.
ENGINES AND APU
(1) Immediately prior to the return of the Aircraft, which
shall be after the redelivery flight for the Aircraft, Lessee shall accomplish a
complete hot and cold section borescope inspection of each Engine and the APU,
to be performed at Lessee's expense by Lessee's representative or an agency of
Lessee's choosing, in accordance with the Manufacturer's maintenance manual. All
defects discovered as a result of such inspections, which exceed the maintenance
manual allowable limits for an installed engine or APU, as applicable, shall be
corrected at Lessee's expense. Any defect that requires reinspection prior to
the next full "C" Check or 3,500 Flight Hours, whichever is greater, shall be
considered a Watch Item and shall be corrected at Lessee's expense.
(2) Each Engine shall have (i) a minimum of 3,000 Cycles
remaining to its next scheduled removal, and (ii) a maximum of 3,000 Flight
Hours accumulated since its most recent Engine restoration shop visit. The
average of the life remaining for all of the Life Limited Parts in each Engine
shall not be less than 50% of the average of the total allowable life for such
Engine Life Limited Parts, provided, however, that no individual Life Limited
Part shall have less than 3,000 Cycles remaining to its respective life limit.
(3) Each Engine shall be capable of developing full rated
take-off power at the critical maximum outside air temperature without exceeding
the maximum limits for all parameters (temperature, fuel flow, rotor speed,
etc.) as per the Manufacturer's specifications. A full take-off power engine
run-up shall be performed in the presence of Lessor's representatives
immediately prior to the return of the Aircraft, in accordance with the
performance test in the maintenance manual, or other comparable test (as agreed
to by Lessor), using temperature corrected charts. Each Engine shall have a
minimum of 20(degree) EGT margin and the test results shall not exceed the
corrected limits in the charts for any parameter.
(4) The APU of the Aircraft shall be in serviceable condition.
INSPECTION
(1) On, or immediately prior to the Expiration Date, Lessee
shall perform a redelivery check flight of the Aircraft of not more than two (2)
hours duration with Lessor's representatives on board, who will determine which
systems shall be operated. All discrepancies found during such check flight
which exceed maintenance manual allowable limits shall be corrected by Lessee at
Lessee's expense. Lessee shall be responsible for all expenses associated with
such flight and shall furnish the necessary crews and fuel.
(2) Lessor shall inspect the Aircraft and Aircraft Documents
(the "Final Inspection") prior to the Expiration Date. The Final Inspection will
occur during the "C" Check required pursuant to this Exhibit C and shall include
the opening or removal of panels as reasonably required by Lessor, and access to
all compartments and bays. All discrepancies discovered during such Final
Inspection which exceed maintenance manual allowable limits shall be permanently
repaired by Lessee. Lessor shall be given the opportunity to conduct all
activity necessary to verify that the Aircraft complies with the requirements
set forth herein. The Final Inspection of the Aircraft Documents shall commence
on a date as mutually agreed by Lessor and Lessee. To the extent that any
repairs to the Aircraft, or correction of discrepancies found in the Aircraft
Documents, extend beyond the Expiration Date, the Term shall be deemed to have
been automatically extended, and the obligation to pay Rent hereunder continued
on a daily basis until the Final Inspection and repairs or corrections have been
satisfactorily concluded.
(3) All Aircraft Documents and other current and historical
records delivered with the Aircraft on the Delivery Date, and all other Aircraft
Documents acquired or prepared by Lessee during the Term shall be returned with
the Aircraft. Notwithstanding anything to the contrary herein, (i) to the extent
any maintenance tasks have been repeated, Lessee shall only be required to
retain, and include in the Aircraft Documents to be returned to Lessor at the
Expiration Date, the most recent Aircraft Records with respect to each such
repetitive task and (ii) to the extent log books document maintenance performed
on the Aircraft, such log books shall be required to be retained (and included
in the Aircraft Documents to be returned to Lessor at the Expiration Date) for a
period of twelve (12) months, or the time period required by the Aeronautics
Authority, whichever is greater. All discrepancies found in the Aircraft
Documents shall be corrected, and any missing Aircraft Documents shall be
reconstructed by Lessee at Lessee's sole cost and expense prior to the return of
the Aircraft. All Aircraft Documents shall be in the English language. In the
event any Aircraft Documents are not provided to Lessor or are not in the
English language, on the Expiration Date, the Aircraft shall be deemed not to
meet the return conditions and the Term shall be deemed to have been
automatically extended, and the obligation to pay Rent hereunder continued on a
daily basis until the final inspection and corrections have been satisfactorily
concluded.
(4) All Aircraft and Engine systems (including galleys,
passenger and cargo compartments) shall be fully operational for their intended
functions. Lessor shall operationally check all systems prior to the return of
the Aircraft and all defects found shall be permanently repaired by Lessee, at
Lessee's expense prior to return of the Aircraft.
(5) In the event the Aircraft has been maintained on a
maintenance program other than an FAA approved maintenance program, Lessee, at
Lessee's expense, shall cause the Aircraft to be bridged onto an FAA approved
maintenance program, or onto the Manufacturer's recommended maintenance program
in accordance with the Maintenance Planning Data Document (MPD), or its
equivalent.
<PAGE>
EXHIBIT D
to
AIRCRAFT LEASE AGREEMENT
LESSEE'S COUNSEL OPINION
[Letterhead of Lessee's Counsel]
[Date of Delivery Date]
C.I.T. Leasing Corporation
1211 Avenue of the Americas
New York, New York 10036
Re: Aircraft Lease Agreement dated as of April 16, 1999 between C.I.T.
Leasing Corporation, as Lessor, and Frontier Airlines, Inc., as Lessee,
Relating to the Lease of One Boeing 737-300 Aircraft, Manufacturer's
Serial No. 24569 and U.S. Registration No. N312FL
Dear Sirs:
I act as General Counsel for Frontier Airlines, Inc., a
corporation duly organized and validly existing under the laws of the State of
Colorado. I have reviewed the Aircraft Lease Agreement dated as of April 16,
1999 (the "Lease") between Lessee and C.I.T. Leasing Corporation (the "Lessor").
Except as otherwise defined herein, the terms used herein shall have the
meanings set forth in the Lease.
You have requested that I render an opinion in connection with
the transactions governed by the Lease. I have examined originals or copies,
certified or otherwise identified to my satisfaction of such documents,
corporate records and other instruments as I have deemed necessary or advisable
and have relied upon such representations of officers and employees of the
Lessee as I have considered reasonable, prudent and advisable for the purpose of
rendering this opinion. I have assumed the genuineness of all signatures and the
authenticity of all documents submitted to me as originals and the conformity to
original documents of all documents submitted to me as copies or facsimiles.
Based upon the foregoing, I am of the opinion that:
1. The Lessee is a corporation duly organized and validly
existing in good standing under the laws of the State of Colorado, is duly
qualified to hold property and to transact business as a company and is duly
qualified to carry on business in each jurisdiction in which it conducts
business and has full power and authority to carry on its business as presently
conducted, to hold property under lease and to enter into and to perform its
obligations under the Lease, as supplemented by the Lease Supplement, and each
other document related thereto to which the Lessee is a party. The Lessee is a
"Certificated Air Carrier" within the meaning used by the Transportation Act, as
amended, operating pursuant to a certificate issued under such Act.
2. The execution, delivery and performance by the Lessee of
the Lease and Lease Supplement have been duly authorized by all necessary
corporate action on the part of the Lessee, do not and will not require any
approval of the shareholders of the Lessee or consent of any trustee or holder
of any indebtedness or obligation of the Lessee, and the execution and delivery
of the Lease and Lease Supplement, the consummation of the transactions
contemplated therein, and compliance by the Lessee with the terms and provisions
thereof, do not contravene any Law applicable to the Lessee, or result in the
breach of, or constitute any default under, or result in the creation of any
lien, charge or encumbrance upon any property of the Lessee under any credit
agreement or instrument, corporate charter or bylaw or other agreement to which
the Lessee is a party or by which the Lessee or its properties or assets are
bound or affected. The Lease and Lease Supplement have been duly executed and
delivered by the Lessee.
3. The Lessee has received every consent, approval or
authorization of, and has given every notice to, each Governmental Authority
having jurisdiction with respect to the execution, delivery and performance of
the Lease, the Lease Supplement and the other Operative Agreement (including all
monetary and other obligations thereunder), that is required for the Lessee to
execute and deliver the Lease, the Lease Supplement and the other Operative
Agreements and to perform the transactions covered thereby to be performed on or
prior to the Delivery Date.
4. The Lease, the Lease Supplement and the other Operative
Agreements have been duly executed and delivered by the Lessee and constitutes
the legal, valid and binding agreement of the Lessee enforceable against the
Lessee in accordance with its terms, except as enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally, as well as
awards by courts of relief in lieu of the remedy of specific performance of
contractual provisions and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
as a court having jurisdiction may impose and by laws which may affect some of
such remedies but which do not make the available remedies inadequate for the
substantial realization of the benefits provided therein.
5. There are no actions, suits or proceedings pending or, to
my knowledge, threatened against or affecting the Lessee in any court or before
any governmental commission, arbitrator, board or authority which, if determined
adversely to the Lessee, could have a material adverse effect on the current
business or financial condition of the Lessee or on the ability of the Lessee to
perform its obligations under the Lease and the other Operative Agreements to
which it is a party.
6. The Lessee is not in default under any indenture, mortgage
or loan agreement of which I have knowledge and to which the Lessee is now a
party or by which it is bound nor is the Lessee in default under any other
agreement or instrument of a material nature of which I have knowledge and to
which the Lessee is now a party or by which it is bound; nor to my knowledge is
the Lessee in violation of any law, order, injunction, decree, rule or
regulation applicable to the Lessee of any court or administrative body, which
violation could materially and adversely affect the business, property or
assets, operations or condition, financial or otherwise, of the Lessee; and no
event has occurred and is continuing which, under the provisions of any such
indenture, mortgage or loan agreement, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder.
7. Except for the filing of the Lease and the Lease Supplement
for recordation with the FAA, the placing on the Aircraft and on each Engine of
the plates containing the legends referred to in Section 5.6 of the Lease and
the filing of a UCC-1 with the Colorado Secretary of State, no further filing,
recording or notarization of the Lease or of any other document, and no further
action is necessary or advisable, under the laws of any Governmental Authority
in order to (a) fully establish and protect Lessor's title to, interest in and
property right with respect to the Aircraft and each Engine as against the
Lessee or any third party and to ensure that the property rights of Lessor
therein will have priority in all respects over the claims of all creditors of
the Lessee, and (b) ensure the validity, effectiveness and enforceability of the
Lease. Lessor is entitled to the benefit of Section 1110 of the Bankruptcy Code
as in effect on the date hereof.
I do not purport to be an expert on and do not purport to be
generally familiar with or qualified to express legal opinions based on any law
other than the laws of Colorado and the Federal laws of the United States of
America, accordingly, I express no legal opinion herein based upon the laws of
any other state. However, for the purposes of this opinion, I have assumed that
the laws of the State of New York are identical to those of the State of
Colorado.
Yours very truly,
<PAGE>
EXHIBIT E
to
AIRCRAFT LEASE AGREEMENT
[LETTERHEAD OF APPROVED INSURANCE BROKER]
[Date of Delivery Date]
C.I.T. Leasing Corporation
1211 Avenue of the Americas
New York, New York 10036
Re: Insurance Coverage for One Boeing 737-3L9 Aircraft under
Aircraft Lease Agreement dated as of ________ __, 1999 between
C.I.T. Leasing Corporation and Frontier Airlines, Inc. having
Manufacturer's Serial No. 24569 and U.S. Registration
No. N312FL
Gentlemen:
This report is delivered to you pursuant to the provisions of
Section 2.3(5) of the Aircraft Lease Agreement dated as of _______ __, 1999 (the
"Lease") between C.I.T. Leasing Corporation (the "Lessor") and Frontier
Airlines, Inc. (the "Lessee"). We are the firm of independent aircraft insurance
brokers (the "Approved Insurance Broker") who have been appointed by Lessee to
deliver this report pursuant to Section 2.3(5) of the Lease and we understand
that Lessor has not objected to such appointment. Except as otherwise defined
herein, the terms used herein shall have the meanings set forth in the Lease.
We have reviewed the Lease and particularly Article 12 and
Exhibit E thereof. We are also fully familiar with the Certificate of Insurance
dated _________________, 1999 issued to you by the Approved Insurers as well as
the policies of insurance evidenced thereby. We have attached such Certificate
of Insurance setting forth the coverage applying to the Aircraft.
In our opinion the insurance policies carried on the Aircraft
described in our Certificate of Insurance dated _____________________, 1999 are
subject to terms and conditions which are normal for the market and comply in
all material respects with Article 12 and Exhibit E of the Lease.
We agree to advise Lessor in writing promptly of any default
in the payment of any premium and any other act or omission on the part of
Lessee of which we have knowledge and which might invalidate or render
unenforceable, in whole or in part, any insurance required under the Lease on
the Aircraft, and we further agree to advise you in writing at least thirty (30)
days (seven (7) days or such lesser period as from time to time may be
applicable in the case of war risk and allied perils insurance) prior to any
lapse, termination or cancellation of any such insurance or as soon as possible
in respect of non-renewal or automatic termination for War Risk.
Very truly yours,
[APPROVED INSURANCE BROKER]
By:_____________________________
Title:____________________________
<PAGE>
EXHIBIT F
to
AIRCRAFT LEASE AGREEMENT
SPECIAL PROVISIONS TO CERTIFICATE OF INSURANCE
The "special provisions" section of the Insurance Certificate
shall provide as follows:
1. In accordance with the Aircraft Lease Agreement dated as of
April __, 1999 (the "Lease") between Lessor and Lessee, it is agreed to include
Lessor and its successors and assigns, and their respective directors, officers
and employees as additional insureds (the "Additional Insureds"), designate
Lessor as owner of the Aircraft, and designate Lessor as loss payee (but without
imposing upon the Additional Insureds any obligation imposed upon Lessee,
including, without limitation, the liability to pay any premiums).
2. It is agreed that in respect of the interests of the
Additional Insureds, in the insurance coverage provided hereby, such insurance
coverage shall not be invalidated by any action or inaction of Lessee, and shall
insure the Additional Insureds, regardless of any breach or violation of any
warranty, declaration or condition contained in such insurance coverage by
Lessee or any other Person.
3. It is agreed that if the insurance coverage provided hereby
is canceled for any reason whatsoever, or is adversely changed in any way with
respect to the interests of the Additional Insureds, or if such insurance is
allowed to lapse for nonpayment of premium, such cancellation, adverse change or
lapse shall not be effective as to the Additional Insureds, for thirty (30) days
(and, with respect to war risk insurance, seven (7) days or such shorter period
as shall be customary on the London market for such insurance in such area of
the world, or ten (10) days in the event of nonpayment of premium) after receipt
by Lessor of written notice of such prospective cancellation, change or lapse.
4. It is agreed that, as against the Additional Insureds, the
Insurers waive any rights of setoff, counterclaim or any other deduction,
whether by attachment or otherwise, and agree to waive rights of subrogation
against the Additional Insureds.
5. The coverage provided hereunder is primary without right of
contribution from any other insurance which may be carried by the Additional
Insureds and, with respect to liabilities coverage, shall operate as if it were
a separate policy for each insured, without, however increasing the aggregate
limit of liability for the coverage or permitting claims recoverable under the
hull policy to be recoverable as liability claims. It is agreed that the
Additional Insureds have a right to carry insurance in excess of the amounts,
provided such additional insurance does not reduce or otherwise affect the
coverage or amounts of insurance required to be covered by Lessee under Article
12 of the Lease.
6. A 50/50 clause is in effect between the all risk hull and
war risk coverages.
7. To the extent of any reinsurance, the insurance coverage
provided hereunder includes a cut-through provision permitting the Additional
Insureds to file claims and to obtain payment directly from the reinsures.
The "coverage" section of the Insurance Certificate shall
include the following description:
Description of War Risk Coverage:
Loss of and/or damage to each Aircraft caused by:
1. War, invasion, acts of foreign enemies, hostilities (whether
war be declared or not), civil war, rebellion, revolution,
insurrection, martial law, military or usurped power or
attempts at usurpation of power;
2. Strikes, riots, civil commotions or labor disturbances;
3. Any act of one or more persons, whether or not agents of a
sovereign power, for political or terrorist purposes and
whether the loss or damage resulting therefrom is accidental
or intentional;
4. Any malicious act or act of sabotage;
5. Confiscation, nationalization, seizure, restraint, detention,
appropriation, expropriation, requisition of title or use, by
or under the order of any government (whether civil, military
or de facto) or public or local authority, including by the
government of registry (if other than the United States);
6. Hijacking or any unlawful seizure or wrongful exercise of
control of the Aircraft or crew in flight (including any
attempt at such seizure or control) made by any person or
persons on board the Aircraft acting without the consent of
Lessee.
<PAGE>
[This Exhibit to be Omitted
from FAA Filing Copy]
EXHIBIT G
to
AIRCRAFT LEASE AGREEMENT
MAINTENANCE RESERVES
Lessee agrees to pay to Lessor Maintenance Reserves in the aggregate amount
of * per Flight Hour and * per Cycle, payable on a monthly basis, allocated as
follows (which "D" Check Airframe Reserve, Engine Reserves, Landing Gear Reserve
and Engine Life Limited Parts Reserves, will not be pooled or commingled):
(a) Airframe Reserve. Lessee agrees to pay Lessor within ten (10) days
following the last day of each Rent Period (the "Prior Period" provided that, at
the end of the first Rent Period, the Prior Period shall mean the Delivery Date
up to the last day of the first Rent Period) during the Term an amount equal to
* times the number of Flight Hours of operation of the Airframe (excluding, for
purposes of this paragraph (a), Landing Gear and the APU) for such Prior Period
(hereinafter referred to as the ""D" Check Airframe Reserve"). In the event that
Lessee is obligated to perform a "D" Check (or its equivalent structural
inspection) on the Airframe during the Term of this Lease, the "D" Check
Airframe Reserve shall be used to cover Lessee's Actual Costs incurred in
completing with respect to the Airframe, all routine and non-routine "D" Check
tasks (or its equivalent) but shall not be used to cover modifications, interior
reconfiguration, the accomplishment of service bulletins, the accomplishment of
Airworthiness Directives, any deferred maintenance items and any repair of Time
Controlled Parts accomplished during the "D" Check (or its equivalent structural
inspection) (for purposes of this paragraph (a), costs and expenses for which
the Lessee will be reimbursed hereunder are referred to as ""D" Check Airframe
Reimbursable Expenses"). In connection with the performance of any part of such
"D" Check (or its equivalent structural inspection), Lessee shall present
written evidence satisfactory to Lessor as to the workscope to be performed and
payment installments relating to the performance thereof in connection with such
"D" Check (or its equivalent structural inspection) and the amount of such "D"
Check Airframe Reimbursable Expenses for approval by Lessor. Upon receipt of
such written evidence (which shall include evidence of payment by Lessee for
such "D" Check Airframe Reimbursable Expenses claimed by Lessee), and provided
there then exists no Default or Event of Default, Lessor shall reimburse Lessee
by paying to the Maintenance Provider from the "D" Check Airframe Reserve, an
amount equal to the lesser of (i) the amount of such "D" Check Airframe
Reimbursable Expenses or (ii) the amounts then held in the "D" Check Airframe
Reserve. If such portion of the cost of the "D" Check for the Airframe to be
paid out of the "D" Check Airframe Reserve exceeds the balance in the "D" Check
Airframe Reserve, Lessee will be required to pay such excess amount.
(b) Engine Reserves. Lessee agrees to pay to Lessor within ten (10) days
following the last day of each Rent Period (the "Prior Period" provided that, at
the end of the first Rent Period, the Prior Period shall mean the Delivery Date
up to the last day of the first Rent Period) during the Term an amount equal to
* times the number of Flight Hours of operation during such Prior Period for
each Engine (each, an "Engine Reserve" and collectively, the "Engine Reserves").
A separate Engine Reserve shall be established and maintained with respect to
each Engine. Upon the accomplishment of any Heavy Engine Maintenance (as
hereinafter defined) accomplished during a Covered Engine Shop Visit (as
hereinafter defined) for any Engine during the Term, then the Engine Reserve
with respect to such Engine shall be used to reimburse Lessee, or pay at
Lessee's direction, for Lessee's Actual Cost incurred in completing such
maintenance (for purposes of this paragraph (b), Lessee's Actual Cost so
incurred is referred to as "Engine Reimbursable Expenses"). As used herein,
"Heavy Engine Maintenance" shall be defined as any overhaul, refurbishment, hot
section inspection, replacement of internal time-limited parts, disassembly,
assembly and testing required thereof for each such engine, but excluding
shipping and freight charges, engine removal and installation charges,
accomplishment of Airworthiness Directives and Aeronautics Authority
requirements, and replacement, repair or overhaul of external engine parts. As
used herein, "Covered Engine Shop Visit" shall be defined as a shop visit
requiring a major disassembly of an engine and the removal and reinstallation of
internal rotating parts where such shop visit was not the result of foreign
object damage ("F.O.D."), ingestion, accident, faulty maintenance or
installation, incident, improper operations, abuse, neglect, misuse, elective
parts replacement, Airworthiness Directive compliance, Aeronautics Authority
regulation compliance or covered by Manufacturer's service bulletins or which is
reimbursable by a claim under the Manufacturer's warranties or by insurance
(with deductibles being treated as reimbursable by insurance for this
exclusion). Upon the accomplishment of any such Heavy Engine Maintenance during
a Covered Engine Shop Visit, Lessee shall present written evidence satisfactory
to Lessor as to the completion of such Heavy Engine Maintenance to such Engine
and the costs associated therewith for approval by Lessor. Such Heavy Engine
Maintenance shall include a Build Standard (as hereinafter defined) to be
mutually agreed upon by Lessor and Lessee. As used herein, "Build Standard"
shall be defined as a reassembly of an Engine using parts that will allow a
minimum number of Flight Hours and Cycles of operation until the next scheduled
removal. Upon receipt of such written evidence (which shall include evidence of
payment by Lessee for such Engine Reimbursable Expenses claimed by Lessee), and
provided there then exists no Default or Event of Default, Lessor shall
reimburse Lessee, or pay to such other Person as may be directed by Lessee, an
amount equal to the lesser of (i) the amount of the Engine Reimbursable Expenses
with respect to such Engine or (ii) the amount then held in the Engine Reserve
established for such Engine. Lessee acknowledges that the amounts held with
respect to an Engine in an Engine Reserve may be applied only with respect to
such Engine. If the cost of any Heavy Engine Maintenance accomplished during a
Covered Engine Shop Visit for an Engine exceeds the balance in the Engine
Reserve established for such Engine, Lessee will be required to pay such excess
amount for such Engine.
(c) Landing Gear Reserve. Lessee agrees to pay to Lessor within ten (10)
days following the last day of each Rent Period (the "Prior Period" provided
that, at the end of the first Rent Period, the Prior Period shall mean the
Delivery Date up to the last day of the first Rent Period) during the Term an
amount equal to * times the number of Flight Hours of operation of the Airframe
during such Prior Period for all Landing Gear on the Aircraft (the "Landing Gear
Reserve"). In the event Lessee is obligated to perform an overhaul of any
Landing Gear in accordance with the Maintenance Program for the Aircraft
(excluding overhaul because of accident, incident, abuse, misuse or elective
parts replacement) then the Landing Gear Reserve shall be used to reimburse
Lessee, or pay at Lessee's direction for Lessee's Actual Cost incurred in
completing such overhaul (for purposes of this paragraph (c), Lessee's Actual
Cost so incurred is referred to as "Landing Gear Reimbursable Expenses"). Upon
accomplishment of any such overhaul, Lessee shall present written evidence
satisfactory to Lessor as to the completion of such overhaul and the costs
associated therewith for approval by Lessor. Upon receipt of such written
evidence (which shall include evidence of payment by Lessee for such Landing
Gear Reimbursable Expenses claimed by Lessee), and provided there then exists no
Default or Event of Default, Lessor shall disburse from the Landing Gear Reserve
with respect to such Landing Gear as the Lessee shall direct an amount equal to
the lesser of (i) the amount of the Landing Gear Reimbursable Expenses or (ii)
the amount then held in the Landing Gear Reserve with respect to the Landing
Gear. Lessee shall be solely responsible for the costs of an overhaul of the
Landing Gear in excess of any balance in the Landing Gear Reserve.
(d) Engine Life Limited Parts Reserves. Lessee agrees to pay to Lessor
within ten (10) days following the last day of each Rent Period (the "Prior
Period," provided that, at the end of the first Rent Period, the Prior Period
shall mean the Delivery Date up to the last day of the first Rent Period) during
the Term an amount equal to * times the number of Cycles of operation during
such Prior Period for each Engine (each, an "Engine Life Limited Parts Reserve"
and collectively, the "Engine Life Limited Parts Reserves"). A separate Engine
Life Limited Parts Reserve shall be established and maintained with respect to
each Engine. Upon the replacement of any Engine Life Limited Part in any Engine
during a Term, the Engine Life Limited Parts Reserve with respect to such Engine
shall be used to reimburse Lessee, or pay at Lessee's direction for Lessee's
Actual Cost incurred to purchase such Engine Life Limited Part (for purposes of
this paragraph (d), Lessee's Actual Cost so incurred is referred to as "Engine
Life Limited Parts Reimbursable Expenses"), provided, however, Lessee shall not
use such Engine Life Limited Parts Reserve to reimburse Lessee for the cost of
any other expenses associated with the replacement of such Engine Life Limited
Part, including the cost of shipping and freight charges, engine disassembly,
reassembly, and testing required thereof, engine removal and installation
charges, accomplishment of Airworthiness Directives and Federal Aviation
Regulation requirements, and replacement, repair or overhaul of external engine
parts or if due to foreign object damage ("FOD"), ingestion, accident, faulty
maintenance or installation, incident, improper operations, abuse, neglect,
misuse, elective parts replacement or covered by Manufacturer's service
bulletins or which is reimbursable by a claim under the Manufacturer's service
bulletins or which is reimbursable by a claim under the Manufacturer's
warranties or by insurance (with deductibles being treated as reimbursable by
insurance for this exclusion).
Upon the purchase and installation into an Engine of any such Engine Life
Limited Part, Lessee shall present written evidence satisfactory to Lessor as to
the purchase and installation of such Engine Life Limited Part for approval by
Lessor. Upon receipt of such written evidence, and provided there then exists no
Default or Event of Default, Lessor shall reimburse Lessee, or pay to such other
Person as may be directed by Lessee, an amount equal to the lesser of (i) the
amount of the Engine Life Limited Parts Reimbursable Expenses with respect to
such Engine or (ii) the amount then held in the Engine Life Limited Part Reserve
established for such Engine. Lessee acknowledges that the amounts held with
respect to an Engine in any given Engine Life Limited Part Reserve may be
applied only with respect to such Engine. If the cost of any Engine Life Limited
Part purchased for an Engine exceeds the balance in the Engine Life Limited Part
Reserve established for such Engine, Lessee will be required to pay such excess
amount for such Engine.
(e) It is intended by Lessor and Lessee that maintenance on the Aircraft
will be performed by the Maintenance Provider pursuant to the Maintenance
Program. Notwithstanding anything to the contrary contained in this Exhibit G,
any maintenance on the Aircraft and the extent and nature of such maintenance to
be performed shall be conducted by the Lessee or at a FAA approved facility
reasonably acceptable to Lessor and Lessor shall be entitled to have
representatives present during the performance of such maintenance to oversee
such performance. With respect to the Engines only, if the Maintenance Provider
provides maintenance thereon, Lessor shall not be responsible for any delay by
such Maintenance Provider in the performance of such maintenance. If, however,
Lessor requires another maintenance provider selected by Lessor to provide
maintenance with respect to an Engine, and if engine maintenance provided by
such third party is delayed for more than 90 days, then Lessor will provide to
Lessee a substitute engine until redelivery to Lessee of the Engine being
serviced.
(f) Notwithstanding anything to the contrary herein, the Maintenance
Reserves set forth herein are based on maintenance costs relating thereto based
on an assumed Flight Hour:Cycle ratio of 2:1. To the extent the actual Flight
Hour:Cycle ratio falls below 2:1 then the applicable rate of the Maintenance
Reserves will be increased by Lessor (no more frequently than annually) in
correlation with the reduced Flight Hour:Cycle ratio.
(g) Notwithstanding anything to the contrary contained in this Exhibit G,
Lessor may, at any time, request in writing an adjustment of any Maintenance
Reserve if, in the reasonable opinion of Lessor, the actual maintenance cost
(determined as of the six month period prior to such notice unless otherwise
agreed by Lessor and Lessee) of any of the Items for which Maintenance Reserves
are established or any such items with respect to other aircraft owned or leased
by Lessee exceed the amount in the Maintenance Reserve for such Item. Lessor
agrees to consult with Lessee regarding any such proposed increase. In the event
that Lessor and Lessee are unable to agree on an appropriate increase in
Maintenance Reserves within thirty (30) days after the date of such request,
Lessor shall have the right to terminate this Lease effective as of the last day
of the then-current Rent Period, unless otherwise agreed by Lessor and Lessee;
provided, however, that Lessor may adjust upward, but not downward, any
Maintenance Reserve if Lessee changes its Maintenance Program in such a manner
as would require an increase in such Maintenance Reserve to meet revised
Maintenance Program standards.
<PAGE>
[This Exhibit to be Omitted
from FAA Filing Copy]
EXHIBIT H
to
AIRCRAFT LEASE AGREEMENT
CERTAIN PRICING TERMS
(a) Lessee shall pay * to Lessor as rental for the Aircraft
("Basic Rent") for each Rent Period in advance on each Rent
Payment Date
.
(b) The Security Deposit Amount shall equal *
(c) The Insured Value shall equal *
<PAGE>
I-2
EXHIBIT I
to
AIRCRAFT LEASE AGREEMENT
DELIVERY CONDITIONS
On the Delivery Date, the Aircraft shall be delivered to
Lessee in "as-is, where-is" condition and shall conform to the following
requirements:
(1) The Aircraft shall have a valid FAA registration number
and duly registered with the FAA in the name of Lessor.
(2) The Aircraft, Engines, Landing Gear, APU, and Parts
(appliances) shall comply with all applicable Airworthiness Directives affecting
such model aircraft, engines, landing gears, auxiliary power units, and parts
(appliances) which by their terms require compliance on or before the Delivery
Date, notwithstanding any waiver, deviation or time extension obtained by Lessor
from the FAA or otherwise.
(3) The Aircraft shall have a current and effective FAA
certificate of airworthiness and shall comply with all FAR requirements for
passenger operation as a transport category commercial aircraft in accordance
with all applicable FARs, including without limitation, FAR Part 121, except to
the extent such requirements relate to bridging the Aircraft onto Lessee's
Maintenance Program.
(4) The Aircraft shall be in full compliance with the
Manufacturer's recommended corrosion prevention and control program ("CPCP"), or
such other corrosion prevention and control program approved by the FAA for the
Aircraft, and with all structural inspection ("SI") items current.
(5) To the extent not already accomplished by Lessor, all
discrepancies found and listed by Lessor's and Lessee's technical
representatives, as a result of the test flight described in Section 2.1(c) of
the Lease, shall be corrected by Lessee at Lessor's expense, pursuant to Section
2.1(c) of the Lease.
(6) Immediately prior to the delivery of the Aircraft, Lessor
shall accomplish a complete hot and cold section borescope inspection of each
Engine and the APU, to be performed at Lessor's expense by Lessor's
representative or an agency of Lessor's choosing, in accordance with the
Manufacturer's maintenance manual. All defects discovered as a result of such
inspections, which exceed the maintenance manual allowable limits for an
installed Engine or APU, as applicable, shall be corrected at Lessor's expense.
Any defect that requires reinspection prior to the next full "C" Check or 3,500
Flight Hours, whichever is greater, shall be considered a Watch Item and shall
be corrected at Lessor's expense.
(7) The Aircraft shall be equipped with fully functional TCAS
and windshear equipment.
(8) All Aircraft Documents and other current and historical
records shall be delivered with the Aircraft including, without limitation, time
logs showing Aircraft and Engine Flight Hours and Cycles on any given date,
documents, manuals (revised up to and including the most current revisions
issued by the Manufacturer), data, overhaul records, log books, original
Aircraft and Engine delivery documents, FAA forms, modification records,
inspection records (including NDT documentation such as x-ray, eddy current,
etc.), and all other documentation pertaining to the Aircraft, Engines and Parts
as of the Delivery Date.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS................................................... 1
ARTICLE 2 DELIVERY AND ACCEPTANCE....................................... 7
2.1. Time and Place....................................... 7
2.2. A Lease Only......................................... 9
2.3. Conditions to Delivery of the Aircraft............... 9
2.4. Aircraft Configuration, etc.......................... 10
ARTICLE 3 RENT AND TERM................................................. 11
3.1. Basic Rent........................................... 11
3.2. Maintenance Reserves and Supplemental Rent........... 11
3.3. Term................................................. 11
3.4. Place of Payment..................................... 11
3.5. Security Deposit..................................... 11
3.6 Time is of the Essence............................... 13
ARTICLE 4 REPRESENTATIONS AND WARRANTIES; COVENANTS OF THE PARTIES...... 13
4.1. Lessor's Representations and Warranties.............. 13
4.2. Representations and Warranties of the Parties........ 15
ARTICLE 5 POSSESSION; USE; LAWFUL INSURED OPERATIONS; MAINTENANCE;
REGISTRATION AND INSIGNIA; MAINTENANCE RESERVES............... 16
5.1. Possession........................................... 16
5.2. Assignment by Lessee................................. 17
5.3. Use.................................................. 17
5.4. Lawful Insured Operations............................ 18
5.5. Maintenance.......................................... 18
5.6. Registration and Insignia............................ 19
5.7. Maintenance Reserves................................. 20
5.8. Application of Reserves Upon Aircraft Return......... 20
5.9. Concerning Reserves.................................. 20
ARTICLE 6 INSPECTION; FINANCIAL AND AIRCRAFT INFORMATION................ 21
6.1. Inspection........................................... 21
6.2. Financial Information................................ 21
6.3. Aircraft Information................................. 22
6.4 Other Information.................................... 22
ARTICLE 7 COVENANTS..................................................... 23
7.1. Lessee's Covenants................................... 23
ARTICLE 8 NO SET-OFF, COUNTERCLAIM, ETC................................. 24
8.1. No Set-off, Counterclaim, etc........................ 24
ARTICLE 9 REPLACEMENT OF PARTS; ALTERATIONS, MODIFICATIONS AND
ADDITIONS..................................................... 25
9.1. Replacement of Parts................................. 25
9.2. Title to Replaced and Replacement Parts.............. 25
9.3. Alterations, Modifications and Additions............. 25
9.4. Title to Parts....................................... 28
ARTICLE 10 TAX INDEMNITY................................................. 28
10.1. Scope................................................ 28
10.2. Report............................................... 29
10.3. After-Tax Nature of Indemnity........................ 30
10.4. Payment of Taxes and Indemnities..................... 30
10.5. Contest.............................................. 30
10.6. Lessor............................................... 32
10.7. Survival............................................. 32
ARTICLE 11 EVENTS OF LOSS................................................ 32
11.1. With Respect to the Aircraft......................... 32
11.2. With Respect to an Engine............................ 32
11.3. Application of Payments from Governmental
Authorities.......................................... 33
11.4. Application of Payments During Existence of Event
of Default........................................... 34
11.5. Replacement Aircraft................................. 34
ARTICLE 12 INSURANCE..................................................... 34
12.1. Public Liability and Property Damage Liability
Insurance............................................ 34
12.2. Insurance Against Loss or Damage to the Aircraft..... 35
12.3. Application of Proceeds in an Event of Loss of
Aircraft............................................. 36
12.4. Application of Proceeds in the Absence of an
Event of Loss........................................ 37
12.5. Reports, etc......................................... 37
12.6. Lessor's Additional Insurance........................ 37
12.7. Lessee's Additional Insurance........................ 38
12.8. Insurance Against Year 2000 Risks and Liability...... 38
ARTICLE 13 GENERAL INDEMNIFICATION....................................... 38
13.1. Scope................................................ 38
13.2. Lessee's Release..................................... 39
13.3. Repayment............................................ 39
13.4. Timing of Payment.................................... 39
13.5. Exclusion............................................ 39
13.6. After-Tax Nature of Indemnity........................ 39
13.7. Survival............................................. 40
ARTICLE 14 LIENS......................................................... 40
14.1. Permitted Liens...................................... 40
14.2. Engine Liens......................................... 40
ARTICLE 15 FAA RECORDATION AND FURTHER ASSURANCES........................ 41
15.1. FAA Recordation...................................... 41
15.2. Further Assurances................................... 41
ARTICLE 16 RETURN OF ITEMS AND RECORDS................................... 41
16.1. Time and Place....................................... 41
16.2. Condition............................................ 42
16.3. Corrections and Subsequent Corrections............... 42
16.4. Fuel................................................. 42
16.5. Legal Status Upon Return............................. 42
ARTICLE 17 EVENTS OF DEFAULT............................................. 43
17.1. Lessee's Defaults.................................... 43
ARTICLE 18 RIGHTS AND REMEDIES........................................... 45
18.1. Remedies............................................. 45
18.2. Further Rights....................................... 47
18.3. Remedies Cumulative.................................. 48
18.4. Concerning Remedies.................................. 48
ARTICLE 19 MISCELLANEOUS................................................. 49
19.1. Construction, Applicable Law; Jurisdiction........... 49
19.2. Notices.............................................. 50
19.3. Lessor's Right to Perform............................ 50
19.4. Counterparts......................................... 50
19.5. Assignment by Lessor................................. 51
19.6. Survival............................................. 51
19.7. Entire Agreement..................................... 51
19.8. Successors and Assigns............................... 52
19.9. Brokers.............................................. 52
19.10. Transaction Costs.................................... 52
19.11. Quiet Enjoyment...................................... 52
19.12. Time Is of the Essence............................... 52
19.13. Confidentiality...................................... 52
19.14. DISCLAIMER OF CONSEQUENTIAL DAMAGES.................. 53
19.15. Tax Treatment........................................ 53
19.17. Dating............................................... 53
Exhibits
Exhibit A Description of Aircraft and Engines
Exhibit B Form of Lease Supplement
Exhibit C Return Condition Requirements
Exhibit D Lessee's Counsel Opinion
Exhibit E Letter of Insurance Broker
Exhibit F Special Provisions to Certificate of Insurance
Exhibit G Maintenance Reserves
Exhibit H Certain Pricing Terms
Exhibit I Delivery Conditions
AIRCRAFT LEASE AGREEMENT
between
Indigo Aviation AB (publ)
as Lessor
and
Frontier Airlines, Inc
as Lessee
Dated as of 2nd of June 1999
Aircraft Make and Model: One Boeing 737-3S1
Aircraft Manufacturer's Serial Number: 24856
Aircraft Registration Mark: N372TA
(to be changed to N311FL)
Engines Make and Model: CFM56-3C1
Engines Serial Numbers: 724667 and 725630
To the extent, if any, that this Agreement constitutes chattel paper under the
Uniform Commercial Code in any jurisdiction, no security interest in this
Agreement may be created through the transfer and possession of any counterpart
other than the original counterpart of this Agreement, so identified by the
signature of Lender on the receipt set forth on the signature page of such
original counterpart.
Items marked with "*" have been omitted pursuant to a request for confidential
treatment.
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS................................................................2
1.1 Definitions............................................................2
1.2 Construction..........................................................11
2. REPRESENTATIONS AND WARRANTIES............................................14
2.1 Lessee's Representations and Warranties...............................14
2.2 Lessor's Representations and Warranties...............................17
2.3 Survival of Representations and Warranties............................18
3. CONDITIONS PRECEDENT......................................................19
3.1 Lessor's Conditions Precedent.........................................19
3.2 Waiver................................................................20
3.3 Lessee's Conditions Precedent.........................................20
3.4 Waiver................................................................21
4. DELIVERY CONDITION AND INSPECTION OF AIRCRAFT.............................22
4.1 Lessee Selection of Aircraft..........................................22
4.2 Condition at Delivery.................................................22
4.3 Lessee Inspection and Acceptance Flight...............................22
4.4 Delivery of Aircraft to Lessee........................................22
4.5 Lessee's Failure to take Delivery.....................................22
5. LEASE TERM................................................................24
5.1 Lease Term............................................................24
5.2 Expiry Date...........................................................24
5.3 Survival of Certain Lessee Obligations................................25
5.4 Risk .25
6. DELIVERY..................................................................26
6.1 Location and Time of Delivery.........................................26
6.2 Delay or Failure in Delivery..........................................26
7. RENT......................................................................27
7.1 Basic Rent Period.....................................................27
7.2 Time of Payment of Basic Rent.........................................27
7.3 Amount of Basic Rent..................................................27
7.4 Maintenance Reserves..................................................27
7.5 Supplemental Rent for Excess Cycles...................................27
8. SECURITY DEPOSIT..........................................................28
8.1 Security Deposit......................................................28
8.2 Letter of Credit......................................................28
8.3 Lessor's Rights.......................................................28
9. MAINTENANCE RESERVES......................................................30
9.1 Amount................................................................30
9.2 Payments..............................................................30
9.3 Adjustment............................................................30
9.4 Release of Maintenance Reserves.......................................30
9.5 Costs in Excess of Maintenance Reserves...............................32
9.6 Reimbursement after Expiry Date.......................................32
10. PAYMENTS.................................................................33
10.1 Account for Lessee Payments..........................................33
10.2 Default Interest.....................................................33
10.3 Absolute Obligations.................................................33
10.4 Application of Payments to Lessor....................................34
10.5 Currency Indemnity...................................................34
10.6 Set-off..............................................................35
10.7 Time for Payments....................................................35
11. LESSOR'S COVENANTS.......................................................36
11.1 Quiet Enjoyment......................................................36
11.2 Lessor Obligations Following Expiry Date.............................36
12. LESSEE'S COVENANTS.......................................................37
12.1 Duration.............................................................37
12.2 Information..........................................................37
12.3 Lessor Visits........................................................38
12.4 Periodic Estoppel Certificates.......................................39
12.5 Airport and Navigation Charges.......................................39
12.6 Operation of Aircraft................................................40
12.7 Areas of Operation...................................................40
12.8 Non-Prejudicial Action...............................................40
12.9 Non-Representation of Lessor.........................................41
12.10 Inspection..........................................................41
12.11 Registration........................................................41
12.12 Name Plates.........................................................42
12.13 Geneva Convention...................................................42
12.14 Merger and Shareholding.............................................43
12.15 Ownership...........................................................43
12.16 Maintenance of Principal Business Place.............................43
12.17 Maintenance of Flight Records.......................................44
13. POSSESSION...............................................................45
13.1 No Relinquishment of Possession......................................45
13.2 Copy of Sublease.....................................................48
13.3 Lessee Primarily Liable..............................................48
13.4 Recognition of Rights................................................48
14. SECURITY INTERESTS.......................................................49
14.1 Title................................................................49
14.2 No Security Interests................................................49
14.3 Base of Aircraft.....................................................49
14.4 Notice to Lessor.....................................................49
14.5 Procure Release......................................................49
15. MAINTENANCE AND REPAIR...................................................50
15.1 General Obligations..................................................50
15.2 Specific Obligations.................................................51
16. REPLACEMENT OF PARTS.....................................................53
16.1 Replacement of Parts.................................................53
16.2 Title to Replacement Parts...........................................53
16.3 Pooling of Parts.....................................................54
16.4 Alterations..........................................................54
16.5 Removal of Parts.....................................................55
16.6 Substitution of Engine...............................................55
16.7 Temporary Removal of Parts...........................................56
16.8 Parts Incapable of Transfer..........................................57
17. MANUFACTURER'S WARRANTIES................................................58
17.1 Authorization........................................................58
17.2 Proceeds.............................................................58
17.3 Agreements with Manufacturers........................................59
17.4 No Operation Contrary to Warranties..................................59
18. DISCLAIMERS..............................................................60
18.1 General..............................................................60
18.2 As Is, Where Is......................................................60
18.3 Waiver of Warranty of Description....................................61
18.4 Lessee Acknowledgement...............................................61
18.5 Lessee Waiver........................................................61
18.6 Lessee Examination of Aircraft.......................................61
18.7 No Lessor Liability for Losses.......................................62
18.8 Exclusion............................................................62
18.9 Waiver...............................................................62
18.10 No Waiver...........................................................63
18.11 Confirmation........................................................63
19. INDEMNITIES..............................................................64
19.1 General Indemnity....................................................64
19.2 Exception to General Indemnity.......................................64
19.3 Time of Payment......................................................65
19.4 Survival of General Indemnity........................................65
19.5 Notice to Lessee.....................................................65
20. TAXATION.................................................................66
20.1 Gross-up.............................................................66
20.2 Tax Indemnity........................................................66
20.3 Value Added Taxes....................................................67
20.4 Taxation of Indemnity Payments.......................................68
20.5 Benefit of Indemnities...............................................68
20.6 Lessor Indemnification...............................................68
20.7 Survival of Tax Indemnities..........................................68
20.8 Mitigation and Co-operation..........................................68
20.9 Furnishing Forms.....................................................69
21. INSURANCE................................................................70
21.1 Insurances...........................................................70
21.2 Reinsurance..........................................................70
21.3 Requirements.........................................................70
21.4 Insurance Covenants..................................................71
21.5 Renewal of Insurances................................................72
21.6 Failure to Insure....................................................73
21.7 Continuation of Insurances...........................................73
21.8 Application of Insurance Proceeds....................................73
21.9 Pursuit of Claims....................................................74
22. TOTAL LOSS AND REQUISITION...............................................75
22.1 Total Loss Prior to Delivery.........................................75
22.2 Total Loss After Delivery............................................75
22.3 Total Loss of Engines................................................76
22.4 Requisition..........................................................76
23. REDELIVERY...............................................................78
23.1 Redelivery of Aircraft...............................................78
23.2 Final Inspection.....................................................79
23.3 Discrepancies........................................................79
23.4 Non-compliance.......................................................79
23.5 Acknowledgement......................................................80
23.6 Storage etc..........................................................80
24. EVENTS OF DEFAULT........................................................81
24.1 Notice...............................................................81
24.2 Events...............................................................81
24.3 Lessor's Rights......................................................84
24.4 Default Payments.....................................................85
24.5 Cumulative Rights....................................................86
25. ASSIGNMENT AND TRANSFER..................................................87
25.1 By Lessee............................................................87
25.2 By Lessor............................................................87
25.3 Assignment to Lender.................................................87
25.4 Lessee Co-operation..................................................87
25.5 Lessor Includes Lessor's Assignee and Lender.........................88
26. MISCELLANEOUS PROVISIONS.................................................89
26.1 Rights Cumulative, Waivers...........................................89
26.2 Delegation...........................................................89
26.3 Expenses.............................................................89
26.4 Time of Essence......................................................90
26.5 Entire Agreement.....................................................90
26.6 Further Assurances...................................................90
26.7 Language.............................................................90
26.8 Variation............................................................90
26.9 Invalidity of any Provision..........................................90
26.10 Survival............................................................91
26.11 Reimbursement.......................................................91
26.12 Press Releases......................................................91
26.13 Power of Attorney...................................................91
26.14 Usury Laws..........................................................91
26.15 Confidentiality.....................................................92
26.16 Counterparts........................................................92
26.17 Bankruptcy..........................................................92
27. NOTICES..................................................................94
28. GOVERNING LAW AND JURISDICTION...........................................95
28.1 New York Law.........................................................95
28.2 Non-exclusive Jurisdiction in New York...............................95
28.3 Service of Process Agent.............................................95
28.4 Waiver...............................................................95
SCHEDULES
Schedule 1 Aircraft Specification 97
Annexure 1Aircraft Documents 100
Schedule 2 Certain Business Terms 103
Schedule 3 Insurance Requirements 106
Schedule 4 Delivery Conditions 112
Schedule 5 Acceptance Certificate 115
Schedule 6 Officer's Certificate 118
Schedule 7 Letter of Authority 120
Schedule 8 Power of Attorney 121
Schedule 9 Opinion of Lessee Counsel 123
Schedule 10 Monthly Aircraft Utilisation and Status Report 128
Schedule 11 Letter of Quiet Enjoyment 131
Schedule 12 Return Conditions 132
Schedule 13 Return Acceptance Certificate 135
Annexure 1Aircraft Documents 138
Annexure 2Discrepancies 141
Schedule 14 Lease Supplement 142
<PAGE>
THIS AGREEMENT is made as of 2nd of June 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, ("Lessor"); 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 ("Lessee").
WHEREAS
Owner Trustee holds title to the Aircraft for the benefit of Lessor;
Owner Trustee, as headlessor, leases the Aircraft to Lessor under the terms of
the Headlease Agreement;
In consideration of and subject to the mutual covenants, terms and conditions
contained in this Agreement, Lessor hereby agrees to lease to Lessee and Lessee
hereby agrees to lease from Lessor the Aircraft for the Lease Term and the
parties further agrees as follows:
<PAGE>
DEFINITIONS
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 Schedule 1 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 an airport used for the movement of aircraft);
Airport Charges means all charges incurred in connection with the landing,
parking or taking-off of aircraft at airports or for the use of, or for services
provided at, airports;
Airworthiness Directive means an airworthiness directive or other mandatory
requirement issued by the FAA or any other Aviation Authority or Government
Entity;
APU means the auxiliary power unit installed on the Aircraft on the Delivery
Date and any replacement auxiliary power unit installed in accordance with this
Agreement, title to which is transferred to Owner Trustee;
Assignment of Insurances means the assignment by Lessee to Lessor, or at the
request of Lessor, to Lender, of all of Lessee's rights, title and interest in
and to the Insurances with respect to the Aircraft (other than the Insurances
relating to liability) or any other form of Security Interest in favour of
Lessor, Owner Trustee or Lender in and to the Insurances with respect to the
Aircraft;
Aviation Authority means all and any of the authorities, government departments,
committees or agencies which under the laws of the State of Registration shall
from time to time:
(a) have control or supervision of civil aviation in that state; or
(b) have jurisdiction over the registration, airworthiness or
operation of, or other matters relating to, the Aircraft;
Basic Rent means all amounts payable pursuant to Clause 7.3;
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 items (a complete "block" 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, 3% percent 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 Lessor to Lessee pursuant to Clause 6
Delivery Date means the date on which Delivery occurs;
Delivery Location means San Salvador, El Salvador or such other location as
Lessor and Lessee 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 Lessor elects to tender to Lessee, whether or
not installed on the Airframe on the 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 Lessee 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 24.2;
Expiry Date means the date determined in accordance with Clause 5.2;
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;
Headlease Agreement means the aircraft headlease agreement entered into between
Owner Trustee and Lessor dated as of even date hereof and which is being filed
with FAA simultaneously herewith;
Indemnitees means Lessor, Owner Trustee, Lender or any other person identified
by Lessor 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;
Lease Expiry Date has the meaning ascribed to it in Schedule 2;
Lease Term has the meaning ascribed to it in Schedule 2;
Lender means any person or persons notified by Lessor to Lessee as providing
financing to Owner Trustee or Lessor 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);
Lessor Lien means:
(a) any Security Interest from time to time created by or through
Lessor 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 Lessor not related to the
transactions contemplated by or permitted under this Agreement;
(c) any Security Interest in respect of the Aircraft for Lessor 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 Lessor that constitutes a breach by Lessor of this Agreement;
or
(f) any Security Interest that results from any indebtedness,
liability or other obligation arising by, through or under Lessor
or any of the Indemnitees and that is not indemnified against by
Lessee under this Agreement;
Lessor Taxes means Taxes:
(a) imposed as a result of activities of Lessor in the jurisdiction
imposing the liability unrelated to this Agreement or the
operation of the Aircraft by Lessee;
(b) imposed on the net income, profits or gains of Lessor (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 Delivery Date or any period
commencing after the Expiry Date;
Letter of Credit has the meaning ascribed to it in Clause 8.2;
LIBOR means the rate per annum which is the offered rate (if any) appearing on
page 3750 of the Telerate screen (or any replacement page) which displays
British Bankers Association Interest Settlement Rates for deposits in Dollars
equal, or as close as practicable, to the period for which such rate is to be
determined at 11:00 a.m. (London time) on the relevant date;
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 Lessor may, in its absolute descretion, from time to
time approve in writing;
Maintenance Program means Lessee's maintenance program as approved by the
Aviation Authority provided in compliance with the MPD or such other maintenance
program as Lessor may, in its absolute discretion, approve in writing;
Maintenance Reserves means all amounts payable pursuant to Clause 9.1;
Manufacturer means the Boeing Company, a Delaware Corporation with its principal
office in 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 Lessor (or any parent company,
subsidiary, associate or affiliate of Lessor) and Lessee (or any subsidiary,
associate or affiliate of Lessee);
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 Lessee
pursuant to this Agreement;
Permitted Air Carrier has the meaning ascribed to it in Clause13.1.1;
Permitted Lien means:
(a) any lien for Lessee 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 Lessee liens arising out of judgements or awards with respect
to which at the time (i) an appeal proceedings for review is being
contested diligently and in good faith and (ii) a stay of
execution shall have been secured (and remains in force);
(d) any Lessor Lien; and
(e) any Security Interest over the Aircraft created by Lessee with th
written consent of Lessor,
but only if (in the case of (a), (b) and (c)) (i) adequate resources are
available for the payment of those Taxes or obligations and (ii) such
proceedings, or the continued existence of the lien, do not involve any danger
(in the reasonable opinion of Lessor or Lender) of the sale, forfeiture or other
loss of the Aircraft or any interest therein;
Prior Owner means TACA International Airlines;
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 Lessor or such other location as Lessor and Lessee 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 16.6;
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;
Side Letter means the Side Letter No. 1 to this Agreement between Lessor and
Lessee (a copy of which has not been included in the FAA counterpart of this
Agreement);
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;
Supplemental Rent means any and all amounts, liabilities and obligations (other
than Basic Rent) which Lessee assumes, agrees or is otherwise obligated to pay
Lessor 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 Lessee and/or
operation thereof for a period of thirty (30) consecutive days or
longer;
(e) any sale of the Aircraft in connection with a Lessee bankruptcy
whether by an administrator, trustee or court;
(f) any other occurrence not permitted under this Agreement that
deprives Lessee 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 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 Lease Agreement;
(b) the Acceptance Certificate;
(c) the Assignment of Insurances;
(d) the acknowledgement by Lessee of the security assignment or the
pledge of, inter alia, this Agreement in favour of the Lender and
any documents duly executed pursuant to any of the foregoing by
Lessee or Lessor;
(e) the Lease Supplement; and
(f) 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) Lessor or Lessee include any assignee or successor in title to
the Lessor or the Lessee 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, judgement, legislation, order, ordinance, regulation,
statute, treaty or other legislative measure in any jurisdiction
or any present or future directive, regulation, request or
requirement in each case, whether or not having the force of law
but, if not having the force of law, the compliance with which is
in accordance with the general practice of persons to whom the
directive, regulation, request or requirement is addressed;
(x) month are references to a period starting on one day in a
calendar month and ending on the day preceding the numerically
corresponding day in the next calendar month (and references to
months shall be construed accordingly).
(xi) any statute or other legislative provision or regulation shall be
read to include any statutory or legislative or administrative
modification or re-enactment thereof, or any substitution
therefor;
(xii)the words "including" or "include" are used herein without
limitation to mean by way of example;
(xiii) the words "Agreement", "hereof", "herein" and "hereinafter"
refer to this entire Agreement; and
(xiv) the word "or" is used inclusively to mean "and/or".
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 Lessee's Representations and Warranties
Lessee represents and warrants to Lessor as of execution of this
Agreement and each other Transaction Document, as of the Delivery
Date and as of each date on which Rent is paid hereunder each of
the following representations and warranties.
(i) Corporate Status: Lessee 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 Lessee 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: Lessee's Board of Directors has authorized Lessee 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
Lessee and represent the valid, enforceable and binding
obligations of Lessee except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws of general
application affecting the enforcement of creditors' rights. When
executed by Lessee at Delivery, the same will apply to the
Acceptance Certificate.
(iv) No Breach: The execution and delivery of the Transaction
Documents, the consummation by Lessee of the transactions
contemplated herein and by the other Transaction Documents and
compliance by Lessee with the terms and provisions hereof do not
and will not contravene any law applicable to Lessee, or result
in any breach of or constitute any default under or result in the
creation of any Security Interest upon any property of Lessee,
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 Lessee is a party or by which Lessee or its properties or
assets may be bound or affected. When executed by Lessee at
Delivery, the same will apply to the Acceptance Certificate.
(v) Filings: Except for the filing or recording of this Agreement
with the FAA, 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, Lessor and Lender in the Aircraft
or any Transaction Document.
(vi) Licenses: Lessee 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 Lessee before any court or
administrative agency against or affecting Lessee that, if
adversely determined, would have a material adverse effect on the
financial condition or business of Lessee 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, Lessee will not be required to deduct
any withholding or other Tax from any payment it may make under
this Agreement.
(ix) No restrictions on Payments: As of the date of execution of this
Agreement, there are under the laws of the State of Incorporation
no present restrictions on Lessee to make the payments required
by this Agreement.
(x) General Obligations: The obligations of Lessee under this
Agreement are direct, general and unconditional obligations of
Lessee and rank or will rank at least pari passu with all other
present and future unsecured and unsubordinated obligations
(including contingent obligations) of Lessee, with the exception
of such obligations as are mandatorily preferred by law.
(xi) Tax Returns: All necessary returns have been delivered by Lessee
to all relevant taxation authorities in the State of
Incorporation and Lessee is not in default in the payment of any
taxes due and payable.
(xii)No Material Adverse Effect: Lessee is not in default under any
agreement to which it is a party or by which it may be bound 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 Lessee threatened against it or its assets
that would have a material adverse effect on the business, assets
or condition (financial or otherwise) of Lessee.
(xiii) No Default under this Agreement: At the time of execution of
this Agreement, no Default has occurred and is continuing.
(xiv)Financial Statements: The balance sheet and other financial
statements for Lessee for the financial year which ended 31st of
March 1998 were prepared in accordance with accounting principles
consistently applied and generally accepted in the State of
Incorporation.
(xv) 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 Lessee or any of its
assets.
(xvi)Continuation of Business: Lessee 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.
(xvii) No Immunity: In any proceedings taken in the State of
Incorporation in relation to the Transaction Documents it would
not be entitled to claim for itself or any of its assets any
immunity from suit, execution, attachment or other legal process.
(xviii) Information: All information furnished by or on behalf of the
Lessee 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 Lessee have been disclosed to the Lessor.
(xix)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 duly certified US Air Carrier.
(xx) Principal Place of Business: Lessee's principal place of business
and chief executive office are located at the address specified
in the preamble of this Agreement.
(xxi)Flight Records: Lessee's flight records are located at Lessee's
principal place of business on the address stated in Clause 27.
(xxii) Year 2000 Compliance: Lessee 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 Lessee, or its suppliers,
customers and vendors, may be unable to recognise 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 Lessor's Representations and Warranties
Lessor represents and warrants to Lessee as of the Delivery Date
each of the following representations and warranties.
(i) Title to Aircraft: Lessor warrants that title to the Aircraft
will be vested in Owner Trustee and the Aircraft shall be free
and clear of any and all Security Interest except for the
Security Interests of Owner Trustee and Lessor under the
Headlease Agreement and of Lender.
(ii) Organisational Status: Lessor is a company created and validly
existing under the laws of Sweden, and has the organisational
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 even date
herwith, by and between Owner Trustee and Lessor (the "Trust
Agreement") has been duly authorized, validly executed and
delivered on the part of Lessor, is legally binding upon Lessor,
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 Lessor 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 Lessor is a party have been duly executed and delivered by
Lessor and represent the valid, enforceable and binding
obligations of Lessor except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws of general
application affecting the enforcement of creditors' rights.
(vi) No Breach: The execution and delivery of the Transaction
Documents, the consummation by Lessor of the transactions
contemplated herein and compliance by Lessor with the terms and
provisions hereof do not and will not contravene any law
applicable to Lessor, or result in any breach of or constitute
any default under or result in the creation of any Security
Interest upon any property of Lessor, 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 Lessor is a
party or by which Lessor or its properties or assets may be bound
or affected.
2.3 Survival of Representations and Warranties
All of the foregoing Lessee's and Lessor's representations and
warranties shall survive the execution and delivery of this
Agreement and the Delivery of the Aircraft.
3. CONDITIONS PRECEDENT
3.1 Lessor's Conditions Precedent
Lessor's obligation to deliver and lease the Aircraft to Lessee
under this Agreement is subject to satisfaction of each of the
following conditions.
3.1.1 Receipt by Lessor from Lessee on or prior to the Delivery Date of
the following, each in form and substance reasonably satisfactory
to Lessor:
(i) Officer's Certificate: A certificate of an officer of Lessee
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 Lessee 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
Lessee for the financial year ended March 31 1998;
(iv) Licences: Copies of Lessee's air transport license and air
operator's certificate 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 Lessor);
(vi) Insurances: Evidence that the Insurances are in place together
with an insurance broker's letter of undertaking (in a form
acceptable to Owner Trustee, Lessor and Lender) addressed to
Owner Trustee, Lessor and Lender;
(vii) Opinions: Legal opinions from:
(a) Counsel to Lessee addressed to Owner Trustee, Lessor and
Lender substantially in the form of Schedule 9 and otherwise
in a form and substance acceptable to Owner Trustee, Lessor
and Lender; and
(b) Special FAA counsel to Lessee addressed to Owner Trustee,
Lessor and Lender confirming that this Agreement and other
appropriate documents have been filed with the FAA;
(viii) Security: Receipt by Lessor 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 Lessee to such addressees as
requested by Lessor;
(x) Power of Attorney: A power of attorney in the form of Schedule 8
duly executed by Lessee; and
(xi) Others: Any other documents, approvals, consents, certificates
that Lessor or Lender may reasonably require.
3.1.2 The representations and warranties of Lessee 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 Lessor's Conditions Precedent are for the sole benefit of
Lessor and may be waived or deferred by Lessor in whole or in part
and with or without conditions. If any of the Conditions Precedent
are not satisfied on the Delivery Date and Lessor (in its absolute
discretion) nonetheless agrees to deliver the Aircraft to Lessee,
Lessee shall ensure that such Conditions Precedent are fulfilled
within fifteen (15) days after the Delivery Date, and Lessor may
treat the failure of Lessee to do so as an Event of Default.
3.3 Lessee's Conditions Precedent
Lessee's obligation to accept and lease the Aircraft from Lessor
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 Lessee from Lessor on or prior to the Delivery Date of
the following, each in form and substance reasonably satisfactory to
Lessee:
(i) Evidence of Authority: Certified copies of evidence of
appropriate action approving the execution, delivery and
performance of the Transaction Documents by Lessor and of the
person or persons authorized to sign the Transaction Documents on
behalf of Lessor or any other documents to be delivered to Lessee
by Lessor;
(ii) Specimen signatures: A certificate of an officer of Lessor
setting out the names and signatures of the persons authorized to
sign on behalf of Lessor the Transaction Documents and any
documents to be delivered by Lessor pursuant hereto
contemporaneously herewith; and
(iii)Transaction Documents: Originals of this Agreement and the Side
Letter (duly executed by Lessor).
3.3.3 The representations and warranties of Lessor under Clause 2.2 shall
be correct and would be correct if repeated on Delivery.
3.4 Waiver
The Lessee's Conditions Precedent are for the sole benefit of
Lessee and may be waived or deferred by Lessee in whole or in part
and with or without conditions.
4. DELIVERY CONDITION AND INSPECTION OF AIRCRAFT
4.1 Lessee Selection of Aircraft
IN ADDITION TO THE DISCLAIMERS IN CLAUSE 18, LESSEE REPRESENTS AND
WARRANTS TO LESSOR THAT LESSEE HAS USED ITS OWN JUDGEMENT IN
SELECTING THE AIRCRAFT AND HAS DONE SO BASED ON ITS SIZE, DESIGN
AND TYPE. LESSEE ACKNOWLEDGES THAT LESSOR 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, Lessor has advised
Lessee 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 Lessee Inspection and Acceptance Flight
Lessor will arrange with Prior Owner for Lessee to perform such
ground inspection of the Aircraft prior to the Scheduled Delivery
Date as is reasonable. Lessor will procure that Lessee may have up
to two (2) observers on board the Aircraft during delivery
acceptance flight from Prior Owner to Lessor. Lessee acknowledges
that, as between it and Lessor, 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 Lessee
Subject to Lessee having complied with the conditions set out in
Clause 4.2, or the waiver thereof by Lessor, Lessor will deliver
the Aircraft to Lessee at the Delivery Location. Provided that the
Aircraft is in the condition required by Clause 4.2, upon the
tender of the Aircraft by Lessor to Lessee, Lessee will accept the
Aircraft and the date of tender by Lessor to Lessee will be deemed
to be the Delivery Date for all purposes under this Agreement,
including, but not limited to, the commencement of Lessee's
obligation to pay Rent hereunder. Lessee shall execute and deliver
the Acceptance Certificate to Lessor on the Delivery Date.
4.5 Lessee's Failure to take Delivery
If Lessee 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 Lessor in the condition required hereunder, Lessee
will indemnify Lessor for all costs and expenses, directly or
indirectly, incurred by Lessor as a result thereof.
5. LEASE TERM
5.1 Lease Term
Lessor shall lease the Aircraft to Lessee and Lessee shall take
the Aircraft on lease in accordance with this Agreement for the
duration of the Lease Term.
5.2 Expiry Date
The Expiry Date shall be the Lease Expiry Date subject to the
following provisions:
(i) If Lessor, acting in accordance with Clause 3.2, notifies Lessee
that it is terminating this Agreement, Lessee 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 Lessee has
complied with all its obligations hereunder;
(ii) If Lessor, upon an Event of Default, exercises its rights in
accordance with Clause 24.3 and terminates the leasing of the
Aircraft to Lessee under this Agreement, Lessee 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 Lessee 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 Lessee has
paid to Lessor the Agreed Value and all other sums due from
Lessee to Lessor 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 Lessor shall have accepted redelivery of the
Aircraft and Lessee 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 Lessor in accordance with that clause.
5.3 Survival of Certain Lessee Obligations
5.3.1 For the avoidance of doubt, in respect of Clauses 5.2 (i), (ii),
(v) and (vi) the obligations of Lessee 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 Lessor
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 Lessee set forth in Clauses 12.5, 12.17, 19, 20
and 21.7 and any other obligations of Lessee that were due to have
been performed but have not been fully performed prior to the
termination of the Agreement pursuant to this Clause 5.3, will
survive the Expiry Date.
5.4 Risk
5.4.1 Throughout the Lease Term and until redelivery of the Aircraft in
the condition required under Clause 23.1, Lessee 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, Lessor 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 Lessor, its employees or agents.
6. DELIVERY
6.1 Location and Time of Delivery
Lessor will deliver the Aircraft to Lessee at the Delivery
Location on or about the Scheduled Delivery Date, which is the
date when Prior Owner shall deliver the Aircraft to Lessor. Lessor
will notify Lessee from time to time and in as timely manner as is
possible of any changes to the Scheduled Delivery Date.
6.2 Delay or Failure in Delivery
6.2.1 Lessee and Lessor expressly acknowledge that Delivery of the
Aircraft to Lessee is subject to and conditioned upon delivery of
the Aircraft by Prior Owner to Lessor. Lessor will not be liable
for any loss or expense, or any loss of profit, arising from any
delay or failure in Delivery to Lessee unless such delay or
failure arises as a direct consequence of the gross negligence or
wilful default of Lessor, and in no event will Lessor be liable
for any delay or failure that is caused by any failure, breach or
delay on the part of Prior Owner.
6.2.2 If a delay, not caused by Lessor's or Lessee'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 Lessor will repay to Lessee under this
Agreement any prepaid Rent the amount of Security Deposit, if
paid, and 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 Lease 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
Lessee shall pay Basic Rent to Lessor or to its order in advance
on each Rent Date. Lessee shall initiate payment adequately in
advance of each Rent Date to ensure that Lessor 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 Lease Term
shall be the amount set out as Basic Rent in Schedule 2.
7.4 Maintenance Reserves
Lessee will pay to Lessor Maintenance Reserves in accordance with
Clause 9 as Supplemental Rent, based on Lessee's use of the
Aircraft during the Lease Term.
7.5 Supplemental Rent for Excess Cycles
Lessee shall pay to Lessor Supplemental Rent based on Lessee's
operation of the Aircraft in the amount and at the times set forth
in Schedule 2.
8. SECURITY DEPOSIT
8.1 Security Deposit
Lessee shall pay to Lessor 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 Lessee of its obligations under
the Transaction Documents and the Other Agreements.
Upon Lessor'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 Lease Term.
8.2 Letter of Credit
Lessee shall provide Lessor with an additional Security Deposit in
the form of an irrevocable, assignable, standby letter of credit
in favour of Lessor in the amount and issued by a major US Bank
and in the form and substance acceptable by Lessor. The Letter of
Credit will serve as security for the performance by Lessee of its
obligations under the Transaction Documents and the Other
Agreements.
8.3 Lessor'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 Lessor elsewhere
in this Agreement or under applicable law in respect of the
Security Deposit or Letter of Credit, Lessor may immediately, or
at any time thereafter, without prior notice to Lessee, 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 Lessee
under the Transaction Documents or the Other Agreements, in such
order as Lessor 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 Lessor exercises the rights described in Clause 8.3.1, Lessee
shall, following a demand in writing from Lessor, 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 Lessee acknowledges that Lessor may commingle all or any part of
the Security Deposit with its general funds and that no interest
shall accrue in favour of Lessee in respect of the Security
Deposit.
8.3.4 Lessor'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
Lessee shall during the Lease Term pay Maintenance Reserves to
Lessor in the amount set forth in Schedule 2.
9.2 Payments
9.2.1 Lessee 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 Lessee acknowledges that Lessor may commingle all or any part of
the Maintenance Reserves with its general funds and that no
interest shall accrue in favour of Lessee in respect of the
Maintenance Reserves.
9.2.3 Lessor'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 Lessee 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
Lessor will reimburse Lessee from the actual Airframe Maintenance
Reserves, if paid by Lessee, 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
Lessor will reimburse Lessee from the actual Engine Maintenance
Reserves, if paid by Lessee, 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
Lessor will reimburse Lessee from the actual Landing Gear
Maintenance Reserves, if paid by Lessee, 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
Lessor will reimburse Lessee from the actual APU Maintenance
Reserves, if paid by Lessee, 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, Lessee has no right to payment of any
amount from the Maintenance Reserves not paid in cash by Lessee
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 Lessor as its sole
property.
9.5 Costs in Excess of Maintenance Reserves
Lessee 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
Lessee may not submit any invoice for reimbursement from the
Maintenance Reserves after the Expiry Date unless on or prior to
such date Lessee has notified Lessor in writing that such
outstanding invoice will be submitted after the Expiry Date and
the anticipated amount of such invoice. So long as Lessee has
provided such notice to Lessor, Lessee may then submit such
outstanding invoice at any time within three (3) months after the
Expiry Date; provided, however, if Lessee contests any such
invoice and provides Lessor 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 Lessee Payments
All payments by Lessee to Lessor under this Agreement will be made
for value on the due date in dollars and in same day funds to:
Nordbanken
Account No. 3968-77 720 42
S.W.I.F.T.: NBBK SESS
S-105 71 Stockholm
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 Lessor may from time to time notify to
Lessee in writing.
10.2 Default Interest
If Lessee fails to pay any amount payable under this Agreement on
the due date, Lessee shall pay to Lessor 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 Lessee to Lessor, 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.
10.3 Absolute Obligations
This Agreement is a net lease and Lessee'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 Lessor or Lessee 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
Lessee'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, reorganisation, arrangement,
readjustment of debt, dissolution, liquidation or similar
proceedings by or against Lessor or Lessee 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 Lessee under this Agreement.
10.4 Application of Payments to Lessor
If any sum paid to Lessor or recovered by Lessor in respect of the
liabilities of Lessee under this Agreement is less than the amount
then due, Lessor may apply that sum to amounts due under this
Agreement in such proportions and order and generally in such
manner as Lessor may determine.
10.5 Currency Indemnity
If under any applicable law, whether as a result of judgement
against Lessee or the liquidation of Lessee 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"), Lessee 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 Lessor against the amount of the shortfall. For the
purposes of this sub-Clause "rate of exchange" means the rate at
which the Lessor is able on the relevant date to purchase the
contractual currency in London or any other place Lessor may
reasonably choose with the other currency.
10.6 Set-off
Lessor may set-off any matured obligation owed by Lessee under the
Transaction Documents or any Other Agreements against any
obligation, whether or not matured, owed by Lessor to Lessee.
10.7 Time for Payments
If any payment due under this Agreement other than a payment of
Rent (see Clause 7.2) would otherwise be due on a day that is not
a Business Day, it shall be due on the next succeeding Business
Day.
11. Lessor's covenants
11.1 Quiet Enjoyment
Provided no Default has occurred and is continuing, Lessor shall
not, and no one claiming by or through the acts or omissions of
Lessor or Owner Trustee shall, interfere with the quiet use,
possession and enjoyment of the Aircraft by Lessee during the
Lease Term. Lessor 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 Lessee during the
Lease Term, provided no Default has occurred and is continuing.
11.2 Lessor Obligations Following Expiry Date
Within five (5) Business Days after:
(i) redelivery of the Aircraft to Lessor in accordance with and in
the condition required by this Agreement; or
(ii) payment received by Lessor of the Agreed Value following a Total
Loss after the Delivery Date;
or in each case such later time as Lessor is reasonably satisfied
that Lessee has irrevocably paid to Lessor all amounts that may
then be outstanding or become payable under the Transaction
Documents and the Other Agreements, Lessor shall (provided that no
Default has occurred and is continuing):
(a) pay to Lessee an amount equal to the balance of the Security
Deposit, if any, paid by Lessee under this Agreement and
then held by Lessor; and
(b) pay to Lessee 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 Lessor and Lessee as
to the amount due to Lessee, Lessor shall nevertheless pay
to Lessee such amount as in Lessor's reasonable judgement is
not in dispute or is in excess of the amount Lessor's claim
is due; and
(c) return the Letter of Credit.
12. Lessee's covenants
12.1 Duration
Lessee shall perform and comply with its undertakings and
covenants in this Agreement and the other Transaction Documents at
all times during the Lease Term. All such undertakings and
covenants shall, except where expressly otherwise stated, be
performed at the expense of Lessee.
12.2 Information
12.2.1 Lessee shall notify Lessor 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 Lessee shall furnish to Lessor:
(i) as soon as available, but not in any event later than ninety (90)
days after the last day of each financial year of Lessee, its
audited consolidated balance sheet as of such day and its audited
consolidated profit and loss statement for the year ending on
such day prepared in accordance with generally accepted
accounting principles in the State of Incorporation;
(ii) as soon as available, but not in any event later than forty-five
(45) days after the last day of each quarter of Lessee, its
unaudited consolidated balance sheet as of such day and its
unaudited consolidated profit and loss statement for the quarter
ending on such day prepared in accordance with generally accepted
accounting principles in the State of Incorporation;
(iii)such information as may reasonably be requested by Lessor 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 Lessor concerning the location,
condition, use and operation of the Aircraft; and
(v) such other information and documents regarding Lessee's business
and financial condition as Lessor may from time to time
reasonably request.
12.2.3 Lessee shall promptly notify Lessor 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 Lessee'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 causes by,
or in connection with, the Aircraft which is expected to give
rise to any loss or liability on the part of the Lessor 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 Lessee might reasonably be expected to
involve the Lessor in any loss or liability.
(vii)promptly notify Lessor in the event Lessee 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 Lessee 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 Lessor Visits
Lessor may visit, upon reasonable notice, Lessee's premises to
discuss Lessee's general affairs and finances with Lessee's
principal officers.
12.4 Periodic Estoppel Certificates
Lessee will, within ten (10) Business Days after receipt of
written notice from Lessor (which will not occur more often than
four (4) times in any calendar year), execute, acknowledge and
deliver to Lessor 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 Lessee's knowledge, any
uncured defaults on the part of Lessor hereunder, or specifying
such defaults if there are any claimed by Lessee; and
(iii)acknowledging that Lessee has no claims against Lessor by reason
of the condition of the Aircraft as of the Delivery Date or
arising subsequent thereto to the date of such statement.
If Lessee 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 Lessee.
12.5 Airport and Navigation Charges
12.5.1 Lessee 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 Lessor in
respect of the same. This indemnity will continue in full force
and effect notwithstanding the termination or expiration of this
Agreement. Lessee 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 Lessor, Lessee will provide Lessor with a list of
the airports to which the Aircraft or Lessee's other aircraft are
regularly operated. Lessee hereby authorises any Aviation
Authority, any airport or any other creditor claiming rights on
the Aircraft or Lessee's other aircraft to confirm the status of
Lessee's payments to such creditor for the Aircraft and its other
aircraft, as and when requested by Lessor. To evidence this
authority, Lessee will at Lessor's request execute one or more
authorities substantially in the form of Schedule 7.
12.6 Operation of Aircraft
Lessee 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, Lessee 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 Lessee 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 Lessor or its interest in the
Aircraft. In particular, Lessee will ensure that the Aircraft at
all times during the Lease Term is operated by duly qualified
pilots and aircrew employees, and is not used to transport
contraband or illegal narcotics or hazardous or perilous cargo
(other than pursuant to applicable FAA and carrier regulations).
The Aircraft may be used or operated in flight crew conversion,
training for Lessee's own employees and for experimental flights;
provided, however, prior to any such flights Lessee shall notify
Lessor and shall deliver to Lessor evidence that insurance
coverage is in effect for such flights.
12.7 Areas of Operation
Lessee 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
Lessee shall not do anything that, or omit to do anything the
omission of which, prejudices any right Lessor 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.
12.9 Non-Representation of Lessor
Lessee shall not at any time represent Lessor, 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 Lessee or as having any operational interest
in or responsibility for the Aircraft.
12.10 Inspection
Lessor 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 Lessee
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 Lessee as an airline. Lessee agrees to reimburse
the out-of-pocket expenses of Lessor 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 Lessee shall in all cases pay or
reimburse Lessor for the costs of such inspection or survey if
Lessor is required by law or change of law to make an inspection
or survey. Lessor 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. Lessee shall provide Lessor with such
information regarding the present and anticipated location and
regarding the condition of the Aircraft as Lessor may reasonably
require. For the purposes mentioned in this Clause 12.10 and
subject to the limitations herein contained, Lessor and any
inspector may gain access to the Aircraft, including the Aircraft
Documents. Lessee 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
Lessor, Lessor may at the cost and expense of Lessee, itself
arrange for such repairs to be carried out. Lessee shall on demand
reimburse the costs and expenses incurred by Lessor in effecting
such repairs.
12.11 Registration
12.11.1 Lessee 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 Aviation Authority (to the extent that
the Aviation Authority permits registration in that manner) as
follows:
(i) Owner Trustee as owner;
(ii) the first priority security interest of Lender
(iii)Lessor's interest, by filing the Lease Supplement according to
Schedule
(iv) Lessee as operator of the Aircraft and maintain or provide the
maintenance of such registration throughout the Lease Term.
Lessee 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. Lessee will not
take any action or omit to take any action that will invalidate
any such registration or recordation. Lessee shall provide Lessor
as soon as available with evidence of such registration.
12.11.2 Lessee shall at its own expense provide that at all times during
the Lease 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.
12.12 Name Plates
On the Delivery Date or as soon thereafter as is reasonably
practicable, Lessee 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 Lessor stating the
Aircraft type, manufacturer's serial number and current
registration letters of the Aircraft and denoting the name of (i)
Lessor as lessor (ii) Owner Trustee as owner trustee and (iii)
Lender as mortgagee. Except as above provided Lessee 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 Lessee (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
colours and insignia on the Airframe.
12.13 Geneva Convention
Whenever the State of Registration is a signatory state that has
ratified the Geneva Convention, Lessee 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, Lessor and
Lender to the Aircraft by every other signatory state that has
ratified the Geneva Convention.
12.14 Merger and Shareholding
Lessee will not sell its business to or operate its business in
any other corporate form or entity (the new entity) unless (a)
such new entity is solvent and duly organised and existing under
the law of the State of Incorporation or any federal state
thereof, if applicable, and the new entity has executed and
delivered to Lessor an agreement in form and substance acceptable
to Lessor 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 Lessee and the
creditworthiness of such new entity does not, in Lessor'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. Lessee will
give Lessor 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 Lessor's
approval. Lessee shall reimburse Lessor within ten (10) days of
Lessor's invoice for all out-of-pocket expenses incurred by Lessor
as a result of such proposed merger whether or not Lessor approves
and whether or not it actually occurs.
12.15 Ownership
Title to the Aircraft will be and remain vested in Owner Trustee.
Lessee will have no right, title or interest in the Aircraft
except as provided for in this Agreement. Lessee 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
Lessee 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. Lessee shall hold and
preserve such records and files concerning the Transaction
Documents and shall permit representatives of Lessor at any time
during normal business hours to inspect and make abstracts from
such records and files. Lessee shall give Lessor at least thirty
(30) days prior written notice of any change in Lessee's principal
place of business and chief executive office, and shall co-operate
with Lessor in executing and delivering all such documents as
Lessor may reasonably request which are required or desirable as a
result of such change of principal place of business of Lessee.
12.17 Maintenance of Flight Records
Lessee 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, Lessor, Owner Trustee and Lender. Lessee shall give
Lessor 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
Lessee 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) Lessee continues to be fully
responsible to Lessor for all its obligations hereunder and (iii)
Lessee in advance, obtains written acknowledgement(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 Lessor, Lessee 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 Lessee in the ordinary course of its business with
a commercial air operator which is approved by Lessor in writing
and on terms and conditions that Lessor 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,
Lessee 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 organisation for service, repair, maintenance or Overhaul work
on the Airframe or such Engine or any part thereof or for
alterations or modifications in or additions to the Airframe or
such Engine to the extent required or permitted by the terms of
Clauses 16.4 and 16.5;
13.1.3 install an Engine on an airframe owned by Lessee and operated by
and under the operating control of flight crew engaged by Lessee
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 Lessee that is owned
by or leased or subleased to Lessee and/or subject to any security
agreement, provided that (i) such airframe is free and clear of
all Security Interests except the rights of the parties to any
security agreement covering such airframe and except Permitted
Liens and any Security Interests or rights of the type permitted
by sub-paragraphs (ii) and (iii) of Clause 13.1.3 and (ii) Lessee
shall have obtained from the sublessor or secured party, as
relevant, of such airframe a written agreement, which may be in
the sublease agreement or security agreement in respect of such
airframe, in form and substance satisfactory to Lessor (it being
understood that an agreement from such sublessor or secured party
to substantially the same effect as the agreement of Lessor set
forth in the final sentence of Clause 13.4 shall be deemed to be
satisfactory to Lessor), whereby such Lessor 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 Lessee, leased or
subleased to Lessee, or purchased by Lessee, 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 Lessee and in
such event Lessee 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 Lessee, 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 sublessee shall acknowledge that its rights are
subordinate to Lessor's rights under this Agreement and the
rights of Lender under any finance document or security document
entered into between Owner Trustee or Lessor in relation to the
Aircraft;
13.1.7 sublease the Aircraft or Airframe to any wholly-owned subsidiary
of Lessee on terms that the Aircraft or Airframe is not operated
by, and does not remain under the operational control of, flight
crew engaged by Lessee 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 sublessee and the proposed form of the sublease is
approved by Lessor and Lender in writing, which approval will not
be unreasonably withheld or delayed provided all the following
conditions set out in this Clause 13.1.7 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 Lessor and/or
Owner Trustee and/or Lender and the sublessee shall acknowledge
that its rights are subordinate to Owner Trustee's, Lessor'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 sublessee is to maintain
such insurances during the term of such sublease, it shall have
furnished to Lessor all such documents, evidence and information
relating to such insurances which Lessee is required to furnish
or cause to be provided to Lessor under this Agreement;
(v) if the Aviation Authority for the duration of the sublease is to
be other than the FAA, Lessor and Lender approves the change of
registration and Lessor receives (x) an opinion of counsel in the
State of Registration in form and substance reasonably
satisfactory to Lessor 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 Lessee under Clause 13.1.6 or Clause
13.1.7 Lessee shall provide Lessor with a copy of such executed
sublease.
13.3 Lessee Primarily Liable
Notwithstanding anything contained in Clause 13.1, Lessee 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 Lessee's obligations hereunder.
13.4 Recognition of Rights
If Lessee shall have obtained from the sublessor or secured party
of any engine subleased to Lessee or owned by Lessee subject to
any Security Interest, a written agreement complying with the
terms of sub-paragraph (ii) of Clause 13.1.4, Lessor hereby agrees
for the benefit of such sublessor or secured party that Lessor
shall not acquire or claim, as against such sublessor or secured
party, any right, title or interest in any such engine as a result
of such engine being installed on the Airframe at any time while
such engine is subject to such sublease or security agreement and
owned by such sublessor or subject to a Security Interest in
favour of such secured party and Lessor shall, at the request of
Lessee, confirm such agreement in writing for any such sublessor
or secured party.
14. Security interests
14.1 Title
Lessee shall not do, or permit to be done, any act, which might
reasonably be expected to jeopardise the interest of Owner
Trustee, Lessor or Lender. Lessee 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
Lessee shall not create, incur or permit to subsist over the
Aircraft or any part thereof or over the Transaction Documents any
Security Interest other than Permitted Liens.
14.3 Base of Aircraft
Lessee 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 Lessor
Lessee shall notify Lessor:
(i) as and when it becomes aware of the same, of any Security
Interest (x) (excluding Permitted Liens) arising over the
Aircraft or any Engine or other major part thereof or (y) (in the
case of all Security Interests including Permitted Liens)
exercised over the Aircraft or any Engine or other major part
thereof or (z) of any arrest or detention or purported or
attempted arrest or detention of the Aircraft; and
(ii) promptly on request of Lessor, 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
Lessee 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 Lessee shall, or procure that any sublessee will, at its own
expense at all times during the Lease 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 Lessor), 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 Lease 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
Lessee with respect to similar aircraft and engines operated by
Lessee 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 Lessor 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 Lessor with such approval not
to be unreasonably withheld.
15.2 Specific Obligations
Without limiting Clause 15.1, Lessee agrees that the performance
by Lessee or any 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
Lessee schedules to adopt within the Lease 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 Lessee's fleet in service bulletin
compliance (including method of compliance) or other maintenance
matters. Lessee will not discriminate against the Engines with
respect to overhaul build standards and life limited part
replacements;
(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 utilising maintenance
and quality control procedures approved by the Aviation Authority
and that the repair agency provides a complete record of all work
performed during the course of such Overhaul and certifies that
such Overhaul was accomplished, that the equipment is airworthy
and released for return to service and that the Overhaul was in
conformity with the original type design.
16. Replacement of parts
16.1 Replacement of Parts
Lessee 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,
Lessee 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 Lessee
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 Lessee.
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 Lessee, 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 Lessee'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 Lessee, 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
Lessee 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, Lessee 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 Lessee may deem
desirable in the proper conduct of its business, including,
removal of Parts (for purposes of this Clause 16.4, Obsolete
Parts) which Lessee 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 Lessor
shall be required under any circumstances to pay directly for any
alteration, modification or addition to the Aircraft or to
reimburse Lessee for the cost thereof. Any other alterations other
than those permitted according to Clause 16.5 require Lessor'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, Lessee may remove, or permit the
removal of, at any time during the Lease Term, any Part, provided
that (a) such Part is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in
or attached to the Airframe or any Engine at the time of Delivery
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 Lessee, free and clear of all rights of Owner Trustee, Lender
and Lessor 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, Lessee shall have the
right at its option at any time, on at least thirty (30) days
prior written notice to Owner Trustee, Lender and Lessor, 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 Lessor, assuming that such Engine was in the
condition and repair required to be maintained by the terms of
this Agreement and Lessee shall deliver such documents including a
bill of sale and opinion of counsel as to title and recordation
with the FAA, as Lessor 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 Lessee free
and clear of all rights of Owner Trustee, Lender and Lessor, 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
Lessee shall be entitled, so long as no Default shall have
occurred which has not been remedied or waived to the reasonable
satisfaction of Lessor, 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 Lessee, 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 Lessee 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)Lessee shall have notified Lessor 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) Lessee 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 Lessor shall otherwise agree in writing, be kept and
maintained by the Lessee or any 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 Lessor on
the Expiry Date.
17. Manufacturer's warranties
17.1 Authorization
17.1.1 With effect from Delivery, Lessor authorises Lessee to exercise
such rights as Lessor 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 Lessee notifying Lessor in writing of any
warranty claim of a material nature and keeping Lessor
continuously informed of the development of such warranty claim
To the extent that the same may not be available to Lessee, Lessor
agrees to, at the sole cost and expense of Lessee, enforce such
rights as Lessor may have with respect thereto for the benefit of
Lessee. Lessor shall also have the right, rather than enforcing or
making such claim on behalf of Lessee under such warranties, to
appoint Lessee as its agent for such purpose, and in such
instance, Lessee 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. Lessee shall
not be entitled to exercise its authorisation hereunder while a
Default is continuing (during which time all such rights shall
revert to Lessor and Lessor hereby agrees to exercise and enforce
such rights during such period).
17.1.2 Lessee shall give Lessor prompt written notice of any warranty
claim that is settled with Lessee 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 Lessor otherwise
consents in writing. Any cash payments to Lessee in respect of
warranty claims that (either with Lessor'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
Lessee for the costs incurred for any such repair or remedy, and
which are not in respect of compensation for loss of use of the
Aircraft, an Engine or Part during the Lease Term due to a defect
covered by such warranty, shall be for Lessor's account.
17.2 Proceeds
So long as no Default has occurred and is continuing, Lessor
agrees, subject to Clause 17.1, to co-operate with Lessee to cause
any proceeds from any warranty referred to in Clause 17.1 to be
paid directly to Lessee, and, if any such proceeds are nonetheless
paid to Lessor, Lessor agrees to remit promptly such proceeds to
Lessee. However, while a Default is continuing, Lessor may
immediately:
(i) retain for its own account any such proceeds previously paid to
Lessor which would have been remitted to Lessee 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 Lessor,
rather than to Lessee.
Once the Default is cured, Lessor shall reimburse Lessee 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 Lessee, Lessee 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 Lease Term
to ensure that the benefit of any of those warranties that have
not expired is vested in Lessor.
17.4 No Operation Contrary to Warranties
Lessee shall not operate the Aircraft contrary to the terms of any
warranty referred to in Clause 17.1.1, provided that Lessor has
advised Lessee of the terms of such warranties.
18. Disclaimers
18.1 General
LESSOR AND LESSEE AGREE THAT THE DISCLAIMERS, WAIVERS AND
CONFIRMATIONS SET FORTH IN CLAUSES 18.2 THROUGH 18.11 BELOW SHALL
APPLY AS BETWEEN LESSOR AND LESSEE AT ALL TIMES DURING THE LEASE
TERM WITH EFFECT FROM LESSEE'S ACCEPTANCE OF THE AIRCRAFT BY
EXECUTION OF THE ACCEPTANCE CERTIFICATE, WHICH SHALL BE CONCLUSIVE
EVIDENCE THAT LESSEE 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 LESSEE (SAVE
AS EXPRESSLY NOTED ON THE ACCEPTANCE CERTIFICATE) AND ARE IN
SUITABLE CONDITION FOR DELIVERY TO AND ACCEPTANCE BY LESSEE.
18.2 As Is, Where Is
PRIOR TO DELIVERY HEREUNDER, LESSEE HAD THE OPPORTUNITY TO INSPECT
THE AIRCRAFT, ACCORDINGLY, LESSEE UNCONDITIONALLY ACKNOWLEDGES AND
AGREES THAT NEITHER OWNER TRUSTEE, LENDER OR LESSOR, 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
LESSEE 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 LESSOR 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 LESSOR FOR DAMAGES OR RELIEF ARISING OUT OF THE
FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTIONS OR
SPECIFICATIONS, NOTWITHSTANDING ANY ASSURANCES FROM LESSOR, THE
DIFFICULTY OF DISCOVERING ANY DEFECT OR ITS ASSUMPTION THAT ANY
NONCONFORMITY WOULD BE CURED.
18.4 Lessee Acknowledgement
LESSEE AGREES THAT IT IS LEASING THE AIRCRAFT "AS IS, WHERE IS AND
WITH ALL FAULTS".
18.5 Lessee Waiver
Lessee hereby waives as between itself and Lessor and agrees not
to seek to establish or enforce any rights and remedies, express
or implied (whether statutory or otherwise) against Lessor, Owner
Trustee, Lender or the Aircraft relating to any of the matters
mentioned in Clause 18.1 through 18.6 and the leasing thereof by
Lessor to Lessee.
18.6 Lessee Examination of Aircraft
DELIVERY BY LESSEE TO LESSOR OF THE ACCEPTANCE CERTIFICATE IS
CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE'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 WITHOUT DEFECT (WHETHER OR NOT DISCOVERABLE AT DELIVERY) AND
IN EVERY WAY SATISFACTORY TO LESSEE.
18.7 No Lessor Liability for Losses
Lessee agrees that Lessor will not be liable to Lessee, any
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 Lessor
or Owner Trustee or their agents or representatives excepting only
Lessor's or Owner Trustee or their respective agents' or
representatives' gross negligence or wilful misconduct.
18.8 Exclusion
Neither Owner Trustee, Lender, nor Lessor shall have any
obligation or liability whatsoever to Lessee, any sublessee or any
other person whether arising in contract, tort or otherwise and
whether arising by reference to negligence or strict liability of
Lessor, 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.
18.9 Waiver
Lessee hereby waives, as between itself and Owner Trustee, Lender
and Lessor, all its rights in respect of any warranty or
representation, express or implied, on the part of Owner Trustee,
Lender or Lessor and all claims against Owner Trustee, Lender or
Lessor howsoever and whenever arising at any time in respect of or
out of the matters referred to in Clause 18.
18.10 No Waiver
Nothing in this Clause 18 or elsewhere in this Agreement will be
deemed to be an waiver by Lessee of any rights it may have against
the Manufacturer, the Engine Manufacturer or any other person.
18.11 Confirmation
Lessee confirms that the foregoing provisions of this Clause 18
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.
19. Indemnities
19.1 General Indemnity
Lessee agrees to defend, indemnify and hold harmless on an after
Tax basis each of the Indemnitees on demand from and against any
and all Losses arising from events occurring during the Lease
Term:
(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 Lessee or by
misrepresentation of or breach of warranty by Lessee; 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 Lessee, or anyone acting by or through Lessee, 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 wilful
misconduct of such Indemnitee; or
(ii) arises as a direct result of Lessor Taxes, a Lessor Lien or a
wilful breach by Lessor of its obligations under any of the
Transaction Documents; or
(iii) constitutes a Tax or liability for Taxes.
19.3 Time of Payment
Lessee 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 Lessor or Lessee of the terms of this Agreement, the
termination of the lease of the Aircraft to Lessee under this
Agreement or the repudiation by Lessor or Lessee of this
Agreement.
19.5 Notice to Lessee
Lessor shall promptly after obtaining actual knowledge thereof
notify the Lessee of any claim as to which indemnification is
sought; provided that a failure to so notify will not diminish or
relieve Lessee of any obligations hereunder, unless such failure
materially adversely affects Lessee's defence of such claim and
directly results in a material increase in liability of the Lessee
in respect of such claim or prevents it from materially reducing
liability therefor, in which case the Lessee 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 Lessee 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 Lessor Taxes, unless Lessee is
required by law to make any such deduction or withholding.
20.1.2 If any Taxes, except Lessor Taxes, are required to be deducted or
withheld from any amount payable hereunder, Lessee shall pay to
Lessor 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 Lessor on the date of
such payment, after deduction or withholding for all such Taxes,
will be equal to the amount that Lessor would have received if
such Taxes had not been deducted or withheld.
20.1.3 If any payment is made by Lessee under Clause 19.2 and Lessor 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 Lessor in respect of or calculated with reference to
the deduction or withholding giving rise to such payment, Lessor
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 Lessor 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
Lessee such amount as Lessor shall reasonably have determined to
be attributable to the relevant deduction or withholding.
20.2 Tax Indemnity
20.2.1 Lessee shall indemnify Lessor on demand against all Taxes (other
than Lessor Taxes) levied or imposed against or upon Lessor,
Lessee 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 Lessor 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 Lessor's gross negligence or wilful
misconduct; or
(iv) relates to any deduction or withholding on any payment to be made
to Lessor 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 Lessor,
other than by Lessor to Lessee, or by any party claiming by or
through Lessor 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 Lessor becomes aware of any claim against Lessor for any Loss
that Lessee is required to pay or indemnify against pursuant to
this Clause 20.2, Lessor shall as soon as is reasonably
practicable notify Lessee in writing of such claim. If requested
in writing by Lessee that it wishes Lessor to contest such claim,
Lessor will consult with Lessee with a view to determining whether
there are grounds for contesting such claim. Lessor will consider
in good faith any representation made by Lessee in this respect.
Lessor 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 Lessor shall bring such proceedings in the event
that tax counsel reasonably acceptable to Lessor in the relevant
jurisdiction provides Lessor 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 Lessee. Further Lessor 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 Lessor or, if so
directed by Lessor, directly to the relevant taxing authority,
promptly after receipt by Lessee of a written demand therefor.
20.3 Value Added Taxes
The Rent and other amounts payable by Lessee 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, Lessee will pay all such tax or duty and
indemnify Lessor 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 Lessee 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) Lessee 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 Lessee to
any person other than such Indemnitee are treated as taxable in
the hands of such Indemnitee, Lessee 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
Lessor) under this Agreement are given to Lessor on behalf of that
Indemnitee.
20.6 Lessor Indemnification
Without prejudice to Clause 20.5, Lessor shall be entitled (but
not obliged) to indemnify Indemnitees (other than Lessor) on terms
equivalent to the indemnities given by Lessee under this Agreement
and the obligations of Lessee to Lessor shall extend to
reimbursement of Lessor of any amount properly paid by Lessor to
such other Indemnitee provided always that nothing in this Clause
20.6 shall operate to increase the obligations or liabilities of
Lessee.
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 Lessor or
Lessee of the terms of this Agreement, the termination of the
lease of the Aircraft to Lessee under this Agreement or the
repudiation by Lessor or Lessee of this Agreement.
20.8 Mitigation and Co-operation
In any case where Lessee 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, Lessor shall at the written request of
Lessee, without limiting, reducing or otherwise qualifying the
rights of Lessor and the Security Interest of Lender, consult with
Lessee in good faith as to such steps which Lessor and Lessee can
mutually accept and agree upon in order to mitigate or avoid the
effects of such circumstances. In case Lessor and Lessee can not
agree within a period of thirty (30) days after Lessee has made a
written request, Lessor shall not have any further obligation
towards Lessee.
20.9 Furnishing Forms
Lessor agrees to furnish, and to procure that any other Indemnitee
furnishes to Lessee, or to such other person as Lessee may
designate, at Lessee'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 Lessee 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 Lessee shall, at its own expense, maintain in full force and
effect during the Lease Term insurances in respect of the Aircraft
that, subject to this Clause 21, comply with the requirements set
out in Schedule 3 (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 Lessor, 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 Lessee are not Lessor's sole remedy and
protection under this Agreement as the obligations of Lessee are
in excess of the requirements of the Insurances.
21.2 Reinsurance
Any reinsurance will be maintained with reinsurers and brokers
approved by Lessor, 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
Lessor:
(i) The same terms as the original insurance;
(ii) A cut-through and assignment clause satisfactory to Lessor;
(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. Lessor 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 Lessor
and Lender continue to be protected. Lessee shall procure that
such changes are effected.
21.4 Insurance Covenants
Lessee 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 Lessor 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 create any Security Interests over the Insurances except
pursuant to the Assignment of Insurances;
(vii)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;
(viii) 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;
(ix) not knowingly effect or authorise the placement of insurance
covering the same subject matter as that covered by the
Insurances (except on a contingent or other secondary basis); and
(x) furnish to Lessor:
(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 Lessor of each sum payable under or in connection
with any required policy;
(c) on request, such evidence as the Lessor may require of the
Lessee'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
Lessee shall commence renewal procedures at least thirty (30) days
prior to expiry of any of the Insurances, and provide to Lessor:
(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 Lessor 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 Lessor may reasonable request be
provided by the insurance broker at least fifteen (15) days
before such expiry.
21.6 Failure to Insure
If Lessee fails to maintain the Insurances in compliance with this
Agreement, Lessee 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 Lessor of the non-compliance of the Insurances
and provide Lessor with full details of any steps which Lessee 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 Lessor under this
Agreement:
(a) to pay the premiums due or to effect and maintain insurances
satisfactory to Lessor and substantially the same as the
Insurances required hereunder or otherwise remedy Lessee's
failure in such manner, including to effect and maintain an
"owner's interest" policy, as Lessor considers appropriate.
Any sums so expended by Lessor will become immediately due
and payable by Lessee to Lessor together with interest
thereon at the Default Rate, from the date of expenditure by
Lessor up to the date of reimbursement by Lessee; and
(b) at any time while such failure is continuing to require the
Aircraft to remain at any airport or to proceed to and
remain at any airport designated by Lessor until the failure
is remedied to Lessor's satisfaction.
21.7 Continuation of Insurances
Lessee agrees to effect and maintain at Lessee'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 Lessee or Lessor continues to have any interest in the
Aircraft.
21.8 Application of Insurance Proceeds
As between Lessor and Lessee:
(i) all insurance payments received as the result of a Total Loss
occurring during the Lease Term will be paid to Lessor or to
Lender pursuant to the terms of any security given by Owner
Trustee and Lessor;
(ii) all insurance proceeds of any damage or loss to the Aircraft, any
Engine or any Part occurring during the Lease Term not
constituting a Total Loss and in excess of the Damage
Notification Threshold will be paid to Lessor and applied in
payment (or to reimburse Lessee) for repairs or replacement
property, upon Lessor being satisfied that the repairs or
replacement have been effected in accordance with this Agreement;
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 Lessor to be applied toward payment of any amounts
which may be or become payable by Lessee in such order as Lessor
sees fit or as Lessor may elect.
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 Lessor 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 Lessor will repay to
Lessee 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, Lessee shall pay the Lessor
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 Lessor of the Agreed Value and all
other amounts which may be or become payable to Lessor under this
Agreement, Lessor shall direct Owner Trustee to transfer to Lessee
all of Owner Trustee's and Lessor'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 Lessor Liens), and
Lessor shall procure the execution and delivery of such bills of
sale and other instruments as Lessee may reasonably request to
evidence such transfer, free and clear of all rights of Owner
Trustee and Lessor and (y) any other rights in respect of the
Aircraft or any part thereof or any further requisition or
insurance proceeds in respect thereof. Lessee shall indemnify
Owner Trustee and Lessor for all fees, expenses and Taxes incurred
by Owner Trustee and Lessor in connection with any such transfer.
22.2.3 If a Total Loss of the Aircraft or the Airframe occurs during the
Lease Term, Lessee'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 Lessee (as to indemnity
or otherwise) under this Agreement; and Lessor and, if not already
recovered, Lessee 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), Lessee shall give Lessor prompt written
notice thereof and Lessee shall replace the Destroyed Engine as
soon as reasonably possible by procuring that Owner Trustee
acquires, at Lessee'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 Lessee agrees to take such action as Lessor 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. Lessee's obligation to pay Rent shall continue
in full force and effect, but an amount equal to the Total Loss
Proceeds received by Lessor 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 Lessor's right to deduct therefrom any amounts then due
and payable by Lessee under this Agreement, be paid to Lessee.
22.3.3 Immediately upon the effectiveness of such substitution, and
without further act, title to the replaced Engine shall thereupon
vest in Lessee, in an as-is, where-is condition, free and clear of
all rights and Security Interests of Owner Trustee, Lender and
Lessor 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 Lessee
will not be released from any of its other obligations under the
Agreement (other than operational obligations with which Lessee
is unable to comply solely by virtue of the requisition);
(ii) so long as no Default or Event of Default has occurred and is
continuing, Lessee shall be entitled to any hire paid by the
requisitioning authority in respect of the Lease Term;
(iii)Lessee 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 Lessor 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 Lessee
satisfies the Return Conditions provided that:
(i) the obligations of Lessee 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, Lessee 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), Lessee shall be obliged to redeliver the Aircraft to
Lessor in accordance with Clause 23;
(iii)provided no Default or Event of Default is continuing, Lessee
shall be entitled to receive and retain any requisition payments
made in respect of the Aircraft; and
(iv) Lessee shall indemnify Lessor for any Losses which Lessor suffers
(Lessor undertakes to use its reasonable best efforts to mitigate
such Losses) as a result of Lessee returning the Aircraft to
Lessor after the Expiry Date.
23. Redelivery
23.1 Redelivery of Aircraft
On the Redelivery Date, Lessee shall, unless a Total Loss has
occurred, redeliver the Aircraft and the Aircraft Documents to
Lessor at Lessee'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 lease will be extended and Lessee'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 Lessor 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 Lessor. At the
time of the redelivery of the Aircraft:
(i) the Aircraft shall be free and clear of all Security Interests
other than Lessor 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 Lessor may request that Lessee has had timely notice of and
that Lessor has agreed to pay for; provided, however, that if
compliance with Lessor'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
Lessee's compliance with Lessor's request; and
(v) any service bulletin kits which are allocated to the Aircraft at
no charge by the Manufacturer and not delivered to Lessor as at
the Redelivery Date will be shipped to a location specified by
Lessor at Lessee's cost.
For the avoidance of doubt, Lessee will not be responsible for any
inaccuracy or incompleteness in the Aircraft Documents that
pertains to any period prior to Delivery, provided always that the
foregoing shall not in any way be construed as a waiver by Lessor
of Lessee's obligations to keep, maintain and update the Aircraft
Documents during the Lease Term in accordance with the other
provisions of this Agreement.
23.2 Final Inspection
Immediately prior to redelivery of the Aircraft, Lessee shall make
the Aircraft available to Lessor 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 Lessor 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
Lessee 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 Lessee has complied with the
provisions of this Clause 23.3, Lessee shall redeliver the
Aircraft to Lessor at Lessee'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)), Lessee shall at Lessor's option:
(i) immediately rectify the non-compliance and to the extent the
non-compliance extends beyond the Redelivery Date, the Lease Term
will be automatically extended until the non-compliance has been
rectified and Lessee shall be required to pay Rent to Lessor
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 Lessor; or
(ii) redeliver the Aircraft to Lessor and indemnify Lessor, and
provide cash to Lessor in an amount reasonably satisfactory to
Lessor as security for that indemnity, against the cost of
putting the Aircraft into the condition required by this
Agreement.
23.4.2 Lessor's option in Clause 23.4 is not available to Lessor provided
that (i) Lessee has notified Lessor of its intent to rectify the
non-compliance prior to the Redelivery Date and (ii) Lessee will
in the reasonable opinion of Lessor be able to rectify such
non-compliance on or before Redelivery Date.
23.4.3 For the avoidance of doubt, Lessor shall not be entitled to
exercise its option under Clause 23.4.1 and Lessee 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.
23.5 Acknowledgement
Provided Lessee has complied with its obligations under this
Agreement, following redelivery of the Aircraft by Lessee to
Lessor at the Redelivery Location, the parties shall execute an
acknowledgement confirming that Lessee has redelivered the
Aircraft to Lessor in accordance with this Agreement substantially
in the form of Schedule 13.
23.6 Storage etc.
Notwithstanding the performance in full by Lessee of all its
obligations under this Clause 23, Lessor may require Lessee to
continue to lease the Aircraft from Lessor for a period of up to
thirty (30) days from the Expiry Date. During this period, Lessee
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 Lessee's storage facilities
and to continue insurances in respect of the Aircraft at Lessee's
cost. Such parking and storage is being made at the risk of Lessor
and Lessee shall have no liability for Losses except for any
Losses arising out of Lessee's gross negligence or wilful
misconduct arising during such period. Lessee also agrees during
this period to ferry/fly the Aircraft to such location as Lessor
may require. Lessee will not otherwise utilise the Aircraft during
this period. Any out of pocket costs or expenses incurred by
Lessee during this period with respect to the Aircraft for
storage, insurance or such ferry/flight shall be reimbursed by
Lessor to Lessee promptly after demand and upon receipt by Lessor
of an invoice and documentation, reasonably satisfactory to
Lessor, of such costs and expenses.
24. Events of default
24.1 Notice
Lessee will promptly notify Lessor if Lessee 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: Lessee 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 Lessor (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: Lessee fails to take Delivery of the Aircraft when
obligated to do so under the terms of this Agreement; or
(iv) Redelivery: Lessee fails to return the Aircraft to Lessor on the
Redelivery Date in accordance with Clause 23; or
(v) Breach: Lessee 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 Lessee in the Transaction Documents or in
any certificate, statement or opinion delivered by it hereunder
or in connection herewith is incorrect, inaccurate or misleading
in any respect which Lessor considers material 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 Lessee 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 Lessor) 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 Lessor may prejudice the rights of Lessor under this
Agreement or in the reasonable opinion of Lessor may have a
material adverse effect on Lessee's obligation to perform its
obligations under this Agreement; or
(viii) Registration:
(a) the Registration of the Aircraft is cancelled other than as
a result of an act or omission of Lessor or another
Indemnitee including Owner Trustee and Lessor or an
affiliate of the Owner Trustee and Lessor;
(b) Lessee ceases to be an US Air Carrier authorised to
transport passengers in common carrier; or
(c) the Aircraft ceases to be "based and primarily used in the
United States" within the meaning of the 14 Code of Federal
Regulations 47.9: or
(ix) Possession: Lessee abandons the Aircraft or the Engines, or
Lessee 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: Lessee 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 Lessee which in the reasonable opinion of Lessor may
have a material negative impact on Lessee's ability to perform
its obligations hereunder; or
(xii)Cross Default: Any Financial Indebtedness of Lessee (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
Lessee (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: Lessee 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 Lessee or
a substantial part of Lessee's property relating to the
bankruptcy, liquidation, reorganisation or protection from
creditors of Lessee. If instituted by Lessee or done by the
Lessee, the same will be an immediate Event of Default. If
instituted by another person, the same will be an Event of
Default if not dismissed, remedied or relinquished within 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 Lessee or a substantial part of its property or if
a substantial part of its property is to be sequestered. If
instituted by Lessee or done by the Lessee, the same will be an
immediate Event of Default. If instituted by another person, the
same will be an Event of Default if not dismissed, remedied or
relinquished within twenty (20) days; or
(xvi)Air Navigation Charges: Any competent authority has unpaid Air
Navigation Charges due from Lessee (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 Lessee (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 Lessee and Lessor or another
lessor or sublessor that either (i) shares the same general
partner or controlling shareholder with Lessor or (ii) whose
beneficiary shares the same general partner or controlling
shareholder with Lessor; or
(xix)Sublessee: Any approved sublessee acts so as to prevent present
or future performance by Lessee of its obligations under this
Agreement.
24.3 Lessor's Rights
24.3.1 Upon the occurrence of any Event of Default, all rights of Lessee
under this Agreement and with respect to the Aircraft will
immediately cease and terminate, but without prejudice to the
continuing obligations of Lessee under this Agreement. Without
prejudice and in all cases in addition to any other rights of
Lessor under this Agreement or under applicable law, Lessor may
upon the occurrence of any Event of Default exercise all or any of
the following rights at its option:
(i) require that Lessee immediately move the Aircraft to a location
specified by Lessor;
(ii) for Lessee's account do anything that may reasonably be required
to cure any default and recover from Lessee 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 Lessee shall comply
therewith, all without liability to Lessor 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 Lessor pursuant to
any Other Agreements to any amounts due.
24.3.2 Whether or not Lessor shall have exercised, or shall thereafter
any timer exercise, any of its rights under Clause 24.3.1 (i) or
(iv) above with respect to all or any part of the Aircraft,
Lessor, by written notice to Lessee specifying payment date not
earlier than ten (10) days from the date of such notice, may
demand that Lessee pay to Lessor, and Lessee shall pay Lessor, on
the payment date specified in such notice as liquidated damages
and not as a penalty (in lieu of the instalments of Rent due for
periods commencing on or after the payment date in such notice),
any unpaid instalments of Rent due for periods prior to the
payment date specified in such notice plus the present value of
the remaining instalments of Rent during the Lease 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, Lessee shall
be liable for the amounts set forth in Clause 24.4 (ii) and (iii).
24.3.3 If an Event of Default occurs, Lessor may sell or re-lease or
otherwise deal with the Aircraft at such time and in such manner
as Lessor considers appropriate in a commercially reasonable
manner, free and clear of any interest of Lessee as if this
Agreement had never been entered into and as if Lessee had never
made any payments hereunder. While an Event of Default is
continuing, Lessee will not operate the Aircraft without the
consent of Lessor.
24.3.4 If an Event of Default has occurred and is continuing, Lessor may
take all steps necessary to de-register the Aircraft in and export
the Aircraft from the State of Registration.
24.4 Default Payments
Lessee 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 Lessor 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 Lessor for any loss of or
damage to Lessor's residual interest in the Aircraft.
All costs and expenses referred to in the preceding sentence shall be payable by
Lessee upon demand by Lessor 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 Lessor at law or in equity. The
exercise or beginning of exercise by Lessor of any one or more of
such remedies shall not preclude the simultaneous or later
exercise by Lessor of any or all such other remedies. No express
or implied waiver by Lessor 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 Lessee
No assignment, novation, transfer or Security Interest may be made
by Lessee 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 Lessor
Subject to Lessee's rights pursuant to this Agreement, Lessor may
at any time and without Lessee's consent sell, assign or transfer
its rights and interest hereunder and under the other Transaction
Documents to a third party, (Lessor's Assignee). Lessor will in
good faith co-operate with Lessee to ensure minimum practical
disturbance or cost in connection with such assignment or transfer
of rights and interest hereunder. Lessee agrees to co-operate in
good faith with Lessor in such sale, assignment or transfer and
provide Lessor and Lessor's Assignee with such reasonable
assistance as Lessor may require, including but not limited to
assisting in any of Lessor's and Lessor's Assignee's efforts to
minimise 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 Lessee's cost, Lessee will continue to name
Owner Trustee, Lessor and Lender as additional insureds in
accordance with the insurance requirements set out in Clause 21.
25.3 Assignment to Lender
Subject to Lessee's rights under this Agreement, Owner Trustee 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 Lessee of an acknowledgement from or on behalf of
Lender relating to quiet enjoyment by Lessee of the Aircraft as
referred to in Clause 25.4.2.
25.4 Lessee Co-operation
25.4.1 On request by Lessor, Lessor's Assignee, Owner Trustee or Lender,
Lessee will, at Lessee's sole expense, promptly execute all such
documents as Lessor, Lessor's Assignee, Owner Trustee or Lender
may reasonably require (including such estoppel certificate as
referred to in Clause 12.4 to confirm Lessee's obligations under
this Agreement and the other Transaction Documents), to obtain
Lessee'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 over the
Aircraft, this Agreement, the other Transaction Documents or any
other agreement related to the Aircraft. Lessee will promptly
provide all other reasonable assistance and co-operation at
Lessor's expense to Lessor, Lessor'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 the
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
Lessee's obligations.
25.4.2 Lessor will obtain for the benefit of Lessee an acknowledgement
from any Lessor's Assignee or Lender, so long as no Default has
occurred and is continuing hereunder, such person will not
interfere with Lessee's quiet, peaceful use and enjoyment of the
Aircraft, substantially in the form of Schedule 11 or such other
form as Lessor's Assignee or Lender may reasonably require.
25.5 Lessor Includes Lessor's Assignee and Lender
Wherever the term "Lessor" is used in this Agreement in relation
to any of the provisions relating to registration, title,
disclaimer, indemnity and insurance respectively, the term
"Lessor" will be deemed to include Lessor's Assignee and Lender.
26. Miscellaneous provisions
26.1 Rights Cumulative, Waivers
The rights of Lessor under this Agreement are cumulative, may be
exercised as often as Lessor considers appropriate and are in
addition to Lessor's rights under the general law. The rights of
Lessor against Lessee 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 Lessor'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
Lessor 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
Lessor in its absolute discretion thinks fit.
26.3 Expenses
So long as the Aircraft is tendered for Delivery to Lessee
pursuant to this Agreement, Lessee shall pay to Lessor on demand:
(i) all reasonable expenses including legal, professional, and
out-of-pocket expenses incurred or payable by Lessor in
connection with any amendment to or extension of or other
documentation requested by Lessee in connection with, or the
granting of any waiver or consent under this Agreement or the
monitoring of compliance by Lessee with this Agreement, but in
the case of such monitoring of compliance, only if upon such
monitoring Lessee is found to be in Default under this Agreement;
and
(ii) all expenses including legal, survey and other costs payable or
incurred by Lessor following a Default in connection with the
enforcement of or preservation of any of Lessor'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 Lessor.
26.4 Time of Essence
The time stipulated in this Agreement for all payments by Lessee
to Lessor and for the prompt performance of Lessee'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 Lessor and Lessee 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 Lessor and Lessee reasonably
consider to be in furtherance of the commercial intent of the
parties under the Transaction Documents including, without
limitation, such action as may be required properly to transfer
title to engines and parts as contemplated in this Agreement in
compliance with the laws of the lex situs of the relevant engine
or part at the relevant time.
26.7 Language
All notices to be given under this Agreement will be in English.
All documents delivered to Lessor pursuant to this Agreement will
be in English or, if not in English, will be accompanied by a
certified English translation. If there is any inconsistency
between the English version of this Agreement and any version in
any other language, the English version will prevail.
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 Lessor and Lessee.
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 Lessee which arise or are
attributable to circumstances occurring during the Lease Term
shall survive, and remain in full force and effect,
notwithstanding the expiration or other termination of this
Agreement or the leasing of the Aircraft hereunder.
26.11 Reimbursement
If Lessee defaults in the performance of any of its obligations
under this Agreement that can be rectified by the spending of
money, Lessor shall be entitled (but not obliged) to expend money
to rectify such matter and Lessee shall reimburse Lessor on demand
the money so expended. Any expenditure by Lessor pursuant to this
Clause 26.11 shall not prejudice the rights of Lessor 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
Lessee hereby irrevocably appoints Lessor 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, Lessee has executed the
power of attorney in the form of Schedule 8. Lessee will take all
steps required under the laws of the State of Registration to
provide such power of attorney to Lessor.
26.14 Usury Laws
Notwithstanding anything to the contrary in the Transaction
Documents, Lessee will not be obligated to pay Default Interest or
other interest in excess of the maximum non-usurious interest
rate, as in effect from time to time, which may by applicable law
be charged, contracted for, reserved, received or collected by
Lessor in 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 Lessee will pay Default Interest at the
highest lawful rate until the Default Interest which is paid by
Lessee 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
Lessor and Lessee 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, Lessee
and Lessor will co-operate with one another to obtain confidential
treatment as to the 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 Lessor 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 Lessor 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:
Lessor: INDIGO AVIATION AB (PUBL)
Address: Sodra Forstadsgatan 4, SE-211 43 Malmo, Sweden
Attention: Legal Department
Facsimile: +46 40 302350
Lessee: FRONTIER AIRLINES, INC.
Address: 12015 e. 46th Avenue, Denver Colorado,
United States of America
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
28.2.1 Each of Lessor and Lessee (a) irrevocably submit to the
non-exclusive jurisdiction of the Supreme Court of the State of
New York, New York City County, and the United States Districts
Court for the Southern District of New York for the purposes of
any suit, action, or other proceeding arising out of this
agreement of 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 defence or otherwise
any claim that it is not personally subject to the jurisdiction of
the abovenamed courts; that the suit, action or proceedings is
brought in an inconvenient forum, that venue is improper or that
this agreement or the other Transaction Documents or the subject
matter hereof or thereof may not be enforced in or by such court.
Nothing herein contained shall prevent either party from bringing
suit in any other appropriate jurisdiction.
28.3 Service of Process
28.3.1 With respect to actions, suits and proceedings brought in the
courts named in Clause 28.2. each of Lessor and Lessee 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 Waiver
Lessee and Lessor hereby waive the right to a trial by jury.
<PAGE>
SCHEDULES
Page 144
SIGNATURE PAGE
Page 96
SIGNATURE PAGE
IN WITNESS whereof the parties hereto have executed this Agreement on the date
showed at the beginning of this Agreement.
SIGNED on behalf of INDIGO AVIATION AB (PUBL)
By: ___________________________
Name: ___________________________
Title: ___________________________
SIGNED on behalf of FRONTIER AIRLINES, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
Receipt of the "original" counterpart of this Agreement is hereby acknowledged.
<PAGE>
SCHEDULE 1
AIRCRAFT SPECIFICATION
Model Boeing 737-3S1
Serial Numbers 24856
Current Registration N372TA
New Registration Mark N311FL
Line Number 1911
Date of Manufacture September, 1990
Engines CFM International CFM56-3C1 @ 22,000 lbs
APU Garrett GTCP85-129E
Present Operator TACA International Airlines SA
WEIGHTS Lbs.
Max Taxi Weight 137,500
Max Take Off Weight 137,000
Max Landing Weight 116,600
Max Zero Fuel Weight 106,500
Basic Empty Weight 71,436
Max Fuel capacity 5,311 US Gallons
INTERIOR CONFIGURATION
Seating 136 Y
Galleys G1, G2, G4B, G7 Driessen
Lavatories 1 Forward, 2 Aft
AIRFRAME AND ENGINE STATUS (As of May 10 , 1999)
AIRFRAME
Total Hours 26,480
Total Cycles 17,493
Time since C-Check 0 hours
Time to next D-Check July 2006
AIRFRAME MAINTENANCE PROGRAM
CHECK SCHEDULE
C1 Check 3,800 hours
C2 Check 7,600 hours
C3 Check 11,400 hours
C4 Check 15,200 hours
D1 Check 22,400 hours
C7 Check 26,600 hours
ENGINES (As of May 10, 1999)
Serial Number 725630 724667
Total Hours 22,807 24,821
Total Cycles 14,593 16,282
Cycles Remaining 3,955 Con Suppt 3,537 HPT Disk
Hours Since Shop Visit
LANDING GEAR (As of May 10, 1999)
Right Main CSO 3,194
Left Main CSO 3,194
Nose CSO 3,194
Overhaul limit MLG 16,000 cycles /NLG 16,000 cycles
<PAGE>
NAVIGATIONAL, COMMUNICATION, ELECTRONIC SYSTEMS,
FURNISHING & EQUIPMENT LIST
DESCRIPTION MANUFACTURER MODEL OR QTY
PART NUMBER
Flight Control Computer Sperry/Honeywell 4051600-913 2
Mode Control Panel 4051601-937 1
Autothrottle Computer Smiths Industries 735SUE6-9 1
Passenger Address Collins 346-2B 1
CVR Sundstrand 980-4100GQUS 1
HF Communication Collins 628T-2A 1
VHF Communication Collins 622-5219-004 2
Electric Altimeter Smiths 2057-01-1 2
Digital Air Data ComputerHoneywell HG 480 E1 2
EHSI Colour Collns 622-7999-013 2
EADI Colour Collins 622-7998-013 2
TRU Honeywell HG1050AD05 2
GPWS Sundstrand 965-0648-004 1
FMC Lear Siegler 168925-05-01 1
VHF Nav Collins 622-3257-001 2
ATC Collins 622-7878-201 2
DME Collins 622-2921-006 2
ADF Collins 777-1492-005 1
Marker Collins 51 Z4 1
Radio Altimeter Collins 622-3890-020 2
WX-Radar Collins 622-5129-105 1
DFDR AlliedSignal 980-4100DXUS 1
DFDAU Sundstrand 965-0657-003 1
ACARS Man. Unit Teledyne 2229385-35 1
Transponder Collins 622-7878-201 2
TCAS Honeywell 4066010-903 1
SGU Collins 622-8000-006 2
<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
- - Noise Certificate
- - Radio License
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 Datas 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
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)
- - Service ability tags or back-up documentation for components replace
since delivery from Boeing
H. Manuals
1. Airplane Flight Manual
2. Quick Reference Handbook
1. Aircraft Operating Manual
1. Weight and Balance Manual Supplement
1. Wiring Diagram Manual (microfilm)
1. Illustrated Parts Catalog (microfilm)
1. Aircraft Maintenance Manual (microfilm)
1. CFMI Illustrated Parts Catalog
1. Vendor Manual Seats
1. Vendor Manual Galleys
1. Vendor Manual Ovens
1. Vendor Manual Coffeemakers
<PAGE>
I. Miscellaneous Technical Documents
- - Maintenance Program Specifications/Requirements
- - Interior Configuration Drawings
- - Loose Equipment Inventory List
- - Delivery documentation ex Boeing
- - Export Certificate of Aircraft
- - 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 *
2. Basic Rent
The Basic Rent payable on each Rent Date during the Lease Term
shall be * .
3. Damage Notification Threshold
Damage Notification Threshold means * .
4. Engine Agreed Value
Engine Agreed Value means for each engine * .
5. Lease Expiry Date
Means the date falling 72 months from the Delivery Date.
6. Lease Term
Means the period commencing on the Delivery Date and ending on the
Lease Expiry Date;
7. Letter of Credit
The Lessee shall provide the Lessor with an additional Security
Deposit in form of an irrevocable, assignable standby letter of
credit in the amount of * issued at least three days prior to
Scheduled Delivery Date by a major US Bank in a form and
substance acceptable by Lessor (the Letter of Credit).
8. Maintenance Reserves
Lessee shall during the Lease Term pay the following Maintenance
Reserves to Lessor:
(i) Airframe Maintenance Reserve
* for each Flight Hour that the Airframe is operated;
(ii) Engine Maintenance Reserve, Refurbishment and LLP's
* for each Flight Hour that each Engine is operated;
(iii) Landing Gear Maintenance Reserve
* for each Flight Hour that the Aircraft is operated;
(iv) APU Maintenance Reserve
* for each Flight Hour that the APU is operated.
The amounts payable by Lessee to the Maintenance Reserves as set
out herein shall be subject to escalation on each of the
anniversary dates of the first day of the Lease Term at a rate of
two and a half percent (2.5%) per year.
9. Minimum Liability Coverage
Minimum Liability Coverage means * on each occurrence.
10. Scheduled Delivery Date
Scheduled Delivery Date means on or about __ June 1999 or such
other date as the parties may mutually agree and Lessor may be
able to deliver the Aircraft to Lessee.
11. Security Deposit
Lessee has paid to Lessor a cash Security Deposit in the amount
of * and shall provide Lessor with additional Security Deposit
according to Clause 8 of this Schedule 2.
The cash Security Deposit of * will be credited to the first
payment of Rent payable by Lessee during the Lease Term. The
Security Deposit will be non-refundable in the event of failure
by Lessee to take delivery of the Aircraft in accordance with
this Agreement.
12. Supplemental Rent for Excess Cycles
If on each of the anniversary dates of the first day of the Lease
Term, based on the previous twelve (12) months period (or portion
thereof) of the Lease 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 five (1.5) Flight
Hours to one (1) Cycle, Lessee will pay Lessor as Supplemental
Rent * for each Cycle the Aircraft actually operated during such
twelve (12) months 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 Lease Term each year and such
Supplemental Rent will be due and payable by Lessee 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 Lessor on the basis
of advice received from an independent insurance adviser believe
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 Lessor 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 Lessor or at the request of Lessor
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 Lessor and the Lessee.
The relevant policy shall provide that such payments shall only
made provided the same are in compliance with all applicable laws
and regulations.
(b) 50/50 Provision: if separate hull "all risks" and "war risks"
insurances are arranged, include a 50/50 provision in accordance
with market practice AVS. 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$500,000 (or the minimum deductible amount carried
under the airline's insurance policy if less than US$500,000).
(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.
1.3 Terms of Liability Insurance
All required liability insurances will:
(a) cover at least such risks as are customarily insured against in
the airline industry and names the additional assured as
additional named insured for their respective rights and interest;
(b) be in form and substance in accordance with sound international
airline practice (having regard to the type of aircraft or engines
involved);
(c) provide that upon payment of any loss or claim by the insurers in
accordance with the endorsement relating to the relevant policy
naming the additional assured as additional assureds, the insurers
shall to the extent and in respect of such payment be thereupon
subrogated to all legal and equitable rights of the additional
assured indemnified under such endorsement relating to the
Insurances (but not against any additional assured) and further
provides that the insurers shall not exercise such rights without
the consent of those additional assured such consent not to be
unreasonably withheld and at the expense of the insurers such
additional assured shall do all things reasonably necessary to
assist the insurers to exercise the said rights;
(d) provide that except in respect of any provision for automatic
termination or cancellation specified in the policy or any
endorsement thereof, cover for the interests added by the
endorsement relating to the relevant policy may only be cancelled
or materially altered in a manner adverse to the additional
assured by the giving of not less than thirty (30) days (but seven
(7) days or such lesser period as may be customarily available in
respect of War risks) notice in writing to the insurance brokers
and that notice shall be deemed to commence from the date such
notice is given by the insurers and that such notice will not be
given at the normal expiry date of the policy or any endorsement;
(e) is primary without right of contribution from any other insurance
which may be available to the additional assured;
(f) subject to the provisions naming the additional assured as
additional assured, operates in all respects as if a separate
policy had been issued covering each additional assured;
(g) provides that non 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 737-300 aircraft in each
case in respect of any one claim;
(j) contains a provision insuring (to the extent of the risks covered
by the policy) the indemnity provisions of security document
entered into in favour of the Lender; and
(k) specifically refers to any security document entered into in
favour 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) Acknowledgement: 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;
(d) Breach of Warranty: provide that, in relation to the interests of
each of the additional assureds, the Insurances will not be
invalidated by any act or omission, including misrepresentation
and non-disclosure, by Lessee, or any other person provided that
such additional assureds regardless of any breach or violation by
Lessee, or any other person other than the respective additional
assured seeking protection of any warranty, declaration or
condition, contained in such Insurances has not caused or
contributed to or knowingly condoned the said act or omission;
(e) Subrogation: provide that upon payment of any loss or claim by the
insurers in accordance with the endorsement relating to the
relevant policy naming the additional assured as additional
assureds, the insurers shall to the extent and in respect of such
payment be thereupon subrogated to all legal and equitable rights
of the additional assured indemnified under such endorsement
relating to the Insurances (but not against any additional
assured) and further provides that the insurers shall not exercise
such rights without the consent of those additional assured such
consent not to be unreasonably withheld and at the expense of the
insurers such additional assured shall do all things reasonably
necessary to assist the insurers to exercise the said rights;
(f) Premiums: provide that the additional assureds will have no
obligation or responsibility for the payment of any premiums due
but reserve the right to pay the same should any of them elect so
to do and that the insurers will not exercise any right of set-off
or counter-claim in respect of any premium due against the
respective interests of the additional assureds other than
outstanding premiums relating to the Aircraft, any Engine or Part
the subject of the relevant claim;
(g) Cancellation/Change: provide that the Insurances will continue
unaltered for the benefit of the additional assureds for at least
thirty (30) days after written notice by registered mail or telex
of any cancellation, change, event of non-payment of premium or
instalment thereof has been sent to Lessor, except in the case of
war risks for which 7 days or such lesser period as is or may be
customarily available in respect of war risks or allied perils
will be given 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;
(h) Indemnities: accept and insure the indemnity provisions of this
Agreement to the extent of the risks covered by the policies (it
being understood that certain matters listed in Clause 20.1.1:
registration, import, Overhaul, deregistration, export,
manufacture, design and testing and (c) are not covered).
(i) Endorsement: contains an endorsement naming:
(i) the Lender as loss payee in the case of a Total Loss;
(ii) the Lender as loss payee in the case where the amount
payable by the insurers upon any claim other than in
respect of Total Loss is greater than US$5,000,000; and
(iii) the Lessor as loss payee in the case where the amount
payable by the Insurers upon any claim other than in
respect of a Total Loss is less than US$5,000,000
unless and until the Lender notifies the insurance
brokers or the insurers that an Event of Default has
occurred, in which event the loss payee shall be the
Lender;
(j) specifically refer to each loan agreement or charge between the
Lessor and any Lender.
1.5 Deductibles
Lessee shall be responsible for any and all deductibles under the
Insurances.
1.6 AVN 67B
Notwithstanding the foregoing, if Lessee 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 Lease 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. (Note. Lessee
may sell seats for its own account , provided replacement seats acceptable to
Lessor are installed, title is transferred to Lessor and the replacement seats
are returned with the Aircraft at Redelivery)
Paint:
The exterior will be painted in Lessee's white base colour and green lettering.
Lessee 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 18,000 hours remaining until the
next due 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
Prior Owner will be loaded onboard the Aircraft as cargo.
F. Fuel tanks will be free from contamination.
Engines:
Each of the installed engines will be fresh from the shop visit with at least
3,500 cycles remaining on the most limiting LLP and sufficient EGT
margin/performance to facilitate operation until the next scheduled removal for
LLP replacement under normal operating conditions at 3B2 Power (22,000 Lbs
Thrust). Based upon the current shop visit workscope, ESN 725630 will have 3,955
cycles remaining on its most restrictive LLP and ESN 724667 will have 3,537
cycles remaining on its most restrictive LLP 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:
Unless otherwise agreed, each component that is time controlled will have at
least 3,000 flight hours or cycles remaining until next inspection/overhaul.
Each component that is calendar controlled will have at least 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 12,000 cycles remaining until the next
inspection or overhaul.
<PAGE>
Airworthiness Directives (AD's):
Airworthiness Directives requiring compliance on or before Delivery will be in
compliance.
Demonstration Flight:
Prior Owner will perform a one and one half hour flight demonstrating the
satisfactory operation of the Aircraft with no more than two Lessee observers,
as designated by Lessor, on board during such Demonstration Flight.
Records:
Documentation required to maintain a United States Standard Certificate of
Airworthiness will be in English or translated into English prior to delivery.
Aircraft Documentation:
The Aircraft Documents 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. (Lessee), to INDIGO AVIATION AB (PUBL)(Lessor), pursuant to the
Aircraft Lease Agreement dated 2nd of June 1999 between Lessor and Lessee (the
Lease). Capitalized terms used in this Certificate shall have the meanings given
to such terms in the Lease.
1. Details of acceptance
Lessee hereby confirms to Lessor that Lessee has at _____o'clock on this ___ day
of ______, at _____ accepted the following, in accordance with the provisions of
the Lease:
(a) Airframe
Type: _____ Reg.: _____ S/N: _____
(b) Engines
Type: _____ S/N No.1: _____ S/N No. 2: _____
(c) APU:
MSN Total Flight Hours Flight Hours/ Cycles Flight Hours/Cycles
remaining until next HSI remaining on turbine and
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 Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
Right Main ___ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
Left Main ___ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
(e) Equipment Check List: as per list signed by Lessor and Lessee and
attached hereto; and
(f) Aircraft Documents List: as per list signed by Lessor and Lessee and
attached hereto; and
(g) Place of Acceptance: ______________
2. Confirmation
Lessee confirms to Lessor that as at the time indicated above, being the
Delivery Date:
(a) the representations and warranties contained in Clause 2.1 of the Lease
are hereby repeated;
(b) the Aircraft is insured as required by the Lease; and
(c) Lessee's authorised technical experts have inspected the Aircraft and
the Aircraft Documents to ensure that the Aircraft and the Aircraft
Documents conform to Lessee's requirements. The Aircraft and the
Aircraft Documents are in accordance with the
specifications of the Lease and satisfactory in all respects.
3. Fuel at Delivery
3.1 Fuel on board at Delivery: ____ kilos (___ gallons).
3.1 Annexed hereto is details of any damage to the Aircraft as at
Delivery.
3.1 The Airframe, Engines and Parts had the following Flight
Hours/Cycles at Delivery:
(a) Airframe:
Total hours Total landings Since last "C" Check Since last "A" Check
_________ ________ ______ Flight Hours ______ Flight Hours
______ Cycles ______ Cycles
<PAGE>
(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, Lessee has, by its duly authorised representative, executed
this Certificate on the date specified in paragraph 1 above.
Lessee: FRONTIER AIRLINES, INC.
By: _________________________
Title: _________________________
Annexure 1 Aircraft Documents
Annexure 2 Aircraft Equipment List
Annexure 3 Damage Chart
<PAGE>
SCHEDULE 6
CERTIFICATE OF DIRECTOR
OF
FRONTIER AIRLINES, INC.
I, _____________________, do hereby certify that:
1. I am a duly and acting Director 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 Directors of the Company
at a meeting duly called and held in [ ] approving the execution,
delivery and performance of the Aircraft Lease Agreement dated as
of __ June 1999 between Indigo Aviation AB (publ) as lessor and
the Company as lessee (the "Lease") and the other Transaction
Documents (as defined in the Lease) 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 Lease 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 director 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 ____________.
<PAGE>
SCHEDULE 7
FORM OF LETTER OF AUTHORITY
[ Addressee ]
AUTHORITY
This Authority is given on _________.
Pursuant to an Aircraft Lease Agreement (the Lease) dated as of __ June 1999,
made between Indigo Aviation AB (publ) as lessor (Lessor) and Frontier Airlines,
Inc. as lessee (Lessee) relating to one (1) Boeing 737-3S1 aircraft bearing
manufacturer's serial number 24856 and registration mark N311FL (the Aircraft),
Lessee will operate the Aircraft during the term of the Lease.
Lessee hereby irrevocably authorises yourselves, during the term of the Lease,
to disclose to Lessor 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 Lessee on the date
such request, from time to time, is made.
IN WITNESS WHEREOF a duly authorised representative of Lessee 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. (Lessee) refers to the Aircraft Lease
Agreement dated as of __ June 1999, as amended and supplemented from time to
time (the Lease) between, Indigo Aviation AB (publ) (Lessor) and Lessee with
respect to one (1) Boeing 737-3S1 Aircraft bearing manufacturer's serial number
24856 and registration mark N311FL (the Aircraft).
In consideration of the sum of US$ 1 paid by Lessor to Lessee (the receipt and
sufficiency of which is hereby acknowledged), Lessee irrevocably appoints Lessor
(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 Lease) upon the lawful termination of the Lease
of the Aircraft;
AND generally to do any and all such acts and things and to execute under seal
or hand (as appropriate) and deliver any and all documents under seal or under
hand (as appropriate) as may be requested or required for such deregistration
and export;
AND Lessee 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 Lessee 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 Lessee 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.
<PAGE>
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
Note: This form is made on the assumption that the State of Incorporation and
the State of Registration are the same [herein "State"].
FORM OF OPINION OF LESSEE COUNSEL
to be addressed to [ Lessor ]
and
[ Lender ]
We have acted as counsel in [ Country of Lessee ] as counsel to [ Name of Lessee
] ("Lessee") in connection with an aircraft lease agreement dated [ ] and made
between [ Name of Lessor ] as Lessor and Lessee as the lessee in respect of one
[ Type of Aircraft ] bearing manufacturer's serial number [ ] (the "Aircraft")
(the "Lease") and owned by Lessor, and have examined a copy of the following
documents;
(i) the Lease;
(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 Lease shall have the same meaning herein.
On the basis on the foregoing we are of the opinion that:
(a) Lessee 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 Lessee, or to wind up Lessee or commence any
other insolvency proceedings with respect to Lessee or to have
Lessee dissolved by merger;
(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 Lease and the transactions
contemplated by the Lease and the Lease constitutes the legal
binding obligations of the Lease, enforceable against the Lessee
in accordance with its terms;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease does not and will not:
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; o
(iii) result in the creation of any Security Interest upon
any property of Lessee, 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 Lessee is a party or by which Lessee or its
properties or assets may be bound or affected;
(d) Lessee has obtained all authorizations, consents, licences,
approvals and registrations necessary to be obtained from any
governmental or other regulatory authorities in [ State ] to
enable Lessee:
(i) to enter into and perform the transactions contemplated
by the Lease;
(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 Lease.
(e) no registration, recording, filing or notarisation 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 Lease, or the
priority, if any, of the respective rights of Lessor and Lender
under the Lease other than [please advise if applicable] and no
other instrument is required to ensure the priority,
enforceability and validity of the obligations of Lessee under the
Lease and the Lease 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 Lessor and no other steps are necessary or
desirable to record or perfect either Lessor'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 Lessor and will upon registration constitute a valid and
perfected security over the Aircraft under the laws of [ State ];
(h) upon termination of the Lease in accordance with its terms
(whether on expiry or earlier termination) Lessor 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
Lessee 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 Lessee and the obligations on the part of Lessee
contained therein, assuming them to be valid and binding according
to the laws of Sweden, are valid and legally binding on and
enforceable against Lessee under the laws of [ State ] and in the
courts of [ State ];
(j) the obligations of Lessee 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 Lessee, 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
Lessor's interest in the Aircraft except for the express rights of
possession of Lessee under the Lease;
(l) the Lease does not grant to Lessee any title rights in the
Aircraft, nor does it give Lessee any capability of passing valid
title to a purchaser or to create a mortgage over the Aircraft;
(m) Lessee, 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 Lessee;
the entry into and performance of the Lease Agreement by the
company constitute private and commercial acts;
(n) there is no application usury or interest limitation law in [
State ] which restricts the recovery of payments of Default
Interest in accordance with the Lease;
(o) Lessee 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
Lessee, threatened against it or its assets which would have a
material adverse effect on the business, assets or condition
(financial or otherwise) of Lessee;
(p) the financial position of Lessee 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 Lessor 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
Lessee 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 Lessor in connection with the
signature, entering into, registration or performance of the Lease
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 Lease Agreement;
(ii) registration of title or ownership: [ ]; and
(iv) registration of the mortgages in the [ Name of
Authority ]: [ ].
(t) Lessor will not violate any law or regulation in [ State ] nor
become liable to tax in [ State ] by reason of Lessor entering
into the Lease with Lessee, or performing its obligations
thereunder;
(u) the c hoice of the laws of [ Applicable Law ] to govern the
[ Lease/Relevant Documents ] is a valid and binding choice of law
and will be recognised and applied by the courts of [ State ];
(v) Lessee's submission to the jurisdiction of the courts of [
Relevant Court(s) ] in the Lease is its legally valid and binding
obligation;
(w) any judgement by the courts of [ Relevant Court(s) ] against
Lessee which is enforceable in [ Relevant jurisdiction of
Court(s)] is enforceable against Lessee in [ State ] provided [
advise conditions ];
(x) [If relevant] Lessee's submission to arbitration in accordance
with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce in the Lease is its legally
valid and binding obligation;
(y) [If relevant] any award by the arbitrators against Lessee, will be
enforceable and confirmed by any competent [ State ] Court, as
provided by the [ State ] law concerning confirmation of
arbitration award by courts, without re-examination or
re-litigation of the matter;
(z) there is no withholding tax or other tax to be deducted from any
payment whatsoever which may be made by the Lessee to the Lessor
under the Lease; the provisions in the Lease providing for the
full compensation of the Lessor by the Lessee for any amount so
withholding (and any amount withheld on such additional
compensation) is legally binding upon Lessee and enforceable in
accordance with the laws of [ State ].
<PAGE>
SCHEDULE 10
MONTHLY AIRCRAFT UTILISATION AND STATUS REPORT
To: Indigo Aviation AB (publ)
From: Frontier Airlines, Inc.
Aircraft Type: Boeing 737-3S1
Registration Mark: N311FL
Serial Number: 24856 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:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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: .......................................................................
................................................................................
<PAGE>
- --------------------------------------------------------------------------------
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 =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LLP: Hours: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Landing Gear: Cycles: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APU: Hours: x =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 11
FORM OF QUIET ENJOYMENT LETTER
From: [ Lender ]
To: [ Lessee ]
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 Lease Agreement dated [ ] between [ ] as
lessor (Lessor) and [ ] as lessee (Lessee) in relation to the Aircraft and the
Engines (the Lease), we, the undersigned, hereby undertake that we shall not by
our own acts interfere with Lessee's rights under the Lease during the Lease
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 Lease) 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 Lessor.
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. Lessee will install next lessee's logo on the fuselage
provided the logo is no more complex than Lessee's logo. If the next lessee's
logo is more complex than Lessee's then Lessee and Lessor will mutually agree in
writing how the next lessee's logo will be installed.
Airframe:
Fresh from next due Block C Check, excluding hours and cycles used on the
demonstration / Ferry Flights, with a minimum of 15,000 hours remaining until
the next due C7 Check /Structural Inspection.
A. The Aircraft will have no deferred maintenance items, unique
inspections or temporary repairs at Redelivery.
B. Modifications and Repairs installed on the Aircraft since 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 at least 3,000 hours and cycles remaining until next
anticipated performance restoration shop visit and have at least a minimum of
3,000 hours and 3,000 cycles 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.
In addition, at redelivery, if the remaining life on any LLP installed in each
Engine is higher than the remaining life on such LLP at the time of Delivery,
and if Lessee has not fully recovered its additional investment in LLP's by way
of reserve abatement as provided in the Side Letter, then Lessor will compensate
Lessee. If the remaining life on any LLP is lower than at the time of Delivery,
Lessee will compensate Lessor, provided that in any event, Lessee meets the
minimum redelivery condition as set forth above, such compensation will be based
upon the CFMI catalogue price for each LLP and will be capped at a maximum
compensation, either way, of US$ 500,000 for both Engines.
APU:
Serviceable and passing a borescope inspection.
Components:
Each component that is time controlled will have at least 3,000 hours or cycles
remaining until next inspection/ overhaul. Each component that is calendar
controlled will have at least 12 months remaining until its next
inspection/overhaul. Condition Monitored/On Condition components will be
serviceable.
<PAGE>
Landing Gear:
Each Landing Gear will have at least 12,000 cycles remaining until the next
inspection or overhaul.
Airworthiness Directives (AD's):
Airworthiness Directives requiring compliance on or before Redelivery will be in
compliance.
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 Lessor, on board during such Demonstration Flight.
Records:
Documentation delivered to lessee at Delivery will be returned to Lessor along
with the up to date Aircraft Maintenance Records that the Lessee has collected
during the Lease Term.
Aircraft Documentation
Lessee 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 Lessor at the Redelivery Date.
<PAGE>
SCHEDULE 13
RETURN ACCEPTANCE CERTIFICATE
1. Frontier Airlines, Inc. (Lessee) and Indigo Aviation AB (publ)
(Lessor) have entered into an Aircraft Lease Agreement dated __
June 1999, (Lease). Unless otherwise defined, capitalised terms
used herein will have the meanings set forth in the Lease.
2. Lessor has this _____ day of ______ (Time: _____) at _______
received from Lessee possession of:
(a) one (1) Boeing 737-3S1 Aircraft, bearing manufacturer's serial
number 24856, registration mark N311FL together with two (2)
CFM56-3C1 engines bearing serial numbers 724667 and 725630, 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:
Position Serial No. Total Flight Total Cycles Since last Since last
Hours shop visit Engine
Performance
Restoration
Visit
_____ _____ _____ ______ ____ Flight _____ Flight
Hours Hours
____ Cycles _____ Cycles
<PAGE>
Time Remaining to next life limited part removal
Flight Hours Cycles
MSN: _____ _____
MSN: _____ _____
(c) APU:
MSN Total Flight Hours Flight Hours/ Cycles Flight Hours/Cycles
remaining until next remaining on turbine
HSI inspection and compressor life
limited parts
- ----- ---- ------ -----
(d) Landing Gears:
Position Serial Total Flight Flight Hours/ Cycles Flight Hours/
No. Hours/Cycles since last Overhaul Cycles to next
sched. Removal
Nose ____ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
Right Main ____ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
Left Main ____ ___ Flight Hours ___ Flight Hours ___ Flight Hours
___ Cycles ___Cycles ___ Cycles
(e) Status of components or Parts with time/Cycle and calendar limits (see
attached sheet);
(f) Fuel on board at 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 Lessor subject to:
(a) the provisions of the Lease; and
(b) correction by Lessee of the discrepancies specified in Annex 2
hereto (which correction Lessee hereby undertakes to perform as
soon as reasonably possible).
6. Subject to Paragraph 7, the leasing of the Aircraft by Lessor to
Lessee pursuant to the Lease is hereby terminated without
prejudice to Lessee's continuing obligations under the Lease
including, without limitation, Clauses 19 and 20.
7. Lessee represents and warrants that during the term of the Lease
all maintenance and repairs to the Airframe and Engines were
performed in accordance with the requirements contained in the
Lease. Lessee further confirms that all of its obligations under
the Lease whether accruing prior to the date hereof or which
survive the termination of the Lease by their terms and accrue
after the date hereof, will remain in full force and effect until
all such obligations have been satisfactorily completed. Lessee
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
authorised 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
- - Noise Certificate
- - Radio License
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 Datas 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
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 for components replace
since delivery from Boeing
H. Manuals
1. Airplane Flight Manual
2. Quick Reference Handbook
1. Aircraft Operating Manual
1. Weight and Balance Manual Supplement
1. Wiring Diagram Manual (microfilm)
1. Illustrated Parts Catalog (microfilm)
1. Aircraft Maintenance Manual (microfilm)
1. CFMI Illustrated Parts Catalog
1. Vendor Manual Seats
1. Vendor Manual Galleys
1. Vendor Manual Ovens
1. Vendor Manual Coffeemakers
<PAGE>
I. Miscellaneous Technical Documents
- - Maintenance Program Specifications/Requirements
- - Interior Configuration Drawings
- - Loose Equipment Inventory List
- - Delivery documentation ex Boeing
- - Export Certificate of Aircraft
- - Aircraft Readiness Log
- - Rigging Record Brochure
- - Miscellaneous Delivery Record Brochure
- - Fuel Measuring Stick Calibration Brochure
- - FAA Airworthiness Directive Compliance Record
<PAGE>
Annexure 2
Discrepancies
SCHEDULE 14
LEASE SUPPLEMENT
LEASE SUPPLEMENT NO. 1 dated June __, 1999, between Indigo Aviation AB (publ)
(the "Lessor") and FRONTIER AIRLINES, INC. (the "Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of June __, 1999 (herein called the "Lease" and the defined
terms therein being hereinafter used with the same meaning). The Lease 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 Lease as and when delivered by Lessor to Lessee in
accordance with the terms thereof.
The Lease relates to the Aircraft, Parts and Engines as more specifically
described below. A counterpart of the Lease is attached hereto and this Lease
Supplement and the Lease shall form one document.
In consideration of the premises and other good and sufficient consideration,
Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease and
Lessee hereby accepts and leases from Lessor under the Lease, that
certain used Boeing Model 737-3S1 Aircraft bearing FAA
Registration Mark N372TA (to be changed to N311FL), including the
Airframe bearing manufacturers serial number 24856 and the two (2)
CFM INTERNATIONAL CFM 56-3C1 Engines bearing manufacturer's serial
numbers 724667 and 725630 described in Schedule 1 herewith
("Delivered Aircraft").
2. The Delivery Date of the Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Lease Term for the Aircraft shall commence on the Delivery
Date and shall end on the Lease Expiry Date.
4. The amount of Rent for the Aircraft is set forth in the Lease and
is payable as provided in the Lease.
5. Lessee hereby confirms to Lessor 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 Lease,
(ii) Lessee has inspected the Aircraft and the Aircraft satisfies
the conditions set forth in the Lease and (iii) Lessee has
accepted the Aircraft for all purposes hereof and of the Lease.
6. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same
extent as if fully set forth herein.
7. This Lease Supplement may be executed in any number of
counterparts, each of such counterparts, except as provided on the
front page of the Lease, shall for all purposes be deemed to be an
original; and all such counterparts shall together constitute but
one and the same Lease Supplement.
8. This Lease Supplement has been delivered in New York.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to the
Lease to be duly executed as of the day and year first above written.
LESSOR,
INDIGO AVIATION AB (PUBL)
By:
Title:
LESSEE,
FRONTIER AIRLINES, INC.
By:
Title:
March 10, 1999
Samuel D. Addoms
1900 Fairfax Street
Denver, CO 80220
RE: Severance Agreement
Dear Sam:
Frontier Airlines, Inc. (the "Company") considers it essential
to the best interests of its shareholders to foster the continuous employment of
key management personnel. In order to induce you to remain in the employ of the
Company and in consideration of your agreement set forth in Section 3 hereto,
the Company agrees that you shall receive the severance benefits set forth in
this letter agreement ("Agreement") in the event your employment with the
Company is terminated as set forth below.
1. Term of Agreement. This Agreement shall commence on the date hereof and shall
continue in effect until all payments and deliveries required hereunder are made
or are no longer applicable.
2. Compensation Upon Termination. If your employment as Chief Executive Officer
of the Company is terminated (i) involuntarily, except in circumstances where
such termination is due to your willful misconduct or gross neglect of duty,
(ii) by your resignation with the prior consent of the Company's Board of
Directors (the "Board"), (iii) by your disability, or (iv) by your death (each a
"Termination"), then you shall be entitled to the benefits provided below:
(A) For each of the two years following a Termination, the Company shall
pay to you (or your estate), in equal monthly installments, your then
current annual base salary.
(B) For the period commencing two years following a Termination and ending
on your 65th birthday (or in the event you die prior to such date, the
date on which you would have become 65 years old), the Company shall
pay to you (or your estate), in equal monthly installments, $50,000
per year.
(C) On the date of a Termination, the Company shall issue to you (or your
estate) a stock option or warrant to purchase 100,000 shares of the
Company's Common Stock with an exercise price equal to the market
price of such Common Stock as of the date of the Termination. The
stock option or warrant shall be exercisable for a period of five
years.
(D) The Company shall provide to you and your spouse free lifetime
positive space air transportation on the Company's airline and shall
ensure that any successor airline to the Company provides such air
transportation.
(E) The Company shall provide to you and your eligible dependents group
health, life insurance and any other benefits as are provided from
time-to-time by the Company to its officers and at rates to you as are
charged to such officers.
(F) The Company shall also pay to you all legal fees and expenses incurred
by you in successfully obtaining or enforcing any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") to
any payment or benefit provided hereunder.
(G) In the event that you become entitled to the payments (the "Severance
Payments") provided under paragraphs (A), (B), (C), (D), (E) and (F)
above and if any of the Severance Payments will be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Code, the Company
shall pay to you upon demand, an additional amount (the "Gross-Up
Payment") such that the net amount retained by you, after deduction of
any Excise Tax on the Severance Payments and any federal income tax
and Excise Tax upon the Gross-Up Payment, shall be equal to the
Severance Payments. For purposes of determining whether any of the
Severance Payments will be subject to the Excise Tax and the amount of
such Excise Tax, (i) the Severance Payments shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments within the meaning of Section
280G(b)(2) of the Code, and all Excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to you such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax, (ii) the amount of the
Severance Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (A) the total amount of the Severance
Payments or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and
(iii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment,
you shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made. In the even that the Excise Tax is
subsequently determined to be less than the amount taken into account
hereunder at the time of termination of your employment, you shall
repay to the Company at the time that the amount of such reduction in
Excise Tax is finally determined the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal income tax imposed
on the Gross-Up Payment being repaid by you if such repayment results
in a reduction in Excise Tax and/or a federal income tax deduction)
plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time of the termination of your employment (including by reason of any
payment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional
gross-up payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such
excess is finally determined.
(ii) You shall not be required to mitigate the amount of any payment
provided for in this Section 2 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit
provided for in this Section 2 be reduced by any compensation
earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise.
(iii)In addition to all other amounts payable to you under this
Section 2, you shall be entitled to receive all benefits payable
to you under any other plan or agreement relating to retirement
benefits.
3. Consulting; Non-Competition.
(i) During the period beginning on the date of your Termination and
ending on your 65th birthday (or such earlier date on which you
die or become disabled), you shall remain reasonably available to
provide consulting services to the Company.
(ii) During the period beginning on the date of your Termination and
ending on your 65th birthday, you shall not become employed by,
or provide consulting services to, any air carrier that competes
with the Company without the Company's prior written permission.
Should you provide such consulting services without the Company's
prior written permission, all Severance Payments shall thereupon
immediately terminate.
4. Successors: Binding Agreement.
(i) This Agreement shall be binding against any successor (whether
direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the
business and/or assets of the Company.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be
payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devises,
legatee or other designee or, if there is no such designee, to
your estate.
5. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
6. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Colorado. All references to Sections of the Code
shall be deemed also to refer to any successor provisions to such Sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law.
7. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
8. Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely yours,
FRONTIER AIRLINES, INC.
By:
B. LaRae Orullian
Chair of the Board
By:
Arthur T. Voss
Vice President and
General Counsel
ACCEPTED AND AGREED TO as of this, the 10th day of March, 1999
Samuel D. Addoms
SPACE AND USE AGREEMENT
Continental Airlines, Inc. ("CONTINENTAL"), by its execution of this Space and
Use Agreement ("The Agreement"), grants to Frontier Airlines, Inc. (the
COMPANY"), under the terms and conditions stated herein, certain rights and
privileges, including the right to occupy and use the space referred to herein
as the "PREMISES."
COMPANY, by its execution hereof, hereby accepts and receives the PREMISES and
the obligations, liabilities and responsibilities provided for herein. COMPANY
covenants and agrees to abide by and carry out all the terms, conditions and
provisions hereof. "COMPANY," as used herein, shall include, unless stated
otherwise, the directors, officers, employees, agents, customers and invitees of
COMPANY and all parties representing COMPANY, those for whom COMPANY is liable
and responsible, and all parties represented by COMPANY.
1. EFFECTIVE DATE January 1, 1999
2. COMPANY: The name, address and telephone number of the COMPANY are as
follows:
NAME: Frontier Airlines, Inc.
ADDRESS: 12015 East 46th Avenue
Denver, CO 80239
TELEPHONE: 303-371-7400
ATTENTION: Joan Osterman
3. DESCRIPTION OF PREMISES: Certain maintenance hangar space (approx. 59,706
sq. ft.) within the Denver International Airport, being more fully
described on Exhibit A, attached hereto and made a part of, as well as
reasonable right of ingress and egress.
4. USE OF PREMISES: COMPANY is hereby granted the right to use the PREMESISES,
in accordance with the terms and conditions stated herein, for the
following purposes:
Exclusion use of the PREMISES (Exhibit A) for the purpose of maintenance
space in accordance with the terms and conditions of this Agreement, and
for no other purpose. Company is permitted, on a space available basis, the
common use of training rooms, break rooms, locker room/restrooms, loading
dock, parking areas, and a pro-rata share of apron space.
5. PROPERTY OWNER: City and County of Denver, hereinafter referred to as
"OWNER," has granted to CONTINENTAL, the right to use the PREMISES and
certain other rights and privileges under the following Lease, hereinafter
referred to as the "BASE LEASE":
Lessor: City and County of Denver
Lessee: Continental Airlines, Inc.
Dated: January 8, 1993
CONTINENTAL warrants and represents that as of the date hereof, the BASE LEASE
is in full force and effect.
6. CONSIDERATION/RENTAL: In consideration for the rights granted by
CONTINENTAL hereby, COMPANY, agrees to pay $1,200,000.00 annually to
Continental Airlines, Inc., in monthly installments of $100,000.00 paid in
advance on the first day of each calendar month. COMPANY further agrees to
pay as additional rental any increases in rental charges to CONTINENTAL
under the BASE LEASE or any amendments thereto. Payment shall be delivered
to CONTINENTAL at:
CONTINENTAL AIRLINES, INC
CREDIT MANAGEMENT
P.O. BOX 100023
HOUSTON, TX 77212
ATTENTION: OUTSIDE SALES & SERVICE - DEN Hangar Sublease
7. TERM: This Agreement shall commence January 1, 1999 and shall continue
through January 1, 2004, unless otherwise terminated in accordance with the
terms and provisions hereof. Either party hereto shall have the right to
terminate this Agreement without cause at any time by giving the other
party three hundred sixty-five (365) days prior written notice of its
intention to do so. If, at the expiration of the Term, COMPANY fails to
vacate the PREMISES, then COMPANY shall be deemed a holdover tenant on all
of the terms and conditions of this Agreement (except that, without
limiting the rights provided to CONTINENTAL under this Agreement for a
breach by COMPANY, the monthly rental payable by COMPANY shall be two
hundred percent (200%) of the monthly rent provided for herein) and
CONTINENTAL reserves the right to evict COMPANY without further process of
law.
8. NOTICE: unless expressly required or permitted herein to be oral, all
notices, requests, consents and approvals required to be given to or by
either party shall be in writing, and shall be transmitted either by a
commonly recognized national delivery service or deposited as prepaid,
certified, registered or express United States mail addressed as follows,
or to the last address provided in accordance herewith:
TO CONTINENTAL: TO COMPANY:
Vice President Frontier Airlines, Inc.
Corporate Real Estate Properties & Facilities
Continental Airlines, Inc. 12015 East 46th Avenue
1600 Smith St. - Dept. HQSPF Denver, CO 80239
Houston, TX 77002
9. SECURITY DEPOSIT: Concurrently with the execution of this Agreement,
COMPANY shall deliver to CONTINENTAL, as a Security Deposit, $100,000.00,
which amount may be commingled with other funds belonging to CONTINENTAL
and shall bear no interest. After a default by COMPANY, CONTINENTAL may
apply any or all of the Security Deposit to cure such default as provided
in Section 17 hereof.
10. ADDITIONAL RENTAL/CHARGES/FEES:
A) The COMPANY shall be solely responsible for and shall pay when due
directly to the OWNER any and all fees, assessments, taxes and charges
of any kind whatsoever assessed in connection with COMPANY'S
operations, including but not limited to any applicable taxes and
property facility charges.
11. INSURANCE COVERAGE REQUIREMENTS:
Without limiting COMPANY's obligation to indemnify CONTINENTAL as provided for
in this Agreement, COMPANY shall procure and maintain, at its own cost, at all
times during the term of this Agreement, insurance of the following types and in
amounts not less than those indicated, with responsible insurers satisfactory to
CONTINENTAL providing the following coverage:
DESCRIPTION
A. Aviation and Comprehensive General Per Occurrence and with
Liability to include operations and aggregate as applicable:
Premises Liability $1,000,000,000* combined
single limits covering
bodily injury, property
damage
*or COMPANY limits if higher
B. Worker's Compensation Statutory
C. Employer's Liability $1,000,000
12. SPECAIL PROVISIONS: a) CONTINENTAL will use reasonable efforts to provide
janitorial, maintenance, and utility services for the common use PREMISES
(with exception to gas and electricity to entire PREMISES), but should not
be held liable if such services are interrupted from time to time. b)
COMPANY will be solely responsible for the cost of all tenant improvements.
All tenant improvements are subjects to the prior written consent of the
Vice President, Corporate Real Estate.
13. BAILMENT
During the term of this Agreement, an employee or agent of COMPANY shall at all
times be in charge of and in custody and control of all aircraft and other
property belonging to or in the control of COMPANY on or in the vicinity of the
PREMISES, and the parties hereby stipulate and agree that this agreement does
not confer upon CONTINENTAL any control over or obligation of bailment with
respect to any aircraft or other equipment owned or operated by COMPANY, and
does not subject CONTINENTAL to any of the liabilities of an OWNER, user, lessor
or operator of any aircraft or other equipment owned or operated by COMPANY.
14. SUBJECT TO BASE LEASE
COMPANY covenants and agrees, for the benefit of CONTINENTAL and OWNER, that it
shall not, by its use and occupancy of the PREMISES, violate any of the
provisions of the BASE LEASE as such BASE LEASE has been and/or may from time to
time be amended, or cause CONTINENTAL to be in default thereof, and that it
shall faithfully perform and discharge all of the obligations of CONTINENTAL
(except for payment of rental) thereunder, to the extent that such BASE LEASE
terms are applicable to the PREMISES or this Agreement COMPANY further covenants
that this Agreement shall be, in all respects, subject and subordinate to the
BASE LEASE, and any mortgages or other lien instruments that may affect the
PREMISES or CONTINENTAL'S interest therein, and nothing contained in this
Agreement shall be deemed to confer upon COMPANY any right which are not granted
by or are in conflict with the BASE LEASE. Not withstanding anything contained
herein, (a) this Agreement shall not be deemed to grant to the COMPANY any
rights or privileges which CONTINENTAL does not have under the BASE LEASE, and
(b) any act or omission of CONTINENTAL require by the BASE LEASE shall in no
event be deemed a violation of this Agreement.
15. ACCEPTANCE OF PREMISES
COMPANY HAS INSPECTED THE PREMISES AND ACKNOWLEDGES THAT CONTINENTAL HAS MADE NO
REPRENSENTATIONS AS TO THE CONDITION THEREOF. COMPANY ACCEPTS THE PREMISES IN
ITS PRESENT CONDITION, AS-IS, WITH ALL FAULTS, LATENT OR KNOWN. CONTINENTAL
MAKES NO WARRANTIES, GUARANTEES OR REPRENSENTAIONS OF ANY KIND, EITHER EXPRESS
OR IMPLIED, ARISING BY LAW OR OTHERWISE, PERTAINING TO THIS AGREEMENT OR THE
PROPERTY DESCRIBED HEREIN. COMPANY HEREBY WAIVES AND CONTINENTAL EXPRESSLY
DISCLAIMS ALL WARRANTIES, GUARANTEES AND REPRESENTATIONS, EXPRESS OR IMPLIED,
ARISING BY LAW OR OTHERWISE, INCLUDING NUT NOT LIMITING THE GENERALITY OF THE
FOREGOING, ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR REGARDING
THE CONDITION OF THE PROPERTY. IN NO EVENT SHALL CONTINENTAL=S LIABILITY OF ANY
KIND UNDER THIS AGREEMENT INCLUDE ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
EXEMPLARY DAMAGES EVEN IF CONTINENTAL SHALL HAVE BEEN ADVISED OF THE POSSIBILITY
OF POTENTIAL LOSS OR DAMAGE.
16. PAYMENTS
If the term of this Agreement shall commence or end on any day other than the
first and last day, respectively, of a calendar month, the consideration due for
a portion of a month shall be prorated on a per-diem basis, and the first
payment shall be due on or before the effective date hereof.
Any unpaid or past due amounts shall bear interest from the date due until paid,
at 1-1/2% per month, or, at CONTINENTAL's option, the maximum rate allowable by
law, which interest shall be considered as part of the rental payable hereunder.
Acceptance by Continental of any partial payment, including endorsement of a
check, shall not be deemed to be an accord and satisfaction. Continental may
accept such check or payment without prejudice to it's right to recover the
balance due or to pursue any other remedy available to it.
17. USE OF SECURITY DEPOSIT
A. If at any time during the term of this Agreement, any of the rent herein
reserved, or any other amounts due from COMPANY shall be overdue or unpaid,
or in the event of failure by COMPANY to keep and perform any of the terms,
covenants and conditions of this Agreement to be kept and performed by
COMPANY, then CONTINTENTAL, at its option, may appropriate and apply the
entire Security Deposit, or any portion thereof (I) to the payment of such
overdue amounts, and (ii) as compensation to CONTINENTAL for any loss or
damage sustained or suffered by CONTINENTAL due to such breach on the part
of COMPANY. Should CONTINENTAL withdraw any amount from the Security
Deposit as provided herein, COMPANY shall remit to CONTINENTAL, upon
written demand therefor, an amount sufficient to fully replenish the
Security Deposit.
B. COMPANY'S failure to remit any increase in, or any replenishment of the
Security Deposit, as required herein, within five (5) days of written
notice of funds due, shall constitute a default hereunder, entitling
CONTINENTAL to immediately invoke the remedies available to it by law and
this Agreement, including immediate termination of this Agreement.
C. Within thirty (30) days after expiration or other termination of this
Agreement, and upon vacation of the PREMISES and satisfaction of any and
all events of default by COMPANY, including payment of all amounts due and
past due, the Security Deposit shall be returned in full to COMPANY.
D. In the event any bankruptcy, insolvency, reorganization or other
creditor-debtor proceedings shall be instituted by or against COMPANY, the
Security Deposit shall be deemed to be applied first to any rents and/or
other charges due CONTINENTAL for all periods prior to the institution of
such proceedings, and the balance, if any, of Security Deposit may be
retained by CONTINENTAL in partial liquidation of CONTINENTAL'S damages.
E. COMPANY covenants and agrees that it shall not assign or encumber a r
attempt to assign or encumber the Security Deposit, and that CONTINENTAL
shall not be bound by any such assignment, encumbrance or attempt to assign
or encumber.
18. UTILITIES
CONTINENTAL shall furnish the PREMISES with utilities and services to the extent
that they are furnished to Continental under the BASE LEASE. Continental shall
not be liable for, and COMPANY hereby releases and waives any claims against
CONTINENTAL resulting from any failure or interruption of such services. COMPANY
shall pay Continental, as additional rent, for any extraordinary electrical, gas
or water consumption, and any utility costs attributed to equipment installed by
COMPANY.
19. CONDUCT AND WASTE
COMPANY, in its use of the PREMISES, covenants and agrees that it shall:
A. Conduct its operations in an orderly and proper manner. COMPANY shall not
create, generate or permit the creation or generation of vibrations that
might tend to damage the PREMISES; loud noises; the emission of steam,
gases or unpleasant or noxious odors; nor in any manner annoy, disturb or
be offensive to other tenants of the PREMISES and common areas.
B. Be responsible for the conduct, appearance and behavior of its officers,
employees, agents, contractors, customers and invitees on and in the
vicinity of the PREMISES, and upon objection from CONTINENTAL or OWNER,
shall immediately make every reasonable effort to eliminate any
unsatisfactory conduct, appearance or behavior.
C. Not allow garbage, debris or other waste materials (whether solid, liquid
or gaseous) to collect or accumulate on or in the PREMISES or in access or
service areas. COMPANY shall remove debris and other waste materials form
the PREMISES in accordance with all applicable regulations governing such
activity. COMPANY shall keep all lobbies, vestibules and steps with in the
PREMISES free from dirt and rubbish.
D. It is intended that the standards and obligations imposed by this section
shall be maintained and complied with by COMPANY in addition to its
compliance with any present and future governmental laws, rules and
regulations.
20. SECURITY
COMPANY shall adopt and enforce appropriate procedures to prevent unauthorized
access to CONTINENTAL'S operations areas and aircraft, on the part of its
passengers, employees, vendors, licenses, and invitees. Such procedures shall
include, without limitation, a requirement that all COMPANY's employees visibly
display a photographic identification badge on their person at all times while
within an area covered by this Agreement which is not open to the general
public, and a requirement that all passengers and other persons who are present
in such an area be in the COMPANY of, and escorted by, a properly identified
employee of COMPANY. COMPANY further agrees to indemnify, defend and hold
CONTINENTAL harmless with respect to any fine, levy or penalty which may be
imposed upon CONTINENTAL by the Federal Aviation Administration or any other
government authority for violation of any law or regulation pertaining to
aircraft or airport security as a result of ant act or omission on the part of
COMPANY, such indemnity to include all attorney's fees and other costs of
defense incurred in connection therewith.
21. GOVERNMENTAL REQUIREMENTS
COMPANY covenants and agrees, at its sole expense, including payment of fees and
deposits, to procure from all governing authorities asserting jurisdiction over
the operations of COMPANY, all licenses, certificates, permits or other
authorization which may be necessary for the conduct of its operations. COMPANY
shall at all times promptly observe, comply with and execute the provisions of
any and all present and future federal, state and local laws. Rules,
regulations, requirements, orders and directions which may pertain or apply to
the operations of COMPANY and its occupancy of the PREMISES.
22. RULES, REGULATIONS AND ADMINISTRATION
COMPANY shall be responsible for initiating, maintaining and supervising safety
precautions and programs necessary to prevent injury to persons and damage to
property in, on or about the PREMISSES, and shall observe and obey all present
and future rules and regulations issued by CONTINENTAL and OWNER for the conduct
of tenants and subtenants at the PREMISES, including but not limited to those
regulating preservation and security of the PREMISES.
23. MAINTENANCE AND REPAIRS
A. Any construction, addition to, or alteration of the PREMISES required by
COMPANY shall be made by COMPANY at its sole cost and expense, only upon
prior written approval by CONTINENTAL, and if required under the BASE
LEASE, OWNER, and shall, upon expiration or termination of this Agreement,
at CONTINENTAL's option, be promptly removed, with any damage caused
thereby repaired, at COMPANY's sole cost and expense.
B. COMPANY covenants and agrees to maintain the PREMISES, and shall at its
sole cost and expense, make any installations, non-structural repairs,
replacements, redecorating and other maintenance necessary to keep the
PREMISES, and all equipment, fixtures, furnishings and signs therein, in a
clean, neat and orderly condition, save and except (I) normal wear and tear
that could not have been prevented by, reasonable repair and maintenance;
and (ii) damage by fire or other casualty and acts of God or other events
of Force Majeure. All maintenance and repair work undertaken by COMPANY
shall be performed in a good and workmanlike manner, in accordance with
standards of the facility and of a quality and class not inferior to the
original material and workmanship, leaving the PREMISES free of liens for
labor and materials.
C. In the event that, within ten (10) days of receipt of written notice from
CONTINENTAL or OWNER that a repair is necessary, COMPANY fails to commence
and diligently continue to complete such repair, CONTINENTAL, without
obligation to do so, may make such repair, and COMPANY shall promptly
reimburse CONTINENTAL for all costs and expenses incurred thereby.
D. COMPANY covenants and agrees to maintain the PREMISES and conduct its
operations in such a manner that at no time shall it do or permit to be
done any act or thing in, on or in the vicinity of the PREMISES which will
invalidate or conflict with any fire and casualty insurance policies
covering the PREMISES, or any part thereof, or which may create a hazardous
condition or otherwise increase the risk normally attendant upon the
operations contemplated hereunder. COMPANY shall promptly observe and
comply with all present and future rules, regulations and orders of the
Fire Underwriters Association or of any other board or organization which
may exercise similar functions.
E. Any increase in fire or casualty insurance premiums attributable to
COMPANY's acts or omissions under this Agreement, shall be promptly
reimbursed by COMPANY, upon receipt of CONTINENTAL's and/or OWNER's invoice
therefor.
24. SURRENDER
Upon expiration or other termination of this Agreement in accordance with the
provisions herein, COMPANY shall remove all signs, trade fixtures and any other
personal property, repair all damage caused by removal, and surrender the
PREMISES in the clean, neat and orderly condition required herein. In the event
COMPANY fails to surrender possessions as required herein, CONTINENTAL may
reenter and repossess the PREMISES without further notice, any personal property
therein being deemed abandoned by COMPANY. COMPANY hereby waives service of any
notice of intention to reenter and right to redeem that may be granted by
applicable law.
25. RIGHT OF ENTRY
CONTINENTAL reserves the right for itself and OWNER to enter upon the PREMISES
at any time during an emergency to take such action as may be required for the
protection of persons and property, and for any other reasonable purpose,
including without limitation, as access to and egress from areas other than the
PREMISES, and to perform such functions as may be necessary for the maintenance
and operation of the PREMISES, for inspection, repairs, alterations and
improvements, and showing to prospective tenants. Such activity shall not be
cause for abatement of any amount payable to CONTINENTAL by COMPANY, and the
term of this Agreement shall not thereby extend. CONTINENTAL shall make a
reasonable effort to minimize interference with COMPANY's operations during such
activity.
26. TAXES AND FEES
COMPANY agrees to pay, before they become delinquent, all taxes (both general
and special), and all assessments, fees and charges of any kind whatsoever,
levied or assessed against the leasehold estate created hereby in the PREMISES,
any property of COMPANY located thereon, and any business conducted by COMPANY
thereon. COMPANY agrees to use its best efforts to cause the leasehold estate in
the PREMISES, and its personal property and business operations to be assessed
and taxed separately from the BASE LEASE and the PREMISES. On demand by
CONTINENTAL, COMPANY shall furnish CONTINENTAL with satisfactory evidence that
such payments required from COMPANY have been made. In the event that
Continental shall be assessed any taxes or fees relative to the leasehold estate
in the PREMISES or any of COMPANY's leasehold improvements, equipment,
furniture, fixtures, personal property or business operations, COMPANY shall
reimburse such amount to CONTINENTAL within five (5) days after receipt of a
written statement thereof.
27. FORCE MAJEURE
Notwithstanding anything to the contrary herein contained, neither party shall
be deemed in violation of this Agreement if it is prevented from performing any
of its obligations hereunder, except making rental and any other payments due,
by any labor or industrial dispute; civil disturbance; vandalism or act of a
public enemy; shortage of labor, energy or material; court order, regulation,
action or non-action of any governmental authority; weather condition; natural
disaster; act of God; or other circumstance not reasonably within its control,
and which, with the exercise of due diligence, it is unable to overcome;
provided, however, that nothing in this Section 27 shall extend the time for
performance by COMPANY unless the time for performance by CONTINENTAL is
extended for such reason under the BASE LEASE. Each party shall give the other
immediate notice of such interruption, shall make all reasonable efforts to
eliminate it as soon as possible, and at its conclusion, shall resume
performance in accordance with its obligations hereunder. Neither party shall be
required by the foregoing to settle or compromise any strike or other labor
dispute.
28. RELATIONSHIP
The relationship between COMPANY and CONTINENTAL shall be that of independent
contractor for all purposes and nothing herein shall be construed to create or
imply an employer/employee, agency, partnership, joint venture or other
relationship, it being acknowledged that each of the parties is engaged in its
own separate and distinct business, and is not under the control of the other
party in the performance of the agreements herein contained. No person employed
by either shall be held or construed to be an employee or agent of the other
under any circumstances. Each party assumes full responsibility for any and all
liability to its own employees on account of injury, or death resulting
therefrom, sustained in the course of their employment. Each party, with respect
to its own employees, accepts full and exclusive liability for payment of
Workers' Compensation and employer's liability insurance premiums with respect
to such employees, and for payment of all taxes, contributions or other payments
for unemployment compensation or old age benefits, pensions, or annuities now or
hereafter imposed upon employers by any government or agency thereof asserting
jurisdiction in respect of such employees measured by the wages, salaries,
compensation or other remuneration paid to such employees, and agrees to make
such payments and to make and file all reports and returns and to do everything
necessary to comply with the laws imposing such taxes, contributions or
payments.
29. INDEMNIFICATION
A. RELEASE
COMPANY hereby covenants and agrees that, anything in this Agreement to the
contrary notwithstanding, CONTINENTAL shall not be liable for (a) any acts
or omissions of, or for any condition resulting from, the operations or
activities of any person, firm or corporation, or its officers, directors,
agents, employees, customers, invitees, vendors, or contractors relating to
or arising out of this Agreement, or (b) any loss or damage to any property
or the death or injury of any persons (including property of COMPANY, or
its officers, directors, employees, agents, customers, vendors, contractors
or invitees). Occasioned by theft, fire acts of God, or any governmental
body or authority, injunction, riot, war, other tenants or the PREMISES, or
any other matter beyond the control of CONTINENTAL, or any damage or
inconvenience which may arise through repair, or alteration of the
PREMISES, or failure to make repairs, or unavailability of utilities or for
any cause whatsoever, except the gross negligence or willful misconduct of
CONTINENTAL.
B. INDEMNITY
Anything in this Agreement to the contrary notwithstanding, and without
limiting COMPANY's obligation to provide insurance pursuant to insurance
provisions herein, COMPANY covenants and agrees that it shall protect,
indemnify, defend and hold harmless, CONTINENTAL, its parent and
subsidiaries, OWNER and their respective predecessors and former, present
and future directors, officers, employees, agents, successors and assigns
(the "Indemnitees"), From and against all liabilities, losses damages,
penalties, claims, costs, charges and expenses, causes of action and
judgments of any nature whatsoever, including, without limitation, fees and
disbursements of counsel incurred by any Indemnitee in any action or
proceeding between COMPANY and any Indemnitee, or between any Indemnitee
and any third party or otherwise which may be imposed upon or incurred by
the Indemnitees by reason or arising out of ant of the following (even if
caused by the ordinary negligence of any Indemnitee, but not if caused by
the gross negligence or willful misconduct of the Indemnitees):
1) Any occupancy, management or use of the PREMISES, or common areas or
the service areas, parking areas, or pedestrian areas in the vicinity
of the PREMISES, by COMPNAY or any of its directors, officers, agents,
contractors, servants, employees, licensees, invitees, successors and
assigns;
2) Any act of omission of COMPANY or any of its directors, officers,
agents, contractors, servants, employees, licensees, invitees,
successors and assigns;
3) Any accident, injury to or death of any person, or damage to or
destruction of any property occurring on or in the vicinity of the
PREMISES caused by COMPANY or any of its employees, agents,
subcontractors or invitees, including but not limited to aircraft,
interference with CONTINENTAL's operations, and loss of use;
4) Any failure on the part of COMPANY to comply with any of the
covenants, agreements, terms or conditions contained in this
Agreement, the BASE LEASE or any law, rule, regulation, requirement,
order or directive for which it is responsible;
CONTINENTAL shall promptly notify COMPANY of any such claim asserted against it
and forward copies of all papers or legal process served upon it in connection
with any action or proceeding brought against any Indemnitee by reason of any
such claim.
C. CITY HELD HARMLESS
In addition to the provisions of Section 29 herein, Lessee shall indemnify,
defend, keep and hold City, including Board and the City's officers,
agents, servants, and employees, harmless from any and all costs,
liability, damage, or expense (including costs of suit and fees and
reasonable expenses of legal services) claimed by anyone by reason of
injury to or death of persons or damage to or destruction of property
including property of Lessee, sustained in, on, or about the demised
premises or arising out of Lessee's use or occupancy thereof, or as a
proximate result of the acts or omissions of Lessee, its agents, servants,
or employees.
30. ENVIRONMENTAL OPERATIONS
COMPANY covenants and agrees:
A. That it shall not cause or permit any Hazardous Material to be brought upon
the PREMISES without the written consent of CONTINENTAL and OWNER, and
shall advise CONTINENTAL of any known or suspected environmental
contamination;
B. That its operations shall at all times remain in compliance with:
1) CONTINENTAL's and OWNER's written restrictions and requirements
governing the identification and use of chemical and petroleum
products;
2) All orders and regulations promulgated by the Occupational, Safety and
Health Administration and by the Environmental Protection Agency,
and all other federal, state and local laws, rules, regulations,
requirements, orders and directive governing safety, the environment
and hazardous and toxic substances;
C. That it shall:
1) secure at its own expense, all required permits, licenses and
authorizations necessary for such compliance;
2) advise CONTINENTAL and OWNER of any notice of potential or actual
non-compliance;
3) immediately upon receipt, provide CONTINENTAL and OWNER with copies of
any notice or notices relating to non-compliance:
4) allow CONTINENTAL's and OWNER's designated representative the
unrestricted right to inspect and review its on-premises operations
and equipment. Unless necessary in an emergency situation, neither
CONTINENTAL's nor OWNER's representatives shall purposefully interfere
with or inhibit COMPANY's operation.
D. That all notices, copies and correspondence relating to this Section shall
be delivered as described in the NOTICE provision of this Agreement to the
following address, or to any address subsequently provided by proper
notice. Copies of such material shall be hand-delivered to CONTINENTAL's
on-site representative upon request:
Continental Airlines, Inc.
Environmental Affairs
2929 Allen Parkway, Suite 1401
Houston, TX 77019
E. As used herein, the term "Hazardous Material" includes any hazardous,
explosive, radioactive, or toxic substance, material, or waste which is or
becomes regulated by any local governmental authority, the state in which
the Sublease PREMISES is located or the United States, including, without
limitation, any material or substance which is (a) defined or listed as a
"hazardous waste," "extremely hazardous waste," "restricted hazardous
waste," "Hazardous substance," "hazardous material," "pollutant," or
"contaminant" under any Law, (b) a radioactive material, (c) a
polychlorinated biphenyl, (d) asbestos or an a asbestos derivative, (e)
urea formaldehyde foam insulation, or (f) radon gas.
31. INSURANCE ENDORSEMENTS
COMPANY shall cause the required insurance coverage to be duly and properly
endorsed by it insurance underwriters to provide that:
A. CONTINENTAL, OWNER, and their respective officers, directors, agents and
employees are named as additional insured thereunder to the extent of
COMPANY's obligation to indemnify them under this Agreement, where allowed
by law.
B. The policies shall include a standard cross liability clause.
C. COMPANY's insurance shall be primary insurance and that any other insurance
policy or policies of CONTINTENTAL and OWNER are noncontributory, secondary
or excess insurance.
D. COMPANY's policy expressly insures COMPANY's contractual liability assumed
by COMPANY under this Agreement.
E. COMPANY's insurers waive all right of subrogation against CONTINENTAL and
OWNER, and their respective directors, officers, agents and employees and
their insurers.
F. CONTINENTAL shall be given thirty (30) days prior, written notice of any
cancellation, or other material or adverse change.
G. COMPANY's insurers agree that COMPANY's breach of any warranty set forth in
its policy of insurance will not invalidate the insurance as to CONTINENTAL
and OWNER.
Upon execution of this Agreement, and upon any reasonable request by
CONTINENTAL, COMPANY shall forthwith supply CONTINENTAL with certificates of
insurance as evidence of the insurance coverage and endorsements required
herein. COMPANY agrees that the terms of these insurance requirements may be
revised, and the minimum coverages may be increased upon the written demand of
CONTINENTAL, which demand shall be based on reasonable and justifiable grounds.
32. SURVIVAL OF TERMS
Termination of this Agreement or any part thereof by notice, expiration of term
or otherwise, shall not relieve COMPANY of any liabilities or obligations
accrued on or prior to the date of termination, and the indemnities and
insurance provisions contained or referred to herein shall remain in effect and
shall survive the expiration or other termination of this Agreement.
33. TERMINATION
Without limiting any rights of CONTINENTAL to terminate this Agreement as may be
afforded by operation of law, this Agreement shall also be terminated at the
option of CONTINENTAL, as follows:
A. Immediately upon the termination or expiration of the BASE LEASE or any
portion thereof relating to the PREMISES, or upon expiration or termination
of CONTINENTAL's right to grant to COMPANY the right to occupy and use the
PREMISES as contemplated herein, in which event COMPANY shall have no claim
for the unexpired term hereof; provided, CONTINENTAL during the term hereof
agrees to take no action which would cause expiration or termination of the
BASE LEASE, except that CONTINENTAL shall not be limited from exercising
any option set forth in the BASE LEASE triggered upon the occurrence of any
condemnation, fire or other casualty to the PREMISES or to the BUILDING of
which the PREMISES are a part.
B. Immediately and without notice to COMPANY in the event that COMPNAY files a
voluntary petition in bankruptcy or that proceedings in bankruptcy shall be
instituted against COMPANY and not dismissed within one hundred twenty
(120) days, or that a court shall take jurisdiction of COMPANUY or its
assets pursuant to proceedings brought under the provisions of any federal
reorganization act, or that a receiver of COMPANY's assets shall be
appointed and such taking or appointment shall not be stayed or vacated
within a period of thirty (30) days.
C. Immediately upon written notice to COMPANY, if COMPANY fails to pay any
installment of rent or additional rent within ten (10) days after such
amount is due.
D. Immediately upon written notice to COMPANY, if COMPANY fails to perform,
keep, and observe any the covenants, terms and conditions which COMPANY is
obligated herein to perform, keep and observe, except that termination
shall be stayed as long as COMPANY cannot reasonably cure such default
immediately, and as long as COMPANY is diligently proceeding to cure such
default (but in no event shall termination be stayed for more than 60
days).
E. Immediately by either party upon the acquisition or condemnation of the
PREMISES by eminent domain, in which event COMPANY shall have no claim (I)
for the unexpired term hereof, or (ii) any part of the award made for the
PREMISES, but may claim any award or its personal property.
F. Abandonment of the PREMISES by COMPANY for more than 48 hours, unless due
to circumstances beyond COMPANY's reasonable control.
In the event that this Agreement is terminated in accordance with the foregoing
prior to the expiration of the term hereof, or during any extension thereof,
CONTINENTAL may relet the PREMISES for any term and under any conditions it may
deem satisfactory, which shall not affect or impair CONTINENTAL's right to
recover actual damages occasioned by any default by COMPANY.
34. NON-DISCRIMINATION AND EQUAL OPPORTUNITY
COMPANY, for itself, its successors in interest and assigns, as a part of the
consideration hereof, as a covenant running with the land, covenants and agrees
that it shall not discriminate by segregation or otherwise against any person
the use of the PREMISES, or any services. Privileges, accommodations, or
activities provided by COMPANY, and to be bound by and to perform in accordance
with all applicable provisions and requirements of all federal, state and local
laws, executive orders and regulations issued pursuant thereto, including
without limitation, and to the extent applicable to this Agreement, the
provisions contained within:
A. The Fair Labor Standards Act.
B. The Equal Opportunity clause set forth in 41 CFR Parts 60-1 et seq.,
pursuant to the requirements of Section 202 of Executive Order 11246, as
amended, and the implementing regulations of the Office of Federal Contract
Compliance Programs.
C. Contractual requirements of the Rehabilitation Act of 1973 as set forth in
41 CFR Sec 60-741.4; and of the Vietnam Era Veterans Readjustment Act of
1974 as set forth in 41 CFR Sec. 60-250.4.
D. The requirements of the Occupational Safety and Health Act and regulations
issued thereunder;
E. Titles I, II, III, IV, and V of the Americans with Disabilities Act of 1990
As the foregoing may be amended or replaced, which provisions are
incorporated herein by reference as if set forth in full. By execution of
this Agreement each party represents and warrants compliance with the
aforementioned regulations and will furnish proof thereof on demand.
F. COMPANY covenants and agrees to release, indemnify, hold harmless and
defend OWNER and CONTINENTAL, its parent and subsidiaries and their
representative directors, officers, employees, agents, successors and
assigns from and against any and all claims, liabilities, losses, expenses,
damages, causes of action and judgment of any nature whatsoever, including
but not limited to reasonable attorney, consultant and expert fees, costs
and related expenses; and including, but not limited to clean-up or other
curative measures ordered by the Occupational, Safety and Health
Administration or the Environmental Protection Agency or any other federal,
state or local agency or entity asserting jurisdiction; arising out of the
discharge, disbursal, release orescape of any hazardous substance, toxic
chemical pollutant, contaminant or irritant, in solid, liquids or gaseous
form, arising out of or in any manner connected with any act or omission of
COMPANY or its directors, officers, agents, contractors, servants,
employees, licensees, invitees, successors and assigns.
G. COMPANY further covenants and agrees to:
1) Indemnify and defend CONTINENTAL and OWNER from and against any and
all claims, liabilities, losses and judgments arising out of COMPANY's
failure to comply with these provisions; and
2) Include and require inclusion of these provisions in all agreements
regarding the PREMISES, including, without limitation, those of its
contractors, subcontractors, successors and assigns.
35. NON-DISCRIMINATION BREACH
In the event of any breach of any of the above non-discrimination covenants,
CONTINENTAL shall have the right to terminate this Agreement and to reenter and
repossess the PREMISES, and hold the same as if this Agreement had never been
made or issued. This provision shall not be effective until the procedures of
Title 49, CFR Part 21 are followed and completed, including exercise or
expiration of appeal rights.
36. SEVERABILITY
If any term or provision of this Agreement or the application thereof to any
person or circumstance shall, to any extent, be declared invalid or
unenforceable by a court of competent jurisdiction, such invalidity shall not
affect or impair the remainder if this Agreement or its application to any other
person or circumstance, and this Agreement shall not be affected or impaired
under any circumstance or in any jurisdiction where such provision remains
valid.
37. COLORADO LAW
THIS AGREEMENTSHALL BE CONTRUED AND PERFORMANCE THEREOF SHALL BE DETERMINED
ACCORDING TO THE LAWS OF THE STATE OF COLORADO
38. TIME IS OF THE ESSENCE
The parties expressly agree that time is the essence of this Agreement and of
every provision hereof. Failure by a party to complete performance within the
time specified, or within a reasonable time if no time is specified herein,
shall, without prejudice of any other rights or remedies, relieve the other
party of any obligation to accept such performance.
39. QUIET ENJOYMENT
CONTINTENTAL agrees that upon payment of the rents and other payment due, and
performance of the covenants and agreements on the part of COMPANY to be
performed hereunder, COMPANY shall peaceably have and enjoy the PREMISES subject
to an event of Force Majeure and to the terms and conditions herein.
40. LIENS
COMPANY shall not allow any condition to exist o situation to develop whereby
any party would be entitled, as a matter of law, to a lien against the PREMISES,
and agrees to indemnify, release, defend and hold CONTINENTAL and OWNER harmless
from and against any and all costs, expenses and claims arising therefrom.
41. WAIVER
No waiver by either party at any time of any of the terms, conditions, covenants
or agreements herein or of any forfeiture, including any delay, failure or
omission of CONTINENTAL to reenter the PREMISES, shall be deemed to taken as a
waiver at any time thereafter of the same or any other term, condition,
covenant, or agreement herein contained, nor of the strict and prompt
performance thereof. No notice shall be required to restore or revive any right,
power, privilege, option or remedy after waiver, and no right, power, privilege,
option or remedy shall be construed as being exhausted or discharged by the
exercise thereof in one or more instances. Each and all of the rights, powers,
privileges, options and remedies given to either party by this Agreement shall
be cumulative, and no one of them shall be exclusive of the other or exclusive
of any remedies provided by law.--
42. ASSIGNMENT
This Agreement and the rights and obligations created hereunder may not be
assigned or delegated by COMPANY without the prior written consent of
CONTINENTAL and OWNER. (If OWNER's consent is required under the BASE LEASE);
but, subject to the foregoing, this Agreement and the rights and obligations of
the parties hereby created, shall be binding upon and inure to the benefit of
the parties hereto, their respective successors, assigns and legal
representatives. CONTINENTAL reserves the right to assign or transfer its
interest hereunder without notice.
43. CAPTIONS
The captions of the articles and sections of this Agreement are inserted for
convenience only, and are not intended and shall not be construed to affect in
any manner the terms and conditions hereof, or the interpretations or
construction thereof.
44. APPROVAL BY OWNER
The parties hereto agree that this Agreement is subject to the consent and
approval of OWNER. If written consent thereto is denied, either party may, at
its option, but without limiting any rights that may exist for any breach of
this Agreement shall thereafter become null and void, and the parties shall
become discharged form all liabilities hereunder attributable to the period of
time after such rescission.
45. ENTIRE AGREEMENT
This Agreement, including any exhibits and inclusions by reference, contains the
entire understanding between the parties hereto, and supersedes and revokes all
previous negotiations, arrangements, letters in intent, offers, proposals
representations, and information conveyed, whether oral or in writing, between
the parties hereto or their respective representatives or any person purporting
to represent either. COMPANY acknowledges that it has not been induced to enter
into this Agreement by any representation or construction of this Agreement, and
agrees that CONTINENTAL shall have no liability for any consequences arising as
a result of such representation.
No amendment, change or addition to this Agreement shall be binding upon either
party hereto unless in writing and signed by the parties hereto and approved by
the Manager of Aviation.
WITNESS THEREOF, the parties hereto have caused this Agreement to be executed as
of the effective date hereof.
CONTINENTAL AIRLINES, INC. FRONTIER AIRLINES, INC.
BY:_________________________ BY:_____________________
TITLE:______________________ TITLE:__________________
DATE:______________________ DATE:__________________
CITY AND COUNTY OF DNEVER
BY:_________________________
TITLE:______________________
DATE:______________________
The Board of Directors
Frontier Airlines, Inc.
We consent to the incorporation by reference in the registration statements Nos.
333-13333 and 333-31389 on For S-8 and Nos. 333-07699 and 333-58867 on Form S-3
of Frontier Airlines, Inc. of our report dated June 2, 1999, except as to Note
11, which is as of June 16, 1999, with respect to the balance sheets of Frontier
Airlines, Inc. as of March 31, 1999 and 1998, and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three year period ended March 31, 1999, which report appears in March 31, 1999
Form 10-K of Frontier Airlines, Inc.
KPMG LLP
Denver, Colorado
June 21, 1999
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-START> Apr-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 42,289,072
<SECURITIES> 0
<RECEIVABLES> 17,129,998
<ALLOWANCES> 199,960
<INVENTORY> 1,203,916
<CURRENT-ASSETS> 94,208,538
<PP&E> 13,391,368
<DEPRECIATION> 4,657,590
<TOTAL-ASSETS> 119,620,295
<CURRENT-LIABILITIES> 68,720,840
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0
0
<COMMON> 16,141
<OTHER-SE> 44,374,508
<TOTAL-LIABILITY-AND-EQUITY> 119,620,295
<SALES> 220,607,710
<TOTAL-REVENUES> 220,607,710
<CGS> 0
<TOTAL-COSTS> 195,927,715
<OTHER-EXPENSES> (1,107,130)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 700,635
<INCOME-PRETAX> 25,086,490
<INCOME-TAX> (5,479,570)
<INCOME-CONTINUING> 30,566,060
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,566,060
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