EXHIBIT 10.18
CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH
"*" AND SUCH PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SEC.
EXECUTION COPY
AIRCRAFT LEASE AGREEMENT
Dated as of
March 25, 1997
between
GENERAL ELECTRIC CAPITAL CORPORATION
as
Lessor
and
FRONTIER AIRLINES, INC.
as
Lessee
in respect of
Aircraft : Boeing 737-300
Serial No: 28563
U.S. Reg. No.: N
----------
Note: This Aircraft Lease Agreement has been executed in several counterparts
of which this is Counterpart No. [ ]. See Clause 16.15 hereof for
information concerning the distinction between various counterparts.
INDEX
CLAUSE PAGE
------ ----
1. Interpretation......................................................... 1
1.1 Definitions................................................... 1
1.2 Construction.................................................. 17
2. Representations and Warranties......................................... 17
2.1 Lessee's Representations and Warranties....................... 17
2.2 Lessee's Further Representations and Warranties............... 19
2.3 Repetition.................................................... 20
2.4 Lessor's Representations and Warranties....................... 20
3. Conditions Precedent................................................... 21
3.1 Conditions Precedent........................................... 21
3.2 Further conditions precedent................................... 24
3.3 Waiver......................................................... 24
4. Commencement........................................................... 26
4.1 Leasing....................................................... 26
4.2 Delivery...................................................... 26
4.3 Delayed Delivery.............................................. 26
4.4 Licenses...................................................... 27
4.5 Inspection.................................................... 27
4.6 Indemnity..................................................... 27
5. Payments............................................................... 27
5.1 Deposit....................................................... 27
5.2 Rental Periods................................................ 27
5.3 Rent.......................................................... 28
5.4 Maintenance Reserves.......................................... 28
5.5 Payments...................................................... 29
5.6 Withholding................................................... 29
5.7 General Tax indemnity......................................... 29
5.8 Sales and Use Taxes........................................... 30
5.9 Information................................................... 31
5.10 Indemnity Payments to be Made on an After-Tax Basis.......... 31
5.11 Default Interest............................................. 31
5.12 Contest...................................................... 32
5.13 Net Lease.................................................... 33
5.14 Security..................................................... 33
6. Manufacturer's Warranties.............................................. 34
6.1 Assignment.................................................... 34
6.2 Proceeds...................................................... 34
6.3 Parts......................................................... 35
6.4 Agreement..................................................... 35
7. Lessor's Covenants..................................................... 35
7.1 Quiet Enjoyment............................................... 35
7.2 Release of Maintenance Reserves............................... 35
7.3 Lessor Obligations Following Expiry Date...................... 36
I
8. Lessee's Covenants..................................................... 37
8.1 Duration...................................................... 37
8.2 Information................................................... 37
8.3 Lawful and Safe Operation..................................... 38
8.4 Taxes and other Outgoings..................................... 40
8.5 Sub-Leasing and Wet-Leasing................................... 40
8.6 Inspection.................................................... 40
8.7 Title......................................................... 42
8.8 General....................................................... 43
8.9 Records....................................................... 43
8.10 Protection................................................... 43
8.11 Maintenance and Repair....................................... 44
8.12 Removal of Engines and Parts................................. 45
8.13 Installation of Engines and Parts............................ 45
8.14 Non-Installed Engines and Parts.............................. 46
8.15 Pooling of Engines and Parts................................. 47
8.16 Equipment Changes............................................ 47
8.17 Title on an Equipment Change................................. 47
8.18 Third Party.................................................. 48
9. Insurance.............................................................. 48
9.1 Insurances.................................................... 48
9.2 Requirements.................................................. 48
9.3 Change........................................................ 48
9.4 Insurance Covenants........................................... 49
9.5 Failure to Insure............................................. 50
9.6 Continuing Indemnity.......................................... 50
9.7 Application of Insurance Proceeds............................. 50
10. Indemnity.............................................................. 51
10.1 General...................................................... 51
10.2 Duration..................................................... 52
11. Events of Loss......................................................... 52
11.1 Events of Loss............................................... 52
11.2 Substitute Aircraft.......................................... 53
11.3 Requisition.................................................. 54
12. Return of Aircraft..................................................... 54
12.1 Return....................................................... 54
12.2 Final Inspection............................................. 54
12.3 Non-Compliance............................................... 55
12.4 Redelivery................................................... 55
12.5 Acknowledgment............................................... 55
12.6 Maintenance Program.......................................... 55
12.7 Fuel......................................................... 55
12.8 Automatic Extension of Term.................................. 55
13. Default............................................................... 56
13.1 Events....................................................... 56
13.2 Rights....................................................... 59
13.3 Deregistration............................................... 63
II
14. Assignment............................................................. 63
14.1 Lessee's Assignment........................................... 63
14.2 Lessor's Assignment........................................... 63
14.3 Transfer...................................................... 63
15. Illegality............................................................. 64
16. Miscellaneous.......................................................... 64
16.1 Waivers, Remedies Cumulative.................................. 64
16.2 Delegation.................................................... 64
16.3 Certificates.................................................. 64
16.4 Appropriation................................................. 64
16.5 Currency...................................................... 64
16.6 Set-off....................................................... 64
16.7 Severability.................................................. 65
16.8 Remedy........................................................ 65
16.9 Expenses...................................................... 65
16.10 Time of Essence.............................................. 66
16.11 Notices...................................................... 66
16.12 Governing Law and Jurisdiction............................... 67
16.13 Sole and Entire Agreement.................................... 69
16.14 Indemnities.................................................. 69
16.15 Counterparts................................................. 69
16.16 Language..................................................... 69
16.17 No Brokers................................................... 69
17. Disclaimers and Waivers................................................. 70
17.1 Exclusion..................................................... 70
17.2 Waiver........................................................ 70
17.3 Disclaimer of Consequential Damages........................... 71
17.4 Confirmation.................................................. 71
18. Section 1110............................................................ 71
19. Usury Laws.............................................................. 71
20. Modification or Revision................................................ 72
21. Witness................................................................. 73
SCHEDULES
SCHEDULE 1. Description of Aircraft....................................... 74
SCHEDULE 2. Certificate of Technical Acceptance........................... 79
SCHEDULE 3. Operating Condition at Redelivery............................. 85
SCHEDULE 4. Insurances Requirements....................................... 89
SCHEDULE 5. Form of Legal Opinion......................................... 93
SCHEDULE 6. Lease Supplement No. ____..................................... 97
SCHEDULE 7. Form of Lease Termination Certificate......................... 100
SCHEDULE 8. Form of Aircraft Usage Report................................. 102
III
AIRCRAFT LEASE AGREEMENT
THIS AGREEMENT is made as of the 25th day of March, 1997 between:-
(1) GENERAL ELECTRIC CAPITAL CORPORATION, a company incorporated under the
laws of New York whose principal place of business is at 000 Xxxx Xxxxx
Xxxx, Xxxxxxxx, Xxxxxxxxxxx, 00000 ("Lessor"); and
(2) FRONTIER AIRLINES, INC., a company incorporated under the laws of the
State of Colorado whose principal place of business is at 00000 Xxxx 00xx
Xxxxxx, Xxxxxx, Xxxxxxxx, 00000, Xxxxxx Xxxxxx of America ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease
from Lessor the Aircraft on the terms of this Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
After-Tax Basis in the case of any amount payable on an
"After-Tax Basis" to or for the benefit
of any Person (including any amount
payable pursuant to this definition) (a
"Required Payment"), the total amount
that must be paid is the amount such
that, after deduction of the net amount
of all Taxes required to be paid by such
Person with respect to the receipt or
accrual by it of such amount (and
assuming that such Person is subject to
(i) United States Federal income tax at
the highest marginal statutory rate
imposed on corporations for the relevant
period, (ii) United States state and
local income taxes at the composite of
the highest marginal statutory rates
imposed on such Person for the relevant
period, as such composite rate shall be
certified by a financial officer of such
Person, and (iii) income taxes (if any)
imposed by countries outside the United
States at the actual rates imposed on
such Person) the net amount received is
the amount of the Required Payment.
1
Agreed Value the amount specified for Agreed Value in
Letter Agreement No. 1.
Air Authority Federal Aviation Administration ("FAA").
Aircraft the aircraft described in Part 1 of
Schedule 1, (which term includes where
the context admits a separate reference
to all Engines, Parts and Aircraft
Documents) or any aircraft substituted
in place thereof pursuant to Clause 11.1
or 11.2.
Aircraft Documents the documents, data and records
identified in Part 2 of Schedule 1 and
all additions, renewals, revisions and
replacements from time to time made in
accordance with this Agreement.
Airframe the Aircraft, excluding the Engines and
Aircraft Documents.
Appraisal Procedure the following procedure for determining
the "fair market rental value" of the
Aircraft: (a) Lessor shall select an
independent aircraft appraiser who shall
make a determination of "fair market
rental value" of the Aircraft; and (b)
the fees and expenses of the appraiser
shall be paid by Lessee. "Fair market
rental value" shall mean the value
determined by an appraisal completed on
an "as-is" and "where-is" basis.
APU the auxiliary power unit installed on
the Aircraft on the Delivery Date and
any replacement auxiliary power unit
installed in accordance with this
Agreement.
Boeing The Boeing Company, a Delaware
corporation with its principal office in
Seattle, State of Washington, U.S.A.
Business Day a day (other than a Saturday or Sunday)
on which business of the nature required
by this Agreement is carried out in the
State of Incorporation or where used in
relation to payments on which banks are
open for business in San Francisco and
New York.
2
Certificated Air Carrier any Person (except the United States
Government) that is a citizen of the
United States of America (as defined in
Section 40102 of Title 49 of the United
States Code) and holding a Certificate
of Public Convenience and Necessity
issued under Section 41102 of Title 49
of the United States Code by the
Department of Transportation or any
predecessor or successor agency thereto,
or, in the event such certificates shall
no longer be issued, any Person (except
the United States Government) that is a
citizen of the United States of America
(as defined in Section 40102 of Title 49
of the United States Code) and legally
engaged in the business of transporting
for hire passengers or cargo by air
predominantly to, from or between points
within the United States of America,
and, in either event, operating
commercial jet aircraft capable of
carrying ten or more individuals or
6,000 pounds or more of cargo, which
also is certificated so as to entitle
Lessor, as a lessor, to the benefits of
Section 1110 of Title 11 of the United
States Code with respect to the
Aircraft.
Cold Section Refurbishment with respect to any Engine the
completion of the following: completely
unstacking either high or low or both
compressor sections, if needed, and
completing the following for the
appropriate section(s): visual
inspection; de-blading discs as
necessary; visual and NDT (Non-
Destructive Testing) inspections as
necessary of all discs; verification
that all snap diameters on discs are
within limits; inspection of all blades
for proper chord dimensions and
cracking; repair or replacement of
blades below minimums; inspection and
repair of stators as necessary; blade-up
of discs using new lock plates; assembly
of rotors in the compressor; balance of
all rotors; and installation of rotors
in the engine.
Cycle one take-off and landing of the
Aircraft.
3
Damage Notification Threshold the amount specified therefor in Letter
Agreement No. 1.
Default any Event of Default and any event which
with the giving of notice, lapse of
time, determination of materiality or
fulfillment of other condition would
constitute an Event of Default.
Delivery Condition
Requirements the requirements specified on Part 1 of
Schedule 1.
Delivery Date the date on which the Aircraft is
tendered for delivery by Lessor in
accordance with this Agreement.
Delivery Location Seattle, Washington, United States or
such other location as may be nominated
by Lessor.
Deposit all amounts payable pursuant to Clause
5.1.
Dollars and $ the lawful currency of the United States
of America.
Engine whether or not installed on the
Aircraft:-
(a) each engine of the manufacture and
model specified in Part 1 of
Schedule 1 (each of which has 750
or more rated takeoff horsepower or
the equivalent of such horsepower)
which Lessor elects to tender to
Lessee with the Aircraft on the
Delivery Date, such engines being
described as to serial numbers on
the certificate of acceptance to be
executed by Lessee upon delivery of
the Aircraft; or
(b) any engine which has replaced that
engine, title to which has or
should have, passed to Lessor in
accordance with this Agreement;
and in each case includes all modules
and Parts from time to time belonging to
or installed in that engine but excludes
any
4
properly replaced engine title to which
has, or should have, passed to Lessee
pursuant to this Agreement.
Engine Event of Loss the occurrence with respect to an Engine
only, whether or not installed on the
Airframe, of any of those events
described in provisions (a) through (d)
of the definition of Event of Loss.
Engine Flight Hour means each hour or part thereof an
Engine is operated, elapsing from the
moment that wheels of an aircraft on
which such Engine is installed leave the
ground until the wheels of such aircraft
next touch the ground.
Engine Refurbishment a complete disassembly, inspection and
repair of the modules of an Engine per
the engine manufacturer's maintenance
manual, so that such Engine shall have a
minimum expected on-wing life of 8,000
hours and 6,000 cycles.
ERISA the Employee Retirement Income Security
Act of 1974, as amended.
Event of Default an event or condition specified in
Clause 13.1.
Event of Loss with respect to the Aircraft (including
for the purposes of this definition the
Airframe):-
(a) the actual or constructive total
loss of the Aircraft (including any
damage to the Aircraft which
results in an insurance settlement
on the basis of a total loss, or
requisition for use or hire which
results in an insurance settlement
on the basis of a total loss); or
(b) it being destroyed, damaged beyond
repair or permanently rendered
unfit for normal use for any reason
whatsoever; or
(c) the requisition of title, or other
compulsory acquisition, capture,
5
seizure, deprivation, confiscation
or detention for any reason of the
Aircraft by the government of the
State of Registration or other
competent authority (whether de
jure or de facto), but excluding
requisition for use or hire not
involving requisition of title; or
(d) the hi-jacking, theft,
condemnation, confiscation, seizure
or requisition for use or hire of
the Aircraft which deprives any
person permitted by this Agreement
to have possession and/or use of
the Aircraft of its possession
and/or use for more than 15 days
(or, if earlier, beyond the Expiry
Date).
Excusable Delay with respect to delivery of the
Aircraft, delay or non-performance due
to or arising out of acts of God or
public enemy, civil war, insurrection or
riot, fire, flood, explosion,
earthquake, accident, epidemic,
quarantine restriction, any act of
government, governmental priority,
allocation, regulation or order
affecting directly or indirectly, the
Aircraft, any manufacturer, Lessor or
any materials or facilities, strike or
labor dispute causing cessation,
slowdown or interruption of work,
inability after due and timely diligence
to procure equipment, data or materials
from manufacturers, suppliers, any
existing owner, seller or lessee in a
timely manner, damage, destruction or
loss, or any other cause to the extent
that such cause is beyond the control of
Lessor whether above mentioned or not
and whether or not similar to the
foregoing.
Expiry Date the day preceding the numerically
corresponding day 96 months after the
Delivery Date or if earlier the date on
which:-
(a) the date Lessor, acting in
accordance with the terms of this
Agreement
6
terminates the leasing of the
Aircraft to Lessee under this
Agreement; or
(b) Lessor receives the Agreed Value
together with any other amounts
then due and unpaid by Lessee
following an Event of Loss.
FAA the Federal Aviation Administration of
the United States of America and any
successor thereof.
FAR the Federal Aviation Regulations set
forth in Title 14 of the United States
Code of Federal Regulations, as amended
and modified from time to time.
Federal Aviation Act The Transportation Laws of the United
States as set forth at 49 United States
Code et seq. or any similar legislation
of the United States of America enacted
in substitution or replacement thereof.
Financing Statements Uniform Commercial Code Financing
Statements in respect of the Aircraft
and Engines leased hereunder prepared in
a form acceptable for filing with the
applicable Government Entities in the
Habitual Base, the state in which the
chief executive office (as that term is
defined in Article 9 of the Uniform
Commercial Code as in effect in the
Habitual Base) and such other
jurisdiction as Lessor shall reasonably
require.
Flight Hour each hour or part thereof (rounded up to
two decimal places) elapsing from the
moment the wheels of the Aircraft leave
the ground on take off until the wheels
of the Aircraft next touch the ground.
GAAP generally accepted accounting principles
in the United States.
Governing Law the laws of the State of California.
7
Government Entity (a) any national government, political
subdivision thereof, or local
jurisdiction therein;
(b) any instrumentality, board,
commission, court, or agency of any
thereof, however constituted; and
(c) any association, organization, or
institution of which any of the
above is a member or to whose
jurisdiction any thereof is subject
or in whose activities any of the
above is a participant.
Gross Negligence means any intentional, conscious or
voluntary action or decision which is
taken with wanton, reckless, flagrant
and culpable disregard for the
consequences of such action or decision.
Habitual Base the State of Colorado or, subject to the
prior written consent of Lessor, any
other state, country or countries in
which the Aircraft is for the time being
habitually based.
Hot Section Refurbishment with respect to any Engine, the complete
visual inspection and repair as
necessary of the combustion section of
an Engine in an engine repair/overhaul
station including without limitation
complete unstacking of the high pressure
or low pressure turbine or both if
needed; complete visual inspection of
such turbine(s); de-blading of discs as
required; visual and NDT inspections of
all discs as required; verification that
all snap diameters on discs are within
limits; inspection of all blades for
proper chord dimensions and cracking;
repair or replacement of all blades
below minimums; inspection and repair of
stators as necessary; blade-up of discs
using new lock plates; assembly of
rotors in the turbine; balance of all
rotors; and installation of rotors in
the engine.
Indemnitee each of GE Capital Aviation Services,
Inc. ("GECASI"), GE Capital Aviation
Services
8
Limited ("GECASL"), Lessor, and any of
their respective successors and assigns,
shareholders, subsidiaries, affiliates,
partners, contractors, directors,
officers, servants, agents and employees
and indemnitees; provided, however, that
no such Indemnitee shall be entitled to
an indemnification to the extent such
Indemnitee is manufacturer of the
Aircraft, any Engines, or Parts in its
capacity as such.
Insurances as defined in Clause 9.1 hereof.
Landing Gear the landing gear assembly of the
Aircraft excluding any rotable
components.
Law shall mean and include (a) any statute,
decree, constitution, regulation, order
judgment or other directive of any
Governmental Entity; (b) any treaty,
pact, compact or other agreement to
which any Governmental Entity is a
signatory or party; (c) any judicial or
administrative interpretation or
application of any Law described in (a)
or (b) above; and (d) any amendment or
revision of any Law described in (a),
(b) or (c) above.
Lease Supplement a Lease Supplement, substantially in the
form of Schedule 6 hereto, entered into
between Lessor and Lessee.
Lessee's Maintenance Program the Maintenance Program specifically
approved by the Air Authority for
Lessee's maintenance of the Aircraft.
Lessor Lien (a) any Security Interest whatsoever
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 which
results from acts of or claims
against Lessor not related to the
transactions contemplated by or
permitted under this Agreement; and
9
(c) Security Interests in respect of
the Aircraft for Lessor Taxes.
Lessor Taxes Taxes:-
(a) imposed as a direct result of
activities of Lessor in the
jurisdiction imposing the Tax
unrelated to Lessor's dealings with
Lessee or to the transactions
contemplated by this Agreement or
the operation of the Aircraft by
Lessee; or
(b) imposed on the net income, profits
or gains of Lessor by any
Government Entity in the United
State of America; provided,
--------
however, that Lessor Taxes shall
-------
not include any Tax imposed by any
government or taxing authority of
any jurisdiction if and to the
extent that such Tax results from
(i) the use, operation, presence or
registration of the Aircraft, the
Airframe, any Engine or any Part in
the jurisdiction imposing the Tax,
or (ii) the situs of organization,
any place of business or any
activity of Lessee or any other
Person having use, possession or
custody of the Aircraft, the
Airframe, any Engine or any Part in
the jurisdiction imposing the Tax;
or
(c) imposed with respect to any period
commencing or event occurring after
the Expiry Date and unrelated to
Lessor's dealings with Lessee or to
the transactions contemplated by
this Agreement;
provided always, that Lessor Taxes shall
not include any income taxes or other
amounts payable and subject to
indemnification in favor of Lessor
pursuant to the Tax Indemnity Agreement.
Letter Agreement No. 1 that certain Letter Agreement No. 1
between Lessor and Lessee dated as of
the date hereof.
10
Maintenance Performer the Lessee, Tramco, USAir Inc., or such
other Person as is approved by the FAA
to perform maintenance and/or
modification services on commercial
aircraft and/or commercial aircraft
engines, which Person shall be agreed by
Lessor and Lessee to have recognized
standing and experience, suitable
facilities for the level of maintenance
being carried out and suitable equipment
to perform such services on aircraft
and/or engines of the same or improved
model as the Aircraft or, in the case of
engines, the Engines.
Maintenance Program an Air Authority approved maintenance
program for the Aircraft based upon the
Manufacturer's specifications, service
bulletins, planning documents,
maintenance manuals and documents and
encompassing scheduled maintenance
(including block maintenance),
condition-monitored maintenance, and/or
on-condition maintenance of Airframe,
Engines and Parts, including but not
limited to, servicing, testing,
preventive maintenance, repairs,
structural inspections, system checks,
overhauls, approved modifications,
service bulletins, engineering orders,
airworthiness directives, corrosion
control, inspections and treatments.
Maintenance Reserves all amounts payable under Clause 5.4(a).
Major Checks any C-Check, multiple C-Check, D-Check
or annual heavy maintenance visit or
segment thereof suggested for commercial
aircraft of the same model as the
Aircraft by its manufacturer (however
denominated) as set out in Lessee's
Maintenance Program.
Manufacturer Boeing.
Minimum Liability Coverage the amount set forth therefore in Letter
Agreement No. 1.
Mortgage Convention shall mean the Convention for the
International Recognition of Rights in
Aircraft, signed (ad referendum) at
Xxxxxx,
00
Xxxxxxxxxxx, on June 19, 1948, and
amended from time to time, but excluding
the terms of any adhesion thereto or
ratification thereof containing
reservations to which the United States
of America does not accede.
Operative Documents shall mean this Agreement, all Lease
Supplements hereto, Letter Agreement No.
1, the Tax Indemnity Agreement, any
schedules or documents prepared in
conformance to the Schedules hereto, any
side-letters related hereto and any
amendments, revisions, supplements or
modifications hereto or thereto.
Other Agreements any agreement (other than this
Agreement) made or to be made between
Lessor (or an associate or affiliate
thereof or a trustee-lessor acting for
Lessor as beneficiary, including without
limitation Polaris Holding Company) or
GPA Group plc (or an associate or
affiliate thereof) and Lessee (or an
associate or affiliate thereof).
Part whether or not installed on the
Aircraft:-
(a) any component, furnishing or
equipment (other than a complete
Engine) furnished with the Aircraft
on the Delivery Date; and
(b) any other component, furnishing or
equipment (other than a complete
Engine) title to which has, or
should have passed to Lessor
pursuant to this Agreement;
but excludes any such items title
to which has, or should have,
passed to Lessee pursuant to this
Agreement.
Permitted Lien (a) any lien for Taxes not assessed or,
if assessed, not yet due and
payable, or being contested in good
faith by appropriate proceedings;
(b) any lien of a repairer, mechanic,
carrier, hangarkeeper or other
similar
12
lien arising in the ordinary course
of business or by operation of Law
in respect of obligations which are
not overdue or are being contested
in good faith by appropriate
proceedings; and
(c) any Lessor Lien.
but only if (in the case of both (a) and
(b)) (i) adequate resources have been
provided by Lessee for the payment of
the Taxes or obligations; and (ii) such
proceedings, or the continued existence
of the lien, do not give rise to any
likelihood of the sale, forfeiture or
other loss of the Aircraft or any
interest therein or of criminal
liability on Lessor.
Person any individual person, corporation,
partnership, firm, joint stock company,
joint venture, trust, estate,
unincorporated organization,
association, Government Entity, or
organization or association of which any
of the above is a member or a
participant.
Redelivery Location a location on Lessee's route system in
the United States designated by Lessor,
or such other location as Lessor and
Lessee shall agree.
Related Agreements any agreement (other than this
Agreement) made or to be made between or
with Lessor (or an associate or
affiliate thereof or a trustee-lessor
acting for Lessor as beneficiary,
including without limitation Polaris
Holding Company) and Lessee (or an
associate or affiliate of Lessee).
Replacement Engine an engine of the same manufacturer and
model, and having equivalent value,
utility, modification status, time
elapsed since Hot Section Refurbishment
and Cold Section Refurbishment and
remaining warranty status as the Engine
it is intended to replace under Clause
11.1(c), or at Lessee's option,
13
an engine of the same manufacturer as
such Engine but of an improved model,
and otherwise of an equivalent value and
utility and suitable for installation
and use on the Airframe without
impairing the value or utility of the
Airframe and compatible with the
remaining installed Engine.
Rent all amounts payable pursuant to Clause
5.3.
Rental Period each period ascertained in accordance
with Clause 5.2.
Rent Date the first day of each Rental Period.
Return Occasion the date on which the Aircraft is
redelivered to Lessor in accordance with
Clause 12 hereof.
Scheduled Delivery Month August, 1997.
Security Interest any mortgage, charge, pledge, lien,
assignment, hypothecation, right of set-
off or any agreement or arrangement
having the effect of creating a Security
Interest other than a Permitted Lien.
State of Incorporation State of Colorado.
State of Registration United States of America.
Subsidiary (a) in relation to any reference to
accounts, any company whose
accounts are consolidated with the
accounts of Lessee in accordance
with GAAP;
(b) for any other purpose an entity
from time to time:-
(i) of which another has direct
or indirect control or owns
directly or indirectly more
than 50 per cent of the
voting share capital; or
(ii) which is a direct or indirect
subsidiary of another under
14
the laws of the jurisdiction
of its incorporation.
Tax Indemnity Agreement the Tax Indemnity Agreement of even date
herewith between Lessee and Lessor
pertaining to U.S. Federal Income Taxes
and Lessee operations outside the United
States of America.
Taxes any and all present and future taxes,
duties, withholdings, levies,
assessments, imposts, fees and other
governmental charges of all kinds
together with any penalties, fines,
surcharges and interest thereon and any
additions thereto.
Term the period commencing on the Delivery
Date and ending on the Expiry Date,
except that the Term may be extended
beyond the Expiry Date if the Return
Occasion is delayed in the circumstances
specified, and subject to the limitation
described, in Clause 12.3.
United States the United States of America
Warrant the warrant referred to in Clause
3.1(a)(xii).
Wet Lease any arrangement whereby Lessee agrees to
furnish the Aircraft to a third party
pursuant to which the Aircraft (i) shall
be solely within the operational control
of Lessee and shall be operated solely
by regular employees of Lessee
possessing all current certificates and
licenses that would be required under
the Federal Aviation Act for the
performance by such employees of similar
functions within the United States of
America, (ii) shall be maintained by
Lessee in accordance with Lessee's
Maintenance Program and (iii) shall be
and remain subject and subordinate to
all other terms and conditions of this
Agreement; provided, however, that
Lessee shall remain primarily liable for
the performance of all of the terms of
this Agreement (including, without
limitation, its obligations set forth in
Clause
15
9 of this Agreement) to the same extent
as if such arrangement had not been
entered into.
16
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a reference
to:-
(i) each of "Lessor" or "Lessee" or any other person includes without
prejudice to the provisions of this Agreement any successor in title
to it and any permitted assignee;
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated or
supplemented;
(iv) a Clause or a Schedule is a reference to a clause of or a schedule
to this Agreement;
(v) a reference to "Agreement", "the Agreement" or "this Agreement"
shall, unless expressly provided otherwise, mean and include this
Aircraft Lease Agreement and each of the other Operative Documents;
and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and warrants to
Lessor that:-
(a) Status: Lessee is a corporation duly incorporated and validly existing
under the laws of the State of Incorporation and has the corporate power to
own its assets and carry on its business as it is being conducted and is
the holder of all necessary air transportation licenses required in
connection therewith and with the use and operation of the Aircraft;
(b) Power and authority: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) Legal validity: this Agreement has been duly entered into and delivered by
Lessee, and this Agreement does, and the Operative Documents when executed
and delivered by Lessee will, constitute legal, valid and binding
obligations of Lessee, enforceable in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting the enforcement
of creditors' rights generally, and, to the extent that certain remedies
require or may require enforcement by a court of equity, by such principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law) as a court having jurisdiction may impose
and by Laws which may affect some of such remedies but which do not make
the available remedies inadequate for the substantial realization of the
benefits provided herein;
17
(d) Non-conflict: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding
upon Lessee or any of its assets nor result in the creation of any
Security Interest over any of its assets;
(e) Authorization: all authorizations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are (or
will on their being obtained or effected be) in full force and effect;
(f) No Immunity:
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of this Agreement by
Lessee constitute private and commercial acts;
(g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries
most recently delivered to Lessor, including balance sheets and statements
of income and retained earnings:-
(i) have been prepared in accordance with GAAP; and
(ii) fairly represent the consolidated financial condition of Lessee and
its Subsidiaries as at the date to which they were drawn up;
(h) Restricted Countries: Lessee does not hold a contract or other obligation
to operate the Aircraft to or for any of the countries designated under
U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without
limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb
controlled areas of the Republic of Bosnia and Herzegovina and the Unita
Rebels of Angola.
(i) Chief Executive's Office: Lessee's Chief Executive Office (as that term is
defined in Article 9 of the Uniform Commercial Code as in effect in the
State of Colorado) is located at 00000 Xxxx 00xx Xxxxxx, Xxxxxx, Xxxxxxxx,
Xxxxxx Xxxxxx of America;
(j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and Lessor,
as lessor of the Aircraft to Lessee, is entitled to the benefits of Section
1110 of Title 11 of the United States Code with respect to the Aircraft;
and
18
(j) Citizen of the United States: Lessee is a "citizen of the United States"
as defined in Section 40102 of Title 49 of the United States Code.
2.2 Lessee's Further Representations and Warranties: Lessee further represents
and warrants to Lessor that:-
(a) No Default:
(i) no Default has occurred and is continuing or might result from the
entry into or performance of the Operative Documents; and
(ii) no other event or condition has occurred and is continuing which
constitutes (or with the giving of notice, lapse of time,
determination of materiality or the fulfillment of any other
applicable condition or any combination of the foregoing, might
constitute) a material default under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, lease,
bank loan or credit agreement or other agreement which is binding on
Lessee or any assets of Lessee;
(b) Registration:
(i) except for the filing for recordation of this Agreement and a Lease
Supplement with the FAA, and the filing of any Financing Statements
required (and continuation statements at periodic intervals), no
further filing or recording of this Agreement or of any other
document (including any financing statement under Article 9 of the
Uniform Commercial Code) and no further action, is or will be
necessary under the Laws of the United States, the State of
Incorporation, and the State of Registration, the Habitual Base or
any other states in order to (A) fully establish, perfect and
protect Lessor's title to, and interest in, the Aircraft or any
Engine or Part as against Lessee or any third party, or (B) ensure
the validity, effectiveness and enforceability of this Agreement or
any other Operative Document to which the Lessee is a party; and
(ii) under the laws of the State of Incorporation, the State of
Registration and the Habitual Base the property rights of Lessor in
the Aircraft have been fully established, perfected and protected
and this Agreement will have priority in all respects over the
claims of all creditors of Lessee;
(c) Litigation: no litigation, arbitration or administrative proceedings are
pending or to its knowledge threatened against Lessee which, if adversely
determined, would have a material adverse effect upon its financial
condition or business or its ability to perform its obligations under this
Agreement;
(d) Pari Passu: the obligations of Lessee under the Operative Documents rank at
least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of Lessee,
with the exception of such obligations as are mandatorily preferred by law
and not by virtue of any contract;
19
(e) Material Adverse Change: there has been no material adverse change in the
consolidated financial condition of Lessee and its Subsidiaries or the
financial condition of Lessee since the date to which the accounts most
recently provided to Lessor on or prior to the Delivery Date were drawn up;
(f) Taxes: Lessee has delivered all necessary returns and payments due to the
tax authorities in the State of Incorporation, the State of Registration
and the Habitual Base and is not required by Law to deduct any Taxes from
any payments under this Agreement;
(g) Information: the financial and other information furnished by Lessee in
connection with this Agreement does not contain any untrue statement or
omit to state facts, the omission of which makes the statements therein, in
the light of the circumstances under which they were made, misleading, nor
omits to disclose any material matter to Lessor and all forecasts and
opinions contained therein were honestly made on reasonable grounds after
due and careful inquiry by Lessee; and
(h) ERISA: Lessee is not engaged in any transaction in connection with which it
could be subjected to either a civil penalty assessed pursuant to Section
502 of ERISA or any tax imposed by Section 4975 of the Internal Revenue
Code; no material liability to the Pension Benefit Guaranty Corporation has
been or is expected by Lessee to be incurred with respect to any employee
pension benefit plan (as defined in Section 3 of ERISA) maintained by
Lessee or by any trade or business (whether or not incorporated) which
together with Lessee would be treated as a single employer under Section
4001 of ERISA and Section 414 of the Internal Revenue Code; there has been
no reportable event (as defined in Section 4043(b) of ERISA) with respect
to any such employee pension benefit plan; no notice of intent to terminate
any such employee pension benefit plan has been filed or is expected to be
filed, nor has any such employee pension benefit been terminated; no
circumstance exists or is anticipated that constitutes or would constitute
grounds under Section 4042 of ERISA for the Pension Benefit Guaranty
Corporation to institute proceedings to terminate, or to appoint a trustee
to manage the administration of, such an employee pension benefit plan; and
no accumulated funding deficiency (as defined in Section 302 of ERISA or
Section 412 of the Internal Revenue Code), whether or not waived, exists
with respect to any such employee pension benefit plan.
2.3 Repetition: The representations and warranties in Clause 2.1 and Clause 2.2
will survive the execution of this Agreement. The representations and
warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be
repeated by Lessee on the Delivery Date with reference to the facts and
circumstances then existing. The representations and warranties contained
in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as
if made with reference to the facts and circumstances then existing.
2.4 Lessor's Representations and Warranties: Lessor represents and warrants to
Lessee that:-
20
(a) Status: Lessor is a company duly incorporated and validly existing under
the laws of the State of New York and has the corporate power to own its
assets and carry on its business as it is now being conducted;
(b) Power and authority: Lessor has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorize the
entry into, performance and delivery of, the Operative Documents and the
transactions contemplated by the Operative Documents;
(c) Legal validity: the Operative Documents constitute Lessor's legal, valid
and binding obligation;
(d) Non-conflict: the entry into and performance by Lessor of, and the
transactions contemplated by, the Operative Documents do not and will not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any of
its assets;
(e) Authorization: so far as concerns the obligations of Lessor, all
authorizations, consents, registrations and notifications required under
the laws of the State of New York in connection with the entry into,
performance, validity and enforceability of, and the transactions
contemplated by, the Operative Documents by Lessor have been (or will on or
before the Delivery Date have been) obtained or effected (as appropriate)
and are (or will on their being obtained or effected be) in full force and
effect; and
(f) No Immunity:
(i) Lessor is subject to civil commercial law with respect to its
obligations under the Operative Documents; and
(ii) neither Lessor nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Operative
Documents by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 Conditions Precedent: Lessor's obligation to deliver and lease the Aircraft
under this Agreement is subject to satisfaction of each of the following
conditions:-
(a) receipt by Lessor from Lessee not later than 5 Business Days prior to the
Delivery Date of the following satisfactory in form and substance to
Lessor:-
(i) Constitutional Documents: a copy of the constitutional documents of
Lessee including without limitation articles of incorporation,
bylaws and a current certificate of good standing issued by the
secretary of the state for the State of Incorporation;
21
(ii) Resolutions: a copy of a resolution of the board of directors of
Lessee approving the terms of, and the transactions contemplated by,
this Agreement, resolving that it enter into this Agreement, and
authorizing a specified person or persons to execute this Agreement
and the other Operative Documents and accept delivery of the
Aircraft on its behalf;
(iii) Opinion: evidence that opinions substantially in the form of
Schedule 5 will be issued on the Delivery Date by legal counsel
acceptable to Lessor;
(iv) FAA Opinion: a draft of an opinion of Xxxxx & Xxxxxxx P.C. or other
counsel acceptable to Lessor who are recognized specialists with
regard to FAA registration matters in form acceptable to Lessor as
to the due filing for recordation of this Agreement, to be delivered
in executed final form to Lessor and Lessee upon such filing and
recordation;
(v) Approvals: evidence of the issue of each approval, license and
consent which may be required in relation to, or in connection with,
the performance by Lessee of any of its obligations hereunder
(including, without limitation, any consent to the export of the
Aircraft from the Habitual Base and consent to the deregistration of
the Aircraft upon the termination of the leasing of the Aircraft
under this Agreement);
(vi) Licenses: copies of Lessee's Certificate of Convenience and
Necessity, Radio License, FAR Part 121 operator's certificates and
all other licenses, certificates and permits required by Lessee in
relation to, or in connection with, the operation of the Aircraft;
(vii) Process Agent: a letter from the process agent appointed by Lessee
in this Agreement accepting that appointment;
(viii) Certificate: a certificate of a duly authorized officer of Lessee:-
(a) setting out a specimen of each signature referred to in Clause
3.1(a)(ii);
(b) certifying that each copy document specified in this Clause is
correct, complete and in full force and effect;
(c) certifying that Lessee's representations and warranties
contained in Clause 2.1 and 2.2 are true and correct on the
Delivery Date as if given on such date; and
(d) certifying that there has been no material change in Lessee's
Constitutional Documents since originally delivered by Lessee
to Lessor;
(ix) Air Traffic Control: a letter from Lessee addressed to Transport
Canada or other relevant air traffic control authority pursuant to
which Lessee authorizes
22
the addressee to issue to Lessor, upon Lessor's request from time to
time, a statement of account of all sums due by Lessee to the
authority in respect of all aircraft (including, without limitation,
the Aircraft) operated by Lessee;
(x) Deregistration Power: an irrevocable power of attorney authorizing
Lessor or such other person as Lessor may from time to time specify
to do any thing or act or to give any consent or approval which may
be required to obtain deregistration of the Aircraft and to export
the Aircraft from the Habitual Base upon termination of the leasing
of the Aircraft under this Agreement, duly notarized and legalized;
(xi) Certificate of Lease Termination: a certificate of lease termination
executed by a duly authorized officer of Lessee, substantially in
the form of Schedule 7 hereto, acknowledging that this Agreement is
no longer in effect with respect to the Aircraft and Engines, which
certificate Lessor will hold in escrow to be filed at the FAA upon
the expiration of the Term or other termination of the leasing of
the Aircraft to the Lessee hereunder.
(xii) Warrant: evidence of the grant by Lessee to Lessor of a warrant
entitling Lessor to purchase 55,000 shares of Lessee's common stock
no par value at an aggregate purchase price for all such shares of
$385,000, such shares carrying demand registration rights by Lessor
and such other rights as Lessor may require, to be set forth in a
side letter dated as of the date of this Agreement concerning such
warrant. It is understood and acknowledged that upon delivery of the
Aircraft, such warrant shall be deemed solely as additional
consideration to induce Lessor to deliver the Aircraft to Lessee and
shall then and thereafter cease to have any attribute or character
of a security or other deposit. Such warrant shall expire at 5:00
p.m. Denver, Colorado, local time on the Expiry Date;
(xiii) Side Letter Concerning Warrant: a side letter dated as of the date
of this Agreement concerning the issuance of a Warrant for the
purchase by Lessor of shares of Lessee's common stock as set forth
in subclause (xii) above in form and substance satisfactory to
Lessor;
(xiv) Documentary Fee: the $5,000 documentary fee specified in Clause
16.9(e); and
(xv) General: such other documents as Lessor may reasonably request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) Opinions: a signed original of each of the opinions referred to in
Clause 3.1(a)(iii) and 3.1(a)(iv);
(ii) Payments: all sums due to Lessor under this Agreement on or before
the Delivery Date including, without limitation, the first payment
of Rent;
23
(iii) Insurances: certificates of insurance, an undertaking from Lessee's
insurance broker and other evidence satisfactory to Lessor that
Lessee is taking the required steps to ensure due compliance with
the provisions of this Agreement as to Insurances with effect on and
after the Delivery Date;
(iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be
dated the Delivery Date, fully completed and executed by Lessor and
Lessee, and filed for recording at the FAA;
(v) Certificate of Technical Acceptance: in the form of Schedule 2
hereto, to be dated and fully completed, and executed by Lessor and
Lessee certifying that Lessee has completed its inspection of the
Aircraft in accordance with Clause 4.5 hereof and that Aircraft
conforms to the provisions set forth therein and is in all respects
acceptable to Lessee, or if not so acceptable, then setting forth
discrepancies and corrective action to be taken;
(vi) Accounts: the latest available accounts of Lessee as described in
Clause 8.2(b)(i) and (ii);
(vii) Documents: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Delivery Date;
(viii) UCC-1 Financing Statements: in form acceptable to Lessor, and
suitable for filing in the States of Colorado and California and
signed by Lessee; and
(ix) General: such other documents as Lessor may reasonably request.
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Program as Lessor may require and Lessor having agreed
the proposed Maintenance Program on or prior to the Delivery Date; and
(d) evidence that on the Delivery Date that all filings, registrations,
recordings and other actions have been or will be taken which are necessary
or advisable to ensure the validity, effectiveness and enforceability of
this Agreement and the Assignments and to protect the property rights of
Lessor in the Aircraft or any Part.
3.2 Further conditions precedent: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are
correct and would be correct if repeated on delivery of the Aircraft under
this Agreement; and
(b) no Default has occurred and is continuing or might result from the leasing
of the Aircraft to Lessee under this Agreement.
3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole
benefit of Lessor and may be waived or deferred in whole or in part and
with or without conditions by Lessor. If any of those conditions are not
satisfied on the Delivery Date and Lessor
24
(in its absolute discretion) nonetheless agrees to deliver the Aircraft to
Lessee, Lessee will ensure that those conditions are fulfilled within 15 days
after the Delivery Date and Lessor may treat as an Event of Default the failure
of Lessee to do so.
25
4. COMMENCEMENT
4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the
Aircraft on lease in accordance with this Agreement for the duration of the
Term. Lessor will deliver and Lessee will accept the Aircraft on the day in
the Scheduled Delivery Month notified by Lessor to Lessee at least 5
Business Days in advance of such date or such other day as may be agreed.
In the event (a) Lessee is unwilling or unable to accept delivery of the
Aircraft on the date notified by Lessor as the Delivery Date, and (b) the
Aircraft meets Delivery Condition Requirements then Lessee's obligation to
pay Rent hereunder shall commence on such Delivery Date notwithstanding
that Lessee has not accepted possession of the Aircraft. After delivery the
Aircraft and every Part will be in every respect at the sole risk of
Lessee, who will bear all risk of loss, theft, damage or destruction to the
Aircraft from any cause whatsoever.
4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the
Delivery Location or such other location as may be agreed. Lessee will
effect acceptance of the Aircraft by execution and delivery to Lessor of
the duly completed and executed Certificate of Acceptance in the form of
Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the
form of Schedule 6 hereto and by authorizing the filing at the FAA of an
executed copy of such Lease Supplement with an executed copy of this
Agreement attached thereto.
4.3 Delayed Delivery: If owing to:-
(a) any seller, manufacturer or existing lessee of the Aircraft delaying in the
delivery of, or failing to deliver, the Aircraft to Lessor for any reason
(other than because of any default of Lessor in the performance of its
obligations under an agreement with that seller, manufacturer or lessee
unless the default arises from any act or omission of Lessee) whether or
not in circumstances entitling that seller, manufacturer or lessee to
terminate that agreement;
(b) any purchase agreement for the Aircraft terminating prior to delivery of
the Aircraft (other than because of any default of Lessor in the
performance of its obligations under that agreement unless the default
arises from any act or omission of Lessee);
(c) any Excusable Delay; or
(d) notification of any defect or non-conformity pursuant to Clause 4.5; Lessor
delays in the delivery of, or fails to deliver, the Aircraft under this
Agreement:-
(i) Lessor will not be responsible for any losses, including loss of
profit, costs or expenses arising from or in connection with the
delay or failure suffered or incurred by Lessee;
(ii) subject to Clause 4.5, Lessee will not be entitled to terminate this
Agreement or to reject the Aircraft when tendered for delivery by
Lessor, on the grounds of any such delay;
26
(iii) in the case of termination of a purchase agreement, Lessor may at
any time after the termination terminate this Agreement; and
(iv) upon any such termination or termination pursuant to Clause 4.5
neither Lessor nor Lessee will have any further obligation to the
other under this Agreement other than as expressly set out in this
Agreement, except that Lessor will repay to Lessee the Deposit and
shall return the warrant certificate representing the Warrant.
4.4 Licenses: Lessee will at its expense obtain all licenses, permits and
approvals which may be necessary to export the Aircraft from the Delivery
Location. Lessor will furnish such data and information as may be
reasonably requested by Lessee in connection with obtaining any such
license, permit or approval.
4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase
or lease agreement, Lessor will give Lessee an opportunity:-
(a) to inspect the Aircraft at the Delivery Location; and
(b) to assign up to 2 representatives to participate as observers in a
demonstration flight to demonstrate the condition of the Aircraft.
If Lessee notifies Lessor promptly prior to the Delivery Date of any defect
or non-conformity with Schedule 1 observed during the inspection or
demonstration flight, Lessor will correct or procure the correction of the
defect or non-conformity as promptly as practicable (except to the extent
otherwise agreed or to the extent in the opinion of Lessor it is
impracticable or prohibitively expensive to do so). Subject to Clause 4.3,
Lessor may postpone the Delivery Date in such a case to the date which
Lessor notifies Lessee that the defect or non-conformity has been
rectified. Lessee will be entitled to terminate this Agreement if Lessor
notifies it that Lessor does not intend to correct the defect or non-
conformity.
4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from and
against all Claims (as defined in Clause 10) arising from death or injury
to any observer or any employee of Lessee in connection with any
demonstration flight or inspection of the Aircraft by Lessee.
5. PAYMENTS
5.1 Deposit: Lessee shall pay to Lessor a Deposit in the amounts set forth in
the definition of that term in Letter Agreement No. 1 and in accordance
with the schedule set forth therein. So long as no Default or Event of
Default then exists, Lessor shall refund to Lessee all Deposits then held
by Lessor upon return and final acceptance of the Aircraft by Lessor on the
Expiry Date or promptly after receipt of the Agreed Value after an Event of
Loss.
5.2 Rental Periods: The Term will consist of consecutive whole or partial
Rental Periods set forth in Letter Agreement No. 1. The first Rental Period
will commence on the
27
Delivery Date and each subsequent Rental Period will commence on the date
succeeding the last day of the previous Rental Period. Each Rental Period
will end on the date immediately preceding the calendar day in the next
month numerically corresponding to the Delivery Date, except that:
(a) if there is no such numerically corresponding day in that month, it will
end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will end on
the Expiry Date.
5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in
advance in the amount specified as "Rent" in Letter Agreement No. 1.
Payment must be initiated adequately in advance of the Rent Date to ensure
that Lessor receives credit for the payment on the Rent Date. If a Rental
Period begins on a non-Business Day, the Rent payable in respect of that
Rental Period shall be paid on the Business Day immediately preceding the
date on which such Rental Period commences.
5.4 Maintenance Reserves:
(a) Amount: Lessee will further pay to Lessor Maintenance Reserves in relation
to each calendar month or portion thereof during the Term and for the last
Rental Period of the Term no later than the 10th day following the end of
such calendar month as follows:-
(i) in respect of the Airframe, the product of the Airframe Maintenance
Reserve Rate specified in Letter Agreement No. 1 and the number of
Flight Hours operated by the Aircraft during that calendar month
("Airframe Maintenance Reserves"); and
(ii) in respect of the life-limited Parts ("LLP") for each Engine, the
product of the Life-Limited Parts Reserve Rate specified in Letter
Agreement No. 1 and the number of Engine Flight Hours (or fraction
thereof) operated by the Engine during that calendar month ("Engine
LLP Refurbishment Reserves"); and
(iii) in respect of Engine Refurbishment for each Engine, the product of
the Engine Refurbishment Reserve Rate specified in Letter Agreement
No. 1 and the number of Engine Flight Hours (or fraction thereof)
operated by the Engine during that calendar month ("Engine
Refurbishment Reserves"); and
(iv) in respect of the Landing Gear, the product of the Landing Gear
Reserve Rate specified in Letter Agreement No. 1 and the number of
Flight Hours operated by the Landing Gear during that calendar month
("Landing Gear Maintenance Reserves").
(b) Adjustment: Lessor may adjust the amount of Maintenance Reserves after the
Delivery Date upon notice to Lessee not more frequently than annually
utilizing the Escalation Adjustment set forth in Letter Agreement No. 1.
The Engine Reserve Rate may be
28
further adjusted not more frequently than annually as provided in Section
III of Letter Agreement No. 1.
5.5 Payments: All payments by Lessee to Lessor under this Agreement will be
made for value on the due date in Dollars and in same day funds settled
through the New York Clearing House System or such other funds as may for
the time being be customary for the settlement in New York City of
international payments in Dollars by telegraphic transfer to Bank of
America, San Francisco, California, ABA No. 000-000-000, Account No. 14993-
03400 or to such other account as Lessor may advise Lessee in writing.
5.6 Withholding: All payments by Lessee pursuant to the Operative Documents
shall be free of all withholdings of any nature whatsoever except to the
extent otherwise required by Law, and if any such withholding is so
required, Lessee shall pay on an After-Tax Basis an additional amount such
that after the deduction of all amounts required to be withheld, the net
amount actually received by Lessor on an After-Tax Basis will equal the
amount that Lessor would have received on an After-Tax Basis if such
withholding had not been required; provided, however, that if Lessee pays
any such additional amount to compensate for the withholding of any Lessor
Tax, Lessor shall repay to Lessee within 30 days after receipt of Lessee's
written request therefor (which request shall include a description in
reasonable detail of the Lessor Tax involved and the calculation of the
additional amount to be repaid) the amount of such additional amount to the
extent attributable to any Lessor Tax.
5.7 General Tax Indemnity:
General:
(i) Lessee will on demand pay and indemnify each Indemnitee against all
Taxes (other than Lessor Taxes) levied or imposed against or upon or
payable by such Indemnitee or Lessee and arising from, with respect
to or in connection with the transactions pursuant to the Operative
Documents (except for the Warrant and the side letter dated as of
March 25, 1997 specifically relating thereto, but save in so far as
any indemnity by Lessee in respect of Taxes is specifically provided
for therein, including (but not limited to) all Taxes relating or
attributable to Lessee, any Operative Document or the Aircraft
directly or indirectly in connection with the importation,
exportation, registration, ownership, leasing, sub-leasing,
purchase, delivery, possession, use, operation, repair, maintenance,
overhaul, transportation, landing, storage, presence or redelivery
of the Aircraft or any part thereof or any rent, receipts, insurance
proceeds, income or other amounts arising therefrom.
(ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by
Lessee directly to the appropriate taxing authority (to the extent
permitted by applicable Law) at or before the time prescribed by
applicable Law. After any payment by Lessee of any Tax directly to a
taxing authority, Lessee shall furnish to Lessor, on request, a
certified copy of a receipt for Lessee's payment
29
of such Tax or such other evidence of payment of such Tax as is
reasonably obtainable by Lessee and reasonably acceptable to Lessor.
(iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause 5.7
shall be paid within ten days after receipt of a written demand
therefor from the relevant Indemnitee accompanied by a written
statement describing in reasonable detail the basis for such
indemnity and the computation of the amount so payable, provided
that if an amount of any indemnified Tax is being contested in
accordance with Clause 5.12 and Lessee shall have duly performed
(and shall continue to perform) all its obligations under Clause
5.12 with respect to such contest, then payment of the indemnity
with respect to such Tax under Clause 5.12 shall , at Lessee's
election, be deferred until the date the contest has been completed.
5.8. Sales and Use Taxes:
(a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if
requested by Lessor, Lessee shall pay to the relevant tax authority for the
account of Lessor), in addition to the amounts specified as "Rent" in
Letter Agreement No. 1:
(i) all sales, use, rental, value added, goods and services and similar
taxes ("Sales Taxes") required to be paid to the tax authority of
the jurisdiction in which the Delivery Location is situated or to
the jurisdiction in which the Aircraft is habitually based with
respect to the lease of the Aircraft to Lessee pursuant to the
Operative Documents unless Lessee delivers to Lessor on or prior to
the Delivery Date such exemption certificate or other document as
may be acceptable to Lessor to evidence Lessee's entitlement to
exemption from all Sales Taxes imposed by such jurisdiction with
respect to the lease of the Aircraft pursuant to the Operative
Documents; and
(ii) all Sales Taxes required to be paid to the tax authority of any
jurisdiction in which the Aircraft may be used, operated or
otherwise located from time to time unless Lessee delivers to Lessor
such exemption certificates or other documents as may be required by
applicable Law to evidence Lessee's entitlement to exemption from
all Sales Taxes imposed by each such jurisdiction with respect to
the lease of the Aircraft pursuant to the Operative Documents.
(b) Lessee will cooperate with Lessor in connection with the preparation and
filing of any exemption application or similar document that is reasonably
necessary or desirable under applicable Law to avoid the imposition of any
Sales Taxes with respect to the transactions contemplated by the Operative
Documents.
(c) The specific obligations with respect to sales and use taxes set forth in
this Clause 5.8 are in addition to, and are not in substitution for, the
Lessee's obligation to indemnify for sales and use taxes pursuant to Clause
5.7.
30
5.9 Information:
(a) If Lessee is required by any applicable Law, or by any third party, to
deliver any report or return in connection with any Taxes for which Lessee
would be obligated to indemnify Lessor under the Operative Documents,
Lessee will complete the same and, on request, supply a copy of the report
or return to Lessor.
(b) If any report, return or statement is required to be made by Lessor with
respect to any Tax for which there is an indemnity obligation of Lessee
under this Clause 5, Lessee will promptly notify Lessor of the requirement
and:
(i) if permitted by applicable Law, make and timely file such report,
return or statement (except for any report, return or statement that
Lessor has notified Lessee that Lessor intends to prepare and file),
prepare such return in such manner as will show the ownership of the
Aircraft in Lessor if required or appropriate, and provide Lessor upon
request a copy of each such report, return or statement filed by
Lessee, or
(ii) if Lessee is not permitted by applicable Law to file any such report,
return or statement, Lessee will prepare and deliver to Lessor a
proposed form of such report, return or statement within a reasonable
time prior to the time such report, return or statement is to be
filed.
Lessee will provide such information and documents as Lessor may reasonably
request to enable Lessor to comply with its tax filing, audit and
litigation obligations.
5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that,
with respect to any payment or indemnity pursuant to Clause 5.7 (Tax
Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to or
for the benefit of any Indemnitee, Lessee's indemnity obligations shall
include such amount as may be necessary to hold such Indemnitee harmless on
an After-Tax Basis from all Taxes required to be paid by such Indemnitee
with respect to such payment or indemnity (including any payments pursuant
to this Clause 5.10), determined based on the assumption that at the time
each such payment or indemnity accrues to the relevant Indemnitee, such
payment or indemnity will be subject to (i) United States Federal income
tax at the highest marginal statutory tax rate applicable to corporations,
(ii) United States state and local income taxes at the composite of the
highest marginal statutory tax rates applicable to the Indemnitee and (iii)
income taxes (if any) imposed by countries outside the United States at the
actual rates imposed on the relevant Indemnitee.
5.11 Default Interest: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time to
Lessor interest (both before and after judgment) on that amount, from the
due date to the date of payment in full by Lessee to Lessor, at the
Interest Rate specified in Letter Agreement No. 1; provided, however, that
in no event shall such rate exceed the maximum permitted by Law. All such
interest will be compounded monthly and calculated on the basis of the
actual number of days elapsed in the month assuming a 30 day month and a
360 day year.
31
5.12 Contest:
(a) If an Indemnitee receives a written claim for any Tax for which Lessee
would be required to pay an indemnity pursuant to Clause 5.7 or Clause 5.8,
such Indemnitee shall notify Lessee promptly of such claim, provided that
any failure to provide such notice will not relieve Lessee of any
indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If
requested by Lessee in writing promptly after receipt of such Indemnitee's
notice, such Indemnitee shall, upon receipt of indemnity satisfactory to it
and at the expense of Lessee (including, without limitation, all costs,
expenses, legal and accountants' fees and disbursements, and penalties,
interest and additions to tax incurred in contesting such claim) in good
faith contest or (if permitted by applicable Law) permit Lessee to contest
such claim by (i) resisting payment thereof if practicable and appropriate,
(ii) not paying the same except under protest if protest is necessary and
proper, or (iii) if payment is made, using reasonable efforts to obtain a
refund of such Taxes in appropriate administrative and judicial
proceedings. Such Indemnitee shall determine the method of any contest
conducted by such Indemnitee and (in good faith consultation with Lessee)
control the conduct thereof. Lessee shall determine the method of any
contest conducted by Lessee and (in good faith consultation with such
Indemnitee) control the conduct thereof. Lessee shall pay in full all
payments of Rent and other amounts payable pursuant to the Operative
Documents, without reduction for or on account of any Tax, while such
contest is continuing. Such Indemnitee shall not be required to contest,
or to continue to contest, a claim for Taxes under this Clause 5.12 if (x)
such contest would result in a risk of criminal penalties or of a sale,
forfeiture or loss of, or the imposition of a Lien (other than a Permitted
Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion
of independent tax counsel selected by such Indemnitee and reasonably
satisfactory to Lessee, that a reasonable basis exists for such contest, or
(z) a Default or an Event of Default shall be continuing (unless Lessee
shall have provided security reasonably satisfactory to such Indemnitee
securing Lessee's performance of its obligations under this Clause 5). If
such Indemnitee contests any claim for Taxes by making a payment and
seeking a refund thereof, then Lessee shall advance to such Indemnitee, on
an interest-free basis, an amount equal to the Taxes to be paid by such
Indemnitee in connection with the contest and shall indemnify such
Indemnitee on an After-Tax Basis for any adverse tax consequences to such
Indemnitee of such interest-free advance. Upon the final determination of
any contest pursuant to this Clause 5.12 in respect of any Taxes for which
Lessee shall have made an advance to such Indemnitee in accordance with the
immediately preceding sentence, the amount of Lessee's obligation shall be
determined as if such advance had not been made; any indemnity obligation
of Lessee to such Indemnitee under this Clause 5 and such Indemnitee's
obligation to repay the advance will be satisfied first by setoff against
each other, and any difference owing by either party shall be paid within
ten days after such final determination.
(b) If an Indemnitee obtains a refund of all or any part of any Taxes for which
a full indemnity was paid by Lessee, such Indemnitee shall pay Lessee the
amount of such refund, reduced by any Taxes imposed on such Indemnitee on
receipt or accrual of such refund and increased by any Taxes saved by such
Indemnitee by reason of the deductibility of such payment by such
Indemnitee. If, in addition to such refund, such
32
Indemnitee receives an amount of interest on such refund, such Indemnitee
shall pay to Lessee the portion of such interest which is fairly
attributable to such refund, reduced by any Taxes imposed on such
Indemnitee on receipt or accrual of such interest and increased by any
Taxes saved by reason of the deductibility of such payment by such
Indemnitee. Such Indemnitee shall not be required to make any payment to
Lessee pursuant to this Clause 5.12 if, and for so long as, an Event of
Default shall have occurred and be continuing.
(c) Any Indemnitee in its sole discretion (by written notice to Lessee) may
waive its rights to indemnification pursuant to Clause 5.7 with respect to
any claim for any Tax and may refrain from contesting or continuing the
contest of such claim, in which event Lessee shall have no obligation to
indemnify such Indemnitee for the Taxes that are the subject of such claim.
If an Indemnitee agrees to a settlement of any contest conducted pursuant
to this Clause 5.11 without the prior written consent of Lessee, which
consent shall not be unreasonably withheld, then Lessor shall be deemed to
have waived its rights to the indemnification provided for in Clause 5.7
with respect to the Tax liability accepted in such settlement.
5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this
Agreement are absolute and unconditional irrespective of any contingency
whatsoever including (but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defense or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against Lessee's
use, operation or possession of the Aircraft;
(c) any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition, design,
or operation of any kind or nature of the Aircraft for any particular use
or trade, or for registration or documentation under the laws of any
relevant jurisdiction, or any Event of Loss in respect of or any damage to
the Aircraft;
(d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceedings by or against Lessor
or Lessee;
(e) any invalidity or unenforceability or lack of due authorization of, or
other defect in, this Agreement;
(f) and Security Interests with respect to the Aircraft or Taxes; and/or
(g) any other cause which but for this provision would or might otherwise have
the effect of terminating or in any way affecting any obligation of Lessee
under this Agreement.
5.14 Security
33
(a) To the fullest extent permitted by Law and by way of continuing security
Lessee as sole beneficial owner charges the Deposit and the Maintenance
Reserves and all rights of Lessee to payment thereof and the debt
represented thereby (the "Charged Monies") to Lessor by way of first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Related Agreements (the "Secured Liabilities"). Except
as expressly permitted under this Agreement, Lessee will not be entitled to
payment of the Charged Monies. Lessee will not assign, transfer or
otherwise dispose of all or part of its rights in the Charged Monies and it
will enter into any additional documents and instruments necessary or
advisable to evidence, create or perfect Lessor's rights to the Charged
Monies;
(b) If Lessee fails to comply with any provision of this Agreement or any Event
of Default has occurred and is continuing, in addition to all rights and
remedies accorded to Lessor elsewhere in this Agreement and under Law as a
secured party in respect of the Charged Monies, Lessor may immediately or
at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the payment or
discharge of the Secured Liabilities in such order as Lessor sees fit; and
(c) If Lessor has exercised the set-off described in sub-clause (b) above,
Lessee shall, following a demand in writing from Lessor, restore the
Charged Monies to the level at which they stood immediately prior to such
set-off.
6. MANUFACTURER'S WARRANTIES
6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to
the benefit of each warranty, express or implied, with respect to the
Aircraft, any Engine or Part so far as concerns any manufacturer, vendor,
subcontractor or supplier. Except to the extent Lessor otherwise directs,
Lessor hereby authorizes Lessee to pursue any claim thereunder in relation
to defects affecting the Aircraft, any Engine or Part and Lessee agrees
diligently to pursue any such claim which arises at its own cost. Lessee
will notify Lessor promptly upon becoming aware of any such claim.
6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor but if
and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
34
provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) above only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case,
Lessee will procure that all engines, components, furnishings or equipment
provided by the manufacturer, vendor, subcontractor or supplier in
replacement of a defective Engine or Part pursuant to the terms of any
warranty will be installed promptly by Lessee and that title thereto free
of Security Interests vests in Lessor. On installation each part will be
deemed to be a Part. In the case of a Replacement Engine, Lessee will
satisfy and perform each of the conditions and covenants set forth in
Clause 11.1(c), and upon satisfaction of such conditions, such Replacement
Engine will be deemed an "Engine" for all purposes of this Agreement.
6.4 Agreement: To the extent any warranties relating to the Aircraft are made
available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant
to Clause 6.2 and pending such payment will hold the claim and the proceeds
on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the Term to
ensure the benefit of any of those warranties which have not expired are
vested in Lessor.
7. LESSOR'S COVENANTS
7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession
and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its
rights under or in connection with this Agreement will not constitute such
an interference. Lessor will procure at Lessee's request an undertaking of
quiet enjoyment for the benefit of Lessee with respect to any prospective
Lessor Lien.
7.2 Release of Maintenance Reserves: Provided no Default has occurred and is
continuing Lessor will release funds to Lessee from the Maintenance
Reserves respecting maintenance work performed upon submission by Lessee to
Lessor within 6 months of the commencement of that maintenance and before
the Expiry Date of an invoice and supporting documentation reasonably
satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance (excluding any repairs arising as
the result of operational or maintenance mishandling) characterized by the
Manufacturer's maintenance planning document and best industry practice as
"D" Check and/or individual structural inspections having an interval of
not less than 20,000 Flight Hours or 6 years for the Aircraft or any lesser
interval for an equivalent major structural inspection if required by the
Manufacturer's maintenance planning document subject to retroactive and
prospective adjustment of the Reserve Rates as deemed appropriate by
Lessor, the lesser of (i) the amount of that invoice and (ii) the amount
equal to the aggregate amount of Airframe Maintenance Reserves paid under
this Agreement at the time of
35
commencement of that maintenance less the aggregate amount previously
released by Lessor under this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of all shop visits requiring engine disassembly (other than (i)
repairs arising as a result of foreign object damage or operational or
maintenance mishandling and/or (ii) removal, installation, maintenance and
repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount
of that invoice and (ii) the amount equal to the aggregate amount of Engine
Refurbishment Reserves paid in respect of that Engine under this Agreement
at the time of commencement of that maintenance less the aggregate amount
previously paid in respect of that Engine by Lessor under this sub-clause;
(c) with respect to life limited parts within any Engine, the performance, in
accordance with this Agreement, of any such parts replacement (other than
(i) replacement arising as a result of accidents or incidents (whether or
not eligible for recovery under Lessee's insurance), foreign object damage
or operational or maintenance mishandling and/or (ii) removal,
installation, maintenance and repair of QEC kits) and/or (iii) any elective
parts replacement), the lesser of (i) the amount of that invoice and (ii)
the amount equal to the aggregate of Engine LLP Refurbishment Reserves paid
in respect of that Engine under this Agreement at the time of commencement
of that maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor under this sub-clause; and
(d) with respect to the Landing Gear, the performance in accordance with this
Agreement, of all work on the landing gear in the nature of overhaul and
requiring removal and disassembly (other than repairs arising as the result
of operational or maintenance mishandling), the lesser of (i) the amount of
that invoice and (ii) the amount equal to the aggregate amount of Landing
Gear Maintenance Reserves paid under this Agreement at the time of
commencement of that maintenance less the aggregate amount previously paid
by Lessor under this sub-clause.
7.3 Lessor Obligations Following Expiry Date: Within 5 Business Days of:-
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after the
Delivery Date;
or in each case such later time as Lessor is reasonably satisfied Lessee
has irrevocably paid to Lessor all amounts which may then be outstanding or
become payable under this Agreement, the other Operative Documents or the
Related Agreements and Lessee, Lessor will pay to Lessee:-
(i) the balance of the Deposit; and
(ii) the amount of any Rent received in respect of any period falling after
the date of redelivery of the Aircraft or payment of the Agreed Value, as
the case may
36
be; and shall return to Lessee the warrant certificate, if not
previously exercised, representing the Warrant.
8. LESSEE'S COVENANTS
8.1 Duration: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this Agreement and
thereafter to the extent of any accrued rights of Lessor in relation to
those undertakings.
8.2 Information: Lessee will:-
(a) notify Lessor forthwith of the occurrence of any Default or any other event
which might adversely affect Lessee's ability to perform any of its
obligations under this Agreement;
(b) furnish to Lessor:-
(i) upon request, the consolidated management accounts of Lessee
(comprising a balance sheet and profit and loss statement) prepared
for the most recent previous financial quarter;
(ii) as soon as available but not in any event later than 120 days after
the last day of each financial year of Lessee, its audited
consolidated balance sheet as of such day and its audited
consolidated profit and loss statement for the year ending on such
day;
(iii) at the same time as it is issued to the shareholders or creditors of
Lessee, a copy of each notice or circular issued to Lessee's
shareholders or creditors as a group; and
(iv) on request from time to time such other information regarding Lessee
and its business and affairs as Lessor may reasonably request;
(c) keep Lessor informed as to current serial numbers of the Engines and any
engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part, its
use, location and condition including, without limitation, the hours
available on the Aircraft and any Engine until the next scheduled check,
inspection, overhaul, refurbishment or shop visit, as the case may be;
(e) on request, within 10 days after the end of any Rental Period, furnish to
Lessor evidence satisfactory to Lessor of payment of all Taxes due during
that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all
37
payments due to the relevant air traffic control authorities, have been
paid and discharged in full;
(g) within 7 days after the end of each calendar month during the Term, provide
Lessor with a monthly report on the Aircraft and each Engine in the form
set out in Schedule 8 hereto;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-
(i) any loss, theft, damage or destruction to the Aircraft, any Engine or
any Part, or any modification to the Aircraft if the potential cost
may exceed the Damage Notification Threshold; and
(ii) any claim or other occurrence likely to give rise to a claim under the
Insurances (but in the case of hull claims only in excess of the
Damage Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 Lawful and Safe Operation: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the Aircraft
(including without limitation Laws mandating insurance coverage) or, so far
as concerns the use and operation of the Aircraft or an owner or operator
thereof and take all reasonable steps to ensure that the Aircraft is not
used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of the
manufacturers of the Aircraft, any Engine or any Part or any recommendation
or regulation of the Air Authority or for any purpose for which the
Aircraft is not designed or reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with the
operation and maintenance of the Aircraft have the qualifications and hold
the licenses required by the Air Authority and applicable Law;
(d) use the Aircraft solely in commercial or other operations for which Lessee
is duly authorized by the Air Authority and applicable Law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet animals
carried in a suitable container to prevent the escape of any liquid
and to ensure the welfare of the animal;
38
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under the
"Restriction of Goods" schedule issued by I.A.T.A. from time to time
and provided that all the requirements for packaging or otherwise
contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could reasonably
be expected to cause damage to the Aircraft and which would not be
adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilize the Aircraft for purposes of training, qualifying or re-
confirming the status of cockpit personnel except for the benefit of
Lessee's cockpit personnel, and then only if the use of the Aircraft for
such purpose is not disproportionate to the use for such purpose of other
aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any location
which is for the time being the subject of a prohibition order (or any
similar order or directive) by:-
(i) any Government Entity of the State of Registration or the Habitual
Base; or
(ii) any Government Entity of the country in which such location is
situated; or
(iii) any Government Entity having jurisdiction over Lessor or the
Aircraft;
(h) obtain and maintain in full force all certificates, licenses, permits and
authorizations required for the use and operation of the Aircraft for the
time being, and for the making of payments required by, and the compliance
by Lessee with its other obligations under, this Agreement;
(i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to
or for any country or entity that is the subject of sanctions under the
U.S. International Economic Emergency Powers Act or U.N. Security Council
directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas
of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola).
Lessee also covenants and agrees (i) not to operate or locate, or suffer or
permit to be operated or located, the Aircraft in any country restricted
under the U.S. Trading with the Enemy Act and the U.S. Export
Administration Act except as may be permitted by operating in accordance
with the conditions specified by the U.S. Export Administration Regulations
(15 CFR Parts 730-799), General License GATS (15 CFR Part 771.19)
(presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii) not to
operate the Aircraft between Cuba and the United States; and
(j) not use, operate, or locate the Aircraft, or cause suffer or permit the
Aircraft to be used, operated or located during the Term in any manner not
covered by the Insurances or in any area excluded from coverage by the
Insurances or in any manner which would prejudice the interests of the
Indemnitees in the Insurances, the Aircraft, any Engine or any Part.
39
8.4 Taxes and other Outgoings: Lessee will promptly pay:-
(a) all license and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with respect
to the Aircraft, including without limitation the purchase, ownership,
delivery, leasing, possession, use, operation, return, sale or other
disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts
in respect of any premises where the Aircraft or any Part thereof is
located from time to time;
except to the extent that in the reasonable opinion of Lessor such payment
is being contested in good faith by appropriate proceedings, in respect of
which adequate resources have been provided by Lessee and non-payment of
which does not give rise to any material likelihood of the Aircraft or any
interest therein being sold, forfeited or otherwise lost or of criminal
liability on the part of Lessor.
8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE
AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH
POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE
RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL WORK, OR
ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR PERMITTED
BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS EXPRESSLY
PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE FOR THE
AIRCRAFT, THE ENGINES OR ANY PART FOR A TERM NOT TO CONTINUE BEYOND THE
TERM, ON TERMS CUSTOMARY IN THE INDUSTRY FOR WET LEASES OF SUCH DURATION;
PROVIDED, HOWEVER, THAT LESSEE SHALL REMAIN PRIMARILY LIABLE FOR THE
PERFORMANCE OF ALL OF THE TERMS OF THIS AGREEMENT (INCLUDING WITHOUT
LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8 AND 9) TO THE SAME EXTENT AS IF
SUCH WET LEASE HAD NOT BEEN ENTERED INTO AND PROVIDED, FURTHER, THAT NO
SUCH WET LEASE INVOLVES OR RELATES TO A CONTRACT OR AN OPERATION PROHIBITED
UNDER CLAUSE 2.1(H) HEREOF.
8.6 Inspection:
(a) Lessor and any person designated by Lessor may at any time visit, inspect
and survey the Aircraft, any Engine or any Part and for such purpose may,
subject to any applicable Air Authority regulation, travel on the flight
deck as observer;
(b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable
out-of-pocket expenses incurred by Lessor in connection with any such
visit, inspection or survey; and
(c) Lessor will:-
40
(i) have no duty or liability to make, or arising out of making or failing
to make, any such visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not exercise
such right other than on reasonable notice and so as not to disrupt
unreasonably the commercial operations of Lessee, provided, however,
Lessee will take such action as may be reasonably required to
facilitate Lessor's inspection.
41
8.7 Title: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit to be
omitted to be done any act or thing which might reasonably be expected to
jeopardize the rights of Lessor as owner of the Aircraft;
(b) on all occasions when the ownership of the Aircraft, any Engine or any Part
is relevant, make clear to third parties that title is held by Lessor;
(c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as
carrying goods or passengers on the Aircraft or as being in any way
connected or associated with any operation or carriage (whether for hire or
reward or gratuitously) which may be undertaken by Lessee or (ii) pledge
the credit of Lessor;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7
cm.) in a reasonably prominent position in the cockpit of the Aircraft and
on each Engine stating:-
"This Aircraft/Engine is owned by General Electric Capital Corporation and
is leased to Frontier Airlines, Inc. and may not be operated by any other
person without the prior written consent of General Electric Capital
Corporation";
(e) not create or permit to exist any Security Interest upon the Aircraft, any
Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected to
expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and without
prejudice to the foregoing, if any such penalty, forfeiture, impounding,
detention or appropriation, damage or destruction occurs, give Lessor
notice and use best endeavors to procure the immediate release of the
Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and payable
or make adequate provision by way of security or otherwise for all debts,
damages, claims and liabilities which have given or might give rise to a
Security Interest over or affecting the Aircraft, any Engine or any Part;
and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part; and
(j) obtain a waiver of any mechanic's lien or right thereto from any vendor
providing maintenance services for Lessee prior to delivering the Aircraft
or any Engine or Part to such vendor.
42
8.8 General: Lessee will:-
(a) not make any substantial change in the nature of the business in which it
is engaged, will preserve its corporate existence (other than in connection
with a solvent reconstruction the terms of which have been approved by
Lessor, such approval not to be unreasonably withheld), and will conduct
its business in an orderly and efficient and will maintain all rights,
privileges, licenses and franchises material thereto or material to
performing its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor;
(c) not without giving Lessor 30 days prior notice (in accordance with this
Agreement), change its chief executive office (as such term is defined in
Article 9 of the Uniform Commercial Code as in effect in the State of
Colorado) from 00000 Xxxx 00xx Xxxxxx, Xxxxxx, Xxxxxxxx, 00000, Xxxxxx
Xxxxxx of America;
(d) remain a Certified Air Carrier and maintain, without limitation, its status
so as to fall within the preview of Section 1110 of Title 11 of the United
States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code.
8.9 Records: Lessee will:-
(a) procure that accurate, complete and current records of all flights made by,
and all maintenance carried out on, the Aircraft (including in relation to
each Engine and Part subsequently installed, before the installation) are
kept; keep the records in such manner as the Air Authority may from time to
time require. All records must be maintained in English. The records will
form part of the Aircraft Documents; and
(b) maintain, with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required by applicable Laws and best
practice of major international air transport operators in respect of the
Aircraft.
8.10 Protection: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority reflecting
(so far as permitted by applicable Law) the interest of Lessor and not do
or suffer to be done anything which might adversely affect that
registration; and
(b) do all acts and things (including, without limitation, making any filing or
registration with the Air Authority or any other Government Entity or as
required to comply with the Mortgage Convention where applicable) and
execute and deliver all documents (including, without limitation, any
amendment of this Agreement) as may be required by Lessor:-
43
(i) following any change or proposed change in the ownership or
financing of the Aircraft; or
(ii) following any modification of the Aircraft, any Engine or any Part
or the permanent replacement of any Engine or Part in accordance
with this Agreement, so as to ensure that the rights of Lessor under
this Agreement apply with the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the rights of
Lessor under this Agreement and the interest of Lessor in the
Aircraft.
8.11 Maintenance and Repair: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Maintenance Performer without providing the Lessor with
prior written notice;
(c) not materially change the Lessee's Maintenance Program or the schedule of
the Lessee's Maintenance Program without the prior written consent of
Lessor;
(d) maintain the Aircraft in accordance with Lessee's Maintenance Program
through the Maintenance Performer and perform (at the respective intervals
provided in Lessee's Maintenance Program) all Major Checks;
(e) maintain the Aircraft in accordance with the standard of maintenance
required by FAR Part 121, Subpart L and any other rules and regulations of
the FAA and in at least the same manner and with at least the same care,
including, without limitation, maintenance scheduling, modification status
and technical condition, as is the case with respect to similar aircraft
owned or otherwise operated by Lessee and as if Lessee were to retain and
continue operating the Aircraft in its fleet after the Expiry Date,
including, without limitation, all maintenance to the Airframe, any Engine
or any Part required to maintain all warranties, performance guarantees or
service life policies in full force and effect except to the extent of
conflict with the rules and regulations of the Air Authority;
(f) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or
prior to the Expiry Date) mandatory inspection and modification
requirements, airworthiness directives and similar requirements applicable
to the Aircraft, any Engine or Part having a compliance date during the
Term or within 180 days after the Expiry Date and which are required by the
Air Authority and/or mandated by any manufacturer of the Aircraft, any
Engine or Part (an "Airworthiness Directive);
(g) comply with all applicable Laws and the regulations of the Air Authority
and other aviation authorities with jurisdiction over Lessee or the
Aircraft, any Engine or Part regardless of upon whom such requirements are
imposed and which relate to the maintenance, condition, use or operation of
the Aircraft or require any modification or alteration to the Aircraft, any
Engine or Part;
44
(h) maintain in good standing a current certificate of airworthiness (in the
appropriate category for the nature of the operations of the Aircraft) for
the Aircraft issued by the Air Authority except where the Aircraft is
undergoing maintenance, modification or repair required or permitted by
this Agreement and will from time to time provide to Lessor a copy on
request;
(i) if required by the Air Authority, maintain a current certification as to
maintenance issued by or on behalf of the Air Authority in respect of the
Aircraft and will from time to time provide to Lessor a copy on request;
and
(j) procure promptly the replacement of any Engine or Part which has become
time, cycle or calendar expired, lost, stolen, seized, confiscated,
destroyed, damaged beyond repair, unserviceable or permanently rendered
unfit for use, with an engine or part complying with the conditions set out
in Clause 8.13(a) and in the case of any Engine which suffers an Engine
Event of Loss, shall procure that such engine complies with the provisions
of Clause 11.1(c).
8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part
installed on the Aircraft is at any time removed from the Aircraft other
than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with Lessee's
Maintenance Program; or
(c) (i) during the course of maintaining, servicing, repairing, overhauling
or testing that Engine or the Aircraft, as the case may be; or
(ii) as part of a normal engine or part rotation program; or
(iii) for the purpose of making such modifications to the Engine or the
Aircraft, as the case may be, as are permitted under this Agreement;
and then in each case (A) with respect to a Part, only if it is reinstalled
or replaced by a part complying with Clause 8.13(a) as soon as practicable
and in any event no later than the Expiry Date, and (B) with respect to an
Engine, title to such Engine shall remain vested in Lessor.
8.13 Installation of Engines and Parts: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part is
installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model as, or
an improved or advanced version of the Engine it replaces, which is
in the same or better operating condition, has substantially similar
hours available until the next scheduled checks, inspections,
overhauls and shop visits and has the same or greater value and
utility as the replaced Engine;
45
(ii) in the case of a part, it is in as good operating condition, has
substantially similar hours available until the next scheduled
checks, inspections, overhauls and shop visits, is of the same or a
more advanced make and model and is of the same interchangeable
modification status as the replaced Part;
(iii) in the case of a part, it has become and remains the property of
Owner free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head Lease and
this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
(b) if no Default has occurred which is continuing, be entitled to install any
engine or part on the Aircraft by way of replacement notwithstanding Clause
8.13(a) if:-
(i) there is not available to Lessee at the time and in the place that
that engine or part is required to be installed on the Aircraft, a
replacement engine or, as the case may be, part complying with the
requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation of
the Aircraft and/or the business of Lessee to ground the Aircraft
until an engine or part, as the case may be, complying with Clause
8.13(a) becomes available for installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date, Lessee
removes any such engine or part and replaces it with the Engine or
Part replaced by it or by an engine or part, as the case may be,
complying with Clause 8.13(a).
8.14 Non-Installed Engines and Parts: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft (or
any other aircraft as permitted by this Agreement) is, except as expressly
permitted by this Agreement, properly and safely stored, and kept free from
Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and, from
time to time, on request procure that any person to whom possession of an
Engine is given acknowledges in writing to Lessor, in form and substance
satisfactory to Lessor, that it will respect the interest of Lessor in the
Engine and will not seek to exercise any rights whatsoever in relation to
it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install any
Engine or Part on an aircraft, or in the case of a Part on an engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional sale
agreement on a long-term basis and on terms whereby Lessee has full
operational control of that aircraft or engine; or
46
(iii) acquired by Lessee and/or financed or refinanced, and operated by
Lessee, on terms that ownership of that aircraft or engine, as the
case may be, pursuant to a lease or conditional sale agreement, or a
Security Interest therein, is vested in or held by any other Person;
provided that in the case of (ii) and (iii):-
(1) the terms of any such lease, conditional sale agreement or Security
Interest will not have the effect of prejudicing the interest of
Lessor in that Engine or Part; and
(2) the lessor under such lease, the seller under such conditional sale
agreement or the holder of such Security Interest, as the case may
be, has confirmed and acknowledged in writing to Lessor, in form and
substance satisfactory to Lessor, that it will respect the interest
of Lessor in respect of that Engine or Part and that it will not
seek to exercise any rights whatsoever in relation thereto.
8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any
pooling agreement or arrangement in respect of an Engine or Part without
the prior written consent of Lessor.
8.16 Equipment Changes:
(a) Lessee will not make any modification or addition to the Aircraft (each an
"Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not diminish
the value, utility, condition, or airworthiness of the Aircraft;
(b) So long as a Default has not occurred and is continuing, Lessee may remove
any Equipment Change if it can be removed from the Aircraft without
diminishing or impairing the value, utility, condition or airworthiness of
the Aircraft; and
(c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes
payable by Lessor as the case may be, as a result of an Equipment Change.
8.17 Title on an Equipment Change:
(a) Title to all Parts installed on the Aircraft whether by way of replacement,
as the result of an Equipment Change or otherwise (except those installed
pursuant to Clause 8.13(b)) will on installation, without further act, vest
in Lessor subject to this Agreement free and clear of all Security
Interests. Lessee will at its own expense take all such steps and execute,
and procure the execution of, all such instruments as Lessor may require
and which are necessary to ensure that title so passes to Lessor according
to all applicable Laws. At any time when requested by Lessor, Lessee will
provide evidence to Lessor's
47
satisfaction (including the provision, if required, to Lessor of one or
more legal opinions) that title has so passed to Lessor;
(b) Lessor may require Lessee to remove any Equipment Change and to restore the
Aircraft to its condition prior to that Equipment Change; and
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Owner until a
replacement has been made in accordance with this Agreement and until title
in that replacement has passed, according to applicable Laws, to Lessor
subject to this Agreement and free of all Security Interests. Upon title
to such replacement so passing to Lessor, title to the replaced Engine or
Part, will, provided no Default has occurred and is continuing, pass to
Lessee.
8.18 Third Party: Lessee will procure that no person (other than Lessor) will
act in any manner inconsistent with its obligations under this Agreement
and that all persons will comply with those obligations as if references to
"Lessee" included a separate reference to those persons.
9. INSURANCE
9.1 Insurances: Lessee will maintain in full force during the Term, and
thereafter as expressly required in this Agreement, insurances in respect
of the Aircraft in form and substance satisfactory to Lessor (the
"Insurances" which expression includes, where the context so admits, any
relevant re-insurance(s)) through such brokers and with such insurers and
having such deductibles and being subject to such exclusions as may be
approved by Lessor from time to time. The Insurances will be effected
either:-
(a) on a direct basis with insurers of recognized standing who normally
participate in aviation insurances in the leading international insurance
markets and led by reputable underwriter(s) approved by Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who does not
retain the risk but effects substantial reinsurance with reinsurers in the
leading international insurance markets and through brokers each of
recognized standing and acceptable to Lessor for a percentage acceptable to
Lessor of all risks insured (the "Reinsurances").
9.2 Requirements: Lessor's current requirements as to required Insurances are
as specified in this Clause and in Schedule 4. Lessor may from time to time
stipulate other requirements for the Insurances so that the scope and level
of cover is maintained in line with best industry practice and the
interests of Lessor protected.
9.3 Change: If at any time Lessor wishes to revoke its approval of any insurer,
reinsurer, insurance or reinsurance, Lessor and/or its brokers will consult
with Lessee and Lessee's brokers (as for the time being approved by Lessor)
regarding whether that approval should be revoked to protect the interests
of the parties insured. If, following the consultation, Lessor considers
that any change should be made, Lessee will then arrange or procure the
arrangement of alternative cover satisfactory to Lessor.
48
9.4 Insurance Covenants: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft, any
Engine or any Part which may from time to time be imposed by the laws of
the State of Registration or any state to, from or over which the Aircraft
may be flown, in so far as they affect or concern the operation of the
Aircraft, are complied with and in particular those requirements compliance
with which is necessary to ensure that (i) the Aircraft is not in danger of
detention or forfeiture, (ii) the Insurances remain valid and in full force
and effect, and (iii) the interests of the Indemnitees in the Insurances
and the Aircraft or any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be used
for any purpose or in any manner not covered by the Insurances or outside
any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances and
not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part of any
of the Insurances; or
(iii) brings any particular liability within the scope of an exclusion or
exception to the Insurances;
(d) not take out without the prior written approval of Lessor any insurance or
reinsurance in respect of the Aircraft other than those required under this
Agreement unless relating solely to hull total loss, business interruption,
profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any of the
Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed telecopy confirmation of completion of renewal prior to each
expiry date; and
(iii) certificates of insurance (and where appropriate certificates of
reinsurance), and broker's (and any reinsurance brokers') letter of
undertaking in a form acceptable to Lessor in English, detailing the
coverage and confirming the insurers' (and any reinsurers')
agreement to the specified insurance requirements of this Agreement
within 7 days after each renewal date;
(f) on request, provide to Lessor copies of documents or other information
evidencing the Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums have
been paid;
49
(h) not make any modification or alteration to the Insurances material and
adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably require.
9.5 Failure to Insure: If Lessee fails to maintain the Insurances in compliance
with this Agreement, each of the Indemnitees will be entitled but not
bound, (without prejudice to any other rights of Lessor under this
Agreement):-
(a) to pay the premiums due or to effect and maintain insurances satisfactory
to it or otherwise remedy Lessee's failure in such manner (including,
without limitation to effect and maintain an "owner's interest" policy) as
it considers appropriate. Any sums so expended by it will become
immediately due and payable by Lessee to Lessor on an After-Tax Basis
together with interest thereon at the rate specified in Clause 5.11, from
the date of expenditure by it up to the date of reimbursement by Lessee;
and
(b) at any time while such failure is continuing to require the Aircraft to
remain at any airport or to proceed to and remain at any airport designated
by it until the failure is remedied to its satisfaction.
9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the
Expiry Date with respect to its liability under the Indemnity in Clause 10
for 2 years which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by Lessee
ceasing to be lessee of the Aircraft and/or any of the Indemnitees ceasing
to have any interest in respect of the Aircraft.
9.7 Application of Insurance Proceeds:-
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss or Engine
Event of Loss occurring during the Term will be paid to Lessor and Lessor
will pay the balance of those amounts to Lessee after deduction of all
amounts which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the Aircraft, any
Engine or any Part occurring during the Term not constituting an Event of
Loss or Engine Event of Loss and in excess of the Damage Notification
Threshold will be applied in payment (or to reimburse Lessee) for repairs
or replacement property upon Lessor being satisfied that the repairs or
replacement have been effected in accordance with this Agreement. Insurance
proceeds in amounts below the Damage Notification Threshold may be paid by
the insurer directly to Lessee. Any balance remaining may be retained by
Lessor;
(c) all insurance proceeds in respect of third party liability will, except to
the extent paid by the insurers to the relevant third party, be paid to
Lessor to be paid directly in
50
satisfaction of the relevant liability or to Lessee in reimbursement of any
payment so made; and
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment
of any such insurance proceeds a Default has occurred and is continuing,
all such proceeds will be paid to or retained by Lessor to be applied
toward payment of any amounts which may be or become payable by Lessee in
such order as Lessor sees fit or as Lessor may elect.
To the extent insurance proceeds are paid to Lessee, Lessee agrees to
comply with the foregoing provisions and apply or pay over such proceeds as
so required.
10. INDEMNITY
10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE
INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS,
PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES,
PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE OR
INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):-
(A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY
AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY,
PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL,
MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE,
OPERATION OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN
THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE
ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART
OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF
WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE
TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE;
(B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH
RENDERS VOIDABLE ANY OF THE INSURANCES; AND
(C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF
ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY
PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT,
COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH
OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON;
BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE
EXTENT THAT THAT CLAIM IS COVERED PURSUANT
51
TO ANOTHER INDEMNITY PROVISION OF THIS AGREEMENT OR TO THE EXTENT IT ARISES
SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT
INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN.
10.2 Duration: The indemnities contained in this agreement will continue in full
force following the end of the Term notwithstanding any breach or
repudiation by Lessor or Lessee of this Agreement or any termination of the
lease of the Aircraft hereunder.
11. EVENTS OF LOSS
11.1
(a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft
to Lessee, Lessor will have the option, exercisable by giving Lessee notice
in writing, to substitute an alternative aircraft of the same manufacture,
model, value and utility as the Aircraft. If Lessor exercises such option,
Lessee shall be obliged to lease such substitute aircraft pursuant to the
terms and conditions of this Agreement and such substitute aircraft shall
constitute the Aircraft for all purposes of this Agreement. Lessor shall
provide Lessee with details of the substitute aircraft as soon as may be
practicable after the occurrence of the Event of Loss. If Lessor advises
Lessee that Lessor does not wish to exercise such option, this Agreement
will immediately terminate and except as expressly stated in this Agreement
neither party will have any further obligation or liability under this
Agreement other than pursuant to Clause 16.9 except that Lessor will return
the Deposit to Lessee; and
(b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft to
Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the
earlier of (i) 5 Business Days after the Event of Loss and (ii) the date of
receipt of insurance proceeds in respect of that Event of Loss. Subject to
the rights of any insurers and reinsurers or other third party, upon
irrevocable payment in full to Lessor of that amount and all other amounts
which may be or become payable to Lessor under this Agreement, Lessor will
without recourse or warranty (except as to Lessor's Liens) and without
further act, be deemed to have transferred to Lessee all of Lessor's rights
to any Engines and Parts not installed when the Event of Loss occurred, all
on an as-is where-is basis, and will at Lessee's expense, execute and
deliver such bills of sale and other documents and instruments as Lessee
may reasonably request to evidence (on the public record or otherwise) the
transfer and the vesting of Lessor's rights in such Engines and Parts in
Lessee, free and clear of all rights of Lessor and Lessor Liens.
(c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss,
Lessee shall give Lessor prompt written notice thereof and shall, within 45
days after such occurrence, convey to Lessor, as replacement for the Engine
suffering such event, title to a Replacement Engine. Each Replacement
Engine shall be free of all Security Interests and shall be in as good an
operating condition as the Engine being replaced, assuming the Engine being
replaced was in the condition and repair required by the terms hereof
immediately prior to the Engine Event of Loss. Upon full compliance by
Lessee with the terms of this Clause 11.1(c), Lessor will transfer to
Lessee title to the
52
Engine which suffered the Engine Event of Loss. Prior to or at the time of
any such conveyance, Lessee, at its own expense, will promptly (i) furnish
Lessor with a full warranty xxxx of sale, in form and substance reasonably
satisfactory to Lessor, with respect to such Replacement Engine; (ii) cause
a lease supplement (in form and substance satisfactory to Lessor)
subjecting such Replacement Engine to this Agreement, to be duly executed
by Lessee, and recorded pursuant to applicable Law; (iii) furnish Lessor
with such evidence of title to such Replacement Engine as Lessor may
reasonably request; (iv) furnish Lessor with an opinion of Lessee's counsel
to the effect that title to such Replacement Engine has been duly conveyed
to Lessor subject to this Agreement, free and clear of all Security
Interests, and that such Replacement Engine is duly leased hereunder; (v)
furnish a certificate signed by a duly authorized financial officer or
executive of Lessee certifying that, upon consummation of such replacement,
no Event of Default will have occurred or be continuing; (vi) furnish
Lessor with such documents as Lessor may reasonably request in connection
with the consummation of the transactions contemplated by this Clause
11.1(c), in each case in form and substance satisfactory to Lessor; and
(vii) furnish such Financing Statements incorporating the Replacement
Engine as may be requested by Lessor. For all purposes hereof, each such
Replacement Engine shall be deemed part of the property leased hereunder,
shall be deemed an "Engine" as defined herein and shall be deemed part of
the same Aircraft as was the Engine replaced thereof. No Engine Event of
Loss covered by this Clause 11.1(c) shall result in any reduction in Rent
or affect Lessee's obligation to pay Engine Maintenance Reserves or the
amount thereof to be paid by Lessee.
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of one or
more Engines pursuant to this Clause 11.1.
11.2 Substitute Aircraft:
(a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of Loss
occurs after delivery of the Aircraft to Lessee, Lessor will have the
option, exercisable by giving Lessee notice in writing, to substitute an
alternative aircraft (the "Substitute Aircraft") of the same manufacture
and model as the Aircraft and having a value, utility and condition equal
to or greater than the Aircraft as at the date of occurrence of the Event
of Loss which Substitute Aircraft will be leased by Lessor to Lessee for
the remainder of the Term pursuant to the terms and conditions of this
Agreement. If Lessor exercises such option, the Substitute Aircraft will
constitute the Aircraft for all purposes of this Agreement in respect of
facts and circumstances arising after the date of delivery thereof to
Lessee. Lessor shall provide Lessee with details of the Substitute
Aircraft as soon as may be practicable after the occurrence of the Event of
Loss;
(b) Lessor will use all reasonable endeavors to deliver the Substitute Aircraft
to Lessee as soon as may be practicable following the date of occurrence of
the Event of Loss but not later than 3 months after such date; and
(c) Lessee agrees to enter into such documentation as Lessor may require in
order to reflect the leasing of the Substitute Aircraft as aforesaid
including, without limitation, documentation in respect of the Insurances.
53
Lessee shall indemnify each Indemnitee on an After-Tax Basis for any
adverse tax consequence to such Indemnitee of the replacement of the
Aircraft or Airframe pursuant to this Clause 11.2.
11.3 Requisition: During any requisition for use or hire of the Aircraft, any
Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not be
released from any of its other obligations under the Agreement (other than
operational obligations with which Lessee is unable to comply solely by
virtue of the requisition); and
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect of the
Term. Lessee will, as soon as practicable after the end of any such
requisition, cause the Aircraft to be put into the condition required by
this Agreement. Lessor will be entitled to all compensation payable by the
requisitioning authority in respect of any change in the structure, state
or condition of the Aircraft arising during the period of requisition, and
Lessor will apply such compensation in reimbursing Lessee for the cost of
complying with its obligations under this Agreement in respect of any such
change, but so that, if any Default has occurred and is continuing, Lessor
may apply the compensation or hire in or towards settlement of any amounts
owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to Clause
13.2 or termination of the leasing of the Aircraft under this Agreement
Lessee will, unless an Event of Loss has occurred, at its expense,
redeliver the Aircraft and Aircraft Documents to Lessor at the Redelivery
Location or such other airport as is mutually acceptable to the parties
hereto, in accordance with the procedures and in compliance with the
conditions set forth in Schedule 3, free and clear of all Security
Interests and Permitted Liens (other than Lessor Liens) and in a condition
qualifying for immediate certification of airworthiness by the FAA or as
otherwise agreed by Lessor and Lessee.
12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee
will make the Aircraft available to Lessor for inspection ("Final
Inspection") in order to verify that the condition of the Aircraft complies
with this Agreement. The Final Inspection will permit, and be of sufficient
duration for, Lessor to:-
(a) inspect the Aircraft Documents;
(b) inspect the Aircraft and uninstalled Parts;
(c) inspect the Engines, including without limitation (i) a borescope
inspection of (A) the low pressure and high pressure compressors and (B)
turbine and combustion areas, (ii) engine condition runs and (iii) review
of Engine trend monitoring data and technical log reports covering the last
ninety (90) days of operation; and
54
(d) perform a complete borescope inspection of the APU; and
(e) observe a 2 hour demonstration flight (with Lessor's representatives as on-
board observers).
12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the
condition of the Aircraft does not comply with this Agreement, Lessee will
at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the non-compliance
extends beyond the Expiry Date, the Term will be automatically extended and
this Agreement will remain in force until the non-compliance has been
rectified as provided in Clause 12.8; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax
Basis, and provide to Lessor's satisfaction cash as security for that
indemnity, against the cost of putting the Aircraft into the condition
required by this Agreement.
12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's
request, all documents necessary to export the Aircraft from the Habitual
Base (including, without limitation, a valid and subsisting export license
for the Aircraft) and required in relation to the deregistration of the
Aircraft with the Air Authority.
12.5 Acknowledgment: Provided Lessee has complied with its obligations under
this Agreement, following redelivery of the Aircraft by Lessee to Lessor at
the Redelivery Location, Lessor will deliver to Lessee an acknowledgment
confirming that Lessee has redelivered the Aircraft to Lessor in accordance
with this Agreement.
12.6 Maintenance Program:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide
Lessor or its agent reasonable access to Lessee's Maintenance Program and
the Aircraft Documents in order to facilitate the Aircraft's integration
into any subsequent operator's fleet; and
(b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft
deliver to Lessor a certified true current and complete copy of Lessee's
Maintenance Program. Lessor agrees that it will not disclose the contents
of Lessee's Maintenance Program to any person or entity except to the
extent necessary to monitor Lessee's compliance with this Agreement and/or
to bridge the maintenance program for the Aircraft from Lessee's
Maintenance Program to another program after the Expiry Date.
12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be made
in respect of fuel on board on the Delivery Date and the Expiry Date at the
price then prevailing at the Redelivery Location.
12.8 Automatic Extension of Term: In the event of Lessee's failure to make the
Aircraft available to Lessor for timely inspection pursuant to Clauses 12.1
hereof, non-compliance of the condition of the Aircraft under Clause 12.3
hereof or any other failure of Lessee which prevents timely Redelivery of
the Aircraft to Lessor, the Term of this
55
Agreement will be automatically extended and this Agreement will remain in
force until such non-compliance has been rectified, with Lessee being
obligated to pay Rent at a rate specified in Clause 5.3 plus 50 percent on
a per diem basis with respect to the period of such extension.
13. DEFAULT
13.1 Events: Each of the following events will constitute an Event of Default
and a repudiation (but not a termination) of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or occurs
by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
Government Entity). Lessee acknowledges that the occurrence of any Event of
Default would represent a material default in the performance of its
obligations under this Agreement:-
(a) Non-payment: Lessee fails to make any payment under this Agreement on the
due date; or
(b) Insurance: Lessee fails to comply with any provision of Clause 9 or any
insurance required to be maintained under this Agreement is canceled or
terminated or notice of cancellation is given in respect of any such
insurance; or
(c) Breach: Lessee fails to comply with any other provision of this Agreement
and, if such failure is in the reasonable opinion of Lessor capable of
remedy, the failure continues for 5 days after notice from Lessor to
Lessee; or
(d) Representation: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any document or
certificate or statement is or proves to have been incorrect in any
material respect when made or deemed to be repeated; or
(e) Cross Default:
(i) a final judgment for the payment of money not covered by insurance
in excess of Two Hundred Fifty Thousand Dollars ($250,000), or final
judgments for the payment of money not covered by insurance in
excess of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate, shall be rendered against Lessee and the same shall
remain undischarged for a period of ninety (90) days during which
execution thereof shall not be effectively stayed by agreement of
the parties involved, stayed by court order or adequately bonded; or
(ii) attachments or other Security Interests shall be issued or entered
against substantially all of the property of Lessee and shall remain
undischarged or unbonded for ninety (90) days except for Security
Interests created in connection with monies borrowed or obligations
agreed to by Lessee in the ordinary course of its business; or
56
(iii) Lessee shall default in the payment of any sum which by itself is in
excess of $100,000 or any sums which in aggregate exceed $250,000
notwithstanding that any particular individual sum thereof does not
exceed $100,000 of any one or more obligations for the payment of
borrowed money, for the deferred purchase price of property or for
the payment of rent or hire under any lease of aircraft when the same
becomes due if such nonpayment results in or would permit an
acceleration of such indebtedness, or Lessee shall default in the
performance of any other term, agreement, or condition contained in
any agreement or instrument under or by which any such obligation is
created, evidenced or secured, if the effect of such default is to
cause or permit such obligation to become due prior to its stated
maturity; or
(iv) any event of default or termination event, howsoever described,
occurs under the Other Agreements; or
(f) Approvals: any consent, authorization, license, certificate or approval of
or registration with or declaration to any Government Entity in connection
with this Agreement (including, without limitation): -
(i) any authorization required by Lessee to obtain and transfer freely
Dollars (or any other relevant currency) out of any relevant country;
or
(ii) required by Lessee to authorize, or in connection with, the
execution, delivery, validity, enforceability or admissibility in
evidence of this Agreement or the performance by Lessee of its
obligations under this Agreement; or
(iii) the registration of the Aircraft; or
(iv) any airline license or air transport license including, without
limitation, authority to operate the Aircraft under FAR Part 121 and
a Certificate of Public Convenience and Necessity issued under
Section 41102 of Title 49 of the United States Code;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, canceled, withdrawn, terminated or not renewed, or
otherwise ceases to be in full force; or
(g) Bankruptcy, etc.:
(i) Lessee or any Subsidiary consents to the appointment of a custodian,
receiver, trustee or liquidator of itself or all or any material part
of Lessee's property or Lessee's consolidated property, or Lessee or
any Subsidiary admits in writing its inability to, or is unable to,
or does not, pay its debts generally as they come due, or makes a
general assignment for the benefit of creditors, or Lessee or any
Subsidiary files a voluntary petition in bankruptcy or a voluntary
petition seeking reorganization in a proceeding under any bankruptcy
or insolvency Laws (as now or hereafter in effect) or an answer
admitting the material allegations of a petition filed against Lessee
or any Subsidiary in any such
57
proceeding, or Lessee or any subsidiary by voluntary petition, answer
or consent seeks relief under the provisions of any other bankruptcy,
insolvency or other similar Law providing for the reorganization or
winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors, or any
corporate action (including, without limitation, any board of
directors or shareholder action) is taken by Lessee or any Subsidiary
in furtherance of any of the foregoing, whether or not the same is
fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any of its Subsidiaries, a
custodian, receiver, trustee or liquidator of Lessee or any
Subsidiary, or of all or any material part of Lessee's property or
Lessee's consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in effect,
undismissed, unstayed or unvacated for a period of 30 days after the
date of entry thereof or at any time an order for relief is granted;
or
(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy Laws or other
insolvency Laws (as now or hereafter in effect) is filed and is not
withdrawn or dismissed within 30 days thereafter or at any time an
order for relief is granted in such proceeding, or if, under the
provisions of any Law providing for reorganization or winding-up of
corporations which may apply to Lessee or any Subsidiary, any court
of competent jurisdiction assumes jurisdiction over, or custody or
control of, Lessee or any Subsidiary or of all or any material part
of Lessee's property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect, unrelinquished,
unstayed or unterminated for a period of 30 days or at any time an
order for relief is granted in such proceeding; or
(h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations
under this Agreement or this Agreement becomes wholly or partly invalid or
unenforceable; or
(i) Suspension of Business: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a substantial
part of its business; or
(j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers
or threatens to dispose, convey or transfer of all or a material part of
its assets, liquidates or dissolves or consolidates or merges with any
other Person whether by one or a series of transactions, related or not,
other than for the purpose of a reorganization of the terms of which have
received the previous consent in writing of Lessor; or
(k) Rights and Remedies: the existence, validity, enforceability or priority of
the rights of Lessor as owner and the rights of Lessor as lessor in respect
of the Aircraft are challenged by Lessee or any other person claiming by or
through Lessee; or
(l) Delivery: Lessee fails to timely comply with its obligations under Clause 4
to accept delivery of the Aircraft; or
58
(m) Ownership, Security Interests and Related Matters: Lessee fails to timely
comply with its obligations under Clause 8.7; or
(n) Transfer: Lessee makes or permits any assignment or transfer of this
Agreement, or any interest herein, or of the right to possession of the
Aircraft, the Airframe, or any Engine; or
(o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry
Date in accordance with Clause 12.
(p) Adverse Change: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on the
financial condition or operations of Lessee and its Subsidiaries or on the
ability of Lessee to comply with its obligations under this Agreement; or
13.2 Rights: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at any
time thereafter (without notice to Lessee except as required under
applicable Law):-
(a) by notice to Lessee and with immediate effect on dispatch of such notice
terminate the letting of the Aircraft (but without prejudice to the
continuing obligations of Lessee under this Agreement), whereupon all
rights of Lessee under this Agreement shall cease; and/or
(b) proceed by appropriate court action or actions to enforce performance of
this Agreement, including, without limitation, the payment of all Rent and
all other amounts payable to Lessor or any Indemnitee pursuant to the terms
hereof; and/or
(c) proceed by appropriate court action or actions to recover damages for the
breach of this Agreement which shall include, without limitation: -
(i) all Rent and other amounts which are or become due and payable
hereunder prior to the date Lessor recovers possession of the
Aircraft;
(ii) at Lessor's election, either one of the amounts determined pursuant
to Clause 13.2(e) or Clause 13.2(f) below or any lost profits
suffered by Lessor as a consequence of Lessor's inability to place
the Aircraft with another lessee on financial terms that are as
favorable to Lessor as the terms of this Agreement;
(iii) all costs associated with Lessor's exercise of its remedies
hereunder, including, but not limited to, repossession costs, legal
fees, Aircraft storage costs, Aircraft re-lease or sale costs and
Lessor's internal costs and expenses (including the cost of personnel
time calculated based upon the compensation paid to the individuals
involved on an annual basis and a general Lessor overhead
allocation);
59
(iv) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding any
financial instrument relating in whole or in part to Lessor's
financing of the Aircraft;
(v) any loss, cost, expense or liability sustained by Lessor due to
Lessee's failure to redeliver the Aircraft in the condition required
by this Agreement; and
(vi) any other losses (including lost profits), damage, expense, cost or
liability which Lessor suffers or incurs as a result of the Event of
Default and/or termination of this Agreement, including an amount
sufficient to fully compensate Lessor for any loss of or damage to
Lessors residual interest in the Aircraft caused by Lessee's default;
and/or
(d) either: -
(i) enter upon the premises where all or any part of the Aircraft is
located and take immediate possession of and, at Lessor's sole
option, remove the same (and/or any engine which is not an Engine but
which is installed on the Airframe, subject to the rights of the
owner, lessor or secured party thereof) or cause it to be redelivered
to Lessor at a location in the United States identified by Lessor (or
such other location as Lessor may require) (the "Return Location"),
by summary proceedings or otherwise, all without liability accruing
to Lessor for or by reason of such entry or taking of possession
whether for the restoration of damage to property, or otherwise,
caused by such entry or taking, except damages caused by gross
negligence or willful misconduct; and Lessor is hereby irrevocably,
by way of security for Lessee's obligations under this Agreement,
appointed attorney for Lessee in causing the redelivery or in
directing the pilots of Lessee or other pilots to fly the Aircraft to
that airport and will have all the powers and authorizations
necessary for taking that action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to Lessor
at a point within the continental United States designated by Lessor;
and/or
(e) sell at private or public sale, as Lessor may determine, or hold, use,
operate or lease to others the Aircraft as Lessor in its sole discretion
may determine, all free and clear of any rights of Lessee; and/or
(f) whether or not Lessor shall have exercised, or shall thereafter at any time
exercise, any of its rights under paragraph (a), paragraph (b), paragraph
(c), paragraph (d), or paragraph (e) of this Clause 13.2, Lessor, by 30
days written notice to Lessee specifying a payment date, may demand that
Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date
specified in such notice, as liquidated damages for loss of bargain and not
as a penalty (in lieu of the Rent due for the period commencing after the
date specified for payment in such notice), any unpaid Rent for the
Aircraft and other amounts owing under this Agreement (prorated in the case
of Rent on a daily basis) to and including the payment date specified in
such notice, plus the amount, if any, by which the aggregate Rent for the
remainder of the Term (determined without reference
60
to any right of Lessor to terminate the leasing of the Aircraft, whether or
not such right is exercised), discounted periodically (equal to installment
frequency) to present worth at the interest rate of 4 percent (4%) per
annum, exceeds the fair market rental value (determined pursuant to the
Appraisal Procedure) of the Aircraft for the remainder of the Term, after
discounting such fair market rental value periodically (equal to
installment frequency) to present worth as of the payment date specified in
such notice at the interest rate of 4 percent (4%) per annum; and/or
(g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have
relet the Aircraft under a lease which extends at least to the date upon
which the Term for the Aircraft would have expired but for Lessee's
default, Lessor, in lieu of exercising its rights under Clause 13.2(f)
above with respect to the Aircraft, may, if it shall so elect, demand that
Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for
loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft
due after the time of reletting) any unpaid Rent for the Aircraft due up to
the date of reletting and any other amounts owing under this Agreement,
plus the amount, if any, by which the aggregate Rent for the Aircraft,
which would otherwise have become due over the remainder of the Term
(determined without reference to any right of Lessor to terminate the
leasing of the Aircraft, whether or not such right is exercised),
discounted periodically (equal to installment frequency) to present worth
as of the date of reletting at the interest rate of 4 percent (4%) per
annum, exceeds the aggregate basic rental payments to become due under the
reletting from the date of such reletting to the date upon which the Term
for the Aircraft would have expired but for Lessee's default, discounted
periodically (equal to installment frequency) to present worth as of the
date of the reletting at the interest rate of 4 percent (4%) per annum;
and/or
(h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f),
and (g) of this Clause 13.2, by 30 days written notice to Lessee specifying
a payment date, Lessor may demand that Lessee pay to Lessor, and Lessee
shall pay to Lessor on the payment date specified in such notice as
liquidated damages for loss of bargain and not as a penalty (in lieu of the
Rent due for the period commencing after the date specified for payment in
such notice), any unpaid Rent for the Aircraft and other amounts payable
under this Agreement (prorated in the case of Rent on a daily basis) to and
including the payment date specified in such notice, plus an amount
equaling the aggregate Rent for the remainder of the Term, discounted
periodically (equal to installment frequency) to present worth at the
interest rate of 4 per cent (4%) per annum;
(i) draw upon the Deposit or the Maintenance Reserves furnished under this
Agreement or the Related Agreements (as those times are defined in such
agreements) and apply such amounts to amounts owing to Lessor hereunder.
Lessee, for itself and for its successors and assigns, hereby agrees that,
to the extent now or hereafter permitted by applicable Law, notwithstanding
any provision of the Federal Bankruptcy Code as amended from time to time,
the title of Lessor to the Aircraft and any right of Lessor to take
possession of the Aircraft in compliance with the provisions of this
Agreement, in each case, upon the occurrence and continuance of
61
an Event of Default, shall not be affected by the provisions of the Federal
Bankruptcy Code, as amended from time to time.
In addition to the foregoing, Lessee shall be liable for any and all unpaid
Rent and other amounts payable under this Agreement during or after the
exercise of any of the aforementioned remedies, together with interest on
such unpaid amounts at the Interest Rate set forth in Letter Agreement No.
1, and until satisfaction of all of Lessee's obligations to Lessor
hereunder and (on an After-Tax Basis) for all reasonable legal fees and
other reasonable costs and expenses incurred by Lessor by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies
with respect thereto, including all costs and expenses incurred in
connection with the return of the Aircraft in accordance with the terms of
Clause 12 hereof or in placing the Aircraft in the condition and with
airworthiness certification as required by such Clause.
In effecting any repossession, Lessor and its representatives and agents,
to the extent permitted by Law, shall: (i) have the right to enter upon any
premises where it reasonably believes the Aircraft, the Airframe, an Engine
or Part to be located; (ii) not be liable, in conversion or otherwise, for
the taking of any personal property of Lessee which is in or attached to
the Aircraft, the Airframe, an Engine or Part which is repossessed;
provided, however, that Lessor shall return to Lessee all personal property
of Lessee or its passengers which was on the Aircraft at the time Lessor
re-takes possession of the Aircraft; (iii) not be liable or responsible, in
any manner, for any inadvertent damage or injury to any of Lessee's
property in repossessing and holding the Aircraft, the Airframe, an Engine
or Part, except for that caused by or in connection with Lessor's gross
negligence or willful acts; (iv) have the right to maintain possession of
and dispose of the Aircraft, the Airframe, an Engine or Part on any
premises owned by Lessee or under Lessee's control; and (v) have the right
to obtain a key to any premises at which the Aircraft, the Airframe, an
Engine or Part may be located from the landlord or owner thereof.
If reasonably required by Lessor, Lessee, at its sole expense, shall
assemble and make the Aircraft, the Airframe, an Engine or Part available
at a place designated by Lessor in accordance with Clause 12 hereof. Lessee
hereby agrees that, in the event of the return to or repossession by Lessor
of the Aircraft, the Airframe, an Engine or Part, any rights in any
warranty (express or implied) previously assigned to Lessee or otherwise
held by Lessee shall without further act, notice or writing be assigned or
reassigned to Lessor, if assignable. Lessee shall be liable to Lessor on an
After-Tax Basis for all reasonable expenses, disbursements, costs and fees
incurred in (i) repossessing, storing, preserving, shipping, maintaining,
repairing and refurbishing the Aircraft, the Airframe, an Engine or Part to
the condition required by Clause 12 hereof and (ii) preparing the Aircraft,
the Airframe, an Engine or Part for sale or lease, advertising the sale or
lease of the Aircraft, the Airframe, an Engine or Part and selling or
releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby
authorized and instructed, at its option, to make reasonable expenditures
which Lessor considers advisable to repair and restore the Aircraft, the
Airframe, an Engine or Part to the condition required by Clause 12 hereof,
all at Lessee's sole expense.
62
At any public sale of the Aircraft, the Airframe, an Engine or Part
pursuant to this Clause, Lessor may bid for and purchase such property and
Lessee agrees that the amounts paid therefor shall be used in the
computation contemplated herein.
With the exception that the remedy in Clause 13.2(g) can be elected only if
the remedy in Clause 13.2(f) is not elected and the remedy in Clause
13.2(h) can be elected only in lieu of all other remedies save the remedies
in Clauses 13.2(b) and 13.2(i), no remedy referred to in this Clause 13 is
intended to be exclusive, but, to the extent permissible hereunder or under
applicable Law, each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at Law or in
equity; and the exercise or beginning of exercise by Lessor of any one or
more of such remedies shall not preclude the simultaneous or later exercise
by Lessor of any or all of such other remedies; provided, however, that
nothing in this Clause 13 shall be construed to permit Lessor to obtain a
duplicate recovery of any element of damages to which Lessor is entitled.
No express or implied waiver by Lessor of any Default or Event of Default
shall in any way be, or be construed to be, a waiver of any future or
subsequent Default.
13.3 Deregistration: If an Event of Default occurs, Lessor may sell or otherwise
deal with the Aircraft free and clear of any leasehold or other interest of
Lessee as if this Agreement had never been made and Lessee will at the
request of Lessor take all steps necessary to effect (if applicable)
deregistration of the Aircraft and its export from the country where the
Aircraft is for the time being situated and any other steps necessary to
enable the Aircraft to be redelivered to Lessor in accordance with this
Agreement including without limitation execution and filing of a
certificate or other instrument of lease termination with the Air Authority
and; Lessee hereby irrevocably and by way of security for its obligations
under this Agreement appoints (which appointment is coupled with an
interest) Lessor as its attorney to execute and deliver any documentation
and to do any act or thing required in connection with the foregoing.
14. ASSIGNMENT
14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR
INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO
EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its rights
under this Agreement and in the Aircraft. In the case of an assignment
other than by way of security, Lessor will be released from and will have
no further obligation under this Agreement following the assignment of all
its rights under this Agreement and the assumption by the assignee or
transferee of all of Lessor's obligations under this Agreement.
Notwithstanding any such assignment, Lessor will remain entitled to the
benefit of each indemnity and the liability insurances effected under this
Agreement. Lessee will comply with all reasonable requests of Lessor, its
successors and assigns in respect of any such assignment. Lessor will
promptly notify Lessee of any assignment.
14.3 Transfer: If Lessor desires to effect any assignment or transfer of its
rights and obligations under this Agreement, Lessee agrees to cooperate and
take all such steps as
63
Lessor may reasonably request to give the transferee the benefit of this
Agreement and to acknowledge the release of Lessor from its obligations
hereunder as of the time of such assignment or transfer.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give effect
to any of its obligations as contemplated by this Agreement or to continue
this Agreement, Lessor may by notice in writing to Lessee terminate the
leasing of the Aircraft under this Agreement and Lessee will forthwith
redeliver the Aircraft to Lessor in accordance with Clause 12. Without
prejudice to the foregoing Lessor will consult in good faith with Lessee as
to any steps which may be taken to restructure the transaction to avoid
that unlawfulness but will be under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any Law; and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not constitute a
waiver of that right.
16.2 Delegation: Lessor may delegate to any person or persons all or any of the
trusts, powers or discretions vested in it by these presents and any such
delegation may be made upon such terms and conditions and subject to such
regulations (including power to sub-delegate) as Lessor in its absolute
discretion thinks fit.
16.3 Certificates: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or as to
any other amount payable under this Agreement will, in the absence of
manifest error, be conclusive and binding on Lessee.
16.4 Appropriation: If any sum paid or recovered in respect of the liabilities
of Lessee under this Agreement is less than the amount then due, Lessor may
apply that sum to amounts due under this Agreement in such proportions and
order and generally in such manner as Lessor may determine at its sole
discretion.
16.5 Currency: Lessee acknowledges that the specification of Dollars in this
Agreement is of the essence and that Dollars shall be the currency of
account in any and all events. Lessee waives any right it may have in any
jurisdiction to pay any amount under this Agreement in a currency other
than Dollars.
16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under
this Agreement, the Related Agreements or under any other agreement between
Lessor (or
64
any affiliate or associate of Lessor or a trustee-lessor acting for Lessor
as beneficiary) and Lessee against any obligation (whether or not matured)
owed by Lessor to Lessee, regardless of the place of payment or currency.
If the obligations are in different currencies, Lessor may convert either
obligation at the market rate of exchange available in New York or at its
option London for the purpose of the set-off. If an obligation is
unascertained or unliquidated, Lessor may in good faith estimate that
obligation and set off in respect of the estimate, subject to the relevant
party accounting to the other when the obligation is ascertained or
liquidated. Lessor will not be obliged to pay any amounts to Lessee under
this Agreement so long as any sums which are then due from Lessee under
this Agreement, the Related Agreements or under any other agreement between
Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting
for Lessor as beneficiary) and Lessee remain unpaid and any such amounts
which would otherwise be due will fall due only if and when Lessee has paid
all such sums except to the extent Lessor otherwise agrees or sets off such
amounts against such payment pursuant to the foregoing.
16.7 Severability: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
(a) the legality, validity or enforceability in that jurisdiction of any other
provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of that
or any other provision of this Agreement.
16.8 Remedy: If Lessee fails to comply with any provision of this Agreement,
Lessor may, without being in any way obliged to do so or responsible for so
doing and without prejudice to the ability of Lessor to treat the non-
compliance as a Default or an Event of Default, effect compliance on behalf
of Lessee, whereupon Lessee shall become liable to pay immediately any sums
expended by Lessor together with all costs and expenses (including legal
costs) in connection therewith.
16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to
this Agreement, Lessee is to pay to Lessor on an After-Tax Basis on
demand:-
(a) all costs associated with perfecting Lessor's rights in the Aircraft
and/or this Agreement in the State of Registration, the Habitual Base
of the Aircraft (and other states as appropriate given the operation
of the Aircraft), including (but not limited to) the provision of
legal opinions, tax advice, stamp duties, translations and
registrations, whether required by Lessor or Lessee.
(b) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor related to any amendment to
or extension of or other documentation in connection with, or the
granting of any waiver or consent under this Agreement requested by
Lessee or the monitoring of compliance by Lessee with this Agreement;
65
(c) all expenses (including legal, survey and other costs) payable or
incurred by Lessor in contemplation of, or otherwise in connection
with, the enforcement of or preservation of any of Lessor's or
Owner's rights under this Agreement, or in respect of the
repossession of the Aircraft;
(d) a $25,000 documentary review fee to defray Lessor's expenses of
review in connection with each and any request for Lessor's consent
to a sub-lease, wet-lease or parting of possession as specified in
Clause 8.5; and
(e) a $5,000 documentary fee to defray a portion of Lessor's expenses in
connection with preparation of this Agreement, receipt whereof is
acknowledged.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 Time of Essence: The time stipulated in this Agreement for all payments
payable by Lessee to Lessor and the prompt, punctual and performance of
Lessee's other obligations under this Agreement are of the essence of
this Agreement.
16.11 Notices: All notices under, or in connection with, this Agreement will,
unless otherwise stated, be given in writing by letter, facsimile or
SITA. Any such notice is deemed effectively to be given as follows:-
(i) if by letter, on the earlier of the date when delivered or the 7th
day after dispatch;
(ii) if by facsimile or SITA, when transmitted and full transmission has
been separately notified by telephone by the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee, Lessor and Owner are as follows:-
Lessee: Address: 00000 Xxxx 00xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Xxxxxx Xxxxxx of America
Attn: General Counsel
SITA: DENGAF9
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
66
Lessor: Address: General Electric Capital Corporation
c/o GE Capital Aviation Services, Inc.
000 Xxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000-0000
Attn: Senior Vice President-Portfolio and
Risk Management, North America
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
With a copy to: Address GE Capital Aviation Services, Inc.
000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attn: Senior Vice President-Marketing
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
16.12 Governing Law and Jurisdiction:
(a) THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE GOVERNING LAW (WITHOUT REFERENCE TO CONFLICT OF LAWS
PRINCIPLES);
(b) For the benefit of Lessor, Lessee agrees that the courts of the United
States District Court for the Northern District of California and any
California state court sitting in the City of San Francisco, California
are to have nonexclusive jurisdiction to settle any disputes arising out
of or relating to this Agreement and submits itself and its property to
the nonexclusive jurisdiction of the foregoing courts with respect to such
disputes;
(c) Without prejudice to any other mode of service, Lessee: -
(i) appoints The Xxxxxxxx-Xxxx Corporation System, Inc., 0000 Xxxxxxxx
Xxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxxxxx, 00000 as its agent for
service of process relating to any proceedings before the California
courts in connection with this Agreement and agrees to maintain the
process agent in California notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such proceedings
by prepaid mailing of a copy of the process to Lessee's agent at the
address identified in paragraph (i) or by prepaid mailing by air
mail, certified or registered mail of a copy of the process to
Lessee at the address set forth in Clause 16.11;
67
(d) LESSEE: -
(i) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE COURTS REFERRED TO IN CLAUSE
16.12(B) ABOVE ON GROUNDS OF INCONVENIENT FORUM OR OTHERWISE AS
REGARDS PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT;
(ii) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH
LESSEE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
BROUGHT IN THE COURTS REFERRED TO IN CLAUSE 16.12(B);
(iii) AGREES THAT A JUDGMENT OR ORDER OF ANY COURT REFERRED TO IN CLAUSE
16.12(B) IN CONNECTION WITH THIS AGREEMENT IS CONCLUSIVE AND BINDING
ON IT AND MAY BE ENFORCED AGAINST IT IN THE COURTS OF ANY OTHER
JURISDICTION;
(e) NOTHING IN THIS CLAUSE 16.12 LIMITS THE RIGHT OF LESSOR TO BRING
PROCEEDINGS AGAINST LESSEE IN CONNECTION WITH THIS AGREEMENT: -
(i) IN ANY OTHER COURT OF COMPETENT JURISDICTION; OR
(ii) CONCURRENTLY IN MORE THAN ONE JURISDICTION;
(f) LESSEE IRREVOCABLY AND UNCONDITIONALLY: -
(i) AGREES THAT IF LESSOR BRINGS LEGAL PROCEEDINGS AGAINST IT OR ITS
ASSETS IN RELATION TO THIS AGREEMENT NO IMMUNITY FROM SUCH LEGAL
PROCEEDINGS (WHICH WILL BE DEEMED TO INCLUDE WITHOUT LIMITATION,
SUIT, ATTACHMENT PRIOR TO JUDGMENT, OTHER ATTACHMENT, THE OBTAINING
OF JUDGMENT, EXECUTION OR OTHER ENFORCEMENT) WILL BE CLAIMED BY OR
ON BEHALF OF ITSELF OR WITH RESPECT TO ITS ASSETS;
(ii) WAIVES ANY SUCH RIGHT OF IMMUNITY WHICH IT OR ITS ASSETS NOW HAS OR
MAY IN THE FUTURE ACQUIRE;
(iii) CONSENTS GENERALLY IN RESPECT OF ANY SUCH PROCEEDINGS TO THE GIVING
OF ANY RELIEF OR THE ISSUE OF ANY PROCESS IN CONNECTION WITH SUCH
PROCEEDINGS INCLUDING, WITHOUT LIMITATION, THE MAKING, ENFORCEMENT
OR EXECUTION AGAINST ANY PROPERTY WHATSOEVER (IRRESPECTIVE OF ITS
68
USE OR INTENDED USE) OF ANY ORDER OR JUDGMENT WHICH
MAY BE MADE OR GIVEN IN SUCH PROCEEDINGS.
16.13 Sole and Entire Agreement: This Agreement and the other Operative
Documents are the sole and entire agreement between Lessor and Lessee in
relation to the leasing of the Aircraft, and supersede all previous
agreements in relation to that leasing.
16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under
this Agreement (other than Lessor) are given to Lessor on behalf of that
Indemnitee.
16.15 Counterparts: This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. To the extent, if any, that this
Agreement constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction) no
Security Interest in this Agreement may be created through the transfer or
possession of any counterpart other than the counterpart that has been
marked "Counterpart No. 1" on the cover page thereof.
16.16 Language: All notices to be given under this Agreement will be in English.
All documents delivered to Lessor pursuant to this Agreement will be in
English, or if not in English, will be accompanied by a certified English
translation. If there is any inconsistency between the English version of
this Agreement and any version in any other language, the English version
will prevail.
16.17 No Brokers: Lessee hereby represents and warrants that it has not paid,
agreed to pay or caused to be paid directly or indirectly in any form, any
commission, percentage, contingent fee, brokerage or other similar
payments of any kind, in connection with the establishment or operation of
this Agreement, to any employee of Lessor or to any person or entity in
the State of Registration or elsewhere, except to Excluded Persons, as
herein defined. Lessor hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessee or to any person or
entity in the State of Registration or elsewhere, except to Excluded
Persons, as herein defined. For the purposes hereof, the term "Excluded
Persons" shall mean (x) in the case of Lessor, any of its officers,
directors, employees, attorneys or other professional advisors, whether
located in the State of Registration or elsewhere, and (y) in the case of
Lessee, any of its officers, directors, employees, attorneys or other
professional advisors, whether located in the State of Registration or
elsewhere. Each party agrees to indemnify and hold the other harmless from
and against any and all claims, suits, damages, costs and expenses
(including, but not limited to reasonable attorneys' fees) asserted by any
agent, broker or other third party for any commission or compensation of
any nature whatsoever based upon this Agreement or the Operative Documents
or the Aircraft, if such claim damage, cost or expense arises out of any
action or alleged action by the indemnifying party, its employees or
agents.
69
17. DISCLAIMERS AND WAIVERS
17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS,
WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED
IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR
HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER BY VIRTUE OF
HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO
ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE),
ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE
AIRCRAFT, INCLUDING BUT NOT LIMITED TO: -
(a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS,
OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE
LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY,
CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP,
THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS
TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED
(INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR
DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY
PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT
OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: -
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY
OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY
THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE
IN CONNECTION THEREWITH;
(ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS
RELATING THERETO;
(iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS
OR CONSEQUENTIAL DAMAGES;
(iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT
OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR
(v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS
RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION,
70
EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR
HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE
POSSESSION, OPERATION OR PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY
PART OR THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE
EXTENT ARISING UNDER CLAUSE 2.4.
17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE
ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY
OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES (AS SUCH TERM IS DEFINED
IN SECTION 10520(B) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE) AS A RESULT
OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS,
REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE
OTHER OPERATIVE DOCUMENTS.
17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF
THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this Agreement
unless it had available to it the benefits of a lessor under Section 1110
of Title 11 of the United States Code. Lessee covenants and agrees with
Lessor that to better ensure the availability of such benefits, Lessee
shall support any motion, petition or application filed by Lessor with any
bankruptcy court having jurisdiction over Lessee, whereby Lessor seeks
recovery of possession of the Aircraft under said Section 1110 and shall
not in any way oppose such action by Lessor unless Lessee shall have
complied with the requirements of said Section 1110 to be fulfilled in
order to entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is repealed
and another statute is enacted in lieu thereof, Lessor and Lessee agree to
amend this Agreement and take such other action not inconsistent with this
Agreement as Lessor reasonably deems necessary so as to afford to Lessor
the rights and benefits as such amended or substituted statute confers upon
owners and lessors of aircraft similarly situated to Lessor.
19. USURY LAWS: The parties intend to contract in strict compliance with the
usury Laws of the States of California and Colorado and, to the extent
applicable, the United States of America. Notwithstanding anything to the
contrary in the Operative Documents, Lessee will not be obligated to pay
any interest in excess of the maximum non-usurious interest rate, as in
effect from time to time, which may by applicable Law be charged,
contracted for, reserved, received or collected by Lessor in connection
with the Operative Documents. During any period of time in which the then-
applicable highest lawful rate is lower than the rate specified in Clauses
5.11 or 13.2, interest will accrue and be payable at such highest lawful
rate; however, if at later times such highest lawful rate is greater than
the rate specified in Clauses 5.11 or 13.2, then Lessee will
71
pay interest at the highest lawful rate until the aggregate amount of
interest paid by Lessee equals the amount of interest that would have been
payable in accordance with the interest rate specified in Clauses 5.11 or
13.2.
20. MODIFICATION OR REVISION:
Neither this Agreement nor any term of this Agreement may be modified,
rescinded, changed waived, discharged or terminated except by a writing
signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provision of this Clause 20 by their initials below: -
LESSOR: LESSEE:
---------- ------------
72
21. IN WITNESS whereof the parties hereto have executed this Agreement on the
date shown at the beginning of this Agreement.
WITNESS SIGNED on behalf of
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
73
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
--------
MANUFACTURER: Boeing
MODEL: 737-300
SERIAL NUMBER: 28563
ENGINES
-------
ENGINE TYPE: CFM-56-3C1
SERIAL NOS: SN [______]; SN [______];
On the Delivery Date the Aircraft shall be in the following condition:-
(a) New, ex factory;
(b) painted in Lessee's livery, provided that Lessor has been furnished with a
detailed working drawing no later than three months prior to the scheduled
Delivery Month and that costs in excess of normal aircraft exterior
painting costs to accommodate the application of Lessee's decorative decals
to the vertical fin and rudder areas shall be reimbursed by Lessee;
(c) have had accomplished all outstanding (i.e. at or prior to the Delivery
Date) mandatory inspection and modification requirements, airworthiness
directives and similar requirements applicable to the Aircraft, any Engine
or Part having a compliance date prior to the Delivery Date or within
90 days after the Delivery Date and which are required by the Air
Authority, and/or the FAA and/or mandated by any manufacturer of the
Aircraft, any Engine or Part;
(d) shall have no open, deferred, continued, carryover or placarded log book
items; and
(e) equipped for US domestic passenger operation under FAR Part 121.
74
PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
. FAA Certificate of Airworthiness (on board aircraft)
. Current Aircraft Registration Certificate (on board aircraft)
B. AIRCRAFT STATUS SUMMARIES
. Aircraft record of flight time and cycles (listing of accumulated
hours and cycles as of specific dates)
. Airworthiness Directive Applicability and Compliance Report
. Supplemental Structural Inspection (SSID) Status (if applicable)
. Corrosion Prevention and Control Program Task Status
. List of Major Repairs and Alterations
. List and Status of Life Limited Components
. Check/Inspection Status
. List and Current Status of Time-Controlled Components
. Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
C. AIRCRAFT MAINTENANCE RECORDS
Airframe inspection, maintenance, modification, and repair documents with
maintenance and/or inspection signatures (as required) and description of
work done.
. Last "A", "B", "C" and "D" Checks (or equivalents)
(In the event that a check is performed in phases, all phases
necessary to constitute a complete block check are required. In the
event that check content varies by multiples of the check, all
multiples necessary to constitute a complete cycle are required.)
. Airworthiness Directive, Service Bulletin and modification compliance
documents including engineering orders, drawings, shop cards, etc., as
necessary to establish method of compliance, quality control
acceptance, and approval authority
75
. Supplemental Structural Inspection (SSID) compliance documents and
findings (if applicable)
. Corrosion Prevention and Control Program compliance documents and
findings
. Documentation of major repairs and alterations including engineering
orders, drawings, Supplemental Type Certificates, Master Change
Notice, etc., as necessary to define work done, certification basis,
and approval authority.
. Aircraft weighing records
D. AIRCRAFT HISTORY RECORDS
. Service Difficulty Reports
. Accident or Incident Reports
E. ENGINE RECORDS (for each engine)
. Engine Master Record (record of installation and removal and
accumulated flight time and cycles)
. Airworthiness Directive Applicability and Compliance Report
. Manufacturer Service Bulletin Compliance Report
. List of Operator Modifications Incorporated, if any
. List of Major Repairs and Alterations, if any
. List of Current Status of Life Limited Components
. Check/Inspection Status
. List and Status of Time Controlled Components
. Serialization On-Condition/Condition Monitored Components Inventory of
Installed Units
. Repair, overhaul and inspection documents including FAA Forms 337
. Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
. Test Cell Records for last test
76
F. APU RECORDS
. APU Master Record (record of installation and removal and accumulated
time and cycles)
. Airworthiness Directive Applicability and Compliance Report
. Manufacturer Service Bulletin Compliance Report
. List of Operator Modifications Incorporated, if any
. List and Current Status of Life Limited Components
. List and Status of Time Controlled Components
. Serialized On-Condition/Condition Monitored Components Inventory of
Installed Units
. Repair, overhaul and inspection documents including FAA Forms 337
. Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
G. COMPONENT RECORDS
. Time Controlled Component Historical Records with installation and
serviceability tags
. Documents necessary to demonstrate installation and traceability to
new for life limited components currently installed
. Installation records and serviceability tags for Serialized On-
condition/Condition Monitored Components (minimum of last twelve
months)
H. MANUALS
Airplane Delivered Used:
. Airplane Flight Manual
. Weight and Balance Control and Loading Manual
. Maintenance Manual (microfilm)
. Wiring Diagram Manual (microfilm)
. Illustrated Parts Catalog (microfilm)
77
. Structural Repair Manual (microfilm)
. Engine Maintenance Manual (microfilm)
. Engine Illustrated Parts Manual (microfilm)
. Operator Weight and Balance Manual
. Pilots Handbook
. Minimum Equipment List
I. MISCELLANEOUS TECHNICAL DOCUMENTS
. Maintenance Program Specifications
. Engine Build Specifications
. Reference material necessary for interpretation of status summaries,
i.e. Operator Part Number Cross Reference
. Interior configuration drawings
. Boeing Aircraft Readiness Log
. Loose Equipment Inventory
. FAA Burn Certificates of Aircraft Interiors and seats
78
SCHEDULE 2
CERTIFICATE OF TECHNICAL ACCEPTANCE
This Certificate of Technical Acceptance is delivered, on the date set out below
by Frontier Airlines, Inc. ("Lessee"), to GENERAL ELECTRIC CAPITAL CORPORATION
("Lessor"), pursuant to the Aircraft Lease Agreement dated as of the 18th of
November, 1996 between Lessor and Lessee (the "Agreement"). The capitalized
terms used in this Certificate shall have the meaning given to such terms in the
Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this
[ ] day of [ ], 199[ ], at [ ], accepted the following, in accordance with
the provisions of the Agreement:
(a) Boeing Model 737-300 airframe, Manufacturer's Serial No. 28563;
(b) CFM-56-3C1 Engines: -
Engine Manufacturer's Serial Nos.
1) [______]
2) [______]
(Each of which shall have more than 750 rated takeoff horsepower or the
equivalent of such horsepower);
(c) Fuel on Board Status: [ ] (lbs.) (gals.)
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee and
attached hereto; and
(e) Aircraft Documents: as per list signed by Lessor and Lessee and attached
hereto.
79
2. HOURS AND CYCLES DATA (as of Delivery Date)
(a) Airframe:
--------
Number of Hours since last phase "D" Check (Heaviest Check): ______ hours
-----------------------------------------------------------
"C" Check (or Equivalent):
-------------------------
Interval:
----------------------------
Time Since:
--------------------------
(b) Landing Gear Overhaul:
---------------------
Number of Cycles Since Last Overhaul:
Left Gear cycles
--------------------------
Right Gear cycles
-------------------------
Nose Gear cycles
--------------------------
Center Gear cycles
------------------------
Interval: Left Gear
---------------------
Right Gear
-------------------------
Nose Gear
--------------------------
Center Gear
------------------------
(c) Engines:
-------
Number of Hours Since Last Heavy Shop Visit:
S/N : hours
------------ -------
S/N : hours
------------ -------
Number of Hours Since Last Hot Section Refurbishment:
S/N : hours
------------ -------
S/N : hours
------------ -------
80
Number of Hours Since Last Cold Section Refurbishment:
S/N : hours
------
S/N : hours
------
Hot Section Inspection:
Interval:
---------------------------
Time Since (S/N ):
--------------------------
Time Since (S/N ):
--------------------------
Time Remaining to First Restriction:
Engine S/N:
Hours: Restriction:
---------- ----------
Cycles: Restriction:
---------- ----------
Engine S/N:
Hours: Restriction:
---------- ----------
Cycles: Restriction:
---------- ----------
Average Cycles in Life Limited Parts (see attached Schedule):
---------
(d) Auxiliary Power Unit:
--------------------
Number of APU Hours Since Last Heavy Shop Visit:
hours Date accomplished
---------- ----------
Hot Section Inspection:
Interval:
------------------------
Time Since:
------------------------
(e) Time Controlled Components: [See attached DUJX Report]
--------------------------
(f) Interior Equipment:
------------------
Number of Passenger Seats and Configuration:
---------------
--------------------
81
Number of Galleys and Location:
--------- ----------
Number of Lavatories and Location:
--------- ----------
LOPA - Attached
--------- ----------
List of Loose Equipment on Board:
--------------------------------------------- ---------------
--------------------------------------------- ---------------
--------------------------------------------- ---------------
--------------------------------------------- ---------------
--------------------------------------------- ---------------
--------------------------------------------- ---------------
(g) Avionics: Description Model Part
-------- ----------- ----- ----
No.
---
--------------------------------------------- --------- ----------------
--------------------------------------------- --------- ----------------
--------------------------------------------- --------- ----------------
--------------------------------------------- --------- ----------------
--------------------------------------------- --------- ----------------
--------------------------------------------- --------- ----------------
82
3. ACCEPTANCE:
The undersigned hereby confirms that the Aircraft, Engines, Parts and
Aircraft Documents are acceptable to it, satisfy all of the Delivery
Condition Requirements and are in the condition for delivery to and
acceptance by Lessee as required under the Agreement, except as described
on the EXCEPTIONS LIST attached hereto. LESSEE'S EXECUTION AND DELIVERY OF
THIS CERTIFICATE SIGNIFIES LESSEE'S ABSOLUTE AND IRREVOCABLE ACCEPTANCE OF
DELIVERY OF THE AIRCRAFT TO IT FOR ALL PURPOSES HEREOF AND OF THE
AGREEMENT.
IN WITNESS WHEREOF, Lessee has, by its duly authorized representative,
executed this Certificate on the date in paragraph 1 above.
LESSEE: FRONTIER AIRLINES, INC.
By:
-------------------------
Title:
-------------------------
83
ATTACHMENT
EXCEPTIONS LIST
---------------
The items set forth below represent non-conformities to the Delivery
Condition Requirements as of the Delivery Date, the corrective action (or
payment to Lessee in lieu thereof), if any, to be taken by Lessor and the date
of accomplishment. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR'S UNDERTAKINGS SET
FORTH HEREIN ARE IN FURTHERANCE OF AND SUBJECT TO THE AIRCRAFT LEASE AGREEMENT
DATED AS OF MARCH 25, 1997 BETWEEN LESSOR AND LESSEE (THE "LEASE"), THAT LESSOR
MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
HEREUNDER AND THAT LESSORS UNDERTAKINGS ARE SUBJECT TO EACH AND EVERY DISCLAIMER
OF LESSOR SET FORTH IN THE LEASE INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH
IN CLAUSE 17 THEREOF.
LESSOR LESSEE
By: By:
------------------------------- -------------------------------
Title: Title:
---------------------------- ----------------------------
------------------------------------------------------------------------------
ITEM DESCRIPTION AND CORRECTIVE COMPLETION LESSEE'S
NO. ACTION DATE INITIALS
---------------------------------
1. ---------------------------------
---------------------------------
--------------------------------- ---------------- ----------------
--
2. ---------------------------------
---------------------------------
---------------------------------
--------------------------------- ---------------- ----------------
--
3. ---------------------------------
---------------------------------
---------------------------------
--------------------------------- ---------------- ----------------
--
------------------------------------------------------------------------------
84
SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear generally,
will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be in the same configuration as on the Delivery Date or as reasonably
requested by Lessor;
(b) be clean by commercial airline standards;
(c) have installed the full complement of engines and other equipment, parts,
furnishings and accessories as is normally installed in the Aircraft and
the loose equipment as was installed in the Aircraft at the time of
Delivery, and be in a condition suitable for immediate operation in
commercial service;
(d) have in existence a valid certificate of airworthiness (or if required by
Lessor, a valid export certificate of airworthiness) with respect to the
Aircraft issued by the Air Authority and be in compliance without waiver
with all current FAR Part 121 requirements;
(e) comply with the manufacturer's original specifications or as modified by
Lessee with the approval of Lessor, and as required to meet the regulations
of the Air Authority at the Expiry Date;
(f) have undergone, immediately prior to redelivery, a block 'C' Check so that
all inspections falling due within the next following 3,200 Flight Hours,
3,000 Cycles or the next following 12 months of operation in accordance
with Lessee's Maintenance Program, have been accomplished;
(g) have had accomplished all outstanding (i.e. at or prior to the Expiry Date)
mandatory inspection and modification requirements, airworthiness
directives and similar requirements applicable to the Aircraft, any Engine
or Port having a compliance date during the Term or within 90 days after
the Expiry Date and which are required by the Air Authority, and/or
mandated by any manufacturer of the Aircraft, any Engine or Part, for this
purpose, compliance shall be by terminating action if: the latest date
permitted by such Airworthiness Directive for compliance by terminating
action falls within 90 days after the Expiry Date;
85
(h) have installed all applicable vendor's and manufacturer's service bulletin
kits received free of charge by Lessee that are appropriate for the
Aircraft and to the extent not installed, those kits will be furnished free
of charge to Lessor;
(i) have its fuselage, engine cowlings, and vertical fin and rudder freshly
painted in an all white livery and the paint on the wings and the
horizontal stabilizer surfaces shall be clean and in good condition, free
from cracks, peeling, blistering and erosion and shall be uniform in color
and free from areas of local touch up;
(j) have all signs and decals clean, secure and legible;
(k) shall have no open, deferred, continued, carryover or placarded log book
items; and
(l) meet the requirements of FAR Part 36, Appendix C, Stage 3 noise compliance
as then in effect without waiver or restriction.
2. COMPONENTS
(a) Each Flight Hour and Cycle limited component (other than the APU) shall
have not less than 3,200 Flight Hours and 3,000 Cycles (whichever is the
more stringent test) of life remaining to the next expected removal, in
accordance with Lessee's Maintenance Program and shall be supported by
documentation indicating Time Since New, Cycles Since New, Time Since
Overhaul and Cycles Since Overhaul and shall be accompanied by appropriate
certification documentation acceptable to the Air Authority from the last
overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1;
(b) Each calendar-limited component including safety equipment will have not
less than 12 months life remaining to the next scheduled removal in
accordance with Lessee's Maintenance Program and shall be supported by
documentation indicating Time Since New, Cycles Since New, Time Since
Overhaul, Cycles Since Overhaul and shall be accompanied by appropriate
certification documentation acceptable to the Air Authority from the last
overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1;
(c) Each life-limited component will be supported by certification
documentation necessary to demonstrate traceability of utilization since
new (i.e. back-to-birth traceability);
(d) Each "on-condition" and "condition monitored" component will be
serviceable;
(e) The APU will be fresh from a burner can change and have not more than 1,500
Flight Hours since the last hot section inspection (including removal and
inspection of the plenum, torus and turbine nozzle), and have not more than
5,000 Flight Hours since last gas path refurbishment in accordance with the
manufacturer's specifications and be free of any defects as determined by
manufacturer limits; and
(f) The installed components as a group will have an average of total flight
time since new of not more than that of the Airframe.
86
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Delivery Date will be accompanied by all documentation
Lessor may require to evidence that title thereto is properly vested in
Owner and will:-
(a) have not less than 4,000 Engine Flight Hours or 3,500 Cycles (whichever is
the more restrictive factor) remaining to next scheduled life limited part
replacement and have an expected on-wing remaining life of not less than
4,000 Engine Flight Hours or 3,500 Cycles (whichever is the more
restrictive factor). The expected life remaining will be determined by the
inspection and checks accomplished by Lessor in accordance with this
Agreement;
(b) not be "on watch". (For purposes of the Agreement "on watch" shall mean
any maintenance condition that would require an Engine removal and/or
reinspection or airworthiness directive action that would require an Engine
removal within 4,000 flight hours and 3,500 Cycles of the Expiry Date); and
(c) be in a condition which can operate at maximum rated take off power at sea
level at a temperature of 45oC.
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions, and any dents and
abrasions that require a repetitive inspection or future repair, temporary
repairs, and loose or pulled or missing rivets and all structural repairs
shall be in accordance with the manufacturer's and Air Authority's approved
data for permanent repair;
(b) Windows will be free of delamination, blemishes, crazing and will be
properly sealed; and
(c) Doors will be free moving, correctly rigged and be fitted with serviceable
seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Control surfaces will be waxed and polished;
(c) Unpainted cowlings and fairings will be polished; and
(d) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks
and stains;
(b) Carpets and seat covers will be in good condition, clean and free of stains
and meet FAR fire resistance regulations;
87
(c) Seats will be serviceable, in good condition and repainted as necessary;
and
(d) Emergency equipment having a calendar life will have a minimum of 1 year or
100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Fairing panels shall be free of stains and cracks, will be clean secure and
repainted as necessary;
(b) Floor coverings will be clean and effectively sealed;
(c) Seat covers will be in good condition, clean and free of stains and will
conform to FAR fire resistance regulation; and
(d) Seats will be serviceable, in good condition and will be repainted as
necessary.
8. CARGO COMPARTMENTS
(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
The landing gear and wheel xxxxx will be clean, free of leaks and repaired
as necessary. Wheels and brakes shall be in a half life condition or
better.
(a) The landing gear and wheel xxxxx will be clean, free of leaks and repaired
as necessary.
(b) Each wheel and brake assembly shall be in a half life condition or better.
10. CORROSION
(a) The Aircraft shall be in compliance with the Manufacturer's corrosion
prevention and control program (CPCP) requirements. All CPCP inspections
which would normally be accomplished while access is provided during
structural inspection in accordance with Lessee's Maintenance Program
during the Term shall have been accomplished.;
(b) The entire fuselage will be substantially free from corrosion and will be
adequately treated and an approved corrosion prevention program will be in
operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment program will be in operation.
88
SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed Value and
with a deductible not exceeding the Deductible Amount set forth in Letter
Agreement No. 1, or such other amount agreed by Lessor from time to time;
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All
Risks Policy to the fullest extent available from the leading international
insurance markets including confiscation and requisition by the State of
Registration for the Agreed Value, however, when the Aircraft is being
operated solely in or over the United States of America and/or Canada,
coverage may be limited to such perils as are customarily insured by
comparable airlines, operating similar equipment in similar circumstances;
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in
transit other than by air) property insurance on all Engines and Parts when
not installed on the Aircraft on an "agreed value" basis for their full
replacement value and including engine test and running risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL
AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a
Combined Single Limit (Bodily Injury/Property Damage) of an amount not less
than the Minimum Liability Coverage for the time being any one occurrence
(but in respect of products and personal injury liability this limit may be
an aggregate limit for any and all losses occurring during the currency of
the policy). War and Allied Risks are also to be covered under the Policy
in line with prudent market practice for comparable airlines, operating
similar equipment in similar circumstances;
(e) All required hull and spares insurance (as specified above), so far as it
relates to the Aircraft will: -
(i) name Lessor and its successors and assigns as additional assureds for
their respective rights and interests, warranted, each as to itself
only, no operational interest;
(ii) provide that any loss will be settled jointly with Lessor and Lessee
and will be payable in Dollars to Lessor except where the loss does
not exceed the Damage Notification Threshold, and Lessor has not
notified the insurers to the contrary, in which case the loss will be
settled with and paid to Lessee;
89
(iii) if separate Hull "all risks" and "war risks" insurances are arranged,
include a 50/50 provision in accordance with market practice (AVS.
103 is the current market language);
(iv) confirm that the insurers are not entitled to replace the Aircraft in
the event of an insured Event of Loss;
(v) confirm that the insurers will not obtain a valid discharge of the
obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Lessor, GECASI, GECASL and their respective successors and
assigns and their respective shareholders, subsidiaries, directors,
officers, agents, employees and indemnitees as additional insureds
for their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) include a Severability of Interest Clause which provides that the
insurance, except for the limit of liability, will operate to give
each assured the same protection as if there was a separate policy
issued to each assured;
(iii) contain a provision confirming that the policy is primary without
right of contribution and the liability of the insurers will not be
affected by any other insurance of which Lessor or Lessee have the
benefit so as to reduce the amount payable to the additional insureds
under such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons operating
similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies which
Lessor may reasonably require in relation to liability insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Lessor;
(v) provide that, in relation to the interests of each of the additional
assureds the Insurances will not be invalidated by any act or
omission by Lessee, or any other person other than the respective
additional assured seeking protection and shall insure the interests
of each of the additional assureds regardless of any breach or
violation by Lessee, or any other person other than the respective
additional assured seeking protection of any warranty, declaration or
condition, contained in such Insurances;
90
(vi) provide that the insurers will hold harmless and waive any rights of
recourse and/or subrogation against the additional assureds,
including GECASI and GECASL or to be subrogated to any rights of
Lessor against Lessee ;
(vii) provide that the additional assureds will have no obligation or
responsibility for the payment of any premiums due (but reserve the
right to pay the same should any of them elect so to do) and that
the insurers will not exercise any right of set-off or counter-claim
in respect of any premium due against the respective interests of
the additional assureds other than outstanding premiums relating to
the Aircraft, any Engine or Part the subject of the relevant claim;
(viii) provide that the Insurances will continue unaltered for the benefit
of the additional assureds for at least 30 days after written notice
by registered mail or telex of any cancellation, change, event of
non-payment of premium or installment thereof has been sent to
Lessor, except in the case of war risks for which 7 days (or such
lesser period as is or may be customarily available in respect of
war risks or allied perils) will be given, or in the case of war
between the 5 great powers or nuclear peril for which termination is
automatic;
(ix) if reinsurance is a requirement of this Agreement such reinsurance
will (i) be on the same terms as the original insurances and will
include the provisions of this Schedule, (ii) provide that
notwithstanding any bankruptcy, insolvency, liquidation, dissolution
or similar proceedings of or affecting the reinsured that the
reinsurers' liability will be to make such payments as would have
fallen due under the relevant policy of reinsurance if the reinsured
had (immediately before such bankruptcy, insolvency, liquidation,
dissolution or similar proceedings) discharged its obligations in
full under the original insurance policies in respect of which the
then relevant policy of reinsurance has been effected; and (iii)
contain a "cut-through" clause in the following form (or otherwise,
satisfactory to Lessor): "The Reinsurers and the Reinsured hereby
mutually agree that in the event of any claim arising under the
reinsurances in respect of a total loss or other claim where as
provided by the Aircraft Lease Agreement dated March 25, 1997 and
made between Lessor and Lessee such claim is to be paid to the
person named as sole loss payee under the primary insurances, the
Reinsurers will in lieu of payment to the Reinsured, its successors
in interest and assigns pay to the person named as sole loss payee
under the primary insurances effected by the Reinsured that portion
of any loss due for which the Reinsurers would otherwise be liable
to pay the Reinsured (subject to proof of loss), it being understood
and agreed that any such payment by the Reinsurers will (to the
extent of such payment) fully discharge and release the Reinsurers
from any and all further liability in connection therewith"; subject
to such provisions not contravening any law of the State of
Incorporation;
(x) contain a provision entitling Lessor or any insured party to
initiate a claim under any policy in the event of the refusal or
failure of Lessee to do so; and
91
(xi) accept and insure the indemnity provisions of this Agreement to the
extent of the risks covered by the policies.
92
SCHEDULE 5
FORM OF LEGAL OPINION
To: General Electric Capital Corporation
[Date]
Dear Sirs,
1. You have asked us to render an opinion in connection with the transaction
governed, inter alia, by the under mentioned documents. Words and
expressions used herein will bear the same meanings as defined in an
Aircraft Lease Agreement (the "Lease") dated March 25, 1997 between General
Electric Capital Corporation ("Lessor") and Frontier Airlines, Inc.
("Lessee") in respect of one Boeing 737-300 aircraft with manufacturer's
serial number 28563 together with the two installed engines (the
"Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and wherever
kept which it was, in our judgment and to our knowledge, necessary or
appropriate to examine to enable us to give the opinion expressed below.
2. Having considered the documents listed in paragraph 1 above, and having
regard to the relevant laws of [the State of California] [the State of
Colorado] we are pleased to advise that in our opinion:-
(a) Lessee was duly incorporated in the State of [ ] on [ ] for an
indefinite period as a limited company and is a validly existing separate
legal entity, is subject to suit in its own name, and, to the best of our
knowledge, no steps have been, or are being, taken to appoint a receiver,
liquidator, trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has taken all
necessary corporate action to authorize the entry into, performance and
delivery of, the Lease and the transactions contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
93
(iii) conflict with or result in default under any document which is
binding upon Lessee or any of its assets or result in the creation of
any Security Interest over any of its assets.
(d) no authorizations, consents, licenses, approvals and registrations (other
than those which have been obtained and of which copies are attached
hereto) are necessary or desirable to be obtained from any governmental or
other regulatory authorities in the United States of America (the "United
States") to enable Lessee:-
(1) to enter into and perform the transactions contemplated by the Lease;
(2) to import the Aircraft into the United States for the duration of the
Term;
(3) to operate the Aircraft in the United States for the transport of
fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for [the filing and recordation of the Agreement with the FAA and]
the filing of the Financing Statements with [ ] (which filing has been
duly made on or before this date) it is not necessary or desirable, to
ensure the priority, validity and enforceability of all the obligations of
Lessee under the Lease that the Lease be filed, registered, recorded or
notarized in any public office or elsewhere or that any other instrument
relating thereto be signed, delivered, filed, registered or recorded, that
any tax or duty be paid or that any other action whatsoever be taken;
(f) No steps are necessary or desirable to record or perfect Lessor's interest
in the Aircraft in the United States;
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States;
without requiring any further consents, approvals or licenses from any
governmental or regulatory authority in [];
(h) the Lease has been properly signed and delivered on behalf of Lessee and
the obligations on the part of Lessee contained therein, are valid and
binding on and enforceable against Lessee respectively under the laws of
the United States;
(i) the events described in Clause 13.1(g) of the Lease comprise an accurate
and complete statement of all events and situations provided for by the
laws of the United States which may lead to the cessation of activities,
winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
94
(k) Lessee is a "citizen of the United States" as defined in Section 40102 of
Title 49 of the United States Code;
(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of the
United States Code;
(m) Lessee's chief executive office (as defined in the Uniform Commercial Code
in effect in [ ]) is located at [ ];
(n) the obligations of Lessee under the Lease rank at least pari passu with all
other present and future unsecured and unsubordinated (including contingent
obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any payment
whatsoever which may be made by Lessee pursuant to the Lease; with respect
to any withholdings, the provisions of Clauses 5.6, 5.7 and 5.10 of the
Lease are fully effective; and the arrangements contemplated by the Lease
do not give rise to any charge whatsoever to Taxes in the United States;
(p) there is no applicable usury or interest limitation law in the United
States which may restrict the recovery of payments in accordance with the
Lease;
(q) there are no registration, stamp or other taxes or duties of any kind
payable in the United States in connection with the signature, performance
or enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in the United States nor
become liable to tax in the United States by reason of entering into the
Lease with Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in the United States
in order to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld as a
valid choice of law in any action in the Courts of the United States;
(u) the consent to the jurisdiction by Lessee contained in the Lease is valid
and binding on Lessee and not subject to revocation;
(v) any judgment for a definite sum given by the Courts of the State of
California against Lessee would be recognized and accepted by the Courts of
the United States without re-trial or examination of the merits of the
case;
(w) (i) Lessee is subject to civil commercial law with respect to its
obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any right of
immunity and the entry into and performance of the Lease by Lessee
constitute private and commercial acts; and
95
(x) there are no laws or other rules in the United States (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be deprived
of the Aircraft by any Government Entity or any other person, other than
Lessor or any assignee of Lessor.
3. We do not purport to be experts on and do not purport to be generally
familiar with or qualified to express legal opinions based on any law other
than the laws of the United States and accordingly express no legal opinion
herein based upon any law other than the laws of the United States.
Yours faithfully,
96
SCHEDULE 6
LEASE SUPPLEMENT NO. __
LEASE SUPPLEMENT NO. ___, dated _________, 1995, between General Electric
Capital Corporation, a corporation organized under the laws of New York
("Lessor"), and Frontier Airlines, Inc. a corporation organized under the laws
of the State of Colorado ("Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of March 25, 1997 (herein referred to as the "Agreement" and
the defined terms therein being hereinafter used with the same meaning). The
Agreement provides for the execution and delivery from time to time of a Lease
Supplement substantially in the form hereof for the purpose of leasing the
aircraft described below under the Agreement as and when delivered by Lessor to
Lessee in accordance with the terms thereof.
The Agreement and this Lease Supplement relate to the Aircraft, Engines and
Parts as more precisely described below. A counterpart of the Agreement is
attached hereto and this Lease Supplement and the Agreement shall form one
document.
In consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows: -
1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee
hereby accepts, acknowledges receipt of possession and leases from Lessor
under the Agreement, that certain Boeing Model 737-300 commercial jet
Aircraft, and the two (2) CFM International CFM-56-3-C1 Engines (each of
which Engines has 750 or more rated takeoff horsepower or the equivalent
of such horsepower) described in Schedule 1 hereto, together with the
Aircraft Documents described in the Agreement (the "Delivered Aircraft").
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Term for the Delivered Aircraft shall commence on the Delivery Date
and shall end on the Expiry Date.
4. The amount of Rent for the Delivered Aircraft is set forth in Letter
Agreement No. 1 to the Agreement.
5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each
delivered Engine have been duly marked in accordance with the terms of
---------
Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required
by the Agreement, (iii) the representations and warranties of Lessee
referred to in Clause 2 of the Agreement are hereby repeated with effect
as of the date first above written, (iv) having inspected the Delivered
Aircraft, Lessee acknowledges that the Delivered Aircraft satisfies all
97
conditions required for Lessee's acceptance of delivery as set forth in
the Agreement, except as noted in the Exceptions List attached to the
Certificate of Technical Acceptance, and (v) the execution and delivery of
this Lease Supplement signifies absolute and irrevocable acceptance by
Lessee of the Delivered Aircraft for all purposes hereof and of the
Agreement.
6. All of the terms and provisions of the Agreement are hereby incorporated
by reference in this Lease Supplement to the same extent as if fully set
forth herein.
7. This Lease Supplement may be executed in any number of counterparts, each
of such counterparts, shall for all purposes be deemed to be an original;
and all such counterparts shall together constitute but one and the same
Lease Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No. __ to be duly executed as of the day and year first above written.
LESSOR, LESSEE,
GENERAL ELECTRIC CAPITAL FRONTIER AIRLINES, INC.
CORPORATION
By: By:
---------------------------- ----------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
------------------------- -------------------------
98
SCHEDULE 1
TO
LEASE SUPPLEMENT NO.
One
New Boeing 737-300
Airframe
Registration Xxxx
-----------------
N_____
Manufacturer's
Serial No. Total Time* Total Cycles*
---------- ---------- ------------
28563
---------- ------------
Installed CFM International, Inc.
Engines
----------------
Model No. Serial No. Total Time* Total Cycles*
-------- ---------- ---------- ------------
CFM-56-3-C1 [________]
------------- -------------
CFM-56-3-C1 [________]
------------- -------------
Each of the above-described Aircraft Engines is 750 or more rated takeoff
horsepower or its equivalent.
* The total time and total cycles referred to above are as of ____________
Time,_________,____. Such times and cycles are within________hours and
_________cycles of the actual hours and cycles at the time of this Lease
Supplement.
99
SCHEDULE 7
FORM OF
LEASE TERMINATION CERTIFICATE
The undersigned hereby certify that the Aircraft Lease Agreement dated as of
March 25, 1997 between the undersigned Lessor and undersigned Lessee, and as
further described in the Appendix attached hereto, has terminated and the
aircraft and aircraft engines covered thereby are no longer subject to the terms
thereof. This certificate may be executed in one or more counterparts each of
which when taken together shall constitute one and the same instrument.
DATED this __________ day of ____________________, __________
LESSOR LESSEE
GENERAL ELECTRIC CAPITAL FRONTIER AIRLINES, INC.
CORPORATION
By: By:
------------------------------- ---------------------------
Title: Title:
---------------------------- ------------------------
100
APPENDIX
--------
FAA Recording Date FAA Conveyance No.
------------------ ------------------
101
SCHEDULE 8
FORM OF AIRCRAFT USAGE REPORT
FOR PERIOD BEGINNING ON __________, 199____
AND ENDING ON ___________, 199____
The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies
as follows:
1. This report is submitted to General Electric Capital Corporation ("Lessor")
under that certain Aircraft Lease Agreement dated as of March 25, 1997, between
Lessor and Lessee (the "Lease"), and capitalized terms used and not otherwise
defined herein have the meanings ascribed to them in the Lease.
2. The Aircraft covered by this report is:
Aircraft: Boeing 737-300
Serial No: 28563
U.S. Reg. No.: N_____
3. During the period covered by this report, the Airframe which is the subject
of the Lease was operated for the following number of Flight Hours and Cycles as
such terms are defined in the Lease:
Flight Hours Cycles
--------- ----------
4. During the period covered by this report, the CFM-56-C1 Engines Bearing
respective serial numbers __________ and ____________ which are the subject of
the Lease, where each operated for the following number of Engine Flight Hours
and Cycles, as defined in the Lease:
Engine Flight Hours Cycles
------------------- ------
SN
-------- ------------------ ------------------
SN
-------- ------------------ ------------------
This Aircraft Usage Report is dated __________________, 199_____,
FRONTIER AIRLINES, INC.
By:
--------------------------------
Title:
-----------------------------
102
EXECUTION COPY
LETTER AGREEMENT NO. 1
As of March 25, 1997
Frontier Airlines, Inc.
00000 Xxxx 00xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Xxxxxx Xxxxxx of America
Re: Letter Agreement No. 1 to Aircraft Lease Agreement dated as of March
25, 1997, between General Electric Capital Corporation, Lessor, and
Frontier Airlines, Inc., Lessee - Definitions of Certain Terms and
Other Matters
Gentlemen:
Reference is made to that certain Aircraft Lease Agreement dated as of March 25,
1997 (the "Lease") between General Electric Capital Corporation as lessor
("Lessor") and Frontier Airlines, Inc. as lessee ("Lessee") for the lease of one
new Boeing Model 737-300 commercial aircraft bearing manufacturer's serial
number 28563 (the "Aircraft"). Terms not otherwise defined herein shall have
the meanings ascribed to them in the Lease.
In order further to preserve the confidentiality of certain of the business
terms of the Lease and the other Operative Documents, Lessor and Lessee have
agreed that certain defined terms used in the Lease and their understanding
respecting certain other matters shall be set forth in this letter rather than
in the body of the Lease.
I. Confidentiality.
---------------
Lessor and Lessee understand that certain commercial and financial
information contained in or provided in connection with the Lease, this
Letter Agreement No. 1, Tax Indemnity Agreement and the other documents
executed or furnished in connection herewith and therewith, is considered
by Lessor and Lessee as privileged and confidential. Lessor and Lessee
each hereby agree, that it will treat Letter Agreement No. 1 and each such
other document as privileged and confidential and will not, without the
prior written consent of the other, disclose or cause to be disclosed, the
terms hereof or thereof to any Person, except to its counsel and auditors,
or except (a) as may be required by applicable Law or governmental
regulation or pursuant to an order, or a valid and binding request, issued
by any court or governmental agency or authority having jurisdiction over
Lessor or Lessee, as the case may be, or (b) as necessary to enable Lessor
to make transfers, assignments or other dispositions to potential
transferees, assignees or participants of its interest in and to this
Agreement.
Frontier Airlines, Inc.
As of March 25, 1997
Page 2
In connection with any such disclosure or any filing of the information
contained herein or therein pursuant to any such applicable Law or
governmental regulation, Lessor or Lessee, as the case may be, shall
request and use its best reasonable efforts to obtain confidential
treatment of this Letter Agreement No. 1, Tax Indemnity Agreement, such
other documents and such information contained herein or therein or
furnished in connection therewith and the other party will cooperate in
making and supporting any such request for confidential treatment.
II. Definitions of Certain Terms.
----------------------------
Lessor and Lessee agree that the following terms shall have the following
meanings for all purposes of the Lease, the Lease Supplement and this
Letter Agreement No. 1:
Agreed Value:
*
Airframe Maintenance Reserve Rate:
The Airframe Maintenance Reserve Rate initially shall be * per Flight
Hour. Such rate shall be increased annually by the Escalation
Adjustment.
Damage Notification Threshold:
*
Deposit:
The Deposit equal to * is to be paid in cash as follows:
(i) *
(ii) *
(iii) *
(iv) *
Frontier Airlines, Inc.
As of March 25, 1997
Page 3
Deductible Amount:
*
Life Limited Parts Reserve Rate:
The Life Limited Parts Reserve Rate initially shall be * per Engine
Flight Hour. Such rate shall be increased annually by the Escalation
Adjustment and shall be subject to further adjustment from time to
time on the terms set forth in Section III to this Letter Agreement
No. 1.
Engine Refurbishment Reserve Rate:
The Engine Refurbishment Reserve Rate for each Engine initially shall
be * per Engine Flight Hour. Such rate shall be increased annually by
the Escalation Adjustment and shall be subject to further adjustment
from time to time on the terms set forth in Section III to this Letter
Agreement No. 1.
Escalation Adjustment:
Each Reserve Rate shall escalate at a rate of *, compounded annually,
commencing on the first annual anniversary of the Delivery Date.
Interest Rate:
* per month, but not to exceed the maximum amount permitted by Law.
Landing Gear Reserve Rate:
The Landing Gear Reserve Rate for the landing gear shall be * per
Flight Hour. Such rate shall be increased annually by the Escalation
Adjustment and shall be subject to further adjustment from time to
time on the terms set forth in Section III to this Letter Agreement
No. 1.
Minimum Liability Coverage:
Five Hundred Million Dollars ($500,000,000).
Frontier Airlines, Inc.
As of March 25, 1997
Page 4
Rent:
The Rent for the Aircraft for each calendar month during the Term of
the Lease shall be payable in ninety six (96) consecutive monthly
installments, in advance on each Rent Date with each such installment
being in the amount of *.
Rental Periods:
The Rental Periods of the Term comprise ninety six (96) consecutive
monthly Rental Periods, which commence on the Delivery Date.
Reserve Rate:
The term "Reserve Rate" shall mean any of the Airframe Reserve Rate,
Engine Refurbishment Reserve Rate, Engine LLP Reserve Rate and
Landing Gear Reserve Rate.
III. Further Adjustment of Reserve Rates.
-----------------------------------
Lessor and Lessee acknowledge that the Engine Reserve Rates specified
herein are based upon the assumption that the Aircraft will operate at 3B1
thrust levels and on a two hour to one cycle ratio (2:1). In the event
that the foregoing assumption proves to be incorrect at any time during the
Term based upon Lessee's actual operating experience during the previous
twelve (12) months, and the hour cycle ratio differs from such assumption
by more than 0.1 during such twelve (12) month period, Lessor shall have
the right, upon written notice to Lessee, to adjust the Engine Reserve
Rates in the case of a decrease in the ratio and Lessor, upon written
request from Lessee, will make such an adjustment in the case of an
increase in the ratio. Any such adjustment shall be based on the following
table:
---------------------------------------------------------------------
PER ENGINE HOUR/CYCLE
---------------------------------------------------------------------
1.5 2.0 2.5
---------------------------------------------------------------------
Engine Refurbishment Reserves Rates * * *
---------------------------------------------------------------------
Engine LLP Reserve Rates * * *
---------------------------------------------------------------------
(Note: *this figure shall be increased at a rate of three percent (3%)
compounded annually, commencing on the first annual anniversary of the
Delivery Date).
Actual hour to cycle ratios may fall outside of the amount identified in
the table. In such case, the actual values shall be determined by
extrapolating the closest observed intervals in the table. (For example,
an hour to cycle ratio of 1.7:1 falls in between 1.5:1 and 2.0:1 resulting
in the extrapolated values of * for Engine Refurbishment Reserve Rates
Frontier Airlines, Inc.
As of March 25, 1997
Page 5
and * for Engine LLP Reserve Rates.) In addition, these rates are
subject to further adjustment by Lessor in the event that Lessee operates
the Engines at other than 3B1 thrust levels.
In the event that Lessee's Maintenance Program is materially revised,
Lessor may make such adjustment as Lessor determines is necessary in its
reasonable discretion to maintain the respective Reserve Rates at levels
which accurately reflect the costs associated with obtaining maintenance
services at prevailing industry rates. Each such notice shall specify the
revised Reserve Rate and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, promptly following the occurrence of
any circumstances or events which would result in the foregoing assumptions
becoming incorrect at any time during the Term.
IV. Airworthiness Directives Cost Sharing.
-------------------------------------
The Lessor shall, if the cost to Lessee of performing an inspection
resulting in modification or terminating action with regard to any
Airworthiness Directive or causing such inspection resulting in
modification or terminating action being performed with regard to such
Airworthiness Directive, exceeds * in respect of any individual item
of the same, provided no Default has occurred and is continuing, on receipt
by Lessor of evidence of payment for and completion of the relevant work,
reimburse Lessee with an amount equal to the solution to the following
formula:-
*
Frontier Airlines, Inc.
As of March 25, 1997
Page 6
If this Letter Agreement No. 1 to Aircraft Lease Agreement is consistent with
your understanding of the subject matter hereof, please so confirm by executing
this letter where indicated at the end hereof and returning the fully executed
letter to Lessor.
GENERAL ELECTRIC CAPITAL
CORPORATION
as Lessor,
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
The undersigned hereby confirms that the foregoing letter accurately reflects
the understanding of the undersigned with respect to the subject matter of such
letter.
FRONTIER AIRLINES, INC.
as Lessee,
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EXECUTION COPY
TAX INDEMNITY AGREEMENT
-----------------------
TAX INDEMNITY AGREEMENT dated as of March 25, 1997 (the "Tax Indemnity
Agreement") between FRONTIER AIRLINES, INC. (the "Lessee") and GENERAL ELECTRIC
CAPITAL CORPORATION (the "Lessor").
As inducement to the Lessor to enter into Aircraft Lease Agreement dated as
of March 25, 1997 (the "Lease") with respect to one new Boeing 737-300 Aircraft
bearing Manufacturer's Serial Number 28563 (the "Aircraft") to be entered into
contemporaneously between Lessor and Lessee and in consideration of the mutual
covenants contained herein and therein, the Lessee and the Lessor hereby agree
as follows:
SECTION 1. Definitions.
-----------
(a) The term "Lessor" shall mean the Lessor and for any taxable year in
which the Lessor joins in the filing of a consolidated federal income tax
return, shall include each member of the affiliated group (within the meaning of
Section 1504 of the United States Internal Revenue Code of 1986, as amended, or
any successor provision thereto (the "Code")) of which the Lessor is a member.
(b) "Tax Attribute Period" shall mean the period beginning on the Delivery
Date and ending on December 31, 2003, provided that in the event the
--------
depreciation period for the Aircraft is other than the period specified in Tax
Assumption 2(d)(i) as a result of a Lessee Act (as hereinafter defined), such
period shall end on the last day of the calendar year in which a depreciation
deduction for the Aircraft is allowed or allowable, or would have been
allowable, to the Lessor.
(c) "Reasonable Basis" for a position exists if tax counsel may properly
advise reporting such position on a tax return in accordance with Formal Opinion
85-352 issued by the Standing Committee on Ethics and Professional
Responsibility of the American Bar Association and, for purposes of Sections
6(a) and 7(b), if "substantial authority" for such position exists for purposes
of Section 6662 of the Code and the regulations thereunder.
(d) "Permitted Percentage" shall mean 5% in each of Lessor's taxable
years.
(e) Capitalized terms used herein without definition shall have meanings
ascribed thereto in Schedule 1 to the Lease.
SECTION 2. Assumptions. The transactions described in the Lease have been
-----------
entered into on the assumptions (the "Tax Assumptions") that for Federal income
tax purposes:
1
(a) at all times during the Term, for federal income tax purposes the
Lease will constitute a "true lease", the Lessor will be treated as the owner
and lessor of the Aircraft and the Lessee will be treated as the lessee of the
Aircraft;
(b) The Lessor's taxable year is the calendar year ending December 31, and
the Lessor ill include all items of income, gain, loss, deduction, or credit
with respect to the transactions contemplated by the Lease using an accrual
method of accounting;
(c) The Lessor, as the owner of the Aircraft for Federal income tax
purposes, will be entitled to the following Federal income tax benefits:
(i) cost recovery deductions for 100% of the Lessor's Cost of the
Aircraft pursuant to Section 168(b) of the Code, commencing in the Lessor's
taxable year in which the Delivery Date occurs, computed (i) on the basis
that the Aircraft is "7-year property" (within the meaning of Section
168(e) of the Code), (ii) by using the 200% declining balance method over a
7 year recovery period, switching to the straight-line method for the first
taxable year of the Lessor during the term for which such method yields a
larger allowance, (iii) assuming salvage value is zero and (iv) using a
half-year convention (the "MACRS Deductions");
(ii) for each taxable year of the Lessor during the Tax Attribute
Period, not more than the Permitted Percentage of any item of income,
deduction or loss with respect to the transactions contemplated by the
Lease will be treated for Federal income tax purposes as derived from, or
allocable to, sources outside the United States; and
(iii) the Lessor will be a domestic corporation subject to a Federal
and state income tax rate of (after giving effect to the deductibility of
such state income taxes for Federal income tax purposes) 40% (the "Assumed
Tax Rate") in 1997 and in each year thereafter, and the Lessor will have
sufficient taxable income to be taxed at the Assumed Tax Rate after full
utilization of the MACRS Deductions.; and
---
(d) The Lessor will not be subject to the minimum tax under Section 55 of
the Code.
The foregoing assumptions will be appropriately modified or adjusted from
time to time to reflect the occurrence of an event for which an indemnity has
been paid pursuant to this Tax Indemnity Agreement.
SECTION 3. No Inconsistent Action. The Lessee agrees that neither it, nor
----------------------
any Person controlled by it, in control of it, or under common control with it,
directly or indirectly, nor any Person claiming by, through or under the Lessee,
nor any sublessee or other user or person in possession of the Aircraft (or any
part thereof) during the Term, nor any Affiliate of any of the foregoing (but
excluding the Lessor or the Lessor or any Person claiming by, through or under
the Lessor (but not so excluding any Person claiming directly or indirectly
through or under the Lease), unless any such Person is in
2
possession of the Aircraft or any part thereof pursuant to an exercise of
remedies in connection with a Lease Event of Default) (each such Person not so
excluded, a "Lessee Person") will at any time file any returns or other
documents or take any action in dealing with tax authorities (including, without
limitation, any action in connection with the examination of any tax return)
inconsistent with the assumptions set forth in Section 2 hereof or the
representations set forth in Section 5 hereof and the Lessee will file such
returns, take such actions in dealing with tax authorities and execute such
documents as may be reasonably necessary to facilitate accomplishment of the
intent hereof.
SECTION 4. Records and Statements. The Lessee shall, at its expense,
----------------------
maintain such information or records relating to the Aircraft as are regularly
maintained by the Lessee or as may be required by law to be maintained
(including, but not limited to, flight logs). The Lessee shall, at Lessee's
expense, provide or cause to be provided any such records or information, and
such other information customarily maintained by comparable airlines, as the
Lessor may reasonably request from the Lessee to enable the Lessor to fulfill
its tax filing, tax audit, and tax litigation obligations, including, but not
limited to, its Federal income tax filing obligations.
---
SECTION 5. Representations, Warranties and Covenants of Lessee. The
---------------------------------------------------
Lessee represents, warrants and covenants that:
(a) on the Delivery Date, the Aircraft will qualify as 7-year property
within the meaning of Section 168(e) of the Code;
(b) neither Lessee nor any other Lessee Person thereof has claimed or will
claim the MACRS Deductions, or claim to be the owner of the Aircraft in respect
of any period during the Term, or has taken or will take any action or position
(not required by the Lease) inconsistent with the status of the Lessor as the
sole owner of the Aircraft for Federal, state, local and foreign tax purposes,
in each case, with respect to any period after the Delivery Date;
(c) assuming that neither Lessor nor any Affiliate of Lessor is a "tax-
exempt entity" within the meaning of Section 168(h)(2) of the Code during the
Tax Attribute Period, neither the Aircraft nor any part thereof will be "tax-
exempt use property" within the meaning of Section 168(h) of the Code; or
(d) during the Tax Attribute Period, neither the Aircraft nor any part
thereof will be treated as "used predominantly outside the United States" within
the meaning of Section 168(g) of the Code.
SECTION 6. Federal Income Tax Indemnity.
----------------------------
(a) If for any taxable year, (i) as a result of (A) any act or omission on
the part of the Lessee or any Lessee Person (other than the execution and
delivery of the Lease or an act required under the Lease or permitted under
Clause 4.5 of the Lease (provided, however, that the following acts shall not be
treated as required under the Lease for purposes of this paragraph: any,
maintenance, repair, improvements, alterations,
3
modifications or additions to the Aircraft (or any part thereof), the temporary
or permanent removal from service of the Aircraft (or any part thereof) or the
replacement or substitution of the Aircraft (or any part thereof)), or (B) the
inaccuracy or breach of any representation, agreement, covenant or warranty of
the Lessee contained herein (each such act, omission, inaccuracy, breach or
event, a "Lessee Act"), the Lessor shall suffer a loss, disallowance or deferral
of, shall suffer a delay in claiming, shall not have the right to claim (based
on a written opinion of independent tax counsel selected by the Lessor and
reasonably acceptable to the Lessee that there is not a Reasonable Basis for
claiming the item in question), or shall be required to recapture (a
"Recapture"), all or any portion of the MACRS Deductions (hereinafter referred
to as a "Tax Loss"), then the Lessee, after written notice from the Lessor of
such Tax Loss, shall pay to the Lessor as an indemnity, form time to time as
required, an amount which, after deduction of the amount of all additional
Federal, state, local, and foreign taxes required to be paid by the Lessor in
respect of the receipt or accrual of such amount, shall be equal to the increase
in income taxes payable by (or not refundable to) the Lessor as a result of such
Tax Loss, plus the amount of any actual interest, penalties and additions to tax
payable by the Lessor with respect to such Tax Loss. Further, for purposes of
determining the amounts of the increase in income taxes as a result of the Tax
Loss, the applicable tax rate shall be the Assumed Tax Rate and shall be
calculated on a hypothetical basis (i.e., assuming that the Lessor pays taxes
----
and can fully utilize the MACRS Deductions). Each payment by the Lessee pursuant
to this Section 6(a) shall be made within 30 days after receipt of a written
demand certifying that there has been a Tax Loss, describing in reasonable
detail the Tax Loss in question, the amount of additional income tax, interest,
penalties and additions to tax and the calculation of the payment due in respect
thereof and describing the event or condition that Lessor claims gives rise to
an obligation by the Lessee to indemnify hereunder (but in no event earlier than
five (5) Business Days prior to the date the indemnified tax liability is, or
would be, due); provided that, if a contest of the Tax Loss is being conducted
-------- ----
pursuant to Section 8 hereof, payment (other than payments required under
Section 8), shall not be required from the Lessee until 30 days after the Final
Determination (as hereinafter defined) of such contest.
(b) If, as the result of a Tax Loss, the amount of Federal income taxes
payable by the Lessor for any taxable year shall be less than the amount of such
taxes which would have been payable by the Lessor had such Tax Loss not occurred
(or as the result thereof the Lessor shall receive a refund of Federal income
taxes, which shall be greater than the amount of such refund, if any, which the
Lessor would have received had such Tax Loss not occurred), then the Lessor
shall pay to the Lessee the amount of such increased reduction in taxes (or
refund, including any actual interest (net of any taxes payable with respect to
such interest) received thereon), plus any net additional Federal, state, local
or foreign tax benefits actually realized by the Lessor as the result of any
payment made pursuant to this sentence (such reduction in or increased refund
of income taxes to be determined on a hypothetical basis, i.e., assuming the
----
Lessor can utilize any additional tax benefits resulting form the Tax Loss at
the Assumed Tax Rate; provided, however, that the amount payable by the Lessor
-------- -------
pursuant to this sentence shall not exceed the sum of the amounts previously
paid by the Lessee to the Lessor pursuant to Section 6(a) with respect to such
Tax Loss to the extent not previously taken into account under this provision;
provided, further, that the Lessor shall not be obligated to make any
-------- -------
4
payment pursuant to this sentence if a Payment Default or Event of Default under
the Lease shall have occurred and be continuing. If an amount payable by the
Lessor to the Lessee pursuant to this Section 6(b) is not paid when due because
of the occurrence and continuation of such Payment Default or Event of Default,
such amount shall be payable by the Lessor to the Lessee upon the Lessee's
curing such Payment Default or Event of Default. Each payment made by the Lessor
to the Lessee pursuant to this Section 6(b) shall be made within 30 days after
the Lessor files a tax return or received a refund or adjustment from the
Internal Revenue Service which reflects such reduction in federal income tax.
(c) Any taxes that are imposed on the Lessor as a result of the subsequent
disallowance of all or any portion of a reduction (or refund) of the Lessor's
tax liability, which reduction (or refund) was taken into account under Section
6(b), shall be treated as a Tax Loss subject to indemnification under this
Agreement without regard to Section 7 hereof.
(d) (i) If, as a result of the use or operation or location of the
Aircraft outside the United States by any Lessee Person, the Tax Assumption set
forth in Section 2(d)(ii) hereof shall be inaccurate during any taxable year of
the Lessor included in whole or in part within the Tax Attribute Period (an
"Excess Foreign Allocation"), and if as a result thereof the amount of the
foreign tax credits available for utilization by the Lessor for any taxable year
shall be less than the amount of the foreign tax credits that would have been
available for utilization by the Lessor if such Tax Assumption had been accurate
(such event being referred to herein as a "Foreign Tax Credit Loss"), then the
Lessee shall pay to the Lessor as an indemnity an amount which, after deduction
of the amount of all additional federal, state, local and foreign taxes actually
required to be paid by the Lessor in respect of the receipt or accrual of such
amount, is equal to the actual increase in the Federal income taxes payable by
(or not refundable to) the Lessor for such taxable year as a result of such
Foreign Tax Credit Loss, plus the amount of any interest, penalties and
additions to tax payable by the Lessor as a result of such Foreign Tax Credit
Loss. The amounts of any increase in Federal income taxes payable by (or not
refundable to) the Lessor as a result of a Foreign Tax Credit Loss shall be
computed on the assumption that any reduced amount of foreign tax credits of the
Lessor is attributable to an Excess Foreign Allocation and foreign source losses
arising from other equipment leasing transactions that provided the Lessor with
indemnification for the loss of foreign tax credits, on a pro rata basis, prior
to being attributable to any other foreign source deductions or losses of the
Lessor;
(ii) If, as a result of (A) an Excess Foreign Allocation or (B) the
usage or location of the Aircraft outside the United States so that more than
the Permitted Percentage of any item of income or gain with respect to the
transactions contemplated by the Lease during any taxable year following the Tax
Attribute Period is treated as derived from sources outside the United States,
the amount of the foreign tax credits that the Lessor utilizes against its tax
liability for a taxable year exceeds the amount of such foreign tax credits to
which the Lessor would have otherwise been entitled, and provided that no
Payment Default or Event of Default under the Lease shall have occurred and be
continuing (in which event such amounts shall become payable upon the Lessee's
curing
5
such Payment Default or Event of Default, then the Lessor shall pay to the
Lessee the amount of any actual reduction in its Federal income tax liability
(or actual increase in a refund of Federal income taxes owning to the Lessor),
plus any net additional Federal, state, local and foreign income tax benefits
actually realized by the Lessor as the result of such payment; provided,
--------
however, that the sum of the amounts payable by the Lessor pursuant to this
-------
sentence shall not exceed the sum of the amounts previously paid by the Lessee
to the Lessor pursuant to this Section 6(d) to the extent not previously taken
into account under this provision and provided, further, however, that no
-------- ------- -------
payment shall be required with respect to clause (B) above unless and until the
usage or location outside the United States has resulted in an aggregate amount
of increased foreign tax credits being available to the Lessor (calculated for
this purpose without regard to the otherwise applicable requirement that foreign
source gain or income exceed the "Permitted Percentage" of 5%) equal to the
aggregate amount of unindemnified tax increases (reduced by any utilization of
foreign tax credit carryovers or carryforwards that would, under principles
applicable to clause (A) above, have resulted in an obligation to made a payment
to the Lessee if the Permitted Percentage during the year in which the
unindemnified tax increase occurred were zero) suffered by the Lessor resulting
from the application of the Permitted Percentages during the Tax Attribute
Period. For purposes of this Section 6(d)(ii), in determining the order in
which the Lessor utilizes any foreign tax credits against the Lessor's Federal
income taxes, the Lessor shall be deemed to utilize (A) first, all foreign tax
credits other than those described in clause (B) of this sentence, and (B) then,
on a pro rata basis, all foreign tax credits, the utilization of which by the
--- ----
Lessor results from either (x) the carryover or the carryforward of foreign tax
credits which were unutilized due to foreign source losses arising from
equipment leasing transactions that provided the Lessor with indemnification for
the loss of foreign tax credits (including this transaction), or (y) foreign
source income or gain generated by such transactions to the extent such foreign
source income or gain is sufficient to give rise to a payment obligation to the
Lessee thereunder (except any such transaction entered into prior to the
Delivery Date which provides that foreign tax credits arising out of such
transaction are deemed utilized prior to or after those credits arising out of
other lease transactions).
Once a foreign tax, the loss of the credit in respect of which Lessor was
indemnified and paid by Lessee in accordance with Section 6(d) hereof, is deemed
to be utilized pursuant to the ordering rules set forth above, it shall not
subsequently be recharacterized as not having been utilized as a result of a
foreign tax liability arising in a subsequent year.
(iii) Each payment by the Lessee pursuant to this Section 6(d) shall
be made within 30 days after receipt of a written demand therefor accompanied by
a written statement describing in reasonable detail the Foreign Tax Credit Loss
in question, the amount of additional Federal income tax, interest, penalties
and additions to tax and the calculation of the payment due in request thereof
(but in no event earlier than five (5) Business Days prior to the date such
additional Federal income taxes are due); provided that, if a contest of the
-------- ----
Foreign Tax Credit Loss is being conducted pursuant to Section 8 hereof, payment
(other than payments required under Section 8) shall not be required from the
Lessee until 30 days after the Final Determination of such contest. Each
6
payment by the Lessor to the Lessee pursuant to this Section 6(d) in respect of
an actual increase in available foreign tax credits shall be made within 30 days
after the Lessor files a tax return (or receives a refund or adjustment) which
reflects the utilization of such increased foreign tax credit. Notwithstanding
anything herein to the contrary, any taxes that are imposed on the Lessor as a
result of the subsequent disallowance of the reduction of the Lessor's tax
liability, for which reduction the Lessor has made payment pursuant to this
Section 6(d), shall be treated a as Foreign Tax Credit Loss subject to
indemnification under this Agreement without regard to Section 7 hereof.
(e) Upon request of the Lessee, the accuracy of the Lessor's calculation
of the amount or amounts payable to either the Lessor or the Lessee pursuant to
this Section 6 shall be verified by the independent accounting firm regularly
-----------
engaged by the Lessor and, in order to enable such accountants to verify such
adjustments, the Lessor shall provide to such accountants (for their own
confidential use and not be disclosed to the Lessee or any other person) all
information reasonably necessary for such verification, including any computer
analyses used by the Lessor to calculate such amount or amounts. The cost of
such verification shall be borne by the Lessee unless it is the determination of
such verification that the actual amount payable deviates, in a manner favorable
to the Lessee, by more than 5% from the amount originally determined by the
Lessor in which case such cost shall be borne by the Lessor.
SECTION 7. Excluded Events. The Lessor shall not be entitled to any
---------------
payment from the Lessee under Section 6 hereof in respect of any Tax Loss or
Foreign Tax Credit Loss to the extent such Tax Loss or Foreign Tax Credit Loss
would not have occurred but for one or more of the following events:
(a) any voluntary sale, assignment, transfer or other disposition
(including any deemed disposition under Section 338 of the Code or any similar
provision) by the Lessor of any interest in the Aircraft or any part thereof or
the lease, unless such sale, assignment, transfer or other disposition occurs in
connection with the exercise of remedies in connection with an Event of Default
under the Lease that has occurred and is continuing, or any involuntary sale,
assignment, transfer or disposition (including any deemed disposition under
Section 338 of the Code or any similar provision) of any such interest resulting
from the bankruptcy or insolvency of, or proceedings for the relief of debtors,
or foreclosure proceedings, against the Lessor unless, in each case, such
involuntary sale, assignment, transfer, disposition (including any deemed
disposition under Section 338 of the Code or any similar provision) bankruptcy
or insolvency or foreclosure results from such Event of Default;
(b) the failure of the Lessor properly and in a timely manner to claim the
MACRS Deductions or the inclusion by the Lessor of any Recapture in the Lessor's
gross income as reported on its Federal income tax returns, (i) unless the
Lessor shall have received a written opinion of independent tax counsel selected
by the Lessor and reasonably satisfactory to Lessee that no Reasonable Basis
exists for making such claim or failing to so include in gross income or (ii)
unless such failure or inclusion is caused by the Lessee's failure to provide
accurate and timely information pursuant to the Lessee's obligations under this
Agreement or the Lease to furnish information to the Lessor.
7
(c) except in the case of a Tax Loss resulting from a substitution or
replacement of the Aircraft or any part thereof, any amendment or addition to,
or change in, the Code or Income Tax Regulations, which is enacted or adopted
after the Delivery Date, provided that a change in Federal income tax rates
--------
shall be taken into account in determining the indemnity amounts payable to the
extent specified in Sections 6(a) and 6(d) above;
(d) the failure of the Lease to be a "true lease", or the Lessor to be
treated as the owner of the Aircraft, for Federal income tax purposes, unless,
in either case, as a result of a Lessee Act;
(e) any failure of the Lessor to take in a timely manner all actions in
contesting a claim if the Lessor was required to take such actions pursuant to
Section 8 hereof and such failure precludes the Lessee from exercising its
contest rights under Section 8 hereof;
(f) the willful misconduct or gross negligence of the Lessor or any
Affiliate thereof;
(g) the status for Federal income tax purposes of the Lessor as a "tax-
exempt entity" within the meaning of Section 168(h) of the Code or as a Person
that is not a "United States person" within the meaning of Section 7701(a)(30)
of the Code;
(h) a change in the Lessor's taxable year from the calendar year to a
fiscal year or the Lessor's having a taxable year other than a full calendar
year but only to the extent of a resulting increase in Lessee's indemnity
obligation hereunder;
(i) the failure of the Lessor to have sufficient taxable income or tax
liability for U.S. Federal income tax purposes to benefit from the Federal
income tax benefits described in Section 2(c);
(j) a determination that the basis of the Aircraft is or was not equal to
Lessor's Cost on the Delivery Date;
(k) the application of any federal or state minimum tax, including the
alternative minimum tax imposed under Sections 55 et seq. of the Code;
(l) any Loss to the extent incurred or imposed solely in respect of or
relating to any period after the later of (i) the expiration or earlier
termination of the Lease in accordance with the terms thereof or (ii) delivery
of possession of the Aircraft to the Lessor (or any designee of the Lessor); or
(m) application of the mid-quarter convention described in Section
168(d)(4)(C) of the Code.
8
SECTION 8. Contest Provisions and Proceedings.
----------------------------------
(a) The Lessor shall promptly (but in no event less than twenty (20) days
prior to the last day for submitting a protest to the Internal Revenue Service)
notify the Lessee in writing of receipt from the Internal Revenue Service of a
written proposed or final revenue agent's report, a 30-day letter or a notice of
deficiency (as described in Section 6212 of the Code), in which an adjustment is
proposed to the Federal income taxes of the Lessor for which the Lessee would be
required to indemnify the Lessor pursuant to this agreement if such adjustment
were sustained. Such notice shall specify the name of Lessor's counsel (if the
existence of a Lessor's counsel is at that point necessary under this
Agreement), the terms of the proposed adjustment, and any action taken or
proposed to be taken by the Internal Revenue Service with respect to the
proposed adjustment. After the giving of such notice, the Lessor shall for at
least 20 days after the giving of such notice forbear (if such forbearance is
permitted by law) payment of any tax (including interest, penalties and
additions to tax thereon) asserted to be payable as a result of such proposed
adjustment. If the Lessee promptly (and in any event within 20 days of receipt
of notice from the Lessor) requests, in writing, the Lessor to do so, the Lessor
shall contest the proposed adjustment, shall consider in good faith any
suggestion made by the Lessee as to the method of pursuing such contest, and,
provided the Lessee is complying with its obligations under this Section 8,
shall not, without the consent of the Lessee, except as provided in the last
sentence of this Section 8(a), settle such proposed adjustment; provided,
--------
however, that the Lessor shall not be obligated to contest such adjustment
-------
unless (i) independent tax counsel selected by the Lessor and reasonably
acceptable to Lessee ("Tax Counsel") delivers an opinion that there is a
Reasonable Basis for contesting the matter in question, (ii) the amount of the
proposed adjustment is in excess of $50,000, (iii) no Event of Default shall
have occurred and be continuing, (iv) the Lessor has determined, in good faith,
that the contest shall not result in a material risk of the loss or forfeiture
of the Aircraft (unless the Lessee has provided to the Lessor a bond or other
sufficient protection against such risk of loss or forfeiture reasonably
satisfactory to the Lessor) or the imposition of criminal penalties and (v) the
Lessee shall have acknowledged, in writing, that the contest is with respect to
a liability that is the Lessee's responsibility pursuant to this Agreement
except that the Lessee shall not be bound by its acknowledgment of liability if
the Final Determination articulates conclusions of law and fact that clearly and
unambiguously demonstrate that the Lessee has not liability for the contested
amounts hereunder. The Lessor shall afford Lessee reasonable opportunities to
consult the Lessor and shall keep Lessee reasonably informed of the nature of
all actions taken to contest such proposed adjustment, including (x) whether any
action to contest such proposed adjustment will initially be by way of judicial
or administrative proceedings, or both, (y) whether any such proposed adjustment
will be contested by resisting paying thereof or by paying the same and seeking
a refund thereof and (z) if the Lessor shall undertake judicial action with
respect to such proposed adjustment, the court or other judicial body before
which such action will be commenced; but in all cases the Lessor shall have
ultimate discretion to determine the nature (and forum) of, and shall control
the prosecution of, all such action. The Lessor shall upon the conclusion of
any administrative proceedings, promptly notify the Lessee of the outcome of
such proceedings, and shall notify the Lessee at least 60 days in advance of the
last date for filing a petition in the Tax Court. In the event of an
unfavorable resolution of
9
administrative proceedings, the Lessor shall, if requested by the Lessee in a
timely manner, (x) contest any proposed adjustment beyond the level of
administrative proceedings, (y) consider in good faith any advice offered by the
Lessee's counsel concerning the court of competent jurisdiction in which the
adjustment is most likely to be favorably resolved, and (z) keep the Lessee
reasonably informed as to the progress of any litigation and, if requested by
the Lessee, shall consult with the Lessee's counsel and consider in good faith
any recommendations by the Lessee's counsel concerning the conduct of such
proceedings, and shall permit Lessee's counsel to review and comment in advance
on all submissions to the extent relating to the Loss provided that the final
form and substance of such submissions shall be determined by Lessor's Counsel.
The Lessor shall take such reasonable action during the course of such
proceedings as the Lessor's counsel deems advisable after consultation with the
Lessee's counsel to preserve as a basis for appeal any legal issue that the
Lessee or the Lessee's counsel has identified in writing. The Lessor shall be
required to appeal any adverse judicial determination only if (A) an appeal is
timely requested in writing by the Lessee, and (B) the Lessor is furnished with
an opinion of Tax Counsel selected by the Lessor and reasonably acceptable to
the Lessee that it is more likely than not that Lessor will prevail on such
appeal; provided, however, that in no event shall the Lessor be required to
appeal any adverse decision in the U. S. Supreme Court. At any time, whether
before or after commencing to take the actions set forth in this Section 8, the
Lessor may decline to contest or appeal all or any portion of a proposed
adjustment, or may compromise or settle any such proposed adjustment, by
notifying the Lessee in writing that the Lessee is relieved of its obligation to
indemnify the Lessor with respect to such adjustment or such portion, as the
case may be; provided, however, that (x) the Lessor shall promptly notify the
Lessee of the Lessor's intent to decline to contest or appeal all or any portion
of proposed adjustment, or to compromise or settle all or any portion of a
proposed adjustment and (y) the Lessee shall not be obligated to indemnify the
Lessor hereunder with respect to any other Tax Loss or Foreign Tax Credit Loss
for which a successful contest or appeal is foreclosed as a result of the
failure to take action with respect to such contest or appeal (or the settlement
or compromise of such contest or appeal without the consent of the Lessee), and
the Lessor shall repay to the Lessee such amounts theretofore advanced or paid
by the Lessee related to such adjustment, contest or appeal (other than
reimbursement of costs and expenses of the Lessor), plus interest at the rate
that would have been payable if such contest had been successfully concluded at
such time.
(b) The Lessor shall not be required to take any action pursuant to this
Section 8 unless and until the Lessee shall have agreed in writing to reimburse
the Lessor (on demand and on a basis grossed-up for all applicable Federal,
state, local and foreign taxes for all reasonable fees and expenses, any
statutory or regulatory penalties, interest, additions to tax, or other
liabilities, costs or losses which the Lessor may incur as a result of
contesting the validity of any proposed adjustment (including, without
limitation, any reasonable fees and disbursements of counsel incurred in
connection with taking any action or rendering any opinion described in Section
8(a)). If the Lessor determined to contest any adjustment by paying the
additional tax and suing for a refund, the Lessee shall timely lend to the
Lessor on an interest-free basis an amount equal to the sum of any tax,
interest, penalties and additions to tax required to be paid and shall indemnify
the Lessor in a manner satisfactory to the Lessor against any adverse tax
consequences
10
resulting from such advance. Upon receipt by the Lessor of a refund (or upon
application of amounts otherwise refundable against other tax liability of the
Lessor) of any amount paid by it, in respect of which amount the Lessor shall
have been paid or advanced an equivalent amount by the Lessee, the Lessor shall
pay to the Lessee the amount of such refund (plus any amounts otherwise
refundable but applied against other tax liability of the Lessor) (which, in the
case of any contest in which a loan has been advanced pursuant to this
paragraph, shall be deemed to be in repayment of the loan advanced by the Lessee
to the extent fairly attributable thereto), together with any interest received
by the Lessor on such refund (or application) that is fairly attributable to the
amount and the period of such payment or advance by the Lessee (net of any taxes
actually payable by the Lessor with respect to the receipt or accrual of such
interest), plus any net additional Federal, state local and foreign tax benefits
actually realized by the Lessor as the result of such payment; and, upon
disallowance of any such refund, the Lessee shall forgive the amount of the loan
fairly attributable thereto and shall pay to the Lessor the balance of the
amount of its indemnity obligation hereunder (including such amount as shall be
equal to the sum, on an after-tax basis, of any tax, interest, penalties or
additions to tax payable with respect to the forgiveness of such loan) (or if
such advance exceeds the amount of such disallowance, the Lessor shall pay such
excess to the Lessee). Any subsequent loss of such refund (or of such
application of amounts otherwise refundable) to the extent having resulted in a
payment to Lessee, shall be treated as a Tax Loss subject to indemnification
pursuant to Section 6 hereof without regard to Section 7 hereof. If the Lessor
receives an award of attorney's fees or related expenses in a contest for which
the Lessee has paid or reimbursed all or any portion of such fees and expenses,
the Lessor shall pay to the Lessee the portion of such award attributable to
such fees and expenses paid or reimbursed by the Lessee.
(c) If any adjustment referred to in this Section 8 shall be proposed and
the Lessee shall have requested the Lessor to contest such adjustment as above
provided and the Lessee shall have duly complied with the terms of this Section
8, then notwithstanding any provision to the contrary in Section 6 hereof, the
Lessee's liability with respect to such adjustment shall become fixed upon a
"Final Determination" of such adjustment. A "Final Determination" with respect
to a Tax Loss shall mean (i) a decision, judgment, decree or other order by any
court of competent jurisdiction, which decision, judgment, decree or other order
has become final after all allowable appeals (in the case of the Lessor as
required under this Section 8) by either party to the action have been exhausted
or the time for filing such appeal has expired, (ii) a closing agreement entered
into under Section 7121 of the Code, or any other settlement agreement entered
into in connection with an administrative or judicial proceeding and with the
consent of the Lessee where required, (iii) the expiration of the time for
instituting suit with respect to the claimed deficiency, or (iv) the expiration
of the time for instituting a claim for refund, or if such a claim was filed,
the expiration of the time for instituting suit with respect thereto.
SECTION 9. Survival of Agreement. The representations, warranties,
---------------------
covenants, obligations and liabilities of the Lessee and the Lessor arising
under this Agreement shall continue in full force and effect, notwithstanding
the expiration or other termination of the Lease, until all such obligations
under this Agreement have been met and all such
11
liabilities under this Agreement have been paid in full. This Agreement shall
inure to the benefit of any successor or assign to the Lessor or the Lessee
permitted pursuant to the Lease; provided, however, that (a) such successor or
-------- -------
assign which is not a Permitted Transferee as defined in the Lease shall have
specifically agreed in writing to be bound by the terms and conditions of this
Agreement to perform the obligations imposed hereunder on the Lessor or the
Lessee, as the case may be, in accordance with the interest of such successor or
assign in the Aircraft and the Lease, (b) the successor or assign shall not be
entitled to indemnity payment or other rights or benefits greater than the
payments, rights or benefits to which the Lessor or the Lessee, as the case may
be, would have been entitled if no transfer or assignment had occurred, and (c)
in applying the terms hereof to such successor or assign, the terms "Lessor" and
"Lessee" as used herein shall mean such respective successor or assign.
SECTION 10. Notices. Any notice, request, or other communication provided
-------
for in this Agreement shall be given in the manner provided in the Lease.
SECTION 11. Payments. Payments made by the Lessee or the Lessor pursuant
--------
to this Agreement shall be made by wire transfer of immediately available funds
to such bank and/or account in the continental United States as specified by the
other party in written directions to the paying party at least five (5) Business
Days prior to the due date thereof, and if no such direction shall have been
given, by check payable in immediately available funds to the order of such
payee and mailed to such payee by certified mail, postage prepaid, at its
address provided for purposes of the Lease.
SECTION 12. No Setoff. No payment required to be made by the Lessee
---------
pursuant to this Agreement shall be subject to any right of setoff,
counterclaim, defense, abatement, suspension, deferment or reduction; and,
except in accordance with the express terms hereof, neither the Lessor nor the
Lessee shall have the right to terminate this Agreement or to be released,
relieved or discharged from any obligation or liability under this Agreement for
any reason whatsoever.
SECTION 13. Late Payments, Interest. Any late payment by any party hereto
-----------------------
of any of its obligations under this Agreement shall bear interest at the
Interest Rate set forth in Letter Agreement No. 1.
SECTION 14. Exclusive Remedy. The indemnities and other rights provided
----------------
to the Lessor in this Agreement shall be the sole remedy of the Lessor for a
breach or inaccuracy of any representation, warranty or covenant contained
herein or for loss of income tax benefits.
SECTION 15. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed entirely within such state.
SECTION 16. Counterparts. This Agreement may be simultaneously executed
------------
in any number of counterparts, each of which so executed shall be deemed to be
an original, and such counterparts together shall constitute and be one and the
same instrument.
12
SECTION 17. Confidentiality. Lessee and Lessor shall keep this Tax
---------------
Indemnity Agreement confidential and shall not disclose, or cause to be
disclosed, the same to any Person, except (A) to prospective and permitted
transferees of Lessee's or Lessor's interests or their respective counsel or
special counsel, auditors, or other agents who agree to hold such information
confidential, (B) to Lessee's or Lessor's counsel or special counsel, auditors,
or other agents or Affiliates who agree to hold such information confidential,
(C) as may be required by any statute, court or administrative order or decree,
legal process or governmental ruling or regulation, or by Internal Revenue
Service auditors, (D) by mutual agreement by the parties hereto, or (E) such
other Persons as are reasonably deemed necessary by the disclosing party in
order to protect the interests of such party or for the purposes of enforcing
this document by such party; provided that any and all disclosures permitted
--------
above shall be made only to the extent necessary to meet the specific
requirements or needs of the Persons making such disclosures.
SECTION 18. Assignment. This Agreement shall not be assignable by either
----------
party without the consent of the other; provided, however, that either party may
assign this Agreement without such consent in connection with the sale of all of
its interests in the Aircraft and the Lease.
13
IN WITNESS WHEREOF, the Lessee and the Lessor have caused this instrument
to be duly executed as of the day and year first above written.
FRONTIER AIRLINES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
14