-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O7iQdmZVy5uqkWMzYGll3wDjdSjq6/xui6vZUbgqCoRCp2ArvzvMiHRAQ7v/QtkT BYVtLJ3O9rJHyxgBx8B6Gg== 0000912057-02-024859.txt : 20020620 0000912057-02-024859.hdr.sgml : 20020620 20020620172420 ACCESSION NUMBER: 0000912057-02-024859 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 33 FILED AS OF DATE: 20020620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC AIRWAYS HOLDINGS INC CENTRAL INDEX KEY: 0001159154 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-84092 FILM NUMBER: 02683697 BUSINESS ADDRESS: STREET 1: 2500 S HIGH SCHOOL ROAD STREET 2: SUITE 160 CITY: INDIANAPOLIS STATE: IN ZIP: 46241 S-1/A 1 a2073681zs-1a.htm S-1/A #2
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As filed with the Securities and Exchange Commission on June 20, 2002

Registration No. 333-84092

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 2 TO
FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

REPUBLIC AIRWAYS HOLDINGS INC.

(Exact name of Registrant as specified in its charter)

Delaware		4512		06-1449146
(State or other jurisdiction of Incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

2500 S. High School Road, Suite 160
Indianapolis, IN 46241
(317) 484 - 6000

(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive office)

Bryan K. Bedford
Chairman, Chief Executive Officer and President
Republic Airways Holdings Inc.
2500 S. High School Road, Suite 160
Indianapolis, IN 46241
(317) 484-6000

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:

James D. Tussing, Esq.
Gregg J. Berman, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
(212) 318-3000
Facsimile: (212) 318-3400

Stephen A. Greene, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
(212) 701-3000
Facsimile: (212) 269-5420

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee


Common Stock, $.001 par value	$80,500,000	$7,406(2)

(1): Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.
(2): A filing fee of $7,820 was previously paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment specifically stating that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Subject to Completion
Preliminary Prospectus dated June 20, 2002

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PROSPECTUS

5,000,000 Shares

Common Stock

This is Republic Airways' initial public offering. Republic Airways is selling all of the shares.

We expect the public offering price to be between $12.00 and $14.00 per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will be quoted on the Nasdaq National Market under the symbol "RJET."

Investing in our common stock involves risks that are described in the "Risk Factors" section beginning on page 8 of this prospectus.

	Per Share	Total
Public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to Republic Airways.	$	$

The underwriters may also purchase up to an additional 750,000 shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about , 2002.

Merrill Lynch & Co.
Deutsche Bank Securities
		Raymond James

The date of this prospectus is , 2002.

[Graphic of Republic Airways Logo in Sky]

TABLE OF CONTENTS

Prospectus Summary		1
Risk Factors		8
Special Note Regarding Forward-Looking Statements		22
Use of Proceeds		23
Dividend Policy		24
Capitalization		25
Dilution		26
Selected Consolidated Financial Information		27
Management's Discussion and Analysis of Financial Condition and Results of Operations		31
Regional Airline Industry Overview		52
Business		55
Management		76
Related Party Transactions		85
Principal Stockholders		86
Description of Capital Stock		88
Shares Eligible For Future Sale		92
Underwriting		94
Legal Matters		97
Experts		97
Where You Can Find Additional Information		97
Index to Consolidated Financial Statements		F-1

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

We have applied for trademark and service mark protection for our Republic Airways Holdings and Chautauqua Airlines—A Republic Airways Company logo marks. Other trademarks, tradenames and service marks referred to in this prospectus are the property of their respective owners.

Unless otherwise indicated, all information in this prospectus reflects a recapitalization of Republic Airways, pursuant to which each outstanding share of our common stock was exchanged for 200,000 shares of our common stock and each outstanding option or warrant to purchase one share of our common stock became an option or warrant to purchase 200,000 shares of our common stock.

PROSPECTUS SUMMARY

This summary contains basic information about our company and this offering and may not contain all the information that is important to you. You should, therefore, read the entire prospectus, including "Risk Factors," carefully for a more complete understanding of this offering and our business. Terms such as "we," "our" or "us" refer to Republic Airways Holdings Inc. and our wholly-owned subsidiary, Chautauqua Airlines, Inc., unless the context implies otherwise.

Our Company

We are a regional airline offering scheduled passenger service on approximately 340 flights daily to 40 cities in 22 states and Canada pursuant to code-sharing agreements with AMR Corp., the parent of American Airlines, Inc., whom we collectively refer to in this prospectus as American, America West Airlines, Inc., and US Airways, Inc. All of our flights are operated as US Airways Express, AmericanConnection or America West Express, providing US Airways, American and America West with portions of their regional service, including service out of their hubs in Boston, Columbus, Indianapolis, New York, Philadelphia, Pittsburgh and St. Louis. In June 2002, we entered into a code-sharing agreement with Delta Air Lines, Inc. pursuant to which we will operate 22 Embraer regional jets for Delta (including one spare). The first two aircraft to be flown pursuant to this agreement will be placed into service in November 2002 and we expect the Delta fleet of 22 aircraft to be in service by October 2003. Our Delta flights will be operated as Delta Connection, and we will provide Delta with service out of its hub in Orlando. Our current fleet consists of 49 Embraer regional jets and 10 Saab turboprops. We are in the process of phasing the turboprops out of service and expect to operate an all jet fleet by August 2002. In addition, we have 26 regional jets on firm order which, upon delivery, will be placed into immediate service with our code-share partners and we also have options for 67 additional jets, 30 of which are reserved for Delta. From 1999 to 2001, our available seat miles, or ASMs, have grown at a compounded annual growth rate of 97.5%.

We have long-term code-sharing agreements with each of our partners. During the year ended December 31, 2001 and the three months ended March 31, 2002, 75.6% and 90.9%, respectively, of our passenger revenues were generated under fixed-fee agreements with our code-share partners. We anticipate that by August 2002, 100% of our passenger revenues will be generated under such fixed-fee agreements. Pursuant to these fixed-fee agreements, which provide for minimum aircraft utilization at fixed rates, we are authorized to use our partners' two-letter flight designation codes (or in some instances with American, the code of another AmericanConnection carrier) to identify our flights and fares in our partners' computer reservation systems, to paint our aircraft in the style of our partners, to use their service marks and to market ourselves as a carrier for our partners. We believe that the shift to fixed-fee agreements has reduced our exposure to fluctuations in fuel prices, fare competition and passenger volumes. Our development of relationships with multiple major airlines has enabled us to reduce our dependence on any single airline. For the year ended December 31, 2001 and the three months ended March 31, 2002, 67% and 60%, respectively, of our operating revenues were derived from US Airways, 31% of our operating revenues were derived from American and 2% and 9%, respectively, of our operating revenues were derived from America West.

We believe that our primary strengths are:

•: Providing High Quality Service Cost-Effectively. We provide our code-share partners the ability to offer their customers high quality service at a price to our partners that is generally more cost-effective than flying those routes themselves. We have established ourselves as a low cost, efficient and reliable provider of high quality regional airline services. Upon the elimination of our turboprop operations by August 2002, we believe that we will be one of the lowest cost providers of regional jet service and one of the first U.S. regional airlines to move to a single fleet type business model using jet aircraft.

•

Long-Term, Fixed-Fee Code-Sharing Agreements. We have long-term code-sharing agreements with four major airlines, with scheduled expirations ranging from March 2009 through February 2013, subject in certain instances to earlier termination. All of our regional jet code-sharing agreements are fixed-fee, rather than pro-rate revenue sharing, arrangements. These fixed-fee agreements generally provide for minimum aircraft utilization levels at fixed rates which provides for a more predictable revenue stream. We are generally not exposed to price fluctuations for fuel, insurance, aircraft property taxes or landing fees, as we are typically reimbursed for those costs by our code-share partners.

•

Strong Relationships with a Diverse Group of Air Carrier Partners. Through our long-term code-sharing agreements with US Airways, American, America West and Delta, we have created a network of strong partnerships with four major US airlines. Having four air carrier partners has allowed us to diversify our financial and operational risk. Diversity may also allow us to grow at a faster rate and not be limited by the rate at which any one partner can, or wishes to, grow.

•

Significant Opportunity to Attract New Business. We currently have 49 Embraer regional jets in service and firm orders to acquire an additional 26 Embraer regional jets for which we have commitments from our code-share partners to place them into immediate service under fixed-fee arrangements. In addition, we have options to acquire an additional 67 Embraer regional jets, 30 of which are reserved for Delta. Our code-sharing agreements have only limited restrictions on our ability to enter into new or expanded relationships with any carrier. Further, we have the infrastructure to place our new regional jets into service quickly.

•

Experienced Management Team. Our senior management team has extensive operating experience in the regional airline industry. Since their arrival in mid-1999, our management team has significantly grown the business in the following ways:

•: added code-sharing agreements with American, America West and Delta;
•: increased the number of regional jets that we fly for US Airways; and
•: improved our operating efficiencies and costs.

•: Long History of Reliable Operations. We have a long operating history as a regional airline, having operated as a code-share partner of US Airways or its predecessors for over 27 years. We became an American code-share partner in April 2000, an America West code-share partner in August 2001 and a Delta code-share partner in June 2002.

Our business strategy consists of the following elements:

•: Operate a Modern, All Jet Fleet. By August 2002, our wholly-owned subsidiary, Chautauqua Airlines, expects to operate an all regional jet fleet for its code-share partners. Passengers prefer regional jets to turboprops because they are faster, quieter and perceived by passengers to be safer and more comfortable. In addition, Chautauqua expects to achieve increased efficiencies in employee training and aircraft maintenance by operating a single type of aircraft which should enable it to reduce its operating costs. In the future, we may decide to operate more than just one aircraft fleet type in order to expand our overall marketing potential. Should we reach this conclusion, we would consider developing additional subsidiary platforms in order to maintain a single fleet economic advantage in each operating company.
•: Expand Existing and Develop New Relationships With Code-Share Partners. We attribute the significant growth in our traffic and profitability to our code-sharing agreements with US Airways, American and America West. We believe that these relationships provide us with an excellent opportunity to achieve stable, long-term growth. To strengthen our existing relationships, we work closely with our code-share partners to expand service to existing markets,

open new markets and schedule convenient and frequent flights. We also continue to explore new relationships with other major airlines, such as our recent agreement with Delta. In the future, we would consider developing additional subsidiary platforms in order to expand existing relationships and to develop new relationships with code-share partners.

•: All Fixed-Fee Flying. We believe that fixed-fee agreements allow our major airline partners to enjoy the significant benefits of optimizing total network revenues and matching aircraft size to customer demand, thereby maximizing their own profitability. For the years ended December 31, 2000 and 2001, approximately 77% and 91%, respectively, of our ASMs were flown under fixed-fee agreements and for the three months ended March 31, 2001 and 2002, approximately 78% and 94%, respectively, of our ASMs were flown under fixed-fee agreements. We anticipate that by August 2002, 100% of our ASMs will be flown under such fixed-fee agreements. Furthermore, we anticipate that the fixed-fee agreement will be the basis on which we will continue to add jets to our fleet.
•: Provide Excellent Customer Service. We believe that our focus on providing excellent customer service in every aspect of operations, including personnel, flight equipment, in-flight amenities, on-time performance, flight completion ratios and baggage handling, is largely responsible for our ability to attract and retain multiple major airline code-share partners. This is because our partners seek to build customer loyalty and preference through consistent, high quality seamless customer service, which they expect their regional partners to be able to provide at a competitive price.
•: Motivate Our Employees to Succeed. We believe that our employees are key to our success. In addition to offering competitive compensation and benefits, we take a number of steps to make our company an attractive place to work and build a career such as maintaining various employee recognition and bonus award programs and consistently communicating our vision and mission statement to our associates.

We were formed in 1996 as a holding company but conducted no business until May 1998 when we acquired Chautauqua Airlines, Inc., referred to as Chautauqua. Our executive offices are located at 2500 S. High School Road, Suite 160, Indianapolis, Indiana 46241. Our telephone number at that location is (317) 484-6000.

The Offering

Common stock offered by Republic Airways		5,000,000 shares
Common stock outstanding after the offering		25,000,000 shares
Use of proceeds		We estimate that our net proceeds from this offering without exercise of the overallotment option will be approximately $57,950,000. We intend to use these net proceeds to:
		• repay indebtedness;
		• make progress payments on additional aircraft;
		• redeem preferred stock of Chautauqua; and
		• fund general corporate purposes, including working capital and the possible acquisition of additional aircraft and related spare parts and support equipment.
Risk factors		See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.
Proposed Nasdaq National Market symbol		"RJET"

The number of shares outstanding after the offering:

•: excludes 2,753,400 shares of common stock reserved for issuance upon exercise of outstanding stock options at a weighted average exercise price of $5.65 per share;
•: excludes 4,369,440 shares of common stock reserved for issuance upon exercise of warrants granted to American, America West and Delta (assuming they exercise all warrants under their code-sharing agreements) at an exercise price of $12.09 per share for the American warrant and the America West warrant and an exercise price of $12.35 - $12.50 for the Delta warrants; and
•: assumes that the underwriters' over-allotment option is not exercised. If the over-allotment option is exercised in full, we will issue and sell an additional 750,000 shares of common stock.

Summary Consolidated Financial Information

			Years Ended December 31,									Quarters Ended March 31,
			1999 (1)			2000			2001 (2)			2001			2002
			(in thousands, except share, per share and airline operating data)									(Unaudited)
Operating Statements Data:
Operating revenues			$	88,259		$	147,477		$	238,644		$	52,514		$	72,248
Operating income (loss)				(10,576	)		7,222			15,447			3,813			7,782
Net income (loss)				(8,854	)		2,522			6,067			2,528			3,412
Net income available for common stockholders				(8,854	)		2,267			5,649			2,427			3,310
Net income (loss) available for common stockholders(3):
	Basic		$	(0.44	)	$	0.11		$	0.28		$	0.12		$	0.17
	Diluted		$	(0.44	)	$	0.11		$	0.27		$	0.12		$	0.16
Weighted average number of shares outstanding(3):
	Basic			20,000,000			20,000,000			20,000,000			20,000,000			20,000,000
	Diluted			20,000,000			20,000,000			20,689,886			20,000,000			20,845,310
Unaudited Supplemental Pro Forma Information(3)(4):
	Net income								$	7,171					$	3,815
	Net income available for common stockholders								$	7,171					$	3,815
	Basic net income available for common stockholders per share								$	0.31					$	0.17
	Diluted net income available for common stockholders per share								$	0.30					$	0.16
Weighted average number of shares outstanding (pro forma)(3):
	Basic									22,836,642						22,836,642
	Diluted									23,526,528						23,681,952
Other Financial Data:
	Net cash from:
		Operating activities		2,182			6,710			22,956			1,895			7,006
		Investing activities		(9,270	)		(10,812	)		(12,690	)		(4,047	)		(5,665	)
		Financing activities		7,111			3,975			(7,383	)		2,239			408
Airline Operating Data:
	Passengers carried			794,911			1,280,884			2,240,822			421,548			712,010
	Revenue passenger miles (5)			205,578,811			463,050,021			880,569,802			154,549,708			295,010,428
	Available seat miles (6)			423,011,977			869,629,172			1,649,171,823			324,287,059			546,039,070
	Passenger load factor (7)			48.6	%		53.2	%		53.4	%		47.7	%		54.0	%
	Yield per revenue passenger mile (8)		$	0.421		$	0.315		$	0.269		$	0.337		$	0.240
	Revenue per available seat mile (9)		$	0.209		$	0.170		$	0.145		$	0.162		$	0.132
	Cost per available seat mile (10)		$	0.218		$	0.161		$	0.131		$	0.150		$	0.118
	EBITDA (11)		$	426		$	13,124		$	32,937		$	6,508		$	10,182
	EBITDAR (11)		$	9,675		$	36,027		$	79,097		$	16,238		$	24,709
	Average passenger trip length (miles)			259			362			393			367			414
Number of aircraft (end of period):
	Embraer regional jets			4			18			45			23			48
	Saab turboprops			14			26			25			26			15
	Jetstream 31 turboprops			19			15			—			8			—

Total aircraft				37			59			70			57			63

	As of March 31, 2002
	Actual		As Adjusted (12)
	(in thousands)
Consolidated Balance Sheet Information:
Cash and cash equivalents	$	5,021	$	28,676
Aircraft and other equipment, net		183,496		183,496
Total assets		259,018		282,673
Long-term debt, including current portion		177,180		149,474
Redeemable preferred stock of subsidiary at redemption value		4,849		—
Total stockholder's equity		13,155		71,105

(1): During the fourth quarter of 1999, we decided to return our entire fleet of leased Jetstream turboprop aircraft and dispose of related inventory and equipment. We continued to use the aircraft to fly routes under the US Airways turboprop pro-rate code-sharing agreement through December 2000. Certain routes were replaced with Saab 340 aircraft and the remaining routes were discontinued. Pursuant to the lease agreements, we were obligated to return the aircraft to the lessors in the same condition that the aircraft were delivered; therefore, we recorded a liability of $2.6 million for the estimated return costs in 1999.

In addition, a non-cash impairment loss of $4.0 million was recorded in 1999 to reduce the carrying amount of assets to be disposed of to estimated fair value, less costs to sell, or net realizable value.

(2): During the fourth quarter of 2001, we decided to exit the turboprop business and return our entire fleet of Saab 340 aircraft and dispose of related inventory and equipment. We are planning to use the aircraft to fly routes under the US Airways turboprop pro-rate code-sharing agreement through July 2002. In December 2001, impairment loss and accrued aircraft return costs of $8.1 million were recorded. This charge consists of non-cash impairment costs of $2.1 million, ongoing lease obligations of $4.5 million and $1.5 million to provide for contractual maintenance and return obligations. New leases have been obtained for a number of these aircraft. If no new lessees lease the remaining Saab aircraft and/or if any new lessee defaults on its lease, we may incur additional charges of up to $22.4 million through the remaining terms of the leases.
(3): On June 4, 2002, our board of directors declared a 200,000:1 stock split. All per share amounts, number of shares and options outstanding in the consolidated financial statements have been adjusted for the stock split.
(4): The unaudited supplemental pro forma information for the year ended December 31, 2001 and the three month period ended March 31, 2002 gives effect to the repayment of indebtedness and the redemption of outstanding redeemable preferred stock with a portion of the proceeds of this offering. Net income has been increased by $1.1 million and $400,000 for the year ended December 31, 2001 and the three months ended March 31, 2002, respectively, for the pro forma decrease in interest expense, net of tax, resulting from the decrease in indebtedness. Pro forma net income available to common stockholders has been increased for the elimination of dividends on preferred stock redeemed with the proceeds of this offering. Pro forma weighted average shares outstanding have been increased for the shares issued to repay the indebtedness and redeem the preferred stock assuming an offering price of $13.00 per share, the midpoint of our filing range, net of offering costs. The aggregate number of shares sold in this offering needed to repay indebtedness and redeem preferred stock is assumed to be 2,836,642 of the aggregate shares sold in this offering.
(5): Revenue passengers multiplied by miles flown.

(6): Passenger seats available multiplied by miles flown.
(7): Revenue passenger miles divided by available seat miles.
(8): Passenger revenues divided by revenue passenger miles flown.
(9): Total airline operating revenues divided by available seat miles.
(10): Airline operating expenses excluding impairment loss and accrued aircraft return costs divided by available seat miles.
(11): EBITDA represents earnings before interest expense, income taxes, depreciation, amortization and impairment loss and accrued aircraft return costs. EBITDAR represents earnings before interest expense, income taxes, depreciation, amortization, aircraft and engine rental expense and impairment loss and accrued aircraft return costs. EBITDA and EBITDAR are not calculations based on generally accepted accounting principles and should not be considered as alternatives to net income (loss) or operating income (loss) as indicators of our financial performance or to cash flow as a measure of liquidity. In addition, our calculations may not be comparable to other similarly titled measures of other companies. EBITDA and EBITDAR are included as supplemental disclosures because they may provide useful information regarding our ability to service debt and lease payments and to fund capital expenditures. Our ability to service debt and lease payments and to fund capital expenditures in the future, however, may be affected by other operating or legal requirements or uncertainties. Currently, aircraft and engine rents are our most significant cash expenditure.
The: following represents a reconciliation of EBITDA and EBITDAR to net income for the periods indicated (dollars in thousands):

	Year Ended									Three months Ended March 31,
	1999			2000			2001			2001			2002
EBITDAR	$	9,675		$	36,027		$	79,097		$	16,238		$	24,709
Aircraft Rent		(9,249	)		(22,903	)		(46,160	)		(9,730	)		(14,527	)

EBITDA		426			13,124			32,937			6,508			10,182

Depreciation and amortization		(4,303	)		(4,110	)		(7,783	)		(1,265	)		(2,158	)
Income tax (expense) benefit		4,845			(2,942	)		(4,760	)		(1,870	)		(2,350	)
Interest expense		(3,219	)		(3,550	)		(6,227	)		(845	)		(2,262	)
Impairment loss and accrued aircraft return costs		(6,603	)		—			(8,100	)		—			—

Net income (loss)	$	(8,854	)	$	2,522		$	6,067		$	2,528		$	3,412

(12): Adjusted to reflect the sale of shares we are offering hereby at an assumed offering price of $13.00 per share, the midpoint of our filing range, and the application of the estimated net proceeds therefrom.

RISK FACTORS

Any investment in shares of our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with all of the other information contained in this prospectus, before you decide to buy our common stock. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects could be materially adversely affected. Any adverse effect on our business, financial condition or results of operations could result in a decline in the trading price of our common stock and the loss of all or part of your investment.

Risks Related to Our Operations

Recent terrorist attacks have harmed our business and may harm our business in the future.

The terrorist attacks of September 11, 2001, and their aftermath coupled with the economic decline in the U.S. economy during the second half of 2001 have negatively impacted the airline industry and us as well. The primary effects experienced by the airline industry include:

•: substantial loss of revenue and flight disruption costs caused by the grounding of all commercial air traffic in or headed to the United States by the Federal Aviation Administration, or FAA, for three days after the terrorist attacks;
•: increased concerns about future terrorist attacks;
•: airport shutdowns and flight cancellations and delays due to security breaches and perceived safety threats;
•: higher costs, including those related to increased safety measures and insurance premiums; and
•: significantly reduced passenger traffic and yields due to the subsequent dramatic drop in demand for air travel.

Airline profit levels are highly sensitive to changes in fuel costs, fare levels and passenger demand. Passenger demand and fare levels are influenced by, among other things, the state of the global economy, domestic and international events, airline capacity and pricing actions taken by carriers. The weak U.S. economy, turbulent international events and extensive price discounting by carriers contributed to unprecedented losses for U.S. airlines from 1990 to 1993. Since September 11, 2001, similar factors, together with the effects of the terrorist attacks and the industry's reduction in capacity, have resulted in dramatic losses for the airline industry. Although demand for air travel has increased in recent months, it has yet to return to pre-September 11, 2001 levels. Consequently, most U.S. airlines have significantly reduced their flight schedules and furloughed and terminated employees.

As a direct result of the terrorist attacks, we have altered the terms of our code-sharing agreement with America West, at their request, to reduce our reimbursement rate for the remainder of 2002 for certain expenses and to provide us with more flexibility in the number of regional jets we operate for America West. We have also altered the terms of our code-sharing agreement with American, at their request, to provide American with certain one-time economic concessions through the remainder of 2002 as a result of the terrorist attacks of September 11. The effect of the total concessions we gave America West and American will result in a reduction of our revenues of approximately $12 million over a fifteen month period ending in December 2002. In addition, to rationalize our expenses, we reduced employee headcount by 20%. Although payments made to us under recently passed federal legislation and our employee head count reduction have somewhat mitigated the economic impact of the terrorist attacks on us, it is likely that we will not be compensated for our full loss.

We are currently unable to estimate the long-term impact of the events of September 11, 2001 and the sufficiency of our financial resources to absorb that impact. However, given both the magnitude of the unprecedented events of September 11 and the potential for future unforeseen events or attacks

related to these events, the adverse impact to our financial condition, results of operations and prospects may continue to be material.

We are dependent on our code-sharing relationships with US Airways, American and America West Airlines and Delta.

We depend on relationships created by our code-sharing agreements with US Airways, American, America West and Delta for all of our revenue. Any material modification to, or termination of, our code-sharing agreements with any of these partners could have a material adverse effect on our financial condition, the results of our operations and the price of our common stock. Each of the code-sharing agreements contains a number of grounds for termination by our partners, including our failure to meet specified performance levels. In addition, American may terminate the code-sharing agreement without cause upon 180 days' notice, provided such notice may not be given prior to September 30, 2005. If American terminates our code-sharing agreement, it has the right to require us to assign to them our leases of all Embraer regional jets then operating under the code-sharing agreement or to lease such jets to them to the extent we own them. If American terminates our code-sharing agreement other than for cause, we have the right to require American to assume our leases of all Embraer regional jets, or to lease such jets from us to the extent we own them, then operating under the code-sharing agreement. Furthermore, Delta may partially or completely terminate the code-sharing agreement with or without cause on 180 days' written notice at any time 36 months after we place the 22^nd aircraft into service for them. If Delta exercises this right or if we terminate the agreement for cause, we have the right to require Delta to either purchase, sublease or assume the lease of aircraft leased by us with respect to any of the aircraft we previously operated for Delta. If we choose not to exercise this right, or if Delta terminates the agreement for cause, Delta may require us to sell or sublease to them or Delta may assume the lease of aircraft leased by us with respect to any of the aircraft we previously operated for them. For a more complete description of our code-sharing agreements, including their termination provisions, see "Business-Code-Sharing Agreements."

In addition, because all of our operating revenues are currently generated under the code-sharing agreements, if any one of them is terminated, our operating revenues and net income will be materially adversely affected unless we are able to enter into satisfactory substitute arrangements or, alternatively, fly under our own flight designator code, including obtaining the airport facilities and gates necessary to do so. In 2001 and for the three months ended March 31, 2002, US Airways accounted for 67% and 60%, respectively, of our revenues, American accounted for 31% of our revenues, and America West accounted for 2% and 9%, respectively, of our revenues. We cannot assure you that we would be able to enter into substitute code-share arrangements, that any arrangements would be as favorable to us as the current code-sharing agreements or that we could successfully fly under our own flight designator code.

If the financial strength of any of our code-share partners decreases, our financial strength is at risk.

We are directly affected by the financial and operating strength of our code-share partners. In the event of a decrease in the financial or operational strength of any of our code-share partners, such partner may seek to reduce, or be unable to make, the payments due to us under the code-share agreement. In addition, they may reduce utilization of our aircraft to the minimum levels specified in the code-sharing agreements. Further, it is possible that if any of our code-share partners becomes bankrupt, our code-sharing agreement with such partner may not be assumed in bankruptcy and would be terminated. Any such event would have an adverse effect on our operations and the price of our common stock. As of March 31, 2002, Standard & Poor's and Moody's respectively, maintained ratings of CCC+ and Caa2 for US Airways, BB- and B1 for AMR Corp., the parent of American, B- and Ca for America West and BB and Ba3 for Delta. In its Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, US Airways stated that it was pursuing a restructuring plan involving

concessions from its key stakeholders and assistance under the Stabilization Act. On June 10, 2002, US Airways filed an application for $900 million in loan guarantees under the Stabilization Act. US Airways also stated that it may need to pursue alternative restructuring scenarios in the context of a judicial reorganization, or, in other words, pursuant to Chapter 11 of the Bankruptcy Code, if it is unable to secure such concessions.

If US Airways reorganizes, the economic terms of our code-share agreement could be revised and be less favorable to us or rejected.

If US Airways pursues a judicial reorganization pursuant to Chapter 11, it would have the option as part of that reorganization to reject our code-sharing agreement with them and enter into a code-sharing arrangement with another carrier at rates that may be more favorable than the rates they currently pay us. Alternatively, as a result of the reorganization, US Airways could use the threat of rejecting our code-sharing agreement as leverage to seek to renegotiate our code-sharing agreement with them in a manner that would make the revised agreement less favorable to us. Finally, as a result of a Chapter 11 reorganization, US Airways may choose to reduce or eliminate routes or hubs, sell all or part of its business to another carrier that may choose not to contract with us or liquidate its entire business. If any of these events were to occur, the adverse effect on our financial condition, results of operations or prospects could be material. We do not currently know when or if US Airways will make a decision about pursuing a judicial reorganization.

Our code-share partners may expand their direct operation of regional jets thus limiting the expansion of our relationships with them.

We depend on major airlines like US Airways, American, America West and Delta electing to contract with us instead of purchasing and operating their own regional jets. However, these major airlines possess the resources to acquire and operate their own regional jets instead of entering into contracts with us or other regional carriers. For example, American and Delta have acquired many regional jets which they fly under their affiliated carriers, American Eagle, with respect to American, and Atlantic Southeast Airlines and Comair, with respect to Delta. We have no guarantee that in the future our code-share partners will choose to enter into contracts with us instead of purchasing their own regional jets or entering into relationships with competing regional airlines. They are not prohibited from doing so under our code-sharing agreements. A decision by US Airways, American, America West or Delta to phase out our contract-based code-sharing relationships and instead acquire and operate their own regional jets or to enter into similar agreements with one or more of our competitors could have a material adverse effect on our financial condition, results of operations and the price of our common stock.

Any labor disruption or labor strikes would adversely affect our ability to conduct our business.

All of our pilots, flight attendants, dispatchers and customer service employees are represented by unions. Collectively, these employees represent approximately 75% of our workforce as of March 31, 2002. In addition, we expect that most new employees will be represented by a union. We therefore expect the percentage of employees represented by a union to increase. Although we have never had a work interruption or stoppage and believe our relations with our unionized employees are generally good, we are subject to risks of work interruption or stoppage and/or may incur additional administrative expenses associated with union representation of our employees. Our collective bargaining agreement with our pilot union is amendable in November 2002, and we cannot accurately predict the outcome of any amendment negotiations. If we are unable to reach agreement with any of our unionized work groups on the amended terms of their collective bargaining agreements, we may be subject to work interruptions and/or stoppages. Any sustained work stoppages could adversely affect

our ability to fulfill our obligations under our code-sharing agreements and could have a material adverse effect on our financial condition, results of operations and the price of our common stock.

Under the terms of our jet code-sharing agreements with US Airways and America West, if we are unable to provide scheduled flights as a result of a strike by our employees, they are only required to pay us for certain fixed costs for specified periods. Under the terms of the code-sharing agreement with American and Delta, American and Delta are not required to pay us any amounts during the period our employees are on strike. A sustained strike by our employees would require us to bear costs otherwise paid by our code-share partners.

In addition, a labor disruption other than a union-authorized strike may cause us to be in material breach of our code-sharing agreements, all of which require us to meet specified flight completion levels during specified periods. Our code-share partners have the right to terminate their code-sharing agreements if we fail to meet these completion levels.

Furthermore, since each of our code-share partners is a significant source of revenue, any labor disruption or labor strike by the employees of any one of our code-share partners which would affect their ability to pay us under our code-share agreement could have a material adverse effect on our financial condition, results of operations and the price of our common stock.

Our current growth plans may be materially affected by substantial risks, some of which are outside of our control.

We plan to acquire at least an additional 51 Embraer regional jets by December 2004, of which 26 jets are currently subject to firm order. If we are incorrect in our assessment of the profitability and feasibility of our growth plans, or if circumstances change in a way that was unforeseen by us, we may not be able to grow as planned.

Under our code-sharing agreements, we are obligated to place in service an additional 26 Embraer regional jets over the next 16 months at an aggregate cost (excluding the cost of acquiring the aircraft) to us of approximately $5.7 million. These costs which are related to the acquisition of these aircraft include the acquisition of related additional ground and maintenance facilities and support equipment, the employment of approximately 575 additional employees and the integration of those aircraft, facilities and employees into our existing operations.

We currently have 67 options to purchase regional jets from Embraer, 30 of which are reserved for Delta. If we choose to exercise options to purchase aircraft from Embraer prior to obtaining a commitment from existing or future code-share partners to place the aircraft in service, we will be obligated to purchase the aircraft from Embraer and to bear the cost of operation even if we cannot place the aircraft in service with a code-share partner, which could have a material adverse effect on our financial condition, results of operations and the price of our common stock.

Our ability to manage our growth effectively and efficiently requires us to continue to forecast accurately our equipment needs and human resources and to continue to expend funds to improve our operating, financial and management controls, reporting systems and procedures. In addition, we must effectively expand, train and manage our employee base, which could be costly. Our growth will place a significant strain on our management and other corporate resources. If we are unable to manage our anticipated growth effectively and efficiently, our business could be harmed.

Our growth plans may be adversely affected by our code-sharing agreements with American and Delta. Our American agreement requires us to provide regional airline services exclusively for American at its St. Louis hub and within 50 statute miles of that hub. This agreement also prohibits us from providing competing regional hub services at Memphis, Nashville and Kansas City and means that, without American's consent, we are prohibited from operating flights under our own flight designator code or on behalf of any other air carrier providing "hub" services in or out of these

airports. Our Delta agreement prohibits us from conducting code-share flying into several major metropolitan airports except under our existing code-sharing agreements. Furthermore, pursuant to the terms of our code-sharing agreement with Delta, we are prohibited from operating aircraft other than for Delta except for (1) those we operate for our existing code-share partners, (2) the additional aircraft we may operate under our existing agreements (3) aircraft subject to our current code-sharing agreements that may need to be repositioned with another code-share partner in the event of a bankruptcy or breach by one of our current code-share partners and (4) aircraft subject to other limited exceptions.

Our code-share partners may be restricted in increasing the level of business that they conduct with us, thereby limiting our growth.

Employees at major airlines generally oppose efforts by their companies to utilize regional airlines to serve shorter, lower volume routes from their hubs because of their perception that such utilization leads to layoffs at the major airline, as well as lower wages and salaries. In general, the pilots' unions of certain major airlines have negotiated collective bargaining agreements that restrict the number and/or size of regional aircraft that a particular carrier may operate. A "scope" clause in US Airways' current collective bargaining agreement with its pilots prevents US Airways from using more than 140 regional jets not flown by its pilots in its operations, of which 70 are currently in service. We cannot assure you that US Airways will contract with us to fly any additional aircraft. A "scope" clause in American's current collective bargaining agreement with its pilots restricts it from operating more than 67 regional jets having 45 or more seats.

American has advised us that in order to provide it with additional flexibility, American may adjust its relationship with us from that of a code-share partner, where we use American's two letter flight designator code, to that of an interline agreement, where we use the code of another AmericanConnection carrier. Although we do not believe that this will adversely affect our economic relationship with American, we can provide no assurance since the code of another carrier may receive less prominence on computerized flight reservation systems than American's, causing fewer passengers to fly our airline. If historical American passenger levels are not maintained, although we will receive our fixed-fee per block hour flown, the aggregate per passenger amount we receive will be reduced. We cannot assure you that these "scope" clauses will not become more restrictive in the future, or that America West or Delta will not become subject to similar or more restrictive "scope" clauses. America West has advised us that an agreement with another regional carrier that is structurally similar to our code-sharing agreement with America West has been alleged by their pilots to violate certain of America West's labor agreements. Any additional limit on the number of regional jets we can fly for our code-share partners could have a material adverse effect on our expansion plans and the price of our common stock.

Our fleet expansion program will require a significant increase in our leverage and the financing we require may not be available on favorable terms or at all.

The airline business is very capital intensive and, as a result, many airline companies are highly leveraged. During the years ended December 31, 2000 and 2001, our mandatory debt service payments totaled $1.9 million and $7.9 million respectively, and our mandatory lease payments totaled $25.2 million and $48.4 million respectively. During the three months ended March 31, 2001 and 2002, our mandatory debt service payments totaled $0.5 million and $1.0 million, respectively, and our mandatory lease payments totaled $10.3 million and $15.1 million, respectively. We have significant lease obligations with respect to our aircraft and ground facilities, which aggregated approximately $853.5 million at March 31, 2002. Our current growth strategy involves the acquisition of 51 more Embraer regional jets between 2002 and 2004, 4 of which we will place in service for America West and 22 of which we will place in service for Delta under our existing code-sharing agreements with them.

Embraer's current aggregate list price of these 51 Embraer regional jets is approximately $905.4 million. We expect to lease or otherwise acquire on credit all, or substantially all, such 51 Embraer regional jets, which will significantly increase our mandatory lease and debt service payments.

There can be no assurance that our operations will generate sufficient cash flow to make such payments or that we will be able to obtain financing to acquire the additional aircraft necessary for our expansion. If we default under our loan or lease agreements, the lender/lessor has available extensive remedies, including, without limitation, repossession of the respective aircraft and, in the case of large creditors, the effective ability to exert control over how we allocate a significant portion of our revenues. Even if we are able to timely service our debt, the size of our long-term debt and lease obligations could negatively affect our financial condition, results of operations and the price of our common stock in many ways, including:

•: increasing the cost, or limiting the availability of, additional financing for working capital, acquisitions or other purposes;
•: limiting the ways in which we can use our cash flow, much of which may have to be used to satisfy debt and lease obligations; and
•: adversely affecting our ability to respond to changing business or economic conditions or continue our growth strategy.

If we need funds and cannot raise them on acceptable terms, we may be unable to realize our current plans or take advantage of unanticipated opportunities and could be required to slow our growth.

We may be subject to significant liability in connection with our decision to phase out of revenue service our Saab 340A aircraft.

In December 2001, we decided to phase out of revenue service and return to the lessors our entire fleet of leased Saab 340A aircraft. Saab Aircraft Leasing, Inc. and affiliates, referred to here as "lessor", have agreed to lease 22 of the 24 Saab 340A aircraft when new lessees are identified. The remaining 2 Saab 340A aircraft are leased from a different lessor and will be returned to that lessor upon the expiration of these leases in September 2002. An agreement was signed between the lessor and a new lessee (a company controlled by Wexford Capital with a minimal net worth) for 16 Saab 340A aircraft, with options for 2 additional aircraft, at fair market lease rates. We recorded a charge of approximately $8.1 million in the quarter ended December 31, 2001, to reflect our estimate of the cost associated with the complete phase out and the related asset impairment of our entire Saab 340A turboprop fleet. If no new lessees lease the remaining Saab aircraft and/or if any new lessee defaults on its lease, we may incur additional charges of up to $22.4 million through the remaining terms of the leases.

We depend on Embraer to supply us with the aircraft we require to expand.

As of June 7, 2002, we are obligated under our code-sharing agreements to place an additional 26 Embraer regional jets in service over the next 16 months. We currently have firm orders with Embraer for 4 regional jets through Solitair Corp., a company controlled by an affiliate of our sole stockholder, and firm orders with Embraer for another 22 regional jets directly. We also have options to acquire an additional 67 regional jets that are exercisable on or before September 30, 2002 through October 2005.

We are dependent on Embraer as the manufacturer of all of these jets and certain factors may limit or preclude our ability to obtain these regional jets, including:

•: Embraer could refuse, or may not be financially able, to perform its obligations under the purchase agreement for the delivery of the regional jets; and
•: a fire, strike or other event could occur that affects Embraer's ability to completely or timely fulfill its contractual obligations.

Any disruption or change in the delivery schedule of these Embraer regional jets would affect our overall operations and our ability to fulfill our obligations under our code-sharing agreements.

Our operations could be materially adversely affected by the failure or inability of Embraer or any key component manufacturers to provide sufficient parts or related support services on a timely basis or by an interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for our aircraft.

Reduced utilization levels of our aircraft under the fixed-fee agreements would adversely impact our revenues and earnings.

Our agreements with US Airways, American, America West and Delta require each of them to schedule our aircraft to a minimum level of utilization. However, the aircraft have historically been utilized more than the minimum requirement. Even though the fixed-fee rates either adjust based on scheduled utilization levels or require a fixed amount per day to compensate us for our fixed costs, if our aircraft are underutilized (including taking into account the stage length and frequency of our scheduled flights) we will likely lose both the opportunity to recover a margin on the variable costs of flights that would have been flown if our aircraft were more fully utilized and the opportunity to earn incentive compensation on such flights.

Our inability to pass through insurance costs to our code-share partners would harm our business.

Following the September 11th terrorist attacks, aviation insurers dramatically increased airline insurance premiums and significantly reduced the maximum amount of insurance available to airlines for liability to persons other than passengers for claims resulting from acts of terrorism, war or similar events to $50 million per event and in the aggregate.

Aviation insurers could increase their premiums even further in the event of additional terrorist attacks, hijackings, airline crashes or other events adversely affecting the airline industry. Furthermore, the excess war risk coverage provided by the government is currently scheduled to be in force until August 17, 2002. While the government may extend this deadline, we cannot assure you that any further extensions will occur, or if they do, how long the extension will last. It is expected that should the government stop providing excess war risk coverage to the airline industry, the premiums charged by aviation insurers for this coverage will be substantially higher than the premiums, currently charged by the government. Significant increases in insurance premiums would harm our financial condition and results of operations if we are unable to pass these costs through to our code-share partners. Further, if we are unable to obtain aviation insurance, our ability to operate would be substantially affected and our financial condition and results of operations would be materially adversely affected.

Increases in our labor costs, which constitute a substantial portion of our total operating costs, will directly impact our earnings.

Labor costs constitute a significant percentage of our total operating costs, and we have experienced pressure to increase wages and benefits for our employees. Under our code-sharing agreements, our reimbursement rates contemplate labor costs that increase on a set schedule generally tied to an increase in the consumer price index or the actual increase in the contract. We are responsible for our labor costs, and we may not be entitled to receive increased payments for our flights if our labor costs increase above the assumed costs included in the reimbursement rates. As a result, a significant increase in our labor costs above the levels assumed in our reimbursement rates could result in a material reduction in our earnings. We have entered into collective bargaining agreements with our pilots, flight attendants, customer service employees and dispatchers, which are amendable in November 2002, March 2003, December 2005 and February 2007, respectively. We cannot assure you that future agreements with our employees' unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs and reduce our income.

Our business could be harmed if we lose the services of our key personnel.

Our business depends upon the efforts of our chief executive officer, Bryan K. Bedford, and our other key management and operating personnel. US Airways can terminate its turboprop code-sharing agreement and American can terminate its code-sharing agreement if we replace Mr. Bedford without their consent, which in the case of American cannot be unreasonably withheld. We may have difficulty replacing management or other key personnel who leave and, therefore, the loss of the services of any of these individuals could harm our business. We maintain a "key man" life insurance policy in the amount of $5 million for Mr. Bedford, but this amount may not adequately compensate us in the event we lose his services.

We may experience difficulty finding, training and retaining employees.

Our business is labor-intensive, we require large numbers of pilots, flight attendants, maintenance technicians and other personnel and we anticipate that our expansion plans will require us to recruit, train and retain a significant number of new employees over the next several years.

The airline industry has from time to time experienced a shortage of qualified personnel, specifically pilots and maintenance technicians. In addition, as is common with most of our competitors, we have faced considerable turnover of our employees. Although our employee turnover has decreased significantly since September 11, 2001, our pilots, flight attendants and maintenance technicians often leave to work for larger airlines, which generally offer higher salaries and benefit programs than regional airlines are financially able to offer. Should the turnover of employees, particularly pilots and maintenance technicians, sharply increase, the result will be significantly higher training costs than otherwise would be necessary. We cannot assure you that we will be able to recruit, train and retain the qualified employees that we need to carry out our expansion plans or replace departing employees. If we are unable to hire and retain qualified employees at a reasonable cost, we may be unable to complete our expansion plans, which could materially adversely affect our financial condition, results of operations and the price of our common stock.

We fly and depend upon a limited number of aircraft and aircraft types and our business is at risk if we do not receive timely deliveries of aircraft or if the public negatively perceives our aircraft.

Our fleet consists of 49 Embraer regional jets and 10 Saab 340 turboprops that will be phased out in 2002. We expect that the risks associated with operating a limited number of aircraft types will increase in the future. These risks include:

•: the failure or inability of Embraer-Empresa Brasileira de Aeronautica S.A. (the manufacturer of the Embraer regional jets) to provide sufficient aircraft, parts or related support services on a timely basis;
•: the interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for these aircraft;
•: the issuance of FAA directives restricting or prohibiting the use of Embraer regional jets or requiring time-consuming inspections and maintenance; or
•: the adverse public perception of an aircraft type as a result of an accident or other adverse publicity.

The occurrence of any one or more of these factors could result in our failure to meet our obligations under our code-sharing agreements, thereby permitting our code-share partners to terminate these agreements and could material adversely affect our operations and the price of our common stock.

Many air travelers may perceive smaller, regional aircraft, like our Embraer regional jets, as unsafe, unstable or uncomfortable in comparison to the larger aircraft primarily used by major airline companies. The public's refusal to fly in the types of aircraft that we operate could adversely affect our ability to expand our existing code-sharing agreements or obtain new code-sharing agreements.

We are at risk of losses stemming from an accident involving any of our aircraft.

While we have never had a crash over our 27 year history, it is possible that one or more of our aircraft may crash or be involved in an accident in the future, causing death or injury to individual air travelers and our employees and destroying the aircraft. Because of the limited number of aircraft that we operate and because of our relatively small size, any accident involving our aircraft could have a material adverse effect on our financial condition and results of operations.

In addition, if one of our aircraft were to crash or be involved in an accident, we would be exposed to significant tort liability. Passengers, or their estates, may seek to recover damages for death or injury. There can be no assurance that the insurance we carry to cover such damages will be adequate. Accidents could also result in unforeseen mechanical and maintenance costs. In addition, any accident involving an aircraft that we operate could create a public perception that our aircraft are not safe, which could result in air travelers being reluctant to fly on our aircraft which could cause a decrease in revenues. Such a decrease could materially adversely affect our financial condition, results of operations and the price of our common stock.

We will be controlled by Wexford Capital as long as they own or control a majority of our common stock, and they may make decisions with which you disagree.

After the completion of this offering, WexAir LLC, which is owned by several investment funds managed by Wexford Capital, will own beneficially approximately 67.4% of the outstanding shares of our common stock, or approximately 65.7% if the underwriters exercise in full their option to purchase

additional shares. As a result, Wexford Capital and its affiliates will control all matters affecting us, including the election of directors as long as they own or control a majority of our common stock. They may make decisions which you and other stockholders will not be able to affect by voting your shares.

We may have conflicts of interest with Wexford Capital, and because of their controlling ownership, we may not be able to resolve these conflicts on an arm's length basis.

Wexford Capital and its affiliates are actively engaged in the airline business. Conflicts of interest may in the future arise between Wexford Capital and us in a number of areas relating to our business and our past and ongoing relationships. Factors that may create a conflict of interest between Wexford Capital and us include the following:

•: Wexford Capital currently owns Shuttle America and has provided debtor-in-possession financing to Midway Airlines. Wexford Capital may in the future make significant investments in other airline companies that directly compete with us and any such investment may encourage Wexford Capital to restrict our ability to grow;
•: sales or distributions by WexAir LLC of all or any portion of its ownership interest in us; and
•: several of our directors also are directors, managing members or general partners of Wexford Capital and its affiliates.

Wexford Capital is under no obligation to resolve any conflicts that might develop between it and us in a manner that is favorable to us and we cannot guarantee that such conflicts will not result in harmful consequences to our business or prospects. In addition, Wexford Capital and its affiliates are not obligated to advise us of any investment or business opportunities of which they are aware, and they are not restricted or prohibited from competing with us. We have specifically renounced in our certificate of incorporation any interest or expectancy that Wexford Capital and its affiliates will offer to us any investment or business opportunity of which they are aware.

We are currently the subject of an FAA investigation and may be subject to civil penalties.

In 2001, we were informed by the FAA that it is investigating shipments sent by us on cargo airlines consisting of 46 packages that may have contained regulated hazardous materials without properly training our employees and/or without properly labeling, declaring, marking, describing or packaging the shipments for transportation in air commerce in accordance with applicable requirements. We are cooperating with the FAA's investigation, which is at an early stage. We could be subject to civil penalties of up to $27,500 for each violation; however, given the early stage of the investigation and the discretion the FAA has in imposing penalties, we are unable to estimate the number of violations or the amount of penalties, if any, we might be required to pay. We cannot assure you that the amount of penalties will be immaterial.

Risks Associated With The Airline Industry

The airline industry has been subject to a number of strikes which could affect our business.

The airline industry has been negatively impacted by a number of labor strikes. Any new collective bargaining agreement entered into by other regional carriers may result in higher industry wages and add increased pressure on us to increase the wages and benefits of our employees. Furthermore, since each of our code-share partners is a significant source of revenue, any labor disruption or labor strike by the employees of any one of our code-share partners could have a material adverse effect on our financial condition, results of operations and the price of our common stock.

The airline industry is highly competitive.

Within the airline industry we not only compete with other regional airlines, some of which are owned by or operated as code-share partners of major airlines, but we also face competition from low-fare airlines and major airlines on many of our routes. Other low-fare carriers serve the Indianapolis International Airport, which results in significant price competition in the Indianapolis market, one of our major markets. Competition in the eastern United States markets, which we service from US Airways' hubs in New York, Boston and Philadelphia and from Delta's hub in Orlando is particularly intense, due to the large number of carriers in those markets.

In addition, some of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats.

In addition to traditional competition among airlines, the industry faces competition from ground and sea transportation alternatives. Video teleconferencing and other methods of electronic communication may add a new dimension of competition to the industry as business travelers seek lower-cost substitutes for air travel.

Airlines are often affected by certain factors beyond their control, including weather conditions which can affect their operations.

Generally, revenues for airlines depend on the number of passengers carried, the fare paid by each passenger and service factors, such as timeliness of departure and arrival. During periods of fog, ice, low temperatures, storms or other adverse weather conditions, flights may be cancelled or significantly delayed. Under our fixed-fee code-sharing agreements, we are substantially protected against cancellations due to weather or air traffic control, although these factors may affect our ability to receive incentive payments for flying more than the minimum number of flights specified in our code-sharing agreement. Should we enter into pro-rate revenue sharing agreements in the future, we will not be protected against weather or air traffic control cancellations and our revenues could suffer as a result.

The airline industry has recently gone through a period of consolidation; consequently we have fewer potential partners.

Since its deregulation in 1978 and continuing to the present, the airline industry has undergone substantial consolidation, and it may in the future undergo additional consolidation. For example, in April 2001, American acquired the majority of Trans World Airlines, Inc.'s assets. Our relationship with American resulted from this transaction. We, as well as our code-share partners, routinely monitor changes in the competitive landscape and engage in analysis and discussions regarding our strategic position, including potential alliances and business combination transactions. Further consolidation could limit the number of potential partners with whom we could enter into code-sharing relationships. Any additional consolidation or significant alliance activity within the airline industry could materially adversely affect our relationship with our code-share partners.

The airline industry is heavily regulated.

Airlines are subject to extensive regulatory and legal compliance requirements, both domestically and internationally, that involve significant costs. In the last several years, the FAA has issued a number of directives and other regulations relating to the maintenance and operation of aircraft that have

required us to make significant expenditures. FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement, commuter aircraft safety and increased inspection and maintenance procedures to be conducted on older aircraft.

We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not significantly increase our costs of doing business.

The FAA has the authority to issue mandatory orders relating to, among other things, the grounding of aircraft, inspection of aircraft, installation of new safety-related items and removal and replacement of aircraft parts that have failed or may fail in the future. A decision by the FAA to ground, or require time consuming inspections of or maintenance on, all or any of our Saab 340 turboprops or Embraer regional jets, for any reason, could negatively impact our results of operations.

In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, such as Embraer regional jets, at such airports. The imposition of any limits on the use of Embraer regional jets at any airport at which we operate could interfere with our obligations under our code-share agreements and severely interrupt our business operations.

Additional laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenues. For instance, "passenger bill of rights" legislation has been introduced in Congress that would, among other things, require the payment of compensation to passengers as a result of certain delays and limit the ability of carriers to prohibit or restrict usage of certain tickets in manners currently prohibited or restricted. If adopted, these measures could have the effect of raising ticket prices, reducing revenue and increasing costs. Restrictions on the ownership and transfer of airline routes and takeoff and landing slots have also been proposed. In addition, as a result of the terrorist attacks in New York and Washington, D.C. in September 2001, the FAA has imposed more stringent security procedures on airlines. We cannot predict what other new regulations may be imposed on airlines and we cannot assure you that laws or regulations enacted in the future will not materially adversely affect our financial condition, results of operations and the price of our common stock.

Risks Related To Our Common Stock

There has been no prior market for our shares, and we cannot assure you that the price of our shares will not decline after the offering. In addition, our stock price may be volatile.

Before this offering, there has not been a public market for our shares of common stock, and an active public market for our shares may not develop or be sustained after this offering. The market price of our shares could be subject to significant fluctuations after this offering and could decline below the initial public offering price.

The initial public offering will be determined by negotiations between the underwriters and our board of directors, and may not be representative of the market price at which our shares of common stock will trade after this offering. We cannot assure you that you will be able to sell your shares at or above the initial public offering price.

The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:

•: announcements concerning our code-share partners, competitors, the airline industry or the economy in general;
•: strategic actions by us, our code-share partners or our competitors, such as acquisitions or restructurings;
•: media reports and publications about the safety of our aircraft or the aircraft types we operate;
•: new regulatory pronouncements and changes in regulatory guidelines;
•: general and industry-specific economic conditions;
•: changes in financial estimates or recommendations by securities analysts;
•: sales of our common stock or other actions by investors with significant shareholdings or our code-share partners; and
•: general market conditions.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management's attention and resources and harm our business.

You will suffer immediate and substantial dilution.

We expect the initial public offering price of our common stock to be substantially higher than the net tangible book value per share of our outstanding common stock, resulting in immediate and substantial dilution. The net tangible book value of a share of our common stock purchased at an assumed initial public offering price of $13.00 (the midpoint of the filing range) will be only $2.31. Additional dilution may be incurred if stock options or warrants, whether currently outstanding or subsequently granted, are exercised. For example, set forth in the table below is information regarding stock options granted to our employees, officers and directors, as well as information regarding warrants to purchase common stock that we have issued or agreed to issue to three of our code-share partners. If the price of our common stock is greater than the exercise price of either the stock options or the warrants, your interest in our common stock will be diluted. In addition, should we place more than 22 aircraft into service for Delta, we have agreed to issue Delta a warrant to purchase 60,000 shares of common stock for each additional aircraft placed into service.

	Number of Securities Underlying Options/Warrants Granted	Exercise Price Per Share
Stock options to employees, officers and directors	2,753,400	$1.75-$14.30
American warrant	1,209,000	$12.09
America West warrant	160,440	$12.09
Delta warrants	3,000,000	$12.35-$12.50

Future sales of our common stock by our stockholders could depress the price of our common stock.

Sales of a large number of shares of our common stock, the availability of a large number of shares for sale, or sales of shares of our common stock by our code-share partners, could adversely affect the market price of our common stock and could impair our ability to raise funds in additional stock offerings. Upon completion of this offering, we will have 25,000,000 shares of common stock outstanding. Substantially all holders of our common stock, including our principal stockholder and our code-share partners that hold warrants to purchase our common stock, are subject to agreements with the underwriters that restrict their ability to transfer their stock for 180 days after the date of this prospectus. Merrill Lynch, on behalf of the underwriters, may in its sole discretion and at any time waive the restrictions on transfer in these agreements during this period. After these agreements expire, approximately 20,000,000 of these shares will be eligible for sale in the public market.

Our incorporation documents and Delaware law have provisions that could delay or prevent a change in control of our company, which could negatively affect your investment.

In addition to the fact that Wexford Capital will own the majority of our common stock after this offering, our certificate of incorporation and bylaws and Delaware law contain provisions that could delay or prevent a change in control of our company that stockholders may consider favorable. Some of these provisions:

•: authorize the issuance of up to 5,000,000 shares of preferred stock that can be created and issued by our board of directors without prior stockholder approval, commonly referred to as "blank check" preferred stock, with rights senior to those of our common stock;
•: limit the persons who can call special stockholder meetings;
•: provide that a supermajority vote of our stockholders is required to amend our certificate of incorporation or bylaws; and
•: establish advance notice requirements to nominate directors for election to our board of directors or to propose matters that can be acted on by stockholders at stockholder meetings.

These and other provisions in our incorporation documents and Delaware law could allow our board of directors to affect your rights as a stockholder by making it more difficult for stockholders to replace board members. Because our board of directors is responsible for appointing members of our management team, these provisions could in turn affect any attempt to replace the current management team. In addition, these provisions could deprive our stockholders of opportunities to realize a premium on the shares of common stock owned by them.

Our charter documents include provisions limiting voting by foreign owners.

Our certificate of incorporation provides that no shares of capital stock may be voted by or at the direction of persons who are not citizens of the United States unless the shares are registered on a separate stock record. Our certificate of incorporation further provides that no shares will be registered on this separate stock record if the amount so registered would exceed applicable foreign ownership restrictions. U.S. law currently requires that no more than 25% of the voting stock of our company (or any other domestic airline) may be owned directly or indirectly by persons who are not citizens of the United States. See "Description of Capital Stock—Common Stock—Limitation on Voting by Foreign Owners."

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. These include statements about our expectations, plans, objectives, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend" and similar expressions. These statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed for the reasons described in this prospectus. You should not place undue reliance on these forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect event or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

USE OF PROCEEDS

The net proceeds we will receive from the sale of the 5,000,000 shares of common stock offered by us, at a public offering price of $13.00 per share, the midpoint of the filing range, and after deducting estimated underwriting discounts and offering expenses, are estimated to be $57,950,000 ($67,017,500 if the underwriters' over-allotment option granted by us is exercised in full).

We currently intend to use the net proceeds of the offering as follows:

•: approximately $19,151,000 to repay indebtedness to our sole stockholder;
•: approximately $11,665,000 to repay indebtedness to Embraer-Empresa Brasileira de Aeronautica S.A.;
•: approximately $10,530,000 to pay Embraer-Empresa Brasileira de Aeronautica S.A. progress payments with respect to 22 Embraer regional jets due to be delivered between October 2002 and October 2003;
•: approximately $2,503,000 to repay indebtedness to an affiliate of our sole stockholder;
•: approximately $4,951,000 to redeem the outstanding preferred stock of Chautauqua held by an affiliate of our sole stockholder; and
•: general corporate purposes, including working capital and the possible acquisition of additional aircraft and related spare parts and support equipment.

Pending such utilization, we intend to invest the remainder of the proceeds in short-term, investment grade, interest-bearing securities.

The indebtedness to be repaid to our sole stockholder was initially incurred in May 1998 to finance a portion of the purchase price for Chautauqua. The note, which currently bears interest at the rate of 11.5% compounded semi-annually, currently matures on the earliest of (1) demand by the holder thereof, (2) May 14, 2003 or (3) the closing of this offering.

In July 1999, Imprimis Investors LLC, one of the members of our sole stockholder, loaned Chautauqua $1,000,000 for working capital purposes. In April 2000, Imprimis loaned Chautauqua an additional $1,500,000 for working capital purposes. These loans bore interest at a rate of 7.5% per annum and were due on demand. In May 2000, Chautauqua issued to Imprimis 10.295828 shares of Chautauqua's Series A preferred stock in payment of principal and accrued interest on the notes, which totaled $2,573,950. In May 2000, Chautauqua sold to Imprimis an additional six shares of Chautauqua's Series A preferred stock for an aggregate purchase price of $1,500,000. Chautauqua used the proceeds from the sale of the preferred stock for working capital. These preferred shares are now owned by Wexford Special Situations 1997 Institutional, L.P. following a distribution by Imprimis to its members. Under the terms of the preferred stock, Chautauqua is required to redeem the preferred stock for a cash payment equal to the stated value ($250,000 per share) plus all accrued and unpaid dividends, upon the consummation of this offering. The preferred stock has an annual dividend of $25,000 per share, which is cumulative to the extent not paid.

Between December 2001 and May 2002, Embraer-Empresa Brasileira de Aeronautica S.A. loaned Chautauqua approximately $99,895,000 toward the purchase of 7 new ERJ 140 regional jets. The notes matured upon the closing of a permanent financing arrangement with Agência Especial de Financiamento Industrial, or FINAME. The closing with FINAME occurred on June 11, 2002, and approximately $88,796,000 was refinanced. The balance of $11,099,000 which bears interest at an annual rate of 7.5%, is due, together with approximately $566,000 of accrued interest, upon the consummation of this offering and will be repaid with the proceeds of this offering.

In connection with the purchase of five ERJ 140s between February and June 2002, we issued notes in the aggregate amount of $2,503,000 to Solitair Corp. in payment of their fee for the acquisition of these aircraft and the transfer of aircraft options to us. The notes bear interest at a rate of 9% and mature on the earliest of (1) demand by the holder thereof, (2) March 31, 2003 or (3) the closing of this offering.

DIVIDEND POLICY

We have never paid dividends on our common stock. As a holding company, we would only be able to pay dividends from funds received from Chautauqua and any other subsidiaries we may have. Further, Chautauqua's credit facility with Fleet limits its ability to pay dividends to Republic Airways. We intend, however, to pay dividends out of legally available funds, when and if declared by our Board of Directors, commencing no earlier than the 2004 calendar year.

CAPITALIZATION

The following table sets forth our capitalization at March 31, 2002 (adjusted to reflect the recapitalization that will occur in connection with this offering) and as adjusted to give effect to the sale of the 5,000,000 shares of common stock offered by us at an assumed offering price of $13.00 per share, the midpoint of the filing range, and the application of the estimated net proceeds therefrom, as described under "Use of Proceeds." The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, including the notes thereto, appearing elsewhere in this prospectus.

		March 31, 2002
		Actual		As adjusted
		(in thousands)
Cash and cash equivalents		$	5,021	$	28,676

Current portion of long-term debt			9,971		9,971
Subordinated notes payable to affiliates and accrued interest			19,943		—
Long-term debt, less current portion			149,006		139,503
Redeemable preferred stock of subsidiary at redemption value			4,849		— —
Stockholder's equity:
	Preferred stock, $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding		—		—
	Common stock, $.001 par value; one vote per share; 75,000,000 shares authorized; 20,000,000 shares issued and outstanding actual and 25,000,000 shares issued and outstanding as adjusted(1)		20		25
	Additional paid-in capital		7,896		65,841
	Accumulated earnings		5,239		5,239

Total stockholder's equity			13,155		71,105

Total capitalization		$	196,924	$	220,579

(1): Assumes underwriters' over-allotment option to purchase up to an additional 750,000 shares of common stock from us is not exercised.

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share of our common stock after this offering. Our net tangible book value as of March 31, 2002, was $(0.01) per share. Net tangible book value per share is determined by dividing our tangible net worth, which is our tangible assets less total liabilities and redeemable preferred stock, by the total number of outstanding shares of common stock. After giving effect to the sale of shares of common stock in this offering at an assumed offering price of $13.00 per share, the midpoint of the filing range, and our receipt of the estimated net proceeds, our net tangible book value at March 31, 2002, would have been $2.31 per share. This represents an immediate increase in the net tangible book value of $2.32 per share to our existing stockholder, and an immediate dilution of $10.69 per share to you if you invest in our common stock. The following table illustrates this dilution of $10.69 per share to new stockholders purchasing our common stock in this offering:

Assumed initial public offering price per share				$	13.00
Net tangible book value per share as of March 31, 2002	$	(0.01	)
Increase per share attributable to new investors		2.32

As adjusted net tangible book value per share after this offering					2.31

Dilution per share to new investors				$	10.69

The following table summarizes, on a pro forma basis as of March 31, 2002, the total number of shares of our common stock purchased from us, the total consideration paid and the average price per share paid by WexAir LLC, our sole stockholder, and by the new investors in this offering at an assumed initial public offering price of $13.00 per share, the midpoint of our filing range, and before deducting estimated underwriting discounts and commissions and our estimated offering expenses:

		Shares Purchased			Total Consideration
		Number	Percent		Amount		Percent		Average Price Per Share
WexAir LLC		20,000,000	80	%	$	20,133,000	24	%	$	1.01
New investors		5,000,000	20	%		65,000,000	76	%		13.00

	Total	25,000,000	100	%		85,133,000	100	%	$	3.41

If the underwriters exercise their over-allotment option in full, the number of shares of common stock held by new investors will increase to 5,750,000, or 22.3% of the total number of shares of common stock to be outstanding immediately after this offering and the percentage of the total number of shares of common stock to be outstanding immediately after this offering held by WexAir LLC will decrease to 65.7%.

The information presented above excludes:

•: 2,753,400 shares of common stock currently reserved for issuance under outstanding options at a weighted average exercise price of $5.65 per share; and
•: 4,369,440 shares subject to outstanding warrants issued to our code-share partners at a weighted average exercise price of $12.32 per share (assuming they exercise all warrants under their code-sharing agreements).

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth our selected consolidated financial and airline operating data with respect to the periods indicated. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, including the notes thereto, appearing elsewhere in this prospectus. The selected consolidated financial data for the years ended December 31, 1999, 2000, and 2001, have been derived from our consolidated financial statements, which statements have been audited by Deloitte & Touche LLP, independent public accountants. The airline operating data set forth below is unaudited. The selected consolidated financial data for the three months ended March 31, 2001 and 2002 have been derived from our unaudited consolidated financial statements which, in our opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the information included therein. Our results of operations for the three months ended March 31, 2002, are not necessarily indicative of results to be achieved for the full year ending December 31, 2002.

On May 15, 1998, Republic Airways acquired for cash all the outstanding capital stock of Chautauqua for $20,133,000 (including expenses), and accounted for the acquisition under the purchase method of accounting. Prior to the acquisition, Republic Airways had no operations. The predecessor's financial statements have been prepared using the historical cost of Chautauqua's assets and have not been adjusted to reflect the acquisition. The financial statements of Republic Airways include adjustments required under the purchase method of accounting.

Selected Consolidated Financial Information

			Predecessor
			Chautauqua Airlines, Inc.						Republic Airways Holdings Inc.
						Period of Jan 1- May 14, 1998			Period of May 15- Dec 31, 1998			Combined Year Ended December 31, 1998(1)			Years Ended December 31,									Quarter Ended March 31,
			Year Ended December 31, 1997												Years Ended December 31,									Quarter Ended March 31,
			Year Ended December 31, 1997												1999			2000			2001			2001			2002
			(in thousands, except share, per share and airline operating data)																					(unaudited)
Statement of Operations Data:
Operating revenues:
	Passenger.		$	77,793		$	28,901		$	53,643		$	82,544		$	86,588		$	145,850		$	236,843		$	52,134		$	70,943
	Freight and other			1,634			450			1,078			1,528			1,671			1,627			1,801			380			1,305

		Total operating revenues		79,427			29,351			54,721			84,072			88,259			147,477			238,644			52,514			72,248

Operating expenses
	Wages and benefits			16,178			6,031			11,900			17,931			22,679			30,782			45,107			10,213			12,709
	Aircraft fuel			7,106			2,173			3,530			5,703			7,119			22,192			39,042			8,096			11,797
	Passenger fees and commissions			14,030			5,089			9,919			15,008			15,038			12,883			11,065			2,927			1,315
	Landing fees			1,748			795			1,154			1,949			2,105			3,753			7,091			1,431			2,626
	Aircraft rental.			10,067			3,700			4,653			8,353			9,249			22,903			46,160			9,730			14,527
	Maintenance and repair			11,077			4,213			7,822			12,035			12,813			19,667			34,069			7,336			9,734
	Insurance and taxes			2,676			923			817			1,740			1,528			2,822			5,710			1,146			3,549
	Depreciation and amortization			2,485			874			1,717			2,591			4,303			4,110			7,783			1,265			2,158
	Impairment loss and accrued aircraft return costs(2)(3)			—			—			—			—			6,603			—			8,100			—			—
	Other			7,617			2,809			6,899			9,708			17,398			21,143			26,710			6,557			6,051
	Stabilization Act compensation			—			—			—			—			—			—			(7,640	)		—			—

		Total operating expenses		72,984			26,607			48,411			75,018			98,835			140,255			223,197			48,701			64,466

Operating income (loss)				6,443			2,744			6,310			9,054			(10,576	)		7,222			15,447			3,813			7,782
Other income (expense):
Interest expense				(1,492	)		(765	)		(1,528	)		(2,293	)		(3,219	)		(3,550	)		(6,227	)		(845	)		(2,262	)
Other income				—			—			—			—			96			1,792			1,607			1,430			242

		Total other income (expense)		(1,492	)		(765	)		(1,528	)		(2,293	)		(3,123	)		(1,758	)		(4,620	)		585			(2,020	)

Income (loss) before income taxes				4,951			1,979			4,782			6,761			(13,699	)		5,464			10,827			4,398			5,762
Income tax expense (benefit)				2,112			774			2,275			3,049			(4,845	)		2,942			4,760			1,870			2,350

Income (loss) before cumulative effect of change in accounting principle				2,839			1,205			2,507			3,712			(8,854	)		2,522			6,067			2,528			3,412
Cumulative effect of change in accounting principle, net of taxes(4)				(1,227	)		—			—			—			—			—			—			—			—

Net income (loss)			$	1,612		$	1,205		$	2,507		$	3,712		$	(8,854	)	$	2,522		$	6,067		$	2,528		$	3,412

Preferred stock dividends(5)				—			—			—			—			—			(255	)		(418	)		(101	)		(102	)

Net income (loss) available for common stockholders			$	1,612		$	1,205		$	2,507		$	3,712		$	(8,854	)	$	2,267		$	5,649		$	2,427		$	3,310

Net income (loss) available for common stockholders per share(6):
	Basic		$	.81		$	.60		$	.13					$	(.44	)	$	.11		$	.28		$	.12		$	.17

	Diluted		$	.81		$	.60		$	.13					$	(.44	)	$	.11		$	.27		$	.12		$	.16

Weighted average common shares outstanding(6):
	Basic			2,000,000			2,000,000			20,000,000						20,000,000			20,000,000			20,000,000			20,000,000			20,000,000
	Diluted			2,000,000			2,000,000			20,000,000						20,000,000			20,000,000			20,689,886			20,000,000			20,845,310
Other Financial Data:
	Net cash from:
		Operating activities	$	6,604		$	(730	)	$	6,625					$	2,182		$	6,710		$	22,956		$	1,895		$	7,006
		Investing activities		1,171			(771	)		(26,090	)					(9,270	)		(10,812	)		(12,690	)		(4,047	)		(5,665	)
		Financing activities		(7,236	)		1,341			19,958						7,111			3,975			(7,383	)		2,239			408
Airline Operating Data:
	Passengers carried			704,810			255,312			503,469			758,781			794,911			1,280,884			2,240,822			421,548			712,010
	Revenue passenger miles(7)			153,612,676			56,016,308			111,338,649			167,354,957			205,578,811			463,050,021			880,569,802			154,549,708			295,010,428
	Available seat miles(8)			323,715,092			116,188,609			205,503,654			321,692,263			423,011,977			869,629,172			1,649,171,823			324,287,059			546,039,070
	Passenger load factor(9)			47.5	%		48.2	%		54.2	%		52.0	%		48.6	%		53.2	%		53.4	%		47.7	%		54.0	%
	Yield per revenue passenger mile(10)		$	0.506		$	0.516		$	0.482		$	0.493		$	0.421		$	0.315		$	0.269		$	0.337		$	0.240
	Revenue per available seat mile(11)		$	0.245		$	0.253		$	0.266		$	0.261		$	0.209		$	0.170		$	0.145		$	0.162		$	0.132
	Cost per available seat mile(12)		$	0.230		$	0.236		$	0.243		$	0.240		$	0.218		$	0.161		$	0.131		$	0.150		$	0.118
	EBITDA(13)		$	7,701		$	3,618		$	8,027		$	11,645		$	426		$	13,124		$	32,937		$	6,508		$	10,182
	EBITDAR(13)		$	17,768		$	7,318		$	12,680		$	19,998		$	9,675		$	36,027		$	79,097		$	16,238		$	24,709
	Average passenger trip length (miles)			218			219			221			221			259			362			393			367			414
Number of aircraft (end of period):
Embraer regional jet				0			0			0			0			4			18			45			23			48
Saab 340 Turboprop				12			13			13			13			14			26			25			26			15
Jetstream 31				17			19			19			19			19			15			—			8			—

Total aircraft				29			32			32			32			37			59			70			57			63

	As of December 31,										As of March 31,
	1997		1998		1999		2000		2001		2001		2002
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	776	$	493	$	516	$	389	$	3,272	$	476	$	5,021
Aircraft and other equipment, net		8,235		13,647		17,748		25,529		133,810		45,770		183,496
Total assets		24,562		45,937		52,983		72,601		204,802		95,661		259,018
Long-term debt, including current maturities		7,331		26,178		34,428		32,885		131,350		50,370		177,180
Redeemable preferred stock of subsidiary at redemption value		—		—		—		4,329		4,747		4,430		4,849
Total stockholder's equity		8,423		10,640		1,786		4,053		9,792		7,128		13,155

(1): The combined amounts for 1998 reflect the combined operating results of Chautauqua Airlines, Inc. prior to its acquisition by Republic Airways at its predecessor basis and operating results after the acquisition reflecting the new basis of accounting. Although this presentation facilitates the comparison of operating results for 1999 and 1998, the changes in the basis of accounting affect the comparability of our results of operations for these years.
(2): During the fourth quarter of 1999, we decided to return our entire fleet of leased Jetstream 31 turboprop aircraft and dispose of related inventory and equipment. We continued to use the aircraft to fly routes under the US Airways turboprop pro-rate code-sharing agreement through December 2000. Certain routes were replaced with Saab 340 aircraft and the remaining routes were discontinued. Pursuant to the lease agreements, we were obligated to return the aircraft to the lessors in the same condition that the aircraft were delivered; therefore, we recorded a liability of $2.6 million for the estimated aircraft return costs in 1999.
In addition, a non-cash impairment loss of $4.0 million was recorded in 1999 to reduce the carrying amount of assets to be disposed of to estimated fair value, less costs to sell, or net realizable value.

(3)

During the fourth quarter of 2001, we decided to exit the turboprop business and return our entire fleet of Saab 340 aircraft and dispose of related inventory and equipment. We are planning to use the aircraft to fly routes under the US Airways turboprop pro-rate code-sharing agreement through July 2002. In December 2001, impairment loss and accrued aircraft return costs of $8.1 million were recorded. This charge consists of non-cash impairment costs of $2.1 million, ongoing lease obligations of $4.5 million and $1.5 million to provide for contractual maintenance and return obligations. New leases (with a company controlled by Wexford Capital) have been obtained for a number of these aircraft. If no new lessees lease the remaining Saab aircraft and/or if any new lessee defaults on its lease, we may incur additional charges of up to $22.4 million through the remaining terms of the leases.

(4)

Effective January 1, 1997, Chautauqua changed its method of accounting for preoperating costs to another generally accepted method of accounting. Previously, these amounts were capitalized and amortized on a straight line basis over four years. Effective with the change, Chautauqua expenses preoperating costs as they are incurred. Accordingly, unamortized preoperating costs totaling $1.2 million, net of the related deferred tax of $0.7 million, has been reflected in the December 31, 1997, financial statements as the cumulative effect of an accounting change.

(5)

Preferred stock dividends represent dividends on 16.295828 shares of Series A redeemable preferred stock at a par value of $.001 per share issued by Chautauqua to an affiliate of our sole stockholder. The preferred stockholder is entitled to receive cumulative dividends equal to 10% per annum of the stated value of the preferred stock.

(6)

On June 4, 2002, our board of directors declared a 200,000:1 stock split. All per share amounts, number of shares and options outstanding in the consolidated financial statements have been adjusted for the stock split.

(7)

Revenue passengers multiplied by miles flown.

(8)

Passenger seats available multiplied by miles flown.

(9)

Revenue passenger miles divided by available seat miles.

(10)

Passenger revenues divided by revenue passenger miles flown.

(11)

Total airline operating revenues divided by available seat miles.

(12)

Airline operating expenses excluding impairment loss and accrued aircraft return costs divided by available seat miles.

(13)

EBITDA represents earnings before interest expense, income taxes, depreciation, amortization and impairment loss and accrued aircraft return costs. EBITDAR represents earnings before interest expense, income taxes, depreciation, amortization, aircraft and engine rental expense and impairment loss and accrued aircraft return costs. EBITDA and EBITDAR are not calculations based on generally accepted accounting principles and should not be considered as alternatives to net income (loss) or operating income (loss) as indicators of our financial performance or to cash flow as a measure of liquidity. In addition, our calculations may not be comparable to other similarly titled measures of other companies. EBITDA and EBITDAR are included as supplemental disclosures because they may provide useful information regarding our ability to service debt and lease payments and to fund capital expenditures. Our ability to service debt and lease payments and to fund capital expenditures in the future, however, may be affected by other operating or legal requirements or uncertainties. Currently, aircraft and engine rents are our most significant expenditure.

The: following represents a reconciliation of EBITDA and EBITDAR to net income for the periods indicated (dollars in thousands):

	Chautauqua Airlines
	Predecessor						Republic Airways Holdings Inc.
																						Three Months Ended March 31,
				Period of Jan 1 - May 14, 1998			Period of May 15 - Dec 31, 1998			Combined Year ended December 31, 1998			Years Ended December 31,
	Year Ended December 31, 1997												Years Ended December 31,
	Year Ended December 31, 1997												1999			2000			2001			2001			2002
EBITDAR	$	17,768		$	7,318		$	12,680		$	19,998		$	9,675		$	36,027		$	79,097		$	16,238		$	24,709
Aircraft rent		(10,067	)		(3,700	)		(4,653	)		(8,353	)		(9,249	)		(22,903	)		(46,160	)		(9,730	)		(14,527	)

EBITDA		7,701			3,618			8,027			11,645			426			13,124			32,937			6,508			10,182

Depreciation and amortization		(2,485	)		(874	)		(1,717	)		(2,591	)		(4,303	)		(4,110	)		(7,783	)		(1,265	)		(2,158	)
Income tax (expense) benefit		(2,112	)		(774	)		(2,275	)		(3,049	)		4,845			(2,942	)		(4,760	)		(1,870	)		(2,350	)
Interest expense		(1,492	)		(765	)		(1,528	)		(2,293	)		(3,219	)		(3,550	)		(6,227	)		(845	)		(2,262	)
Impairment loss and accrued aircraft return costs		—			—			—			—			(6,603	)		—			(8,100	)		—			—

Net income (loss)	$	1,612		$	1,205		$	2,507		$	3,712		$	(8,854	)	$	2,522		$	6,067		$	2,528		$	3,412

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When you read this section of this prospectus, it is important that you also read our consolidated financial statements and related notes included elsewhere in this prospectus. This section of this prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. We use words such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," or "continue," the negative of such terms or other terminology to identify forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described below and in "Risk Factors." As used herein, "unit cost" means operating cost per ASM.

Overview

We are a regional airline offering scheduled passenger service on approximately 340 flights daily to 40 cities in 22 states and Canada pursuant to code-sharing agreements with American, America West and US Airways. All of our flights are operated as US Airways Express, AmericanConnection or America West Express, providing US Airways, American and America West with portions of their regional service, including service out of their hubs in Boston, Columbus, Indianapolis, New York, Philadelphia, Pittsburgh and St. Louis. In June 2002, we entered into a code-sharing agreement with Delta Air Lines, Inc. pursuant to which we will operate 22 Embraer regional jets for Delta (including one spare). The first two aircraft to be flown pursuant to this agreement will be placed into service in November 2002 and we expect the Delta fleet of 22 aircraft to be in service by October 2003. Our Delta flights will be operated as Delta Connection, and we will provide Delta with service out of their hub in Orlando. Our current fleet consists of 49 Embraer regional jets and 10 Saab 340 turboprops. We are in the process of phasing the turboprops out of service and expect to operate an all jet fleet by August 2002. From 1999 to 2001, our ASMs have grown at a compounded annual growth rate of 97.5%.

We have long-term code-sharing agreements with each of our partners. During the year ended December 31, 2001 and the three months ended March 31, 2002, 75.6% and 90.9%, respectively, of our passenger revenues were generated under fixed-fee agreements with our code-share partners. We anticipate that by August 2002, 100% of our passenger revenues will be generated under such fixed-fee agreements. Pursuant to these fixed-fee agreements, we are authorized to use our partners' two-letter flight designation codes (or in some instances with American, the code of another AmericanConnection carrier) to identify our flights and fares in our partners' computer reservation systems, to paint our aircraft in the style of our partners, to use their service marks and to market ourselves as a carrier for our partners. We believe that the shift to fixed-fee agreements has reduced our exposure to fluctuations in fuel prices, fare competition and passenger volumes. Our development of relationships with multiple major airlines has enabled us to reduce our dependence on any single airline. For the year ended December 31, 2001 and the three months ended March 31, 2002, 67% and 60%, respectively, of our operating revenues were derived from US Airways, 31% of our operating revenues were derived from American and 2% and 9%, respectively, of our operating revenues were derived from America West.

We have a long operating history as a regional airline, having operated as a code-share partner of US Airways or its predecessors for more than 27 years. We became a TWA code-share partner in April 2000, which became a code-share relationship with American following its acquisition of TWA, an America West code-share partner in August 2001 and a Delta code-share partner in June 2002.

Fleet Transition and Growth

The following table sets forth the number and type of aircraft operated by us at the end of each period indicated:

		December 31,			March 31,
		1999	2000	2001	2002
Regional Jets:
	Embraer ERJ 145LR	4	18	38	38
	Embraer ERJ 140LR	–	–	7	10
Turboprop:
	Saab 340A	14	26	25	15
	Jetstream 31	19	15	–	–

Total		37	59	70	63

During 1999, we made the decision and committed to a plan to phase out of revenue service and return to the lessors the entire fleet of leased Jetstream 31 turboprop aircraft and replace certain routes with Saab 340 turboprops. During 2000, in accordance with management's plan, all of the Jetstream 31 aircraft were phased out of revenue service and a portion of the routes were replaced with the addition of 12 leased 30-seat Saab 340 turboprop aircraft to the fleet. The return to the lessors of the Jetstream 31 aircraft was completed in April 2001. The addition of Embraer regional jets and Saab 340 aircraft in 1999 and 2000 resulted in a 31.5% increase in available seat miles from 321.7 million in 1998 to 423.0 million in 1999, and a 105.6% increase in available seat miles from 423.0 million in 1999 to 869.6 million in 2000.

In December 2001, we made the decision and committed to a plan to phase out of revenue service and return to the lessors the entire fleet of leased Saab 340 aircraft. The two Saab 340 aircraft owned by us are held for sale. Saab Aircraft Leasing, Inc. and affiliates, referred to here as "lessor," have agreed to lease 22 of the 24 Saab 340 aircraft when new lessees are identified. An agreement was signed between the lessor and a new lessee (a company controlled by Wexford Capital) for 16 Saab 340 aircraft, with options for two additional aircraft, at fair market lease rates. Lease rates were negotiated between the lessor and new lessee. The lessor is actively seeking new lessees for the remaining aircraft. The current leases will terminate when a new lease is obtained; however, if new leases are not entered into, or are entered into and subsequently terminated, we will be obligated for the original lease payments. We will pay the lessor a rent differential, based on our original lease payments compared to lease payments of the new lessees. We have accrued $2.6 million for this rent differential at March 31, 2002. In addition, we are responsible for the lease payments on the remaining two Saab 340 aircraft until expiration of these leases (September 2002). Lease payments of $1.1 million are accrued at March 31, 2002 for the period from the date the aircraft is removed from service through the later of the end of the lease term or the date the aircraft is expected to be re-leased by the lessor. We recorded a charge of approximately $8.1 million in the quarter ended December 31, 2001, to reflect our estimate of the cost associated with the complete phase-out and the related asset impairment of our entire Saab 340 turboprop fleet. New leases have been obtained for a number of these aircraft. If no new lessees lease the remaining Saab aircraft and/or if any new lessee defaults on its lease, we may incur additional charges of up to $22.4 million through the remaining terms of the leases. As of June 12, 2002, 16 of our 24 leased Saab 340 aircraft have been returned to the lessor.

All of our passenger revenues for 1998 were generated through a pro-rate revenue sharing arrangement with US Airways. During 1999, we began operating Embraer regional jets on behalf of US Airways under a fixed-fee arrangement. There were four, 11 and 26 Embraer aircraft operating on behalf of US Airways under this agreement at December 31, 1999, 2000 and 2001, respectively and 15 and 26 at March 31, 2001 and 2002, respectively. During 2000, we began operating Saab 340 turboprops and Embraer regional jets on behalf of TWA under a fixed-fee arrangement; TWA was subsequently acquired by American. There were six Saab 340 turboprops and seven Embraer regional jets operating

under the agreement with TWA at December 31, 2000, and 15 Embraer regional jets operating under the agreement with American at December 31, 2001. At March 31, 2002, we had 15 Embraer regional jets and no Saab turboprops operating under the agreement with American. During 1999, 15.2% of our ASMs and 8.3% of our passenger revenues were generated under fixed-fee agreements. During 2000, 61.6% of our ASMs and 47.4% of our passenger revenues were generated under fixed-fee agreements. During 2001, 84.7% of our ASMs and 75.6% of our passenger revenues were generated under fixed-fee agreements. For the three months ended March 31, 2001, 78.1% of our ASMs and 67.4% of our passenger revenues were generated under fixed-fee agreements. For the three months ended March 31, 2002, 94.3% of our ASMs and 90.9% of our passenger revenues were generated under fixed-fee agreements. The shift to fixed-fee flying has reduced our exposure to fluctuations in fuel prices, fare competition and passenger volumes. We anticipate that by the end of 2002 our fixed-fee operations will comprise all of our total daily flights as additional regional jet aircraft are added to our system under fixed-fee agreements and the Saab 340 turboprop operations are phased out. We believe that by the end of 2002, we will operate 59 Embraer regional jets for our four code-share partners.

Revenue

Under our fixed-fee arrangements with American, America West and US Airways for regional jets, we receive, and, under our fixed-fee arrangement with Delta for regional jets, we will receive, a fixed-fee, as well as reimbursement of specified costs with additional possible incentives from our partners. Under our pro-rate revenue sharing agreement with US Airways for turboprop aircraft, we receive a negotiated portion of ticket revenue. As of December 31, 1999, 2000 and 2001, approximately 8.3%, 47.4% and 75.6%, respectively, of our passenger revenue was earned under our fixed-fee arrangements. As of March 31, 2001 and 2002, approximately 67.4% and 90.9% of our passenger revenue was earned under our fixed-fee arrangements. Because most of our revenue is now derived from these fixed-fee arrangements, the number of aircraft we operate will have the largest impact on our revenues.

Operating Expenses

A brief description of the items included in our operating expenses line items follows:

Wages and Benefits

This expense includes not only wages and salaries, but also expenses associated with various employee benefit plans, employee incentives and payroll taxes. These expenses will fluctuate based primarily on our level of operations and changes in wage rates for contract and non-contract employees.

Aircraft Fuel

Fuel expense includes the cost of aircraft fuel, including fuel taxes and into-plane fees. Under the fixed-fee agreement with American, the fixed-fee includes an assumed fuel price per gallon. Any difference between the actual cost and assumed cost included in the fixed fees is paid to or reimbursed by American. Under the fixed-fee agreements with US Airways, America West and Delta, we are reimbursed the actual cost of fuel.

Passenger Fees and Commissions

This expense includes the costs of travel agent commissions, computer reservation system fees and certain fees paid to US Airways for aircraft ground and passenger handling and use of the US Airways aircraft facilities and services with respect to turboprop pro-rate revenue sharing flights performed on behalf of US Airways. These expenses are not borne by us under any of the fixed-fee agreements.

Landing Fees

This expense consists of fees charged by airports for each aircraft landing. Under our fixed-fee agreement with American, the fixed fee includes an assumed rate per aircraft landing. Any difference between the actual cost and assumed cost included in the fixed fees is paid to or reimbursed by American. Under the fixed-fee agreements with US Airways, America West and Delta, we are reimbursed the actual cost of landing fees.

Aircraft Rent

This expense consists of the costs of leasing aircraft and spare engines. The leased aircraft and spare engines are operated under long-term operating leases with third parties. The lease payments associated with future aircraft deliveries are subject to market conditions for interest rates and contractual price increases for the aircraft. Aircraft rent is reduced by the amortization of integration funding credits received from the aircraft manufacturer for parts and training. The credits are amortized on a straight-line basis over the term of the respective lease of the aircraft. Under our fixed-fee agreements with US Airways, American, America West and Delta, we are reimbursed for our actual costs or at agreed upon rates that, in certain instances, are subject to a cap.

Maintenance and Repair

Maintenance and repair expenses include all parts, materials, tooling and spares required to maintain our aircraft. We have entered into long-term maintenance "power-by-the-hour" service contracts with third-party maintenance providers under which we are charged fixed rates for each flight hour accumulated by our engines and some of the major airframe components.

Insurance and Taxes

This expense includes the costs of passenger liability insurance, aircraft hull insurance and all other insurance policies, other than employee welfare insurance. Additionally, this expense includes personal and real property taxes, including aircraft property taxes. Under our fixed-fee agreements, we are reimbursed for the actual costs of passenger liability insurance, war risk insurance, aircraft hull insurance and property taxes, subject to certain restrictions.

Depreciation and Amortization

This expense includes the depreciation of all fixed assets, including aircraft that we own. Additionally, goodwill, which was incurred in connection with Republic Airways' acquisition of Chautauqua in 1998, is amortized over a 20-year period. Beginning January 1, 2002, we no longer amortize this goodwill, which aggregated $807,000 annually, but are required to evaluate it on an annual basis to determine whether there is an impairment of the goodwill. If we determine the goodwill is impaired, we are required to write-off the amount of goodwill that is impaired.

Other

This expense includes the costs of crew training, crew travel, airport and passenger related expenses, non-aircraft lease expense, professional fees and all other administrative and operational overhead expenses not included in other line items above.

Income Tax

Income tax expense is computed by applying estimated effective income tax rates to income before income taxes. Income tax expense varies from the statutory federal income tax rate due primarily to state taxes, amortization of goodwill and non-deductible meals and entertainment expense.

Other Item

Warrant Issuance Charge

Under our code-sharing agreements, we have issued or agreed to issue to three of our code-share partners, American, America West and Delta, warrants to purchase 4,369,440 shares of our common stock. As a result, we estimate we will record deferred charges and additional paid-in capital of approximately $17.2 million for these warrants ($7.1 million of which will be recorded in the second quarter of fiscal 2002 and the remainder upon the consummation of this offering). The deferred charges will be amortized over the respective terms of each code-sharing agreement, resulting in amortization charges of $307,000 in 2002 and $1.4 million in 2003. Although the fair value of the American warrant will vary as vesting occurs, for the purpose of calculating the deferred amortization charge we have assumed a share price of $13.00, the midpoint of our filing range.

Pursuant to our code-sharing agreement with American, American was issued a warrant to purchase 8.75% of the greater of (a) the number of shares of common stock that are sold pursuant to our initial public offering plus any shares eligible to be sold pursuant to the over-allotment option granted to the underwriters, whether or not exercised or (b) 60% of the number of shares of common stock outstanding immediately prior to the closing of our initial public offering (computed on a fully diluted basis). The exercise price for the common stock that may be purchased by American pursuant to the warrant is 93% of the per share price at which the IPO shares are offered to the public in this offering. The warrants vest as follows:

•: 42.9% of the number of warrant shares vest ratably over ten years beginning June 11, 2001; and
•: 57.1% of the number of warrant shares vest ratably over five years beginning June 11, 2006.

We will record a deferred charge of approximately $3.3 million in the fiscal quarter in which this offering closes. A $1 increase or decrease in the stock price would increase or decrease this deferred charge by approximately $150,000, assuming all other factors remain unchanged. As our share price increases, the deferred charge for the non-vested American warrants will change. However, we cannot at this time quantify the amount of such charges, because it will be influenced by a number of factors, including the difference between the market price of our common stock and the warrant exercise price and the volatility of our stock. The annual non-cash charge will be equal to the estimated current fair value less the cumulative charge recognized at the immediately preceding period end. The estimated charge will be $253,000 in 2002 and $470,000 in 2003. The estimated fair value of the American warrant is determined based upon an option pricing model that considers continuous compounding of dividends and dilution using an assumed initial public offering price of $13.00, the midpoint of our filing range; an estimated dividend yield; a risk-free interest rate commensurate with the warrant term; volatility of 40%; and an expected life of ten years. The amortization charge will be recorded as a reduction to operating revenues.

Pursuant to our code-sharing agreement with America West, upon the consummation of this offering, we will issue to America West a warrant to purchase 2% of the greater of (a) the number of shares of common stock that are sold pursuant to our initial public offering plus any shares eligible to be sold pursuant to the over-allotment option granted to the underwriters, whether or not exercised, or (b) 35% of the number of shares of common stock outstanding immediately prior to the closing of our initial public offering (computed on a fully diluted basis). The exercise price for the common stock that may be purchased by America West pursuant to the warrant is the price which the underwriters pay for our shares of common stock in this offering and is subject to downward adjustment if we issue additional shares of our common stock at a price below the exercise price. The warrant will be fully vested upon issuance and America West can exercise its rights for up to three years thereafter. As a result of the issuance of the America West warrant, we will record a deferred charge of approximately $443,000 in the fiscal quarter in which this offering closes, based upon an option pricing model that considers continuous compounding of dividends and dilution using an assumed initial public offering price of $13.00, the midpoint of our filing range; an estimated dividend yield; a risk-free interest rate commensurate with the warrant term; volatility of 40%; and an expected life of 3 years. The deferred

charge will be amortized on a straight-line basis over the term of the America West code-sharing agreement. The non-cash charge each quarter will be approximately $11,000. The amortization charge will be recorded as a reduction to operating revenues.

Pursuant to our code-sharing agreement with Delta, we issued to Delta a warrant to purchase 1,500,000 shares of our common stock. The exercise price for the common stock that may be purchased by Delta pursuant to the warrant is $12.50 per share and is subject to downward adjustment if we issue additional shares of our common stock in certain instances. The warrant is fully vested and Delta can exercise its rights until June 7, 2012. As a result of the issuance of this warrant to Delta, we will record a deferred charge of approximately $7.1 million in the second quarter of 2002, irrespective of the date of this offering, based upon an option pricing model that considers continuous compounding of dividends and dilution using an assumed initial public offering price of $13.00, the midpoint of our filing range; an estimated dividend yield; a risk-free interest rate commensurate with the warrant term; volatility of 40%; and an expected life of 10 years. The deferred charge will be amortized over the term of the Delta code-sharing agreement. The non-cash charge will be approximately $18,000 in 2002, $491,000 in 2003 and $777,000 annually thereafter. The amortization charge will be recorded as other expense until revenues are received from Delta, at which time, it will be recorded as a reduction in revenue.

In addition, pursuant to our code-sharing agreement with Delta, we will issue to Delta upon the closing of this offering a warrant to purchase an additional 1,500,000 shares of our common stock, subject to reduction if, in certain instances, Delta or we eliminate aircraft from service for Delta prior to January 1, 2010. The exercise price for the common stock that may be purchased by Delta pursuant to this warrant is equal to 95% of the per share price at which our common stock is offered to the public in this offering and is subject to downward adjustment if we issue additional shares of our common stock in certain instances. The warrant is fully vested and Delta can exercise its rights until the tenth anniversary of the closing of this offering. As a result of the issuance of this warrant to Delta, we will record a deferred charge of approximately $6.4 million in the fiscal quarter in which this offering closes, based upon an option pricing model that considers continuous compounding of dividends and dilution using an assumed initial public offering price of $13.00, the midpoint of our filing range; an estimated dividend yield; a risk-free interest rate commensurate with the warrant term; volatility of 40%; and an expected life of 10 years. The deferred charge will be amortized over the term of the Delta code-sharing agreement. The non-cash charge will be approximately $16,000 in 2002, $445,000 in 2003 and $703,000 annually thereafter. The amortization charge will be recorded as other expense until revenues are received from Delta, at which time, it will be recorded as a reduction in revenue.

Effects of September 11, 2001

Following the terrorist attacks of September 11, 2001, the FAA immediately suspended the entire air travel system in the United States. This suspension lasted until September 13, 2001, when limited flights were allowed.

Ronald Reagan Washington National Airport in Washington, D.C., referred to as DCA, was closed until October 4, 2001. Because of US Airways' position as the dominant carrier at DCA, US Airways has suffered a more severe economic impact than other carriers without such a concentration of flying at DCA.

Subsequent to September 11, 2001, the airline industry experienced an immediate and significant decline in traffic, particularly business traffic (which has a higher yield than leisure traffic). All of our code-sharing partners experienced significant declines. Under our fixed-fee contracts, however, we continued to be reimbursed for our expenses. The impact on our short haul, turboprop operations was devastating. Due to heightened airport security, it became more convenient for passengers to drive to a hub rather than wait long periods for short flights. Revenues associated with our "at-risk" prorate business suffered declines greater than 50% of normal revenues. Given that the profitability of our turboprop operation was marginal prior to September 11, 2001, we subsequently determined that the

operations were unsustainable. Accordingly, we elected to ground over half of our turboprop fleet. Subsequently, we decided to phase out all Saab 340 operations.

In addition to greatly curtailing our turboprop operation for US Airways, to stem our losses after these attacks, we took the following steps:

•: reduced staffing levels by 20%, consisting of 204 pilots, flight attendants and customer service agents, and 71 other personnel;
•: instituted a hiring freeze;
•: froze pay for salaried employees; and
•: deferred aircraft deliveries.

Further, in conjunction with our curtailing of our US Airways turboprop operations, we determined to terminate all turboprop operations by August 2002.

On September 22, 2001, the President signed into law the Stabilization Act. Among other things, the Stabilization Act:

•: provided $5 billion in payments to compensate U.S. passenger and cargo airlines for losses incurred by the airline industry from September 11, 2001 through December 31, 2001 as a result of the September 11 terrorist attacks;
•: subject to certain conditions and fees, authorized the issuance of up to $10 billion in federal loan guarantees to airlines for which credit is not reasonably available;
•: sought to ensure the continuity of air service to communities, including government subsidized essential air service to small communities;
•: reimbursed airlines for certain increased costs of aviation insurance;
•: extended the due date for payments on certain taxes by airlines;
•: limited the liability of airlines relating to the September 11 attacks; and
•: established a federal compensation fund for the victims of the September 11 terrorist attacks.

Under the Stabilization Act, each airline is entitled to receive the lesser of (a) its direct and incremental pre-tax losses for the period of September 11, 2001 to December 31, 2001 or (b) its available seat mile share of the $5 billion compensation ($4.5 billion for passenger airlines) available under the Stabilization Act. As of December 31, 2001, we had received $6.5 million out of an expected $7.6 million in compensation under the Stabilization Act, which is subject to change upon determination by the Department of Transportation, or DOT. We expect to receive the balance of the funds in 2002. We expect, however, that our losses as a direct result of the September 11, 2001, terrorist attacks will exceed the amount of compensation we received under the Stabilization Act.

Despite the actions we have taken, we are unable to determine at this time what the continuing impact of the events of September 11, 2001, will be on us. Consequently, these events could still harm our financial condition, results of operations and cash flows in the future. The extent of this harm will depend on a number of factors, including:

•: the adverse impact of the terrorist attacks on the U.S. economy;
•: the level of air travel demand and the impact on fares;
•: our ability to keep our operating costs low and conserve our financial resources;
•: our ability to raise financing for our future aircraft deliveries;
•: the extent of the compensation received by us under the Stabilization Act, taking into account any challenges to and interpretations of the regulations issued; and
•: the ability to retain our employees in light of current industry conditions.

We will continue to evaluate our operations and financial position in light of the future operating environment and will take additional steps to ensure our continued success, if deemed necessary. However, given the magnitude of these unprecedented events and the possible subsequent effects, the

adverse impact to our financial condition, results of operations, cash flows and prospects are difficult to predict.

Certain Statistical Information

		Republic Airways Holdings Inc.
		Years Ended December 31,					Quarter Ended March 31,
		Operating Expenses per ASM in cents
		1999		2000	2001		2001	2002
Wages and benefits		5.36		3.54	2.74		3.15	2.33
Aircraft fuel		1.68		2.55	2.37		2.50	2.16
Passenger fees and commissions		3.55		1.48	0.67		0.90	0.24
Landing fees		0.50		0.43	0.43		0.44	0.48
Aircraft rent		2.19		2.63	2.80		3.00	2.66
Maintenance and repair		3.03		2.26	2.07		2.26	1.78
Insurance and taxes		0.36		0.32	0.35		0.35	0.65
Depreciation and amortization		1.02		0.47	0.47		0.39	0.40
Impairment loss and accrued aircraft return costs (1)(2)		1.56		—	0.49		—	—
Other		4.12		2.43	1.62		2.03	1.11
Stabilization Act compensation		—		—	(0.46	)	—	—

Total operating expenses		23.37		16.11	13.55		15.02	11.81

	Less impairment loss and accrued aircraft return costs	(1.56	)	—	(.49	)	—	—

Total operating expenses less impairment loss and accrued aircraft return costs		21.81		16.11	13.06		15.02	11.81

(1): During the fourth quarter of 1999, we decided to return our entire fleet of leased Jetstream 31 turboprop aircraft and dispose of related inventory and equipment. We continued to use the aircraft to fly routes under the US Airways turboprop pro-rate code-sharing agreement through December 2000. Certain routes were replaced with Saab 340 aircraft and the remaining routes were discontinued. Pursuant to the lease agreements, we were obligated to return the aircraft to the lessors in the same condition that the aircraft were delivered; therefore, we recorded a liability of $2.6 million for the estimated aircraft return costs in 1999.

In addition, a non-cash impairment loss of $4.0 million was recorded in 1999 to reduce the carrying amounts of assets to be disposed of to estimated fair value, less costs to sell, or net realizable value.

(2): During the fourth quarter of 2001, we decided to exit the turboprop business and return our entire fleet of Saab 340 aircraft and dispose of related inventory and equipment. We are planning to use the aircraft to fly routes under the US Airways turboprop pro-rate code-sharing agreement through July 2002. In December 2001, impairment loss and accrued aircraft return costs of $8.1 million were recorded. This charge consists of non-cash impairment costs of $2.1 million, ongoing lease obligations of $4.5 million and $1.5 million to provide for contractual maintenance and aircraft return obligations. New leases have been obtained for a number of these aircraft. If no new lessees lease the remaining Saab aircraft or if any new lessee defaults on its lease, we may incur additional charges of up to $22.4 million through the remaining terms of the leases.

	Republic Airways Holdings Inc.
	Years Ended December 31,											Quarter Ended March 31,
	1999		Increase/ (Decrease) 1999-2000		2000			Increase/ (Decrease) 2000-2001		2001		2001		Increase/ (Decrease) 2001-2002		2002
Revenue passengers	794,911		61.1	%		1,280,884		74.9	%	2,240,822		421,548		68.9	%	712,010
Revenue passenger miles (1)	205,578,811		125.2	%		463,050,021		90.2	%	880,569,802		154,549,708		90.9	%	295,010,428
Available seat miles (2)	423,011,977		105.6	%		869,629,172		89.6	%	1,649,171,823		324,287,059		68.4	%	546,039,070
Passenger load factor (3)	48.6	%	4.60	%		53.2	%	0.20	%	53.4	%	47.7	%	13.4	%	54.0	%
Cost per available seat mile (cents)(4)	21.81		(26.1	%)		16.11		(18.9	%)	13.06		15.02		(21.4	%)	11.81
Average price per gallon of fuel (5)	66.36	¢	67.9	%	$	1.11		(17.4	%)	92.01	¢	96.74	¢	(16.2	%)	81.11	¢
Fuel gallons consumed	10,727,823		85.6	%		19,911,917		113.1	%	42,430,372		8,368,764		73.8	%	14,544,620
Block hours (6)	81,266		44.1	%		117,106		35.1	%	158,245		35,282		27.0	%	44,801
Average length of aircraft flight (miles)	259		39.8	%		362		8.6	%	393		367		13.0	%	414
Average daily utilization of each aircraft (hours) (7)	7:44		15.9	%		8:58		4.5	%	9:22		9:28		0.9	%	9:33
Actual aircraft in fleet at end of year	37		59.5	%		59		18.6	%	70		57		10.5	%	63

(1): Revenue passenger miles is the number of scheduled miles flown by revenue passengers.
(2): Available seat miles is the number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(3): Revenue passenger miles divided by available seat miles.
(4): Airline operating expenses excluding impairment loss and accrued aircraft return costs divided by available seat miles.
(5): Cost of aircraft fuel, including fuel taxes and into-plane fees.
(6): Hours from takeoff to landing, including taxi time.
(7): Average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).

Three months ended March 31, 2002 compared to three months ended March 31, 2001.

Operating revenue in 2002 increased by 37.6%, or $19.7 million, to $72.2 million compared to $52.5 million in 2001. The increase was due primarily to the additional Embraer regional jets added to the fixed-fee flying since March 31, 2001 partially offset by the decline in the pro-rate US Airways Express turboprop flying and the elimination of turboprop flying for American in November 2001. We added 11, seven and seven Embraer regional jets between March 31, 2001 and March 31, 2002 for US Airways, American and America West, respectively. This additional flying resulted in a $35.6 million increase in operating revenue for 2002 compared to 2001. Operating revenue for our turboprop operations decreased by 70.9%, or $15.9 million, to $6.6 million in 2002 from $22.5 million in 2001 due to our decision to phase-out all turboprop flying. The yield per revenue passenger mile for our pro-rate turboprop operations decreased by 10.2% to 44.8¢ in 2002 from 49.9¢ in 2001. The decrease is due to lower average fares caused by depressed yields and passenger demand.

Total operating expenses increased by 32.4%, or $15.8 million, to $64.5 million for 2002 compared to $48.7 million for 2001 due to the increase in flight operations. The cost per ASM decreased 21.4% to 11.8¢ for 2002 compared to 15.0¢ for 2001 due primarily to the increase in capacity (as measured by ASMs) associated with the additional Embraer regional jets. Factors relating to the change in operating expenses are discussed below.

Wages and benefits increased by 24.4%, or $2.5 million, to $12.7 million for 2002 compared to $10.2 million for 2001 due to 6.8% increase in full time equivalent employees to support the growth in regional jet operations and an increase in the average wage per employee. The unit cost decreased 26.0% to 2.3¢ for 2002 compared to 3.1¢ for 2001 primarily due to the increase in capacity associated with the additional Embraer regional jets.

Aircraft fuel costs increased 45.7% or $3.7 million, to $11.8 million for 2002 compared to $8.1 million for 2001 due to a 73.8% increase in fuel consumption, partially offset by a 16.2% decrease in the average price per gallon, including taxes and into-plane fees. The average price per gallon was 81¢ in 2002 and 97¢ in 2001. The fixed-fee agreements with US Airways and America West provide for a direct reimbursement of fuel costs for Embraer regional jet operations. The fixed-fee agreement with American protects us from future fluctuations in fuel prices, as any difference between the actual cost and assumed cost included in the fixed fees is paid to or reimbursed by American. The unit cost decreased by 13.6% due to the lower fuel price and the increase in Embraer regional jet operations.

Passenger fees and commissions (paid only for the pro-rate turboprop flying for US Airways) decreased by 55.1%, or $1.6 million, to $1.3 million for 2002 compared to $2.9 million for 2001 due to a 53.1% decrease in the number of passengers flying on US Airways Express turboprops, primarily a result of our decision to phase out our turboprop operations.

Landing fees increased by 83.5%, or $1.2 million, to $2.6 million in 2002 compared to $1.4 million in 2001. The increase is due to our increase in regional jet flying and an increase in the average landing fee rate charged by airports. Our fixed-fee agreements with US Airways and America West provide for a direct reimbursement of landing fees. Any difference between the actual cost and assumed cost included in the fixed-fees paid by American is paid to or reimbursed by American.

Aircraft rent increased by 49.3%, or $4.8 million, to $14.5 million in 2002 compared to $9.7 million in 2001 primarily due to the addition of 16 leased Embraer regional jets since March 31, 2001. The unit cost decreased by 11.3% to 2.7¢ for 2002 compared to 3.0¢ for 2001 due to the increase in Embraer regional jet flying.

Maintenance and repair expenses increased by 32.7%, or $2.4 million, to $9.7 million in 2002 compared to $7.3 million for 2001 due to the increase in flying with regional jets. This increase was partially offset by decreased expenses resulting from the phase-out of turboprop flying. The unit cost decreased by 21.2% to 1.8¢ in 2002 compared to 2.3¢ in 2001 due to the increase in capacity from the Embraer regional jet operations.

Insurance and taxes increased 209.7%, or $2.4 million, to $3.5 million in 2002 compared to $1.1 million in 2001 due primarily to the additional flying with regional jets, increases in passenger liability and hull insurance rates, and an increase in the average hull value of aircraft. Additionally, as a result of the September 11 attacks, the commercial insurance markets have imposed surcharges on all airlines for war risk insurance previously provided at no additional cost. We also participate in the FAA war risk insurance program to supplement our commercial war risk policies. Unit cost increased by 85.7% to 0.7¢ in 2002 compared to 0.4¢ in 2001 due mainly to the additional war risk surcharges.

Depreciation and amortization increased 70.6%, or $0.9 million, to $2.2 million in 2002 compared to $1.3 million in 2001 due to the purchase of ten Embraer regional jets, partially offset by the elimination of the amortization of goodwill as of January 1, 2002. The unit cost remained unchanged at 0.4¢ from 2001 to 2002.

Other expenses decreased by 7.7%, or $0.5 million, to $6.1 million in 2002 from $6.6 million in 2001. The decrease is primarily due to a reduction of crew training expense as we took delivery of three Embraer regional jets in 2002 compared to seven in 2001. This decrease was partially offset by higher crew travel related costs required to support the growth of the Embraer regional jet fleet. The unit cost decreased by

45.3% to 1.1¢ in 2002 compared to 2.0¢ in 2001 due to the increased capacity resulting from the Embraer regional jet operations.

Interest expense increased 167.7% or $1.5 million, to $2.3 million in 2002 from $0.8 million in 2001 primarily due to $1.5 million of interest on debt related to the purchase of ten Embraer regional jets since March 31, 2001.

Other non-operating income decreased 83.1%, or $1.2 million, to $0.2 million in 2002 compared to $1.4 million in 2001. Non-operating income consists primarily of net gains on fuel swaps.

We incurred income tax expense of $2.4 million during 2002, compared to $1.9 million during 2001. The effective tax rate for 2001 and 2002 of 42.5% and 40.8% respectively, were higher than the statutory rate due to the effect of non-deductible meals and entertainment expense, primarily for our flight crews and amortization of goodwill in 2001.

2001 Compared to 2000

Operating revenue in 2001 increased by 61.8%, or $91.1 million, to $238.6 million compared to $147.5 million in 2000. The increase was due primarily to the additional Embraer regional jets added to the fixed-fee flying in 2001. We added 15, eight and four Embraer regional jets in 2001 for US Airways, American and America West, respectively. Operating revenue for the pro-rate US Airways turboprop operations decreased by 24.7%, or $19.3 million, to $58.8 million in 2001 from $78.1 million in 2000 due to the elimination of turboprop routes for US Airways during 2001. The yield per revenue passenger mile for the pro-rate turboprop operations decreased by 10.7% to 44.2¢ in 2001 from 49.5¢ in 2000 due to lower average fares in new markets. Yields and passenger demand were depressed as a result of the September 11 attacks.

Total operating expenses increased by 59.1%, or $82.9 million, to $223.2 million for 2001 compared to $140.3 million during 2000 due to the increase in flight operations and the impairment loss and accrued aircraft return costs recognized in 2001 to exit turboprop routes of $8.1 million. This increase was partially offset by the Stabilization Act compensation of $7.6 million. Excluding the impairment loss, accrued aircraft return costs and the funds received from the federal government, operating expenses increased by $82.5 million, or 58.8%. The operating cost per available seat mile decreased 15.9% to 13.6¢ for 2001 compared to 16.1¢ for 2000 due primarily to the increase in capacity (as measured by ASMs) associated with the additional Embraer regional jets, which have more seats and generally fly longer routes. Factors relating to the change in operating expenses are discussed below.

Wages and benefits increased by 46.5%, or $14.3 million, to $45.1 million for 2001 compared to $30.8 million for 2000 due to a 35.5% increase in full time equivalent employees to support the increased regional jet operations, as well as scheduled wage increases throughout the year. The cost per available seat mile decreased 22.6% to 2.7¢ for 2001 compared to 3.5¢ for 2000 primarily due to the increase in capacity associated with the additional Embraer regional jets.

Aircraft fuel costs increased 75.9%, or $16.8 million, to $39.0 million for 2001 compared to $22.2 million for 2000 due to a 113.1% increase in fuel consumption, partially offset by a 17.1% decrease in the average fuel price per gallon, including taxes and into-plane fees. The average price per gallon was 92¢ in 2001 and $1.11 in 2000, with the decrease due to fuel prices in the industry decreasing throughout 2001. The fixed-fee agreements with US Airways and America West provide for a direct reimbursement of fuel costs for Embraer regional jet operations. The fixed-fee agreement with American protects us from future fluctuations in fuel prices, as any difference between the actual cost and assumed cost included in the fixed fees is paid to or reimbursed by American. The unit cost decreased by 7.1% due to the lower average fuel price per gallon and the increase in Embraer regional jet flying.

Passenger fees and commissions (paid only for the pro-rate turboprop flying for US Airways) decreased by 14.1%, or $1.8 million, to $11.1 million for 2001 compared to $12.9 million for 2000 due to a 9.6%

decrease in the number of passengers flying on US Airways Express Turboprops and a 24.5% decrease in passenger revenue resulting from our discontinuation of certain routes in connection with our reduction in turboprop operations. Increased ground handling fees to US Airways partially offset these decreased expenses. The unit cost has decreased by 54.7% to 0.7¢ for 2001 compared to 1.5¢ for 2000 due to increased Embraer regional jet operations.

Landing fees increased by 88.9%, or $3.3 million, to $7.1 million in 2001 compared to $3.8 million in 2000. The increase is due to the increase in the level of operations, the additional Embraer regional jets and an increase in the average landing fee rate charged by airports. The unit cost was unchanged from 2000 to 2001 due to the increase in Embraer regional jet operations. Our fixed-fee agreements with US Airways and America West provide for a direct reimbursement of landing fees. Any difference between the actual cost and assumed cost included in the fixed-fees paid by American is paid to or reimbursed by American.

Aircraft rent increased by 101.5%, or $23.3 million, to $46.2 million in 2001 compared to $22.9 million in 2000 primarily due to the addition of 20 leased Embraer regional jets in 2001. As a result, unit cost increased by 6.5% to 2.8¢ for 2001 compared to 2.6¢ for 2000.

Maintenance and repair expenses increased by 73.2%, or $14.4 million, to $34.1 million in 2001 compared to $19.7 million for 2000 due to the increase in operating regional jets, the increased costs of maintaining the aging turboprop fleet, and the volume and timing of heavy airframe checks as part of our ongoing maintenance program for both the turboprop and Embraer regional jet aircraft. The unit cost decreased by 8.4% to 2.1¢ in 2001 compared to 2.3¢ in 2000 due to the increase in capacity from the Embraer regional jet operations.

Insurance and taxes increased 102.3%, or $2.9 million, to $5.7 million in 2001 compared to $2.8 million in 2000 due primarily to the increase in regional jet operations, increases in passenger liability and hull insurance rates, and an increase in the average hull value of aircraft. Additionally, as a result of the September 11 attacks, the commercial insurance markets have imposed surcharges on all airlines for war risk insurance previously provided at no additional cost. We also participate in the FAA war risk insurance program to supplement the commercial war risk policies. Unit cost remained constant at 0.3¢.

Depreciation and amortization increased 89.4%, or $3.7 million, to $7.8 million in 2001 compared to $4.1 million in 2000 due to the purchase of four Embraer regional jets and the addition of spare aircraft parts and engines to support the expanding regional jet fleet. We purchased an additional three Embraer regional jets on December 31, 2001. Thus, nominal depreciation expense was recorded in 2001 for these three aircraft. The cost per available seat mile remained unchanged at 0.5¢ from 2000 to 2001.

The impairment loss and accrued aircraft return costs of $8.1 million was recorded in 2001 due to management's decision to exit the turboprop business and return the entire fleet of leased Saab 340 turboprop aircraft to the lessors. This charge consists of asset impairment costs of $2.1 million, ongoing lease obligations of $4.5 million and $1.5 million to provide for contractual maintenance obligations.

Other expenses increased by 26.3%, or $5.6 million, to $26.7 million in 2001 from $21.1 million in 2000. The increase is primarily due to higher crew related, training, and administrative costs required to support the growth of the Embraer regional jet fleet. Additionally, higher passenger related expenses were incurred because of increases in traffic. The unit cost decreased by 33.3% to 1.6¢ in 2001 compared to 2.4¢ in 2000 due to the increased capacity resulting from the Embraer regional jet operations.

The Stabilization Act compensation in 2001 includes a $7.6 million reduction in operating expenses as a result of the compensation from the federal government under the Stabilization Act in 2001 for direct losses incurred beginning on September 11, 2001 through December 31, 2001 as a result of the September 11, 2001 terrorists attacks. During 2001, we received from the federal government $6.5 million in cash and anticipate receiving the remaining $1.1 million in the first half of 2002.

Interest expense increased 75.4% or $2.6 million, to $6.2 million in 2001 from $3.6 million in 2000 primarily due to interest on debt related to the purchase of four Embraer aircraft during the second quarter of 2001. This increase was partially offset by a decrease in average borrowings to fund operations of 19.5% and a decrease in the weighted average interest rate of all debt to 8.1% in 2001, versus 10.4% in 2000.

Other non-operating income decreased 10.3%, or $0.2 million to $1.6 million in 2001 compared to $1.8 million in 2000. Non-operating income consists primarily of net gains on fuel swaps.

We incurred income tax expense of $4.8 million during 2001, compared to $2.9 million in 2000. The effective tax rate for 2001 of 44.0% was higher than the statutory rate due to the effect of amortization of goodwill and non-deductible meals and entertainment expense, primarily for our flight crews.

2000 compared to 1999

Operating revenue in 2000 increased by 67.1%, or $59.2 million, to $147.5 million compared to $88.3 million in 1999. The increase was due primarily to the additional Embraer regional jets added to the fixed-fee agreement with for US Airways and American in 2000, with seven aircraft added to each operation, as well as the four regional jets added to the fixed-fee agreement with US Airways in the second half of 1999. Additionally, six Saab 340 turboprop aircraft (five scheduled and one spare) were added to the fixed-fee agreement for American in 2000. Operating revenue for the pro-rate US Airways turboprop operations decreased by 3.6%, or $2.9 million, to $78.1 million in 2000 from $81.0 million in 1999 due to the elimination of certain routes that were previously flown by the Jetstream 31 fleet. The yield per revenue passenger mile for the turboprop operations increased by 4.4% to 49.5¢ in 2000 from 47.4¢ in 1999 due to a reduction in the average passenger journey.

Total operating expenses increased by 41.9%, or $41.5 million, to $140.3 million for 2000 compared to $98.8 million during 1999 due to the increase in flight operations. Excluding the $6.6 million impairment loss and accrued aircraft return costs we recognized in 1999, total operating expenses increased by $48.0 million, or 52.1%. The cost per available seat mile decreased 31.1% to 16.1¢ for 2000 compared to 23.4¢ for 1999 due primarily to the increase in capacity (as measured by ASMs) associated with the additional Embraer regional jets. Factors relating to the change in operating expenses are discussed below.

Wages and benefits increased by 35.7%, or $8.1 million, to $30.8 million for 2000 compared to $22.7 million for 1999 due to an increase in full time equivalent employees, normal wage increases and employee incentive accruals. The average full time equivalent employees increased by 35.6% to support the additional regional jet operations. The cost per available seat mile decreased 34.0% to 3.5¢ for 2000 compared to 5.4¢ for 1999 due to the increase in capacity associated with the additional Embraer regional jets.

Aircraft fuel costs increased 211.7%, or $15.1 million, to $22.2 million for 2000 compared to $7.1 million for 1999 due to an 85.6% increase in fuel consumption and a 67.9% increase in average price per gallon, including taxes and into-plane fees. The average fuel price per gallon, net of the benefit of a fuel swap, was $1.11 in 2000 and 66¢ in 1999, with the increase due to fuel prices increasing throughout 2000. We maintained and benefited from an active fuel swap for all of 1999 and from April through December 2000. The fixed-fee agreement with US Airways provides for a direct reimbursement of fuel costs for Embraer regional jet operations. The fixed-fee agreement with American protects us from future fluctuations in fuel prices, as any difference between the actual cost and the assumed cost included in the fixed fees is paid to or reimbursed by American. The unit cost increased by 51.8% due to the increase in fuel prices and the higher fuel consumption resulting from the additional Embraer regional jets.

Passenger fees and commissions decreased by 14.3%, or $2.1 million, to $12.9 million for 2000 compared to $15.0 million for 1999 due to a decrease in the number of passengers flying on US Airways turboprops resulting from our discontinuation of certain routes in connection with our phase out of the Jetstream 31 fleet and a decrease in the commission rate paid to travel agencies. Passenger fees and commissions are paid

only for the pro-rate turboprop operations for US Airways. The unit cost has decreased to 1.5¢ for 2000 compared to 3.6¢ for 1999 due to increased Embraer regional jet operations.

Landing fees increased by 78.3%, or $1.7 million, to $3.8 million in 2000 compared to $2.1 million in 1999. The increase is due to the increase in the level of operations, the additional Embraer regional jets and an increase in the average landing fee rate charged by airports. The unit cost decreased by 14.0% due to the increase in capacity resulting from the additional Embraer regional jet operations. Our fixed-fee agreement with US Airways provides for a direct reimbursement of landing fees. Any difference between the actual cost and assumed cost included in the fixed-fees paid by American is paid to or reimbursed by American.

Aircraft rent increased by 147.6%, or $13.7 million, to $22.9 million in 2000 compared to $9.2 million in 1999 due to the addition of four leased Embraer regional jets in 1999 and 14 leased Embraer regional jets and 12 leased Saab 340 turboprops in 2000. As a result, unit cost increased by 20.1% to 2.6¢ for 2000 compared to 2.2¢ for 1999.

Maintenance and repair expenses increased by 53.5%, or $6.9 million, to $19.7 million in 2000 compared to $12.8 million for 1999 due to the increase in operations and the volume and timing of heavy airframe checks as part of our ongoing maintenance program. The unit cost decreased by 25.4% to 2.3¢ in 2000 compared to 3.0¢ in 1999 due to the increase in capacity from the Embraer regional jet operations.

Insurance and taxes increased 84.7%, or $1.3 million, to $2.8 million in 2000 compared to $1.5 million in 1999 due to an increase in passenger liability and hull insurance resulting from the increase in operations. Additionally, aircraft property tax expense increased 176.4% due to the additional Embraer regional jets. Unit cost has decreased 11.1% due to increased Embraer regional jet operations.

Depreciation and amortization decreased 4.5%, or $0.2 million, to $4.1 million in 2000 compared to $4.3 million in 1999 due to the elimination of spare parts associated with the phase-out of the Jetstream 31 fleet. The cost per available seat mile decreased by 53.9% due to increased Embraer regional jet operations.

Impairment loss and accrued aircraft return costs of $6.6 million were recorded in 1999 due to management's decision to eliminate certain routes and to return the entire fleet of leased Jetstream 31 turboprop aircraft and dispose of related inventory and equipment.

Other expenses increased by 21.5%, or $3.7 million, to $21.1 million in 2000 from $17.4 million in 1999. The increase is primarily due to a 48.6% increase in crew related expenses due to the increased flying and training to support the increase in the Embraer regional jet fleet. The unit cost decreased by 41.0% to 2.4¢ in 2000 compared to 4.1¢ in 1999 due to the increased capacity resulting from the Embraer regional jet operations.

Interest expense increased 10.3%, or $0.4 million, to $3.6 million in 2000 from $3.2 million in 1999 primarily due to an increase of 11.9% in the average balance outstanding on a related party note payable, while our weighted average interest rate of all debt 10.4% remained constant.

Other non-operating income increased 1766.7%, or $1.7 million, to $1.8 million in 2000 from $0.1 million in 1999 due to the company recognizing a $1.7 million in net gains on fuel swaps at December 31, 2000.

We incurred income tax expense of $2.9 million during 2000, compared to a tax benefit of $4.8 million in 1999. The effective tax rate for 1999 and 2000 of 64.6% and 53.8% was higher than the statutory rate due to the effect of amortization expense and non-deductible meals and entertainment expense, primarily for our flight crews. The tax benefit in 1999 was due to our loss for the year.

Liquidity and Capital Resources

Historically, we have used internally generated funds, loans from our sole stockholder and its affiliates and third-party financing to meet our working capital and capital expenditure requirements. As a result of our recent code-sharing agreements with American, America West and Delta, which require us to significantly increase our fleet of regional jets, we will significantly increase our cash requirements for debt service and lease payments. See "Risk Factors—Our fleet expansion program will require a significant increase in our leverage and the financing we require may not be available on favorable terms or at all."

As of March 31, 2002, we had $5.0 million in cash, and $2.0 million available under our revolving credit facility. Substantially all of our cash receipts are swept and used to pay down borrowings under our revolving credit facility. At March 31, 2002, we had a working capital deficit of $33.1 million primarily due to $19.9 million of debt, including accrued interest, due to affiliates and $7.5 million due to Embraer and FINAME, all coming due within 12 months. We intend to use a portion of the proceeds of the offering to pay the debt to affiliates and a portion of the debt to Embraer.

Chautauqua has a credit facility with Fleet Capital Corporation, which currently provides it with a $15.0 million revolving credit facility, a term loan which aggregated $3.2 million at March 31, 2002, and up to $5.0 million of equipment loans for the purchase of aircraft and spare parts. At March 31, 2002, Chautauqua had $8.1 million outstanding under the revolving credit facility, $1.1 million of outstanding letters of credit and $0.3 million of equipment loans outstanding. The term loan, the proceeds of which were used to finance the purchase of two Saab turboprop aircraft, is payable in monthly principal installments of $89,063, with any outstanding amounts due upon termination of the revolving credit facility. Borrowings under the equipment loans are payable in 60 monthly installments, with any outstanding amounts due upon termination of the revolving credit facility. The revolving credit facility expires March 31, 2004.

The revolving credit facility allows Chautauqua to borrow up to 90% of the monthly passenger revenue generated by our US Airways turboprop operation, up to 65% of the net book value of spare rotable parts and 40% of the net book value of spare non-rotable parts for our regional jet fleet and up to the lesser of $2.1 million or 50% of the value of certain spare parts for our turboprop fleet. The revolving credit facility is collateralized by all of Chautauqua's assets excluding the owned aircraft and engines. Borrowings under the credit facility bear interest at a rate equal to, at Chautauqua's option, LIBOR plus spreads ranging from 2.75% to 3.0% or the bank's base rate (which is generally equivalent to the prime rate) plus 0.75%. Chautauqua pays an annual commitment fee on the unused portion of the revolving credit facility in an amount equal to 0.375% of the unused amounts. The credit facility limits Chautauqua's ability to incur indebtedness, pay dividends, amend the US Airways turboprop agreement, or create or incur liens on our assets. In addition, the credit facility requires Chautauqua to maintain a specified fixed charge coverage ratio and a leverage ratio. The credit facility provides Fleet with the right to terminate the facility if WexAir LLC and its affiliates cease to own at least 51% of the voting control of Republic Airways.

We currently lease eight spare regional jet engines, having a fair market value of approximately $19.2 million, from General Electric Capital Aviation Services, also known as GECAS. We are obligated to purchase five additional spare regional jet engines to be delivered between October 2002 and July 2003. We have an agreement with GECAS to lease one additional engine pursuant to a sale-leaseback transaction.

As of March 31, 2002, we had promissory notes payable to Embraer totaling $85.2 million. These borrowings were made in connection with the purchase of six ERJ 140 aircraft in 2001 and 2002. On June 11, 2002, we refinanced $88.7 million, including these six promissory notes and one additional note entered into with Embraer in May 2002, with FINAME. The balance of $11.1 million owed to

Embraer on the refinancing date bears interest at an annual rate of 7.5% and will be repaid with the proceeds of this offering.

As of March 31, 2002, we had a promissory note due to our sole stockholder in the amount of $16.9 million. We also had $1.7 million in accrued interest payable under this note. This indebtedness was originally incurred in May 1998 to finance a portion of our purchase of Chautauqua. The note, which currently bears interest at the rate of 11.5% compounded semi-annually, currently matures on the earliest of (1) demand by the holder thereof, (2) May 14, 2003, or (3) the closing of this offering. We intend to repay the principal and accrued interest with a portion of the proceeds from this offering. See "Use of Proceeds."

Net cash from operating activities was $2.2 million, $6.7 million and $23.0 million for the years ended December 31, 1999, 2000 and 2001 and $7.0 million for the three months ended March 31, 2002. The increase from operating activities from 1999 through 2001 is primarily due to the continued growth of our business. In 2001, net cash from operating activities represents net income of $6.1 million, a non-cash charge for impairment loss and accrued aircraft return costs of $8.1 and depreciation and amortization of $7.8 million. The net cash from operating activities for 2000 is primarily net income of $2.5 million plus depreciation and amortization of $4.1 million. In 1999, net cash from operating activities reflects the net loss of $8.9 million and depreciation and amortization of $4.3 million, offset primarily by the $6.6 million non-cash charge for impairment loss and accrued aircraft return costs. For the three months ended March 31, 2002, net cash from operating activities is primarily net income of $3.4 million and increases in accrued liabilities for income taxes and personal property taxes.

Net cash from investing activities was $(9.3) million, $(10.8) million and $(12.7) million for the years ended December 31, 1999, 2000, and 2001 and $(5.7) million for the three months ended March 31, 2002. The net cash from investing activities consists of our purchase of equipment, including down payments relating to our purchase of seven Embraer regional jets in 2001 and four spare Embraer jet engines and two spare Saab 340 turboprop engines. We purchased one, two and four spare aircraft engines for the Embraer regional jets in 1999, 2000 and 2001, respectively, and these engines were sold in a sale-leaseback transaction in the fourth quarter of 2001. During the three months ended March 31, 2002, we purchased three Embraer regional jets.

Net cash from financing activities was $7.1 million, $4.0 million and $(7.4) million for the years ended December 31, 1999, 2000 and 2001 and $0.4 for the three months ended March 31, 2002. During the three months ended March 31, 2002, we borrowed $1.0 million from the revolving credit facility to fund operations and received $1.2 million of the proceeds generated from the refinancing of four ERJ 145 aircraft with FINAME. A portion of these proceeds was used for debt issuance costs and for regular scheduled debt payments. In 2001, we used cash from operating activities to repay $2.2 million of the revolving credit facility and to make scheduled debt payments. In addition, $4.1 million generated from the sale/leaseback of spare engines was used to repay long-term debt. In 2000, the net cash from financing activities primarily represents proceeds from a $1.5 million loan from an affiliate of WexAir LLC, which was subsequently repaid, including accrued interest, through the issuance by Chautauqua of its preferred stock in May 2000. We also received $1.5 million in May 2000 from the issuance by Chautauqua of shares of its preferred stock to an affiliate of WexAir LLC. Net cash from financing activities in 1999 consists primarily of net borrowings of $9.0 million under the credit facility and proceeds from a $1.0 million loan from an affiliate of WexAir LLC, net of scheduled debt payments. We repaid the $1.0 million loan, including accrued interest, in May 2000 through the issuance by Chautauqua of shares of preferred stock to an affiliate of WexAir LLC.

Aircraft Leases

We have significant obligations for aircraft that are classified as operating leases and therefore are not reflected as liabilities on our balance sheet. These leases expire between 2002 and 2018. As of

March 31, 2002, our total mandatory payments under operating leases aggregated approximately $799.9 million (excluding an obligation of $25.0 million due pursuant to our agreement to return the Saab aircraft to the lessor), and total minimum annual aircraft rental payments for 2002 under all noncancellable operating leases was approximately $64.3 million.

Purchase Commitments

We have substantial commitments for capital expenditures, including for the acquisition of new aircraft. We intend to finance these aircraft through long-term loans or lease arrangements, although there can be no assurance we will be able to do so. We believe that the expenses of obtaining the loans or leases may be reduced, and the availability of the loans or leases may be facilitated, by the increase in stockholder's equity resulting from the offering.

As of March 31, 2002, our code-sharing agreements require that we acquire and place in service an additional 5 regional jets over the next six months. Currently, our code-sharing agreements require that we acquire and place in service an additional 26 regional jets over the next sixteen months. Embraer's current list price of these 26 regional jets is $447.4 million.

We have a commitment from FINAME to provide debt financing for 4 of the 26 firm Embraer regional jets. This commitment is subject to customary closing conditions. We have a commitment from the aircraft manufacturer to obtain financing for the remaining 22 firm Embraer regional jets and for 30 option aircraft that are reserved for Delta. This commitment is subject to customary closing conditions.

We expect to fund future capital commitments through internally generated funds, third-party aircraft financings, the proceeds of this offering and other debt and equity financings.

We currently anticipate that our available cash resources, together with the proceeds of this offering, cash generated from operations and anticipated third-party financing arrangements, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. We may need to raise additional funds, however, to fund more rapid expansion, principally the acquisition of additional aircraft, or meet unanticipated working capital requirements. It is possible that future funding may not be available to us on favorable terms, or at all. If we issue equity securities, you may experience additional dilution, which could be substantial. In addition, we may issue equity securities that have rights, preferences and privileges senior to those of our common stock. If we borrow money, we may incur significant interest expense and become subject to covenants that could limit our ability to operate and fund our business. If we need funds and cannot raise them on acceptable terms, we may be unable to realize our current plans or meet our obligations to our code-share partners, and we could be required to slow our growth.

Our contractual obligations and commitments at March 31, 2002, include the following (in thousands):

	Payments Due By Period
	Less than 1 year		1-3 years		4-5 years		Over 5 years		Total
Long-term debt	$	30,600	$	24,269	$	16,798	$	105,523	$	177,190
Operating leases, excluding Saab 340 aircraft		43,278		172,942		115,365		496,955		828,540
Operating leases, Saab 340 aircraft		7,259		17,248		444		—		24,951
Unconditional purchase obligation for spare aircraft engines		2,500		—		—		—		2,500

Total contractual cash obligations	$	83,637	$	214,459	$	132,607	$	602,478	$	1,033,181

Our commercial commitments at March 31, 2002, include the following (in thousands):

	Expiration
	Less than 1 year		Total
Revolving credit facility	$	—	$	8,071
Letters of credit		1,075		1,075

Total commercial commitments	$	1,075	$	9,146

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and are sufficiently sensitive to result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements.

•: Impairments to Long-Lived Assets. We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cashflows estimated to be generated by those assets are less than the carrying amount of those items. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. Our estimates of fair value represent our best estimate based on industry trends and reference to market rates and transactions.

We regularly review the estimated useful lives and salvage values for our aircraft and spare parts.

•: Aircraft Maintenance and Repair. We believe our accounting policy is consistent with our competitors. We follow a method of expensing such amounts as incurred rather than accruing for expected costs or capitalizing and amortizing such costs. Maintenance and repairs for spare engines and airframe components under power-by-the-hour contracts are incurred as the aircraft are operated; therefore, amounts are accrued based upon actual hours flown.

Quarterly Information

The following table sets forth summary quarterly financial information for the years ended December 31, 2000 and 2001 and the quarter ended March 31, 2002.

	Quarter Ended
	March 31			June 30		September 30		December 31
	(dollars in thousands)
2000
Operating revenues	$	28,579		$	34,727	$	39,267	$	44,904
Operating income (loss)		(660	)		2,117		2,935		2,830
Net income (loss)		(823	)		620		1,149		1,576
2001
Operating revenues		52,514			62,812		62,644		60,674
Operating income (loss) (1)		3,813			7,295		6,340		(2,001	)
Net income (loss)		2,528			3,440		2,451		(2,352	)
2002
Operating revenues		72,248
Operating income		7,782
Net income		3,412

(1): Includes Stabilization Act compensation of $2,676 and $4,964 in the third and fourth quarters, respectively, and impairment loss and accrued aircraft return costs of $8,100 in the fourth quarter.

New Accounting Standards

In July 2001, SFAS No. 141, Business Combinations, was issued. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. We have had no business combinations subsequent to June 30, 2001 and, therefore, we believe that the adoption of SFAS No. 141 had no impact on our consolidated financial statements.

In July 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was issued and was effective for us on January 1, 2002. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization and annual assessment of impairment. We recorded goodwill amortization of $807 in each of the years ended December 31, 1999, 2000, and 2001. Effective January 1, 2002, we will no longer amortize goodwill, but will evaluate it on an annual basis to determine whether there is an impairment of goodwill. Discontinuing goodwill amortization did not have a material effect on income for the three months ended March 31, 2002, and based upon the initial impairment analysis, we determined our goodwill was not impaired.

In August 2001, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued, which was effective for us on January 1, 2002. Among other things, this statement will supersede SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, and the accounting and reporting provisions of APB No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 changes the treatment for the disposal of a business segment and establishes one method of accounting for long-lived assets to be disposed of by sale. Management has determined that the adoption of SFAS No. 144 did not have an impact on our financial position, results of operations and cash flows.

Quantitative and Qualitative Disclosures About Market Risk

We have been and are subject to market risks, including commodity price risk (such as, to a limited extent, aircraft fuel prices) and interest rate risk.

Aircraft Fuel

Until we discontinue our pro-rate turboprop operations, we are exposed to fluctuations in the price of aircraft fuel for our turboprops which affects our earnings. Our financial statements reflect both the cost of fuel we purchase for flights we control, as well as fuel we purchase for fixed-fee flights, which is subject to reimbursement by our code-share partners. Currently, we have limited our exposure to fuel price increases with respect to approximately 98% of available seat miles produced, due to contractual arrangements with US Airways, American and America West. US Airways and America West reimburse us for the actual cost of fuel on contracted flights, while American reimburses us to the extent our actual fuel costs exceed the assumed cost of fuel included in the fixed rate it pays us. For illustrative purposes only, we have estimated the impact of market risk using a hypothetical increase in fuel price per gallon of 10% for the years ended December 31, 2001 and 2000. Based on this hypothetical assumption, and after considering the impact of the contractual arrangements, we would have experienced an increase in fuel expense of approximately $650,000 and $934,000 respectively. We currently intend to use cash generated by operating activities to fund any adverse change in the price of fuel.

Interest Rates

Our earnings are affected by changes in interest rates due to the amounts of variable rate debt and the amount of cash and securities held. The interest rate applicable to variable rate debt may rise and increase the amount of interest expense. At March 31, 2002, 7.2% of our total long-term debt was variable rate debt, compared to 54.1% at March 31, 2001. For illustrative purposes only, we have estimated the impact of market risk using a hypothetical increase in interest rates of one percentage point for both our variable rate long-term debt and cash and securities. Based on this hypothetical assumption, we would have incurred an additional $180,000 in interest expense for the year ended December 31, 2001. As a result of this hypothetical assumption, we believe we could fund interest rate increases on our variable rate long-term debt with the increased amounts of interest income. We do not believe we have significant exposure to the changing interest rates on our fixed-rate, long-term debt instruments, which represented 92.7% of our total long-term debt at March 31, 2002, and 45.9% of our total long-term debt at March 31, 2001. We do not purchase or hold any derivative instruments to protect against the effects of changes in interest rates.

We currently intend to finance the acquisition of aircraft through third-party leases or long-term borrowings. Changes in interest rates may impact the actual cost to us to acquire these aircraft. To the extent we place these aircraft in service under our code-share agreements with American, America West and Delta, our reimbursement rates will be adjusted higher or lower to reflect any changes in our aircraft rental rates.

Equity Price Risk

The exercise of the warrants that have been issued or we have agreed to issue to three of our code-share partners, American, America West and Delta, could result in dilution of our common stock, since the exercise price is less than the price of our common stock at the time of our initial public offering. We will incur a deferred charge for the American warrant of approximately $3.3 million in the fiscal quarter in which this offering closes, based upon an option pricing model that considers continuous dividend yield and dilution using an assumed initial public offering price of $13.00, the midpoint of our filing range; an estimated dividend yield; a risk-free interest rate commensurate with the warrant term; volatility of 40%; and an expected life of 10 years. A $1 increase or decrease in the

stock price would increase or decrease this deferred charge with respect to the American warrant by approximately $150,000 assuming all other factors remain unchanged. As our share price increases, the deferred charge for the non-vested American warrant will change. However, we cannot at this time quantify the amount of such charges because it will be influenced by a number of factors, including the difference between the market price of our common stock and the warrant exercise price and the volatility of our stock. The annual non-cash charge will be equal to the estimated current fair value less the cummulative charge recognized at the immediately preceeding period end. The estimated charge will be $253,000 and $470,000 in 2002 and 2003, respectively, and will be recorded as a reduction to operating revenues.

As a result of the issuance of the America West warrant, we will incur a deferred charge of approximately $443,000 in the fiscal quarter in which this offering closes, based upon an option pricing model that considers continuous dividend yield and dilution using an assumed initial public offering price of $13.00, the midpoint of our filing range; an estimated dividend yield; a risk-free interest rate commensurate with the warrant term; volatility of 40%; and an expected life of 3 years. The deferred charge will be amortized on a straight-line basis over the term of the America West code-sharing agreement. The non-cash charge each quarter will be approximately $11,000. The amortization will be a reduction to operating revenues.

As a result of the issuance of the Delta warrants, we will incur a deferred charge of approximately $13.5 million in the fiscal quarter in which this offering closes, based upon an option pricing model that considers continuous dividend yield and dilution using an assumed initial public offering price of $13.00, the midpoint of our filing range; an estimated dividend yield; a risk-free interest rate commensurate with the warrant term; volatility of 40%; and an expected life of 10 years. The deferred charge will be amortized over the term of the Delta code-sharing agreement. The non-cash charge will be approximately $34,000 in 2002, $936,000 in 2003 and $1.5 million annually thereafter. The amortization will be recorded as other expense until revenues are received from Delta, at which time, the amortization will be recorded as a reduction of revenue.

REGIONAL AIRLINE INDUSTRY OVERVIEW

Major, Low-fare and Regional Airlines

The airline industry in the United States has traditionally been dominated by "major airlines," which currently include American, United Airlines, Delta Air Lines, Northwest Airlines, Continental Airlines, US Airways, America West Airlines and Alaska Airlines. The major airlines offer scheduled flights to many major cities within the United States and often throughout all or part of the world while also serving numerous smaller cities. The major airlines benefit from wide name recognition and long operating histories.

Most major air carriers have adopted the "hub and spoke" system. This system concentrates most of an airline's operations in a limited number of hub cities, serving most other destinations in the system by providing one-stop or connecting service through the hub between destinations on the spokes. Such an arrangement permits travelers to fly from a point of origin to more destinations without switching air carriers. Hub airports permit carriers to transport passengers between large numbers of destinations with substantially more frequent service than if each route were served directly. The hub and spoke system also allows the carrier to add service to new destinations from a large number of cities using only one or a limited number of aircraft.

"Low-fare" airlines, such as Southwest Airlines, JetBlue Airways, AirTran Airways and Frontier Airlines, generally offer fewer conveniences to travelers and have lower cost structures than major airlines, thus permitting them to offer flights to many of the same markets as the major airlines, but at lower prices. Some low-fare airlines utilize a hub and spoke strategy, while others, such as Southwest Airlines, offer predominantly point-to-point service between designated city pairs. The reduction, withdrawal or historical absence on shorter haul routes by both major and low-fare carriers has provided increased opportunities for regional airlines to develop these markets.

Regional airlines, including our airline, American Eagle, Atlantic Coast Airlines, Atlantic Southeast Airlines, Continental Express, Comair, Horizon Airlines, Mesa Airlines, Mesaba Airlines, and SkyWest Airlines, typically operate smaller aircraft on lower-volume routes than major and low-fare airlines. Several regional airlines, including American Eagle, Comair, Atlantic Southeast Airlines and Horizon Airlines, are wholly-owned subsidiaries of major airlines. In contrast to low-fare airlines, regional airlines generally do not try to establish an independent route system to compete with the major airlines. Rather, regional airlines typically enter into cooperative marketing relationships with one or more major airlines, under which the regional airline agrees to use its smaller, lower-cost aircraft to carry passengers booked and ticketed by the major airline between a hub of the major airline and a smaller outlying city. In exchange for such services, the regional airline is either paid a fixed-fee per flight by the major airline or receives a pro-rata portion of the total fare generated in a given market.

Growth of the Regional Airline Industry

Regional airlines have experienced significant growth over the past decade. According to the FAA, from 1995 to 2001, regional airlines in the United States experienced average annual growth in revenue passenger miles of 12.4%, compared to 4.1% growth for major airlines. Over the same period, the number of passengers flown by regional airlines increased an average of 6.1% per year, compared to 3.1% growth for major airlines. In March 2002, the FAA forecasted U.S. revenue passenger miles to grow at an average annual rate of 7.1% over the 12-year period ending 2012, from 24.0 billion in 2001 to 54.8 billion in 2012, and the number of passengers flown to grow by an average annual rate of 5.5% during the same 12-year period, reaching a total of 151.6 million passengers by 2013. We cannot at this time predict what effect, if any, the terrorist attacks on New York and Washington, D.C. in September 2001 will have on this anticipated growth, particularly in the short-term.

We believe that the growth of the number of passengers using regional airlines and the revenues of regional airlines during the last decade is attributable to a number of factors, including:

•: Regional airlines are increasing their fleets of regional jet aircraft, which passengers prefer to turboprops.
•: Regional airlines work with, and often benefit from the strength of, the major airlines. Since many major airlines are increasingly using regional airlines as part of their growth strategies, many regional airlines have expanded, and may continue to expand, with the major airlines they serve.
•: Regional airlines tend to have a more favorable cost structure and greater operating flexibility than many major airlines. Many regional airlines were founded in the midst of the highly competitive market that developed following deregulation of the airline industry in 1978.
•: Many major airlines have determined that an effective method for retaining customer loyalty and maximizing system revenue, while lowering costs, is to utilize more cost-efficient regional airlines flying under the major airline's flight designator code and brand name to serve shorter, low-volume routes.

Growth in the Use of Regional Jets

We believe that the emergence of the regional jet in the mid-1990s was, and will continue to be, a significant factor in the growth of the regional airline industry. Part of the reason for the regional jets' importance to the growth of the regional airline industry stems from the high level of customer acceptance of the aircraft. Regional jets feature cabin class comfort and low noise levels, and we believe they are frequently preferred by customers to turboprops. In addition, regional jets travel at high speeds and have a traveling range that is similar to 120-plus seat aircraft operated by major airlines. Regional jets can be used effectively on routes of up to approximately 1,500 miles, compared to approximately 400 miles for turboprops. The extended range, speed and greater comfort of regional jets allow regional airlines to operate on longer and more varied routes than they could with turboprops.

In addition, for many routes, regional jets are more economical than larger jets. As a result, regional jets are often used to fly on what are called "long and thin" routes, which are routes between cities that are too distant to use turboprops (400 to 1,500 miles) but have insufficient customer demand (either overall or during certain times of the day or year) to justify flying larger jet aircraft. The ability of regional jets to fly profitably to smaller markets has allowed the major airlines, in conjunction with their regional partners, to enhance greatly the profitability and general utility of their hubs by adding spoke cities and increasing the frequency of flights, especially in off-peak periods.

We believe that major air carriers have deployed regional jets in three distinct roles: (1) to increase service in existing markets; (2) to operate new point-to-point services that bypass other airlines' connecting hubs; and (3) to "bend" market share in favor of the air carrier by offering jet service in competition with other airlines' turboprop service. In certain existing markets, airlines are able to economically replace their mainline jet service with more frequent service provided by smaller 30 to 69-seat regional jets, without incurring the risk of increasing the total number of seats offered in a market. In new markets, regional jets allow airlines to profitably serve new long distance markets that lie beyond the range of smaller capacity turboprop aircraft but do not have sufficient traffic volume to justify service with larger jets. Finally, given passengers' demonstrated preference for jet aircraft over turboprop aircraft, airlines are able to capture a larger share of the passenger traffic by offering flights with jet aircraft in markets that have historically been served by turboprop aircraft. The favorable operating economics of regional jets have led to significant growth in the regional airline sector, as major air carriers continue to add new regional jet capacity to their route networks.

Relationship of Regional and Major Airlines

Regional airlines generally enter into code-sharing agreements with major airlines, pursuant to which the regional airline is authorized to use the major airline's two-letter flight designator code to identify the regional airline's flights and fares in the central reservation systems, to paint its aircraft with the colors and/or logos of its code-sharing partner and to market and advertise its status as a carrier for the code-sharing partner. For example, we fly out of New York (La Guardia Airport), Boston, Philadelphia, Pittsburgh and Indianapolis as US Airways Express; out of St. Louis as AmericanConnection; out of Columbus as America West Express; and we will fly out of Orlando as Delta Connection. In addition, the major airline generally provides reservation services, ticket stock, certain ticketing services, ground support services, airport landing slots and gate access to the regional airline, and both partners often coordinate marketing, advertising and other promotional efforts. In exchange, the regional airline provides a designated number of low capacity (usually between 32 and 69 seats) flights between larger airports served by the major airline and surrounding cities, usually lower-volume markets.

The financial arrangements between the regional airlines and their code-share partners usually involve either a fixed-fee or pro-rate arrangement. We believe that, as a result of the differences between fixed-fee arrangements and revenue-sharing arrangements, the trend in the industry for publicly owned regional carriers is toward using fixed-fee arrangements, similar to arrangements we have with American, America West, US Airways and Delta.

Fixed-Fee Capacity Purchase Agreements. Under a fixed-fee arrangement, the major airline generally pays the regional airline a fixed-fee per flight, with additional incentives based on completion of flights, on-time performance and correct baggage handling. In addition, the major and regional airline often enter into an arrangement pursuant to which the major airline bears the risk of changes in the price of fuel and other costs not directly controllable by the regional airlines such as landing fees, liability insurance and aircraft property taxes. Regional airlines benefit from a fixed-fee arrangement because they are sheltered from most of the elements that cause volatility in airline earnings, such as variations in ticket prices, passenger loads and fuel prices. However, regional airlines in fixed-fee arrangements do not benefit from a positive trend in ticket prices, passenger loads or fuel prices and, because the major airlines absorb most of the risks, the margin between the per-flight fixed-fee and expected per-flight costs tends to be much lower than the profit margins associated with pro-rate revenue sharing arrangements under good economic conditions. The major airline can benefit from fixed-fee capacity purchase agreements because under such arrangements it is better able to control its entire network of flights and to serve strategic routes that otherwise might be uneconomical to a regional carrier under a revenue-sharing agreement. Our company and other regional airlines that operate under capacity purchase agreements have been less severely impacted by the events of September 11, 2001 and the decline in the economy primarily as a result of the transfer of passenger traffic risk to the purchaser of capacity and the ability of regional jets to accommodate the lower demand for air transportation better than mainline jets.

Revenue Sharing Arrangements. Under a pro-rate revenue sharing arrangement, the major airline and regional airline negotiate a proration formula, pursuant to which the regional airline receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on the regional airline and the other portion of their trip on the major airline. Substantially all costs associated with the regional airline flight are borne by the regional airline. In such a revenue-sharing arrangement, the regional airline realizes increased profits as ticket prices and passenger loads increase or fuel prices decrease and, correspondingly, realizes decreased profits as ticket prices and passenger loads decrease or fuel prices increase.

BUSINESS

General

We are a regional airline offering scheduled passenger service on approximately 340 flights daily to 40 cities in 22 states and Canada pursuant to code-sharing agreements with American, America West Airlines and US Airways. All of our flights are operated as either US Airways Express, AmericanConnection or America West Express, providing US Airways, American and America West with portions of their regional service, including service out of their hubs in Boston, Columbus, Indianapolis, New York, Philadelphia, Pittsburgh and St. Louis. In June 2002, we entered into a code-sharing agreement with Delta Air Lines, Inc. pursuant to which, we will operate 22 Embraer regional jets (including one spare) for Delta. The first two aircraft to be flown pursuant to this agreement will be placed into service in November 2002 and we expect the Delta fleet of 22 aircraft to be in service by October 2003. Our Delta flights will be operated as Delta Connection, and we will provide Delta with service out of its hub in Orlando. Our current fleet consists of 49 Embraer regional jets and 10 Saab 340 turboprops. We are in the process of phasing the turboprops out of service and expect to operate an all jet fleet by August 2002. In addition, we have 26 regional jets on firm order which, upon delivery, will be placed into immediate service with our code-share partners and we also have options for 67 additional jets, 30 of which are reserved for Delta. From 1999 to 2001, our available seat miles, or ASMs, have grown at a compounded annual growth rate of 97.4%.

We have long-term code-sharing agreements with each of our partners. During the year ended December 31, 2001 and the three months ended March 31, 2002, 75.6% and 90.9%, respectively, of our passenger revenues were generated under fixed-fee agreements with our code-share partners. We anticipate that by August 2002, 100% of our passenger revenues will be generated under such fixed-fee agreements. Pursuant to these fixed-fee agreements, we are authorized to use our partners' two-letter flight designation codes (or in some instances with American, the codes of another AmericanConnection carrier) to identify our flights and fares in our partners' computer reservation systems, to paint our aircraft in the style of our partners, to use their service marks and to market ourselves as a carrier for our partners. We believe that the shift to fixed-fee agreements has reduced our exposure to fluctuations in fuel prices, fare competition and passenger volumes. Our development of relationships with multiple major airlines has enabled us to reduce our dependence on any single airline. For the year ended December 31, 2001 and the three months ended March 31, 2002, 67% and 60%, respectively, of our operating revenues were derived from US Airways, 31% of our operating revenues were derived from American and 2% and 9%, respectively, of our operating revenues were derived from America West.

For the year ended December 31, 2001, we generated operating revenues of $238.6 million and net income of $6.1 million, as compared to operating revenues of $147.5 million and net income of $2.5 million for the year ended December 31, 2000. For the three months ended March 31, 2002, we generated operating revenues of $72.2 million and net income of $3.4 million, as compared to operating revenues of $52.5 million and net income of $2.5 million for the three months ended March 31, 2001.

Our Strengths

We believe that our primary strengths are:

•: Providing High Quality Service Cost-Effectively. We provide our code-share partners the ability to offer their customers high quality service at a price to our partners that is generally more cost-effective than flying those routes themselves. We have established ourselves as a low cost, efficient and reliable provider of high quality regional airline services. This is primarily due to the advantageous economies of scale realized from the operation of a limited number of aircraft types and our productive workforce. The uniformity of our fleet allows for standardization in maintenance and crew training, resulting in substantial cost savings in these areas. We expect to see further cost savings resulting from the planned elimination of our turboprop operations by August 2002. Upon the elimination of our turboprop operations, we believe that we will be one of the lowest cost providers of regional jet service and one of the first U.S. regional airlines to

move to a single fleet type business model using jet aircraft. As a result of these efficiencies and our high service standards, we believe that we can provide our current and any future code-share partners with significant cost savings and greater operational flexibility.

•

Long-Term, Fixed-Fee Code-Sharing Agreements. We have long-term code-sharing agreements with four major airlines, with scheduled expirations ranging from March 2009 through February 2013, subject in certain instances to earlier termination. All of our regional jet code-sharing agreements are fixed-fee, rather than pro-rate revenue sharing, arrangements. These fixed-fee agreements generally provide for minimum aircraft utilization levels at fixed rates, which provides for a more predictable revenue stream. These rates generally cover our cost of operating these aircraft, while our code-share partners generally bear other passenger and distribution expenses, including reservations, agent commissions and booking fees. We are generally not exposed to price fluctuations for fuel, insurance, aircraft property taxes or landing fees, as we are typically reimbursed for these costs by our code-share partners. Although fixed-fee arrangements eliminate our realization of any benefit resulting from higher ticket prices and other variable factors, these fixed-fee arrangements have substantially reduced our exposure to fluctuations in fare competition and passenger volumes.

•

Significant Opportunity to Attract New Business. We currently have 49 Embraer regional jets in service and firm orders to acquire an additional 26 Embraer regional jets which will be placed into immediate service with our code-share partners. In addition, we have options to acquire an additional 67 Embraer regional jets, 30 of which are reserved for Delta. Our code-sharing agreements have only limited restrictions on our ability to enter into new or expanded relationships with any carrier. Further, we have the infrastructure to place our new regional jets into service quickly.

•

Experienced Management Team. Our senior management team has extensive operating experience in the regional airline industry. Since their arrival in mid-1999, our management team has significantly grown the business in the following ways:

•: added code-sharing agreements with both American, America West and Delta;
•: increased the number of regional jets that we fly for US Airways; and
•: improved our operating efficiencies and costs.

Mr. Bedford, our chief executive officer, has over 14 years of experience in the regional airline industry. He was named regional airline executive of the year in 1998 by Commuter and Regional Airline News and while CEO at Mesaba Airlines, Mesaba was recognized as the Regional Airline of the Year in 1997 by Air Transport World Magazine. Mr. Cooper, our chief financial officer, has over nine years of experience in the regional airline industry and Mr. Heller, Chautauqua's chief operating officer, has over 23 years of experience in the regional airline industry.

•: Long History of Reliable Operations. We have a long operating history as a regional airline, having operated as a code-share partner of US Airways or its predecessors for over 27 years. We became an American code-share partner in April 2000, an America West code-share partner in August 2001 and a Delta code-share partner in June 2002.

Our Business Strategy

Our business strategy consists of the following elements:

•: Operate a Modern, All Jet Fleet. By August 2002, our wholly-owned subsidiary, Chautauqua Airlines, expects to operate an all regional jet fleet for its code-share partners. Passengers prefer regional jets to turboprops because they are faster, quieter and perceived by passengers to be

safer and more comfortable. In addition, Chautauqua expects to achieve increased efficiencies in employee training and aircraft maintenance by operating a single type of aircraft which should enable it to reduce its operating costs. In the future, we may decide to operate more than just one aircraft fleet type in order to expand our overall marketing potential. Should we reach this conclusion, we would consider developing additional subsidiary platforms in order to maintain a single fleet economic advantage in each operating company.

•: Expand Existing and Develop New Relationships With Code-Share Partners. We attribute the significant growth in our traffic and profitability to our code-sharing agreements with US Airways, American and America West. We believe that these relationships provide us with an excellent opportunity to achieve stable, long-term growth. To strengthen our existing relationships, we work closely with our code-share partners to expand service to existing markets, open new markets and schedule convenient and frequent flights. We also continue to explore new relationships with other major airlines, such as our recent agreement with Delta. In the future, we would consider developing additional subsidiary platforms in order to expand existing relationships and to develop new relationships with code-share partners.
•: All Fixed-Fee Flying. We believe that fixed-fee agreements allow our major airline partners to enjoy the significant benefits of optimizing total network revenues and matching aircraft size to meet customer demand, thereby maximizing their own profitability. Under fixed-fee arrangements, we receive a fixed-fee per flight with additional possible incentives from our partners; under pro-rate revenue sharing arrangements, we receive a negotiated portion of ticket revenue. In some circumstances, fixed-fee arrangements also enable us to operate routes selected by US Airways, American, America West or Delta for strategic purposes, even though those routes might not offer margins that are sufficiently attractive to motivate us to conduct such flights on a pro-rate revenue sharing basis. For the years ended December 31, 2000 and 2001, approximately 77% and 91%, respectively, of our ASMs were flown under fixed-fee agreements and for the three months ended March 31, 2001 and 2002, approximately 78% and 94%, respectively, of our ASMs were flown under fixed-fee agreements. We anticipate that by August 2002, 100% of our ASMs will be flown under such fixed-fee agreements. Furthermore, we anticipate that the fixed-fee agreement will be the basis on which we will continue to add jets to our fleet.
•: Provide Excellent Customer Service. We believe that our focus on providing excellent customer service in every aspect of operations, including personnel, flight equipment, in-flight amenities, on-time performance, flight completion ratios and baggage handling, is largely responsible for our ability to attract and retain multiple major airline code-share partners. This is because our partners seek to build customer loyalty and preference through consistent, high quality seamless customer service, which they expect their regional partners to be able to provide at a competitive price.
•: Motivate Our Employees to Succeed. We believe that our employees are key to our success. In addition to offering competitive compensation and benefits, we take a number of steps to make our company an attractive place to work and build a career such as maintaining various employee recognition and bonus award programs and consistently communicating our vision and mission statement to our associates.

Markets and Routes

Markets

We believe that our development of hub operations in St. Louis with American and in New York, Boston, Indianapolis and Philadelphia with US Airways has been a principal factor in the growth of our flight operations and will facilitate implementation of our growth and operating strategy. We believe the development of hub operations in Orlando with Delta will further facilitate our growth and operating strategy. We currently offer scheduled passenger services on approximately 340 flights to 40 cities in 22 states and Canada. The following illustrates the routes we currently fly for our code-share partners:

US Airways Express Service

AmericanConnection Service

America West Express Service

Flight Equipment

As of June 7, 2002, we operated 49 Embraer regional jets as described in the following table:

Type	Total Aircraft	Owned	Leased	Option Aircraft		Average Age (in years)	Firm Orders(2)	Seats in Standard Configuration
ERJ 145LR	38	4	34			1.6	0	50
ERJ 140LR	11	7	4			0.4	4	44

Total	49	11	38	67	(1)		4

(1): We have the option to acquire 67 ERJ 135, ERJ 140 or ERJ 145 regional jets, 30 of which are reserved for Delta.
(2): In addition to the aircraft listed in the table, we have firm orders to acquire 7 ERJ 145 regional jets and 15 ERJ 135 regional jets that we intend to operate for Delta.

Furthermore, we currently have 10 Saab turboprops, 3 of which are in revenue service, that we intend to phase out by August 2002.

America West has contracted for the use of 4 additional Embraer regional jets and Delta has contracted for the use of 22 Embraer regional jets (including one spare) on a fixed-fee basis. We have placed a firm order to acquire these additional 26 Embraer regional jets over the next sixteen months. We have no orders for additional aircraft other than the Embraer regional jets.

All of our leased regional jet aircraft are leased by us pursuant to long-term leases, with current lease expirations ranging from 2014 to 2018. We also hold fixed-price purchase options under these leases at approximately 14.0 to 14.5 years after these leases commenced. Furthermore, we have options to renew most of the leases for an additional three years, or purchase outright the leased aircraft at the conclusion of their current lease terms at fair market value. With the exception of two Saab 340 aircraft owned by us, our Saab 340 aircraft are leased under operating leases with remaining terms ranging from three months to four years.

The following table outlines the number and type of aircraft being operated for each code-share partner and the number of Embraer regional jets that we must place in service for each code-share partner as of June 7, 2002:

	ERJ 145LR			ERJ 140LR		ERJ 135LR		Total Embraer Regional Jets
	In Operation		Total Required Aircraft	In Operation	Total Required Aircraft	In Operation	Total Required Aircraft
US Airways	26		26	0	0	0	0	26
American	4	(1)	0	11	15	0	0	15
America West	8		12	0	0	0	0	12
Delta	0		7	0	0	0	15	22

Total	38		45	11	15	0	15	75

(1): These ERJ 145s are being replaced by ERJ 140s and will subsequently be placed in service for America West.

The foregoing table does not include our 10 Saab turboprops, 3 of which are in revenue service, that we intend to phase out by August 2002.

Ground Operations and Properties

Our employees perform substantially all routine airframe and engine maintenance and periodic inspection of equipment. We lease a 27,500 square foot aircraft maintenance and training facility at the Indianapolis International Airport, a 45,000 square foot maintenance facility in Ft. Wayne, Indiana and a 59,000 square foot maintenance facility in Columbus, Ohio.

We lease ticket counters and check-in, boarding and other facilities in the passenger terminal areas in the majority of the airports we serve and staff these facilities with our personnel. Our partners provide ticket handling and ground support services in 32 of the 40 airports we serve.

We lease our corporate headquarters, located in the administrative office building at the Indianapolis International Airport terminal. This facility consists of approximately 15,000 square feet of administrative space. The lease expires in July 2003, but is cancelable upon six months' notice if we decide to move our corporate headquarters to a new location in Indianapolis, Indiana.

Maintenance of Aircraft and Training

Using a combination of FAA certified maintenance vendors and our own personnel and facilities, we maintain our aircraft on a scheduled and "as-needed" basis. We emphasize preventive maintenance and inspect our aircraft engines and airframes as required. We have "power-by-the-hour" agreements with vendors to maintain major components on the aircraft as follows:

•: We have an agreement with Rolls-Royce to maintain the engines on our Embraer regional jet aircraft through November 2012, an agreement with Hamilton/Sunstrand to maintain the auxiliary power units, or APUs, on our Embraer regional jets through August 2009 and an agreement with Honeywell to maintain the avionics on our Embraer regional jets through January 2012. Under these agreements, we are charged for covered services based on a fixed rate for each flight hour accumulated by the engines or airframes in our service during a month. The rates are subject to annual revisions generally based on the Bureau of Labor Statistics' labor and material indices.
•: We have an agreement with General Electric to maintain the engines on our Saab turboprop aircraft through December 2006. Under this agreement, we are charged for covered services based on a fixed rate for each flight hour accumulated by the engines in our service during a month but if no services are used no payment is due. The rates are subject to annual revisions based on the Bureau of Labor Statistics' labor and material indices.

We believe these agreements, coupled with our ongoing maintenance program, reduces the likelihood of unexpected levels of engine, APU and avionics maintenance expense during their term.

We have also developed an inventory of aircraft spare parts and have instituted a computerized tracking system to increase maintenance efficiency and to avoid excess inventories of spare parts.

We perform our heavy and routine maintenance projects at our facilities in Indianapolis and Columbus and we perform routine maintenance services from select line maintenance stations.

All mechanics and avionics specialists employed by us have appropriate training and experience and hold required licenses issued by the FAA. We provide periodic in-house and outside training for our maintenance and flight personnel and also take advantage of manufacturer's training programs that are offered when acquiring new aircraft.

We have an agreement with FlightSafety International to provide for aircraft simulator training for all of our pilots. We have no current plans to acquire our own simulator in the near term and believe that FlightSafety or other third party vendors will be able to provide us with adequate and cost effective simulator training to implement our growth plans.

Employees

As of March 31, 2002, we employed 1,191 full-time equivalent employees. The following is a table of our principal collective bargaining agreements and their respective amendable dates as of March 31, 2002:

Employee Group	Approximate Number of Full-Time Equivalent Employees	Representing Union	Amendable Date
Pilots	455	International Brotherhood of Teamsters Airline Division Local 747	November 2002
Flight Attendants	218	International Brotherhood of Teamsters Airline Division Local 210	March 2003
Customer Service	207	International Brotherhood of Teamsters Airline Division Local 135	December 2005
Dispatchers	19	Transport Workers Union of America Local 540	February 2007

As of March 31, 2002, we had 206 maintenance technicians and other maintenance personnel, who are not currently represented by any union, and 86 administration and support personnel. Because of the high level of unionization among our employees we are subject to risks of work interruption or stoppage and/or the incurrence of additional expenses associated with union representation of our employees. In connection with our proposed acquisition of 26 additional Embraer regional jets required to meet our obligations under our code-sharing agreements and related expansion, we anticipate hiring approximately 575 additional employees, many of whom will be represented by a union in their employment. We have never experienced any work stoppages or other job actions and generally consider our relationship with our employees to be good.

In October 1999 and again in June 2001 we reached tentative agreement with the executive council of our pilot union that would have amended certain provisions of the collective bargaining agreement, including extending the amendable date well ahead of the normal amendable date of the agreement. On both occasions, the membership of the union failed to ratify the tentative agreement.

Code-Sharing Agreements

Our code-sharing agreements with US Airways, American, America West and Delta authorize us to use their two-letter flight designator codes ("US," "AA," "HP" and "DL") (or in some instances with American, the code of another AmericanConnection carrier) to identify our flights and fares in their computer reservation systems, to paint our aircraft with their colors and/or logos, to use their service marks and to market and advertise our status as US Airways Express, AmericanConnection, America West Express and Delta Connection, respectively. Under our code-sharing agreements with US Airways, we are compensated on a fixed-fee basis for our US Airways Express flights using Embraer regional jets (approximately 78% of our US Airways flights at March 31, 2002) and on a pro-rate revenue-sharing basis for our US Airways Express flights using our Saab turboprop aircraft (approximately 22% of our US Airways flights at March 31, 2002). Under our code-sharing agreements with American and America West, we are compensated, and under our code-sharing agreement with Delta we will be compensated on a fixed-fee basis on all of our AmericanConnection, America West Express and Delta Connection flights. In addition, under our US Airways, American, America West and Delta jet code-sharing agreements, our passengers participate in frequent flyer programs of the major airline, and the major airline provides additional services such as reservations, ticket issuance, ground support services, slot rights and gate access. Under our US Airways turboprop agreement, we pay negotiated fees with respect to such services.

The US Airways Code-Sharing Agreements

Jet Code-Sharing Agreement. Chautauqua operates 25 Embraer 145 regional jets and one spare Embraer 145 regional jet for US Airways under a jet code-sharing agreement. That code-sharing agreement provides that Chautauqua will operate these aircraft to provide US Airways Express service between US Airways hubs and cities designated by US Airways. As of March 31, 2002, Chautauqua was providing 155 regional jet flights per day as US Airways Express between New York, Boston, Philadelphia, Indianapolis and designated outlying cities.

US Airways provides reservation, check-in, baggage-handling, ground-support and other passenger services, landing slots, gates, tickets, baggage tags, ticket wallets and similar items with respect to such flights and also controls scheduling, ticket prices and seat inventories with respect to such flights. Under the jet code-sharing agreement, US Airways retains all passenger, cargo and other revenues associated with each flight, and is responsible for all revenue-related expenses. In exchange for providing the designated number of flights and performing our other obligations under the jet code-sharing agreement, we receive from US Airways monthly compensation of a fixed-fee per departure, a fixed-fee per block hour flown, a fixed-fee per flight hour flown and a fixed-fee per aircraft per day. We also receive an additional amount per available seat mile flown, as well as per-passenger incentives based upon our performance relative to several operational benchmarks, including on-time performance, flight completion rates and lack of passenger complaints. The per available seat mile fee and per passenger incentive payments are a relatively small component of the total compensation that we are entitled to receive for each of our flights. The fixed rates that we receive from US Airways under the jet code-sharing agreement are increased at times specified in the agreement by an agreed escalation factor. Additionally, certain of our operating costs are considered "pass through" costs whereby US Airways has agreed to reimburse us the actual amount of costs we incur for these items. Fuel, landing fees, passenger catering, passenger liability insurance and aircraft property tax costs are pass through costs.

The jet code-sharing agreement terminates on March 1, 2009, unless US Airways elects to exercise its option to extend the term for three years by providing us with notice by March 1, 2008; however, US Airways may terminate the jet code-sharing agreement at any time for cause upon not less than 90 days' notice and subject to our right to cure under the following conditions:

•: if we fail to retain or utilize the aircraft in the manner required under the jet code-sharing agreement;
•: if our flight completion factor falls below specified percentages during specified periods due to operational deficiencies that are within our control;
•: if our on time departure performance falls below specified percentages during specified periods; or
•: if we admit liability or are found liable for any safety infraction by the FAA that could reasonably be expected to lead to the suspension or revocation of our operating certificate or if in US Airways' reasonable opinion we are not complying in any material respect with applicable safety and operational requirements.

In addition, if there is a regulatory change that materially and adversely affects the economic value of the agreement to us or US Airways, and we are unable to agree to amendments to the jet code-sharing agreement to alleviate those regulatory changes within 30 days, the party materially and adversely affected may terminate the agreement upon not less than 90 days' notice. We may terminate the jet code-sharing agreement on 90 days' notice if US Airways terminates the turboprop code-sharing agreement.

In general, we have agreed to indemnify US Airways and US Airways has agreed to indemnify us for any damages caused by any breaches of our respective obligations under the jet code-sharing agreement or caused by our respective actions or inactions under the jet code-sharing agreement.

With respect to the operation of Embraer regional jets, US Airways pays us monthly in advance based on agreed assumptions, which amount is reconciled at the end of the month based on actual flight activity. The spare Embraer regional jet is included in the calculation of payments under our jet code-sharing agreement with US Airways. The jet code-sharing agreement requires US Airways to pay our fixed costs and per aircraft per day costs for a specified period of time in the event of a grounding of the Embraer regional jets as a result of a design or manufacturing defect or a strike by our employees. If we do not perform the services under the agreement due to our failure to maintain the aircraft or comply with FAA regulations, US Airways is not required to make any payments to us under the agreement during that time period. If we cannot provide services for any other reason, including a US Airways strike, US Airways is required to pay us during that time period the fixed costs, the per aircraft per day costs and an agreed upon amount per available seat mile flown based on the guaranteed minimums set forth in the agreement.

Turboprop Code-Sharing Agreement. Pursuant to a separate turboprop code-sharing agreement with US Airways, we also operate 10 Saab turboprop aircraft, 3 of which are currently in service, as a US Airways Express carrier between certain cities under a pro-rate revenue sharing arrangement. With respect to such flights, we control scheduling, inventory and pricing subject to US Airways' concurrence that such service does not adversely affect its other operations in the region. In providing services under the turboprop code-sharing agreement, US Airways has the right in its sole discretion to allow us to operate as US Airways Express in markets and may withdraw approval for all or any part of our schedules at any time. Any changes to our operating schedules under the turboprop code-sharing agreement must be approved in advance by US Airways, including adding new markets to the agreement. If we suspend operations in any city served under the turboprop code-sharing agreement for 30 days or more, then that market is automatically deleted from the agreement. At March 31, 2002, we operated 43 flights per day (22% of our total US Airways Express flights) pursuant to such provisions. We plan to eliminate all flying under the turboprop code-sharing agreement by August 2002.

The American Code-Sharing Agreement

Chautauqua operates 15 Embraer regional jet aircraft for American under a fixed-fee code-sharing agreement. As of March 31, 2002, Chautauqua operated five Embraer 145 aircraft and ten Embraer 140 aircraft pursuant to this agreement. The five Embraer 145 aircraft will be replaced by Embraer 140 aircraft during 2002 and enter service under the America West code-sharing agreement. As of March 31, 2002, Chautauqua was providing 109 flights per day as AmericanConnection between St. Louis and designated outlying cities.

American provides reservation services, tickets, baggage handling, ticket jackets and similar items with respect to such flights and also controls scheduling, ticket prices and seat inventories with respect to such flights. In exchange for providing the designated number of flights and performing our other obligations under the code-sharing agreement, we receive from American a fixed-fee per block hour flown in revenue service and an additional amount per passenger. We are also eligible to receive semi-annual per passenger incentives based upon on-time performance, flight completion rates, lack of complaints and correct baggage handling. Conversely, we must pay semi-annual per passenger penalties should our performance not meet minimum standards for on-time performance, flight completion rates, complaints and correct baggage handling. Under the code-sharing agreement, American retains all passenger, certain cargo and other revenues associated with each flight, and is responsible for all revenue-related expenses. We share revenue with American for certain cargo shipments. Additionally, certain operating costs are considered "pass through" costs and American has agreed to reimburse us the actual amount of costs we incur for these items. Fuel, landing fees, passenger catering, property

and liability insurance and aircraft property costs are pass through costs. Aircraft lease payments (including fees payable to Solitair Corp. which are financed through the lease) are also considered a pass through cost, but are limited to a specified limit with respect to the first 20 aircraft put into service for American. American pays us periodically throughout the month on an agreed schedule, subject to American's right to offset amounts we owe them under the code-sharing agreement.

The fixed rates for each scheduled block hour that we receive from American under the code-sharing agreement have been determined through the term of the code-sharing agreement, subject to certain revisions and an agreed annual escalation rate. Certain costs, including fuel costs, aircraft ownership and financing costs (subject to a limitation), landing fees, property and liability insurance, aircraft property taxes and de-icing costs, are "trued-up" for differences between actual costs and the assumed costs included in our fixed rates. In addition, a reconciliation payment will be made by American to us if uncontrollable cancellations exceed a specified level of scheduled block hours during any calendar quarter. We are reimbursed for all third party ground handling costs at certain airport locations, as well as reconciliation for shared ground services between us and American. We are responsible for certain training, automation and other charges and costs.

The block hour rate we are paid varies based on the number of scheduled block hours per day to be flown in revenue service, subject to a minimum rate without regard to actual number of hours flown. This means that even if we fly less than the specified minimum number of scheduled block hours a day, we are paid as if we had flown the minimum number of block hours. The block hour rate can only be adjusted in connection with schedule changes that change the scheduled block hour utilization, but the minimum number of scheduled block hours cannot be changed. American has agreed to schedule the aircraft under the code-sharing agreement for no less than the specified minimum number of block hours per aircraft per day on average.

Under the terms of the code-sharing agreement, we are required at specified locations to provide ground support and other passenger services at our expense, and American is required to provide those services at their expense at other locations. At the hub in St. Louis, we are responsible for providing gate operations, security and leasing facilities (which are leased from American), and American is responsible for providing ticketing services and de-icing for the aircraft. Certain costs of personnel training are shared with American.

Currently, we operate 4 ERJ 145 and 11 ERJ 140 regional jets under the code-sharing agreement. We have commenced the phase out of service of 4 ERJ 145s, as required by the code-sharing agreement, and will replace them with ERJ 140 aircraft on a one-for-one substitution basis. Beginning in May 2002, we are reimbursed at a reduced rate for the 4 ERJ 145 aircraft that remain in revenue service. We expect to reposition all such ERJ 145 aircraft with American West by September 2002.

The code-sharing agreement provides that, during its term, we will provide regional airline services exclusively for American at the St. Louis hub and within 50 statute miles of that hub, and we are prohibited from providing competing regional hub services at Memphis, Nashville and Kansas City. This means that, without American's consent, we are prohibited from operating flights under our own code or on behalf of any other air carrier providing hub services in or out of these airports. In addition, during the term of the agreement, we are prohibited from operating any of our aircraft subject to the code-sharing agreement on behalf of any other carrier. Otherwise, the agreement does not prohibit us from flying aircraft on behalf of other airlines utilizing the airport facilities of those airlines or other airport facilities that we may obtain in the future.

At any time that Chautauqua enters into an agreement with a third party for code-sharing using ERJ 140 aircraft Chautauqua must offer American the right, on an all or nothing basis, to amend the code-sharing agreement to incorporate the terms of the agreement with the third party. However, this provision does not apply to our existing arrangements with US Airways and America West to supply additional aircraft. If American elects to incorporate the terms of the agreement with the third party,

those terms will govern all of the aircraft covered by the code-sharing agreement. If Chautauqua reaches an agreement in principle with a third party to provide service using an aircraft other than an ERJ 140 aircraft, Chautauqua is required to offer the right of first refusal to American on a one time basis to enter into that agreement. American can only exercise their right of first refusal on an all or nothing basis, and American must have previously exercised, or agree to exercise, all of its outstanding options for aircraft under the terms of the existing code-sharing agreement.

Should Chautauqua have aircraft in excess of our operational needs, Chautauqua has granted American a right of first refusal to use those aircraft pursuant to the terms of the code-sharing agreement. In addition, should American require more than 25 regional jets to fly under its AmericanConnection code out of St. Louis, American has agreed to grant us a right of first refusal to supply up to five ERJ 140 aircraft.

Under the code-sharing agreement, we are required to have specified terms in the leases of our aircraft. These terms include a limit on the minimum term of the lease, a clause permitting assignment to American without penalty and under identical terms, certain return conditions and a purchase option on terms acceptable to American. We also cannot amend any of the leases without American's prior consent, such consent not to be unreasonably withheld.

If American terminates the code-sharing agreement for cause, American has a call option to require that Chautauqua assign to American all of its rights under the leases of aircraft, and to lease to American the aircraft to the extent Chautauqua owns them, used at that time under the code-sharing agreement. If American exercises their call option, Chautauqua is required to pay certain maintenance costs in transferring the aircraft to American's maintenance program.

If American terminates the code-sharing agreement without cause, Chautauqua has the right to put the leases of the aircraft, or to lease the aircraft to them to the extent owned by Chautauqua, used under the code-sharing agreement to American. American also has a call option to require Chautauqua to assign to American these leases. If Chautauqua exercises its put or American exercises their call, both parties are obligated to implement a schedule to terminate the code-sharing agreement in an orderly fashion and transition the aircraft from us to American. With the exception of performance incentives, which are deemed inapplicable during such transition, the term of the code-sharing agreement is deemed to continue during the transition period. Moreover, Chautauqua would be entitled to receive payments of fixed costs and reimbursement of pass-through costs during such period.

The code-sharing agreement with American gives American the right to purchase up to five percent of the common stock that we may offer for sale in connection with this offering, referred to as our IPO. American has elected to waive this right. To further induce American to enter into the code-sharing agreement with us, we paid American a contract rights fee in the form of a warrant to purchase shares of our common stock. For a description of this warrant, see "Description of Capital Stock—Warrants."

For illustrative purposes only, we estimate that, should American acquire all of the common stock they are entitled to acquire under the warrant and assuming the warrant shares are 100% vested, American will own approximately 5% of our common stock.

The term of the American code-sharing agreement continues until February 1, 2013. American may reduce the term by one year each time that we fail to achieve an agreed performance level. American may only exercise this right three times during the term of the code-sharing agreement. The agreement may be subject to termination for cause prior to that date under various circumstances including:

•: a change in the regulations governing air carriers that materially affects the rights and/or obligations of either party, subject to negotiation of amendments to the code-sharing agreement or third party mediation;

•: if we or American become insolvent or fail to pay our debts as they become due, the other party may terminate the agreement subject to five business days' notice and rights of assurance;
•: failure by us or American to perform the material terms, covenants or conditions of the code-sharing agreement (which includes the American standards of service), subject to 30 day notice and cure rights;
•: if we or American fail to make a payment when due, subject to five business days' notice and cure rights;
•: if either party suspends or is required to suspend its operations due to any safety reason, the other party may terminate the agreement on five days' notice;
•: if American, in its reasonable discretion, determines that we materially breached a representation or warranty to them that creates a serious and imminent threat to the safe operation of AmericanConnection services, American may immediately terminate the code-sharing agreement;
•: if our President and CEO is replaced, American has the right to terminate the agreement if it does not approve of the replacement CEO; however, American cannot unreasonably withhold its approval;
•: if we fail to achieve specified levels of operating performance in completion factor, on-time arrivals, customer complaints and baggage, American may terminate the agreement, subject to corrective action plan and adherence to such plan;
•: if we fail to represent the American brand favorably (subject to certain standards and conditions), American may terminate the agreement; or
•: if either party assigns, by operation of law or otherwise, the code-sharing agreement without the written consent of the other party, subject to five days notice and cure rights, or if we enter into any merger, sale or acquisition of all or substantially all of our assets or a majority of our outstanding voting interests with an air carrier other than an entity that is under common control with us.

American may terminate the code-sharing agreement without cause upon 180 days notice, provided that such notice may not be given prior to September 30, 2005. If American exercises this right, it is required to reimburse us for certain deferred costs and we and American have certain "put" and "call" rights with respect to the aircraft we operate for them. American has agreed that, upon American's exercise of its option to add aircraft, it will negotiate an extension to the September 30, 2005, date. In addition, if American terminates the code-sharing agreement early, the unvested portion of its warrant to purchase our common stock will terminate.

If American terminates the code-sharing agreement for any reason prior to April 30, 2008, or we terminate the code-sharing agreement prior to April 30, 2008, due to a breach of the agreement by American, American has agreed to reimburse us for certain price concessions that we granted American.

In general, we have agreed to indemnify American and American has agreed to indemnify us for any damages caused by any breaches of our respective obligations under the code-sharing agreement or caused by our respective actions or inactions under the code-sharing agreement.

The America West Code-Sharing Agreement

Chautauqua currently operates 8 Embraer regional jets for America West under a code-sharing agreement. The code-sharing agreement provides that Chautauqua will operate 12 Embraer regional jets as America West Express. The first Embraer regional jet was placed into service on August 1, 2001,

and we plan to place the twelfth regional jet into service in November 2002. As of March 31, 2002, Chautauqua was providing 28 flights per day as America West Express between Columbus and designated outlying cities.

America West provides reservation, check-in, baggage-handling and other ground support and passenger services, tickets and similar items with respect to such flights and also controls scheduling, ticket prices and seat inventories with respect to such flights. In exchange for providing the designated number of flights and performing our other obligations under the America West agreement, we receive from America West a fixed-fee per departure, a fixed-fee per block hour flown, a fixed-fee per flight hour flown, a fixed-fee per aircraft per day and a fixed-fee per day. We also receive an additional amount per available seat mile flown. In addition, we are eligible to receive per passenger incentives based upon on-time performance and flight completion rates. Conversely, we must pay per passenger penalties should our performance not meet minimum standards for on-time performance and flight completion rates. The fixed rates for each block hour, flight hour, flight and day that we receive from America West under the code-sharing agreement have been determined through the term of such agreement, subject to an agreed annual escalation rate. America West reimburses us for certain costs on an actual basis, including fuel costs, aircraft ownership and financing costs (including fees payable to Solitair Corp. at a maximum stated amount), landing fees, passenger liability and hull insurance, aircraft property taxes and de-icing costs. We also receive monthly payment from America West based on a percentage of revenue from flights that we operate under the code-sharing agreement. All aircraft added to the fleet serving under the code-sharing agreement must be either new or in any event no older than 24 months from new manufacturer delivery.

We have the right to divert all aircraft subject to the America West code-sharing agreement to non-America West uses. We must provide America West with at least 12 months prior written notice of our intent to divert aircraft. If we exercise our right to divert aircraft, we must remove all aircraft from service over a three month period starting no earlier that the twelfth calendar month after providing the written notice. Additionally, any aircraft not yet placed in service under the America West code-sharing agreement at the time we give the notice of intent to divert shall not be added to the fleet. When the last aircraft is removed from service, the code-sharing agreement automatically terminates and neither we nor America West have any further rights or obligations under the agreement.

America West has the right to remove any one aircraft from service after August 2007 and any two aircraft from service after August 2009. No more than two aircraft may be removed from service under this provision. America West may require us to remove any aircraft after the 10th anniversary of the date such aircraft was placed into service under the code-sharing agreement. America West must compensate us in a specified amount for each aircraft they elect to remove from the fleet serving under the code-sharing agreement prior to the tenth anniversary of the aircraft being placed in service. Additionally, if we fail to place an aircraft in service under the code-sharing agreement as scheduled, we are liable to America West for damages unless such failure was due to the failure of the manufacturer to deliver the aircraft. We use commercially reasonable efforts to arrange a replacement aircraft and we pass on any compensation we receive from the manufacturer for such delay to America West. If such failure to deliver an aircraft continues for 90 days, America West may reduce the fleet under the code-sharing agreement by not including such aircraft.

To further induce America West to enter into the code-sharing agreement with us, we will pay America West a contract rights fee in the form of our agreement to issue them, upon the consummation of this offering, a warrant to purchase shares of our common stock. We also agreed to make certain payments to them upon the occurrence, prior to our initial public offering, of certain corporate change in control transactions. The warrant will represent 1% of our outstanding common stock. For a description of this warrant, see "Description of Capital Stock-Warrants."

The term of the America West code-sharing agreement continues until the tenth anniversary of the date the last aircraft is added to the fleet, currently anticipated to be November 2002. The code-sharing agreement is subject to termination prior to that date in various circumstances including:

•: if our flight completion factor falls below a specified percentage for a specified period of time, upon 180 days prior notice;
•: if either America West or we become insolvent, file for bankruptcy or fail to pay our debts as they become due, the non-defaulting party may terminate the agreement;
•: failure by us or America West to perform the covenants, conditions or provisions of the code-sharing agreement, subject to 15 days notice and cure rights;
•: if we or America West fails to make a payment when due, subject to five business days notice and cure rights; or
•: if we are required by the FAA or the DOT to suspend operations and we have not resumed operations within ten business days, or if we suspend a substantial portion of services under the code-sharing agreement for any reason (other than a grounding of the ERJ 145 aircraft), America West may terminate the agreement.

In general, we have agreed to indemnify America West and America West has agreed to indemnify us for any damages caused by any breaches of our respective obligations under the code-sharing agreement or caused by our respective actions or inactions under the code-sharing agreement.

America West has advised us that an agreement with another regional airline that is structurally similar to our code-sharing agreement with America West has been alleged by their pilots to violate certain of America West's labor agreements. Subject to the outcome of such dispute, our code-sharing agreement might, by analogy, also violate such agreements. We have entered into an agreement with America West that provides that if our code-sharing agreement conflicts with America West's labor agreements, America West and we will seek to amend the code-sharing agreement to cure the applicable violation but preserve the economic benefits to us of the code-sharing agreement. If we cannot agree on a restructuring of the code-sharing agreement, America West may terminate the code-sharing agreement, provided it pays us a specified amount. There can be no assurances that we and America West will be able to reach a mutually agreeable amendment to the code-share agreement if the provisions of the code-sharing agreement are found to violate America West's labor agreements.

The Delta Code-Sharing Agreement

Under our fixed-fee code-sharing agreement with Delta, Chautauqua will operate 15 ERJ 135 aircraft, including one spare, and 7 ERJ 145 aircraft, as Delta Connection between Orlando and designated outlying cities, with the first two aircraft expected to be in operation in November 2002.

Delta will provide us with reservation services, baggage handling and other ground support, tickets and similar items with respect to the flights we operate for them and Delta controls scheduling, ticket prices and seat inventories with respect to such flights. In exchange for providing the designated number of flights and performing our other obligations under the code-sharing agreement, we receive from Delta monthly compensation made up of a fixed-fee per block hour, a fixed-fee per flight hour, a fixed-fee per departure, a fixed-fee per scheduled aircraft per day and a fixed-fee per day. The fixed rates that we receive from Delta for a given month may be increased if we achieve a specified flight completion rate in that month. We are eligible to receive additional compensation based upon our actual completion rate and on-time arrival rate for each month. Further, for each semi-annual period during the term of the agreement, we are eligible to receive additional compensation from Delta.

Certain of our operating costs are considered "pass through" costs, whereby Delta has agreed to reimburse us the actual amount of costs we incur for these items. Fuel, engine maintenance expenses,

landing fees, passenger liability insurance, hull insurance, war risk insurance, de-icing costs, and property taxes are some of the pass through costs. Aircraft rent/ownership expenses are also considered a pass through cost, but are limited to a specified amount for each type of aircraft.

The fixed rates payable to us by Delta under the code-sharing agreement have been determined through the term of the code-sharing agreement and are subject to annual revision. Certain costs, including fuel costs, aircraft ownership and financing costs (subject to limitation), landing fees, property and liability insurance, aircraft property taxes and de-icing costs, are adjusted on a monthly basis for differences between the actual costs and the assumed costs. In the event we are unable to operate the aircraft due to a strike, labor dispute, work stoppage or similar event, that is substantially within our control, or caused by some action or inaction by us or relates to the aircraft we operate for Delta, Delta is not obligated to pay us pursuant to the code-sharing agreement. However, if we cannot operate the aircraft due to a strike, labor dispute, work stoppage or similar event that is substantially within the control of Delta, or caused by some action or inaction by Delta, Delta shall still be obligated to pay us the fixed amounts due under the agreement, plus monthly and semi-annual incentive payments if we achieve certain milestones. If we cannot operate the aircraft due to an event that is not substantially within the control of either us or Delta, or caused by some action or inaction of either us or Delta, Delta is only obligated to pay us our fixed costs and our pass through costs during the period in which we cannot operate the flights for Delta.

Under the terms of the code-sharing agreement, except for (1) the aircraft Chautauqua currently operates for US Airways, American and America West, (2) the additional aircraft allocated to US Airways, American and America West under Chautauqua's existing code-sharing agreements, (3) aircraft subject to Chautauqua's current code-share agreements that need to be repositioned with another code-share partner in the event of a bankruptcy or breach by one of Chautauqua's current code-share partners and (4) other limited exceptions, Chautauqua has agreed to list its flights only under Delta's code during the term of our code-sharing agreement with them unless it obtain prior written approval from Delta. If Chautauqua does enter into a new code-sharing agreement with Delta's permission, Chautauqua remains prohibited from operating any aircraft for the new code-share partner into or out of several major metropolitan airports. During the term of the code-sharing agreement, Chautauqua may not operate any flights under its own flight designator code into or out of several major metropolitan airports unless that flight is flown under its code for one of our existing code-share partners and that partner remains obligated to compensate us for operating that flight.

Pursuant to the terms of the code-sharing agreement, Delta has the right, prior to the entrance by Chautauqua into an agreement with a third party to operate aircraft that Chautauqua previously operated for another existing code-share party for that third party or for Chautauqua, to purchase, lease or code-share (or any combination thereof) such repositioned aircraft on terms no less favorable than those offered to the third party. If Delta does not exercise this right within a specified amount of time, Chautauqua will be permitted to enter into the arrangement with the third party, but Chautauqua will be prohibited during the term of the code-sharing agreement with Delta from flying more than a specified number of flights per day with such repositioned aircraft into each of several major metropolitan airports without Delta's prior written consent.

The code-sharing agreement with Delta gives Delta the right to purchase up to five percent of the common stock that we may offer for sale in connection with our IPO. To further induce Delta to enter into the code-sharing agreement with us, we paid Delta a contract rights fee in the form of a warrant to purchase shares of our common stock and will pay to Delta in the form of a contract rights fee, upon the closing of our IPO, another warrant to purchase shares of our common stock. In addition, for each additional aircraft put into service for Delta beyond the initial 22, Delta will receive a warrant to purchase 60,000 shares of our common stock. For a description of these warrants, see "Description of Capital Stock—Warrants."

For illustrative purposes only, we estimate that, should Delta acquire all of the common stock they are entitled to acquire under their IPO purchase right and their warrants and assuming the warrant shares are 100% vested, Delta will own approximately 10.7% of our common stock.

The initial term of the code-sharing agreement is ten years, or until June 7, 2012. At the end of the term, Delta has the right to extend the agreement for an additional five years on the same terms and conditions. If either we or Chautauqua enter into a merger where we are not the surviving entity or the ultimate beneficial ownership of the surviving entity following a merger is not substantially similar (i.e., at least 75% common ownership) to the ultimate beneficial ownership of us or Chautauqua prior to the merger (which we refer to as a merger), or if a party acquires more than 49% of our voting power or outstanding common stock or that of Chautauqua (with limited exceptions) (which we refer to as a change in control), Delta shall have the right to extend the term of the code-sharing agreement for an additional ten years beyond the applicable termination date of the agreement.

The agreement may be subject to early termination under various circumstances including:

•: if either Delta or we file for bankruptcy, reorganization or similar action (or if any such action is imminent) or if either Delta or we make an assignment for the benefit of creditors;
•: if either Delta or we commit a material breach of the code-sharing agreement, subject to 30 days notice and cure rights; or
•: upon the occurrence of an event of force majeure that continues for a period of two or more consecutive months, subject to 30 days prior written notice to the party affected by the force majeure event.

In addition, Delta may immediately terminate the code-sharing agreement upon the occurrence of one or more of the following events:

•: if there is a change in control of us or Chautauqua;
•: if there is a merger involving us or Chautauqua;
•: if Delta is unsatisfied with the product quality we are providing 30 days after it has supplied us written notice of its dissatisfaction and has proposed remedial measures;
•: if we fail to maintain a specified completion rate with respect to the flights we operate for Delta during a specified period;
•: if we fail to pass, in Delta's reasonable judgment, a safety and code share audit conducted by Delta prior to the time we commence flight operations for Delta; or
•: if our level of safety is not reasonably satisfactory to Delta, subject to 30 days notice and cure period.

In addition, Delta may terminate the code-sharing agreement at any time, with or without cause, if it provides us 180 days written notice, provided that such notice shall not be given prior to 36 months after we place the 22^nd aircraft into service for Delta. If Delta does choose to eliminate any aircraft at that time, it may only eliminate up to 11 aircraft during the 12-month period following the 180 day initial notice period unless it completely terminates the agreement. We refer to this as Delta's partial termination right.

If Delta exercises its partial termination right or if we terminate the code-sharing agreement because of Delta's bankruptcy or insolvency, a breach of the agreement by Delta or because of an event of force majeure has occurred that continues for at least two consecutive months, we may require Delta to either purchase or sublease any of the terminated aircraft we own at a specified price or to assume the lease of any aircraft that we lease. If we choose not to exercise this "put" right, Delta has the right to require us to sell or sublease to them the terminated aircraft we own for a specified

amount or to assume the leases of the terminated aircraft that we lease. Delta may also exercise this "call" right if it terminates the code-sharing agreement for any of the reasons set forth above.

In general, we have agreed to indemnify Delta and Delta has agreed to indemnify us for any damages caused by any breaches of our respective obligations under the code-sharing agreement or caused by our respective actions or inactions under the code-sharing agreement.

Pursuant to the agreement, Delta must give us notice if it changes the location of the hub from which we fly for them from Orlando to another location, except that Delta cannot change the hub location to St. Louis, Memphis, Kansas City, Nashville or any other location within 50 statute miles of St. Louis, Missouri.

Subject to the right of first refusal that Chautauqua granted to American pursuant to its code-sharing agreement with them, should Chautauqua receive an offer, bid or other expression of inquiry from a third party to purchase, lease, sublease, encumber or otherwise acquire any interest in, or to operate on behalf of a third party, any aircraft that it owns or leases, which we desire to accept, Chautauqua has granted to Delta a right of first refusal to acquire the aircraft which Chautauqua desires to dispose of on the same terms as those offered to us by the third party.

At any time that Chautauqua enters into an agreement in principle with a third party for a code-sharing (or similar) relationship using ERJ 135 or ERJ 145 aircraft, other than certain permitted amendments to our pre-existing code-sharing agreements, Chautauqua must offer Delta the right, on an all or nothing basis, to amend the code-sharing agreement to incorporate the terms of the agreement with a third party. If Delta elects to incorporate the terms of the agreement with the third party, those terms will govern all of the aircraft covered by the code-sharing agreement.

Safety and Security

We are dedicated to ensuring the safety of our customers and employees. We have taken numerous measures, voluntarily and as required by regulatory authorities, to increase both the safety and security of our operations in the wake of the terrorist attacks of September 11, 2001.

Since September 11, 2001, we and our code-share partners have implemented security enhancements, including the following:

•: positive bag matching procedures;
•: enhanced aircraft search procedures and aircraft guarding;
•: more thorough passenger screening and search procedures; and
•: securing cockpit doors.

In addition to these measures, we have complied with all other new FAA security requirements designed to enhance passenger security and will continue to abide by all future security enhancement requirements. Immediately following September 11, 2001, the FAA began to issue many new security requirements which airlines have been required to implement, including passenger and baggage screening.

Further, under the new Aviation Security Act, numerous new responsibilities and procedures have been or will be put in place to ensure civil aviation security, including:

•: the creation of the Transportation Security Administration, or TSA, of the DOT, with responsibility for assessing transportation security threats, developing responses to such threats and acting as the primary liaison between the transportation sector and intelligence and law enforcement communities;
•: federal employees will assume the screening of all passengers and baggage;
•: new qualification standards will be set for security screening personnel;
•: criminal background checks will be conducted on all airport employees;
•: a law enforcement officer will be present at every screening check point;
•: a new security fee of $2.50 per enplanement levied on passengers;
•: all checked baggage will need to be screened;
•: additional training will be required for airline employees;
•: additional air marshals will be deployed; and
•: further steps will be taken to reinforce cockpit doors.

Competition and Economic Conditions

The airline industry is highly competitive. We not only compete with other regional airlines, some of which are owned by or are operated as code-sharing partners of major airlines, but also face competition from low-fare airlines and major airlines on some of our routes.

The principal competitive factors in the regional airline industry are fare pricing, customer service, routes served, flight schedules, aircraft types and code-sharing relationships. Certain of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats.

Generally, the airline industry is highly sensitive to general economic conditions, in large part due to the discretionary nature of a substantial percentage of both business and pleasure travel. In the past, many airlines have reported decreased earnings or substantial losses resulting from periods of economic recession, heavy fare discounting and other factors. Economic downturns combined with competitive pressures have contributed to a number of bankruptcies and liquidations among major and regional carriers. The effect of economic downturns is somewhat mitigated by our fixed-fee arrangements with respect to certain flights. Nonetheless, the per passenger component in such fee structure would be affected by an economic downturn. In addition, if our major airline code-share partners experience longer-term decline in passenger load or are injured by low ticket prices or high fuel prices, they will likely seek to reduce our fixed-fees or cancel a number of flights in order to reduce their costs.

Government Regulation

All interstate air carriers are subject to regulation by the DOT, the FAA and certain other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of

air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight maintenance or operations activities; record keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. Generally, governmental agencies enforce their regulations through, among other mechanisms, certifications, which are necessary for our continued operations, and proceedings, which can result in civil or criminal penalties or revocation of operating authority. The FAA can also issue maintenance directives and other mandatory orders relating to, among other things, grounding of aircraft, inspection of aircraft, installation of new safety-related items and the mandatory removal and replacement of aircraft parts that have failed or may fail in the future.

We believe that we are operating in material compliance with FAA regulations and hold all necessary operating and air worthiness certificates and licenses. We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. Our flight operations, maintenance programs, record keeping and training programs are conducted under FAA-approved procedures.

The DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate or foreign commerce or the national transportation system. Certain airports, including the major airports at Boston, Washington, D.C., Chicago, Los Angeles, San Diego, Orange County (California) and San Francisco, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of such operations. In some instances, these restrictions have caused curtailments in services or increases in operating costs, and such restrictions could limit our ability to commence or expand our operations at affected airports. Local authorities at other airports are considering adopting similar noise regulations.

Pursuant to law and the regulations of the DOT, we must be effectively controlled by United States citizens. In this regard, our President and at least two-thirds of our Board of Directors must be United States citizens and not more than 25% of our voting stock may be owned or controlled by foreign nationals (although subject to DOT approval the percent of foreign economic ownership may be as high as 49%).

Environmental Proceedings

We are subject to various federal, state, local and foreign laws relating to the protection of the environment, including discharge or disposal of materials and chemicals and the regulation of aircraft noise, which laws are administered by numerous state and federal agencies. We are and may from time to time become involved in environmental matters, including the investigation and/or remediation of environmental conditions at properties used or previously used by us. We are not, however, currently subject to any environmental cleanup orders imposed by regulatory authorities, nor do we have any active investigations or remediations at this time.

Insurance

We maintain insurance policies that we believe are of types customary in the industry and in amounts we believe are adequate to protect us against material loss. The policies principally provide coverage for public liability, passenger liability, baggage and cargo liability, property damage, including coverages for loss or damage to our flight equipment, and workers' compensation insurance. There is no assurance, however, that the amount of insurance we carry will be sufficient to protect us from material loss. Each of our code-sharing agreements requires us to maintain specified types and amounts of insurance.

Legal Proceedings

We recently were informed by the FAA that it is investigating shipments sent by us on cargo airlines consisting of approximately 46 packages that may have contained regulated hazardous materials without properly training our employees and/or without properly labeling, declaring, marking, describing or packaging the shipments for transportation in air commerce in accordance with applicable requirements. We are cooperating with the FAA's investigation, which is at an early stage. We have been informed by our legal counsel that we could be subject to civil penalties of up to $27,500 for each violation. Given the early stage of the investigation and the discretion the FAA has in imposing penalties, legal counsel is unable to estimate the number of violations or the amount of penalties, if any, we might be required to pay. We, believe, however, that the ultimate outcome of this matter will not have a material adverse effect on our financial position, liquidity or results of operations.

In addition to that discussed above, we are subject to certain other legal and administrative actions which we consider routine to our business activities. As of March 31, 2002, we believe that, after consultation with our legal counsel, the ultimate outcome of any pending legal matters will not have a material adverse effect on our financial position, liquidity or results of operations.

MANAGEMENT

Executive Officers, Directors and Key Employees

The following table sets forth information regarding our current executive officers, directors and key employees as of , 2002:

Name	Age	Position
Bryan K. Bedford	40	Chairman of the Board, President and Chief Executive Officer
Robert H. Cooper	42	Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Arthur H. Amron	45	Director
Lawrence J. Cohen	46	Director
Charles E. Davidson	49	Director
Joseph M. Jacobs	49	Director
Douglas J. Lambert	44	Director
Mark E. Landesman	41	Director
Jay L. Maymudes	41	Director
Mark L. Plaumann	46	Director
Wayne C. Heller	43	Executive Vice President—Chief Operating Officer of Chautauqua

Bryan K. Bedford joined us in July 1999 as our president and chief executive officer and a member of our board of directors and became chairman of the board in August 2001. From July 1995 through July 1999, Mr. Bedford was the president and chief executive officer and a director of Mesaba Holdings, Inc., a publicly-owned regional airline. He has over 14 years of experience in the regional airline industry, and was named regional airline executive of the year in 1998 by Commuter and Regional Airline News. Mr. Bedford is a licensed pilot and a certified public accountant. He also served as the 1998 Chairman of the Regional Airline Association.

Robert H. Cooper joined us in August 1999 as vice president and chief financial officer. In February 2002, he became executive vice president, chief financial officer, treasurer and secretary and assumed responsibility for all purchasing and material control. He was previously employed with Mesaba Holdings, Inc. from September 1995 through August 1999 as its vice president, chief financial officer and treasurer. Mr. Cooper is a certified public accountant. He has over nine years experience in the regional airline industry. He has responsibility for financial accounting, treasury, public reporting, investor relations, human resources, information technology, purchasing and material control.

Arthur H. Amron became a director in August 2001. Mr. Amron joined Wexford Capital LLC in 1994, became a Principal in 1999 and serves as Wexford's General Counsel. From 1991 to 1994, he was an associate at Schulte Roth & Zabel, LLP and from 1984 to 1991, he was an associate at Debevoise & Plimpton LLP. Mr. Amron is a director of several privately-held companies in which Wexford Capital has an investment. Mr. Amron served as a member of the board of directors of Frontier Airlines, Inc. from 1997 through 1999.

Lawrence J. Cohen will become a director contemporaneously with the consummation of this offering. He is the owner and Chairman of Pembroke Companies, Inc., an investment and management firm that he founded in 1991. The firm makes investments in and provides strategic management services to real estate and specialty finance related companies. From 1989 to 1991, Mr. Cohen worked at Bear Stearns & Co. where he attained the position of Managing Director. From 1983 to 1989, Mr. Cohen served as first Vice President in the Real Estate Group of Integrated Resources Inc. From 1980 to 1983, Mr. Cohen was an associate at the law firm of Proskauer Rose Goetz & Mendelsohn. Mr. Cohen is a member of the bar in both New York and Florida.

Charles E. Davidson has been a director since May 1998, and served as Chairman of the Board from May 1998 to August 2001. He co-founded Wexford Capital LLC in 1994 and serves as its

Chairman. From 1984 to 1994, Mr. Davidson was a General Partner of Steinhardt Partners, L.P. From 1977 to 1984, he was employed by Goldman Sachs & Co. where he was the head of domestic corporate bond trading and proprietary trading. Mr. Davidson is a director of several privately-held companies in which Wexford Capital has an investment.

Joseph M. Jacobs has been a director since May 1998, and served as Vice-Chairman of the Board from May 1998 to August 2001. He co-founded Wexford Capital LLC in 1994 and serves as its President. From 1982 to 1994, Mr. Jacobs was employed by Bear Stearns & Co., Inc. where he attained the position of Senior Managing Director. From 1979 to 1982, he was employed as a commercial lending officer at Citibank, N.A. Mr. Jacobs is a director of several privately-held companies in which Wexford Capital has an investment.

Douglas J. Lambert has been a director since August 2001. He joined Wexford Capital LLC in 1994 and serves as a Senior Vice President. He presently is a Vice President of Solitair Corp. and is Deputy Managing Director of Solitair Kapital AB, both affiliates of Wexford Capital. From 1983 to 1994, Mr. Lambert held various financial positions with Integrated Resources, Inc.'s Equipment Leasing Group, including Treasurer and Chief Financial Officer. He is a certified public accountant. Mr. Lambert is a director of several privately-held companies in which Wexford Capital has an investment.

Mark E. Landesman will become a director contemporaneously with the consummation of this offering. Mr. Landesman is President of ML Management Associates, Inc., an entertainment business management firm, which he founded in 1988. The firm is responsible for the financial affairs for numerous entertainment industry clients. Mr. Landesman is a member of the Media Entertainment Roundtable Committee and he is a Certified Public Accountant.

Jay L. Maymudes has been a director since May 1998. He joined Wexford Capital LLC in 1994, became a Principal in 1997 and serves as Wexford's Chief Financial Officer. From 1988 to 1994, Mr. Maymudes was the Chief Financial Officer of Dusco, Inc., a real estate investment advisory firm which managed publicly-traded and privately-held real estate investment trusts. He is a certified public accountant. Mr. Maymudes is a director of several privately-held companies in which Wexford Capital has an investment.

Mark L. Plaumann will become a director contemporaneously with the consummation of this offering. He is presently a Managing-Member of Greyhawke Capital Advisors LLC, which he co-founded in 1998. From 1995 to 1998, Mr. Plaumann was a Senior Vice President of Wexford Capital LLC. From 1990 to 1995, Mr. Plaumann was employed by Alvarez & Marsal, Inc. as a Managing Director. From 1985 to 1990, Mr. Plaumann worked for American Healthcare Management, Inc., where he attained the position of President. From 1974 to 1985, Mr. Plaumann worked in both the audit and consulting divisions of Ernst & Young, where he attained the position of Senior Manager.

Wayne C. Heller joined Chautauqua in August 1999 as Vice President—Flight Operations with responsibility for flight crew supervision, system control, flight safety and flight quality standards. In February 2002, he became Executive Vice President and Chief Operating Officer of Chautauqua, and assumed responsibility for all aircraft maintenance, records and engineering. From April 1996 until August 1999 he was employed by Mesaba Airlines, Inc., as its Director of System Operations Control. He is a licensed pilot and a licensed dispatcher and has over 23 years of regional airline experience in operations.

Committees of the Board of Directors

We have established a compensation committee and plan to establish an audit committee upon the consummation of this offering. Our compensation committee reviews and recommends to the board of directors the salaries and benefits for all employees, consultants, directors and other individuals compensated by us. The compensation committee also administers our stock option and other employee benefit plans. The compensation committee consists of Messrs. , and . The audit committee will review our internal accounting procedures and will consider and report to the board of directors with respect to other auditing and accounting matters, including the selection of our independent auditors, the scope of annual audits, fees to be paid to our independent auditors and the performance of our independent auditors. Our audit committee will consist of Messrs. , and .

Director Compensation.

We will pay each of our non-employee directors an annual fee of $10,000 for each fiscal year in which they serve as a director. In addition, each non-employee director will receive an additional fee of $2,500 per year for each committee on which each director serves (as well as an additional annual fee of $2,500 per year for each committee chairmanship held by each director). Each non-employee director will automatically be granted options to purchase 10,000 shares of our common stock under our 2002 Equity Incentive Plan on the day prior to the commencement of the initial public offering of our common stock at an exercise price equal to the initial public offering price. Each director who first becomes a non-employee director after the initial public offering of our common stock will automatically be granted options to purchase 10,000 shares of our common stock under our 2002 Equity Incentive Plan on the first trading day following his or her commencement of service as a non- employee director. In each subsequent year, in conjunction with the annual meeting, each non-employee director will generally be granted options to purchase 2,500 shares of our common stock under our 2002 Equity Incentive Plan (for a description of the terms and conditions of the options granted to our non-employee directors, see "Non-Employee Stock Options" below).

The Board of Directors

We currently have six members on our board of directors. Each of our directors holds office until his or her successor is duly elected and qualified or until his or her resignation or removal, if earlier, as provided in our by-laws. No family relationship exists among any of the directors or executive officers.

Executive Compensation

The following table sets forth certain summary information with respect to compensation we paid in 2001 to our Chief Executive Officer and our other executive officers as of December 31, 2001.

Name and position	Salary		Bonus	All Other Compensation(1)
Bryan K. Bedford Chairman of the Board, President and Chief Executive Officer	$	310,000	$	$	3,577
Robert H. Cooper Executive Vice President, Chief Financial Officer, Treasurer and Secretary		150,000			3,317
Wayne C. Heller Executive Vice President and Chief Operating Officer of Chautauqua		110,000			2,538

(1): Consists of matching payments made under our 401(k) plan.

Aggregated Option Values as of December 31, 2001

The executive officers named in the summary compensation table did not exercise any stock options during the year ended December 31, 2001. The following table sets forth information concerning the year-end number and value of unexercised options with respect to our named executive officers. There was no public trading market for our common stock as of December 31, 2001. Accordingly, the values set forth below have been calculated on the basis of the assumed initial public offering price of $13.00 per share, the midpoint of our filing range, less the applicable exercise price per share, multiplied by the number of shares underlying the options.

	Number of Securities Underlying Unexercised Options At Fiscal Year-End		Value of Unexercised In-The-Money Options At Fiscal Year-End
	Unexercisable	Exercisable	Unexercisable		Exercisable
Bryan K. Bedford	450,000	750,000	$	5,062,500	$	8,437,500
Robert H. Cooper	118,750	181,250		1,335,938		2,039,063
Wayne C. Heller	79,167	120,833		890,625		1,359,375

Option Grants

No stock options were granted for the year ended December 31, 2001, to any of Messrs. Bedford, Cooper or Heller.

Employment Agreements

We entered into an employment agreement with Mr. Bedford in June 1999. Mr. Bedford's current annual salary is $310,000. Mr. Bedford is entitled to receive an annual bonus of at least $140,000, or such greater amount as our board of directors may determine in its discretion, throughout the term of the agreement. The agreement expires in June 2003. When he entered into the employment agreement with us, Mr. Bedford received options to purchase 1,200,000 shares of our common stock with an exercise price of $1.75 per share. The options vest monthly on a pro rata basis over a period of four years, commencing June 1999. If we terminate Mr. Bedford's employment without "cause," within the meaning of the employment agreement, or if Mr. Bedford terminates his employment for "cause," within the meaning of the employment agreement, he will be entitled to receive a severance payment of $23,333 for each month remaining under his employment agreement, with a specified minimum payment of $140,000 and a specified maximum payment of $560,000. Mr. Bedford will be precluded from competing with us and soliciting our employees for a period of 12 months following the expiration or any termination of his employment agreement.

Effective upon the consummation of this offering, Mr. Bedford will enter into a new employment agreement with us. Mr. Bedford's annual base salary will be $340,000 and his annual deferred compensation payment will be $170,000, throughout the term of the new agreement. In addition, Mr. Bedford will be eligible for an annual bonus in such amount as our board of directors may determine in its discretion. The new agreement expires in June 2005, provided that either party may terminate the agreement by providing the other party notice 30 days prior to termination. Mr. Bedford will receive options to purchase 278,100 shares of our common stock at a price equal to 110% of the price that the shares of our common stock are offered to the public. The options will vest pro rata over two years beginning in July 2003. If we terminate Mr. Bedford's employment without "cause" within the meaning the new employment agreement, or if Mr. Bedford terminates his employment for "cause," within the meaning of the new employment agreement, he will be entitled to receive $680,000, unless the new agreement has less than 24 months remaining in its term. In that situation, Mr. Bedford's severance payment will be prorated for the remainder of the term, but in no event will it be less than $170,000. Additionally, Mr. Bedford will be precluded from competing with us for a period of twelve months following the expiration or any termination of this new employment agreement.

We entered into an employment agreement with Mr. Cooper in July 1999. Mr. Cooper's current annual salary is $175,000. Mr. Cooper is entitled to receive an annual bonus of at least $52,000, or such greater amount as our board of directors may determine in its discretion, throughout the term of the agreement. The agreement expires in July 2003. When he entered into the employment agreement with us, Mr. Cooper received options to purchase 300,000 shares of our common stock with an exercise price of $1.75 per share. The options vest monthly on a pro rata basis over a period of four years, commencing in July 1999. If we terminate Mr. Cooper's employment without "cause," within the meaning of the employment agreement, or if Mr. Cooper terminates his employment for "cause," within the meaning of the employment agreement, he will be entitled to receive a $130,000 severance payment, prorated for the remainder of the term. Mr. Cooper will be precluded from competing with us and soliciting our employees for a period of 12 months following the expiration or any termination of his employment agreement.

Effective upon the consummation of this offering, Mr. Cooper will enter into a new employment agreement with us. Mr. Cooper's annual base salary will be $175,000 and his annual deferred compensation payment will be $70,000, throughout the term of the new agreement. In addition, Mr. Cooper will be eligible for an annual bonus in such amount as our board of directors may determine in its discretion. The new agreement expires in July 2005, provided that either party may terminate the agreement by providing the other party notice 30 days prior to termination. Mr. Cooper will receive options to purchase 135,960 shares of our common stock at a price equal to 110% of the price that the shares of our common stock are offered to the public. The options will vest pro rata over two years beginning in August 2003. If we terminate Mr. Cooper's employment without "cause" within the meaning of the new employment agreement, or if Mr. Cooper terminates his employment for "cause," within the meaning of the new employment agreement, he will be entitled to receive $175,000. The severance payment will be prorated if the remaining term of the agreement is less than twelve months. Additionally, Mr. Cooper will be precluded from competing with us for a period of twelve months following the expiration or any termination of his employment agreement.

We entered into an employment agreement with Mr. Heller in July 1999. Mr. Heller's current annual salary is $140,000. Mr. Heller is entitled to receive an annual bonus of at least $36,000, or such greater amount as our board of directors may determine in its discretion, throughout the term of the agreement. The agreement expires in July 2003. When he entered into the employment agreement with us, Mr. Heller received options to purchase 200,000 shares of our common stock with an exercise price of $1.75 per share. The options vest monthly on a pro rata basis over a period of four years, commencing in July 1999. If we terminate Mr. Heller's employment without "cause," within the meaning of the employment agreement, or if Mr. Heller terminates his employment for "cause," within the meaning of the employment agreement, he will be entitled to receive a $45,000 severance payment. This severance payment will be prorated if the remaining term of the agreement is less than six months. Mr. Heller will be precluded from competing with us and soliciting our employees for a period of 12 months following the expiration or any termination of his employment agreement.

Effective upon the consummation of this offering, Mr. Heller will enter into an employment agreement with Chautauqua. Mr. Heller's annual base salary will be $140,000 and his annual deferred compensation payment will be $56,000, throughout the term of the new agreement. In addition, Mr. Heller will be eligible for an annual bonus in such amount as our board of directors may determine in its discretion. The new agreement expires in July 2005, provided that either party may terminate the agreement by providing the other party notice 30 days prior to termination. Mr. Heller will receive options to purchase 74,160 shares of our common stock at a price equal to 110% of the price that the shares of our common stock are offered to the public. The options will vest pro rata over two years beginning in August 2003. If we terminate Mr. Heller's employment without "cause" within the meaning of the new employment agreement, or if Mr. Heller terminates his employment for "cause," within the meaning of the new employment agreement, he will be entitled to receive $140,000. The severance payment will be prorated if the remaining term of the agreement is less than twelve

months. Additionally, Mr. Heller will be precluded from competing with Chautauqua or its affiliates, including us, for a period of twelve months following the expiration or any termination of his new employment agreement.

Stock Options

To date, we have outstanding options to purchase 1,920,000 shares of our common stock. These options were granted by our board of directors to our key employees and were not granted pursuant to any established stock option plan. These options do not qualify as incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended), which we refer to as ISOs. The exercise price of these options range from $1.75 to $7.83 per share, and they vest monthly on a pro rata basis for four years, commencing on the date of grant.

The 2002 Equity Incentive Plan

The following is a description of the material terms of our 2002 Equity Incentive Plan, which will become effective prior to the commencement of this offering. You should, however, refer to the exhibits that are a part of the registration statement for a copy of the 2002 Equity Incentive Plan.

Type of Awards. The 2002 Equity Incentive Plan provides for grants of options to purchase shares of our common stock, including options intended to qualify as ISOs, and options which do not qualify as ISOs, which we refer to as NQSOs, restricted shares of our common stock, restricted stock units, the value of which is tied to shares of our common stock and other equity-based awards related to our common stock, including unrestricted shares of our common stock, stock appreciation rights and dividend equivalents. In addition, non-employee directors shall receive automatic grants of NQSOs.

Available Shares. A maximum of 2,180,000 shares of our common stock has been reserved for issuance, or reference purposes, under the 2002 Equity Incentive Plan, subject to adjustment upon certain changes in capitalization (as described below). New awards may be granted under the 2002 Equity Incentive Plan with respect to shares of our common stock covered by any award that terminates or expires by its terms (by cancellation or otherwise) or with respect to shares of our common stock are withheld or surrendered to satisfy a recipient's income tax or other withholding obligations or tendered to pay the purchase price of any award.

Eligibility. Awards under the 2002 Equity Incentive Plan may be granted to any of our (or any of our subsidiaries' or affiliates') directors, officers or other employees, including any prospective employee, and to any of our (or any of our subsidiaries' or affiliates') advisors or consultants selected by the compensation committee of our board of directors.

Administration. The 2002 Equity Incentive Plan will be administered by the compensation committee of our board of directors or the board of directors. However, our board of directors may, in its sole discretion, delegate to one or more of our executive officers the authority to grant options to employees who are not officers or directors on terms specified by our board of directors. The compensation committee will have full discretion and authority to make awards under the 2002 Equity Incentive Plan, to apply and interpret the provisions of the 2002 Equity Incentive Plan and to take such other actions as may be necessary or desirable in order to carry out the provisions of the 2002 Equity Incentive Plan. The determinations of the compensation committee on all matters relating to the 2002 Equity Incentive Plan and the options, restricted stock, restricted stock units and other equity-based awards granted thereunder will be final, binding and conclusive.

Stock Options. The compensation committee may grant ISOs and NQSOs in such amounts and subject to such terms and conditions as it may determine. The exercise price of an option granted under the 2002 Equity Incentive Plan will not be less than the fair market value of our common stock on the date of grant. Unless sooner terminated or exercised, options will generally expire ten years from the date of grant. Payment for shares acquired upon the exercise of an option may be made in cash and/or such other form of payment as may be permitted by the compensation committee from time to time, which may include previously-owned shares of our common stock or payment pursuant to a broker's cashless exercise procedure. The 2002 Equity Incentive Plan also allows us (or one of our subsidiaries or affiliates) to make loans to optionees under the 2002 Equity Incentive Plan to enable them to pay the exercise price of outstanding options. Except as otherwise permitted by the compensation committee, no option may be exercised more than 30 days after termination of the optionee's employment or other service or, if the optionee's service is terminated by reason of disability or death, one year after such termination. If, however, an optionee's employment is terminated for "cause" (as defined in the 2002 Equity Incentive Plan), options held by such optionee will immediately terminate.

Restricted Stock and Restricted Stock Units. The compensation committee may grant restricted shares of our common stock in amounts, and subject to terms and conditions (such as time vesting and/or performance-based vesting criteria) as it may determine. Generally, prior to vesting, the recipient will have the rights of a stockholder with respect to the restricted stock, subject to any restrictions and conditions as the compensation committee may include in the award agreement. The 2002 Equity Incentive Plan permits us (or one of our subsidiaries or affiliates) to make loans to recipients of restricted stock. Among other things, these loans will bear interest at a fair interest rate as determined by the compensation committee and, unless otherwise determined by the compensation committee, shall be secured by shares of our common stock having an aggregate fair market value at least equal to the principal amount of the loan. The compensation committee may grant restricted stock units, the value of which is tied to shares of our common stock, in amounts, and subject to terms and conditions, as the compensation committee may determine.

Other Equity-Based Awards. The compensation committee may grant other types of equity-based awards related to our common stock under the 2002 Equity Incentive Plan, including the grant of unrestricted shares of our common stock, stock appreciation rights, and dividend equivalents, in amounts and subject to terms and conditions as the compensation committee may determine. These awards may involve the transfer of actual shares of common stock or the payment in cash or otherwise of amounts based on the value of shares of our common stock.

Non-Employee Director Stock Options. Each non-employee director will be automatically granted options to purchase 10,000 shares of common stock on the day prior to the commencement of the initial public offering of our common stock with an exercise price equal to the initial public offering price. Each director who first becomes a non-employee director after the initial public offering of our common stock will automatically be granted options to purchase 10,000 shares of our common stock under our 2002 Equity Incentive Plan on the first trading day following his or her commencement of service as a non-employee director. In addition, each non-employee director will generally be granted an option to purchase 2,500 shares of common stock on the date of each annual meeting of stockholders at which he or she is reelected as a non-employee director. A non-employee director is any member of our board of directors who is not employed by or a consultant to us of any of our subsidiaries and includes any director who serves as one of our officers but is not paid by us for this service. The exercise price per share covered by an option granted shall be equal to the fair market value of the common stock on the date of grant. Subject to remaining in continuous service with the Company through each applicable vesting date, a director's initial option grant will become exercisable as follows: with respect to ¹/24 of the shares covered thereby on the first day of each month for the first twelve months commencing after the date of the grant, and with respect to ¹/48 of the shares covered

thereby on the first day of each successive month for the next twenty-four months. Each annual option grant shall, subject to the director remaining in continuous service with the Company through each applicable vesting date, become vested with respect to ¹/12 of the shares covered thereby on the first day of each month for the first twelve months commencing after the date of the grant. Upon the cessation of a non-employee director's service, such individual will generally have 180 days to exercise all options that are exercisable on the termination date. If a director's service terminates by reason of his or her death or disability, his or her beneficiary will generally have twelve months to exercise any portion of a director option that is exercisable on the date of death. Except as otherwise provided herein, if not previously exercised, each option granted shall expire on the tenth anniversary of the date of grant. Upon a change in control as defined in the 2002 Equity Incentive Plan, vesting of the options held by a non-employee director will accelerate and become fully vested.

Adjustments Upon Changes in Capitalization. Upon any increase, reduction, or change or exchange of the common stock for a different number or kind of shares or other securities, cash or property by reason of a reclassification, recapitalization, merger, consolidation, reorganization, stock dividend, stock split or reverse stock split, combination or exchange of shares, or any other corporate action that affects our capitalization, an equitable substitution or adjustment may be made in the aggregate number and/or kind of shares reserved for issuance (or reference purposes) under the 2002 Equity Incentive Plan, the aggregate number and/or kind of shares for which prospective awards to non-employee directors are made, the kind, number and/or exercise price of shares or other property subject to outstanding options granted under the 2002 Equity Incentive Plan, and the kind, number and/or purchase price of shares or other property subject to outstanding awards of restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and other equity-based awards granted under the 2002 Equity Incentive Plan, as may be determined by the compensation committee, in its sole discretion. The compensation committee may provide, in its sole discretion, for the cancellation of any outstanding awards in exchange for payment in cash or other property of the fair market value of the shares of our common stock covered by such awards (whether or not otherwise vested or exercisable), reduced, in the case of options, by the exercise price thereof, or for no consideration in the case of awards which are not otherwise then vested or exercisable.

Nonassignability. Except to the extent otherwise provided in an award agreement or approved by the compensation committee, no award granted under the 2002 Equity Incentive Plan will be assignable or transferable other than by will or by the laws of descent and distribution and all awards will be exercisable during the life of a recipient only by the recipient (or in the event of incapacity, his or her guardian or legal representative).

Amendment and Termination. The 2002 Equity Incentive Plan may be amended or terminated at any time by our board of directors, subject, however, to stockholder approval in the case of certain material amendments if required by applicable law, such as an increase in the number of shares available under the 2002 Equity Incentive Plan or a change in the class of individuals eligible to participate in the 2002 Equity Incentive Plan.

U.S. Federal Income Tax Consequences. The following is a brief description of the material U.S. federal income tax consequences generally arising with respect to awards granted under the 2002 Equity Incentive Plan.

In general, the grant of an option will have no income tax consequences to the recipient or to us. Upon the exercise of an option, other than an ISO, the recipient generally will recognize ordinary income equal to the excess of the fair market value of the shares of common stock subject to the option on the date of exercise over the exercise price for such shares (i.e., the option spread), and we generally will be entitled to a corresponding tax deduction in the same amount. Upon the sale of the shares of our common stock acquired pursuant to the exercise of an option, the recipient will recognize

capital gain or loss equal to the difference between the selling price and the sum of the exercise price plus the amount of ordinary income recognized on the exercise.

A recipient generally will not recognize ordinary income upon the exercise of an ISO (although, on exercise, the option spread is an item of tax preference income potentially subject to the alternative minimum tax) and we will not receive any deduction. If the stock acquired upon exercise of an ISO is sold or otherwise disposed of within two years from the grant date or within one year from the exercise date, then gain realized on the sale generally is treated as ordinary income to the extent of the ordinary income that would have been realized upon exercise if the option had not been an ISO, and we generally will be entitled to a corresponding deduction in the same amount. Any remaining gain is treated as capital gain.

If the shares acquired upon the exercise of an ISO are held for at least two years from the grant date and one year from the exercise date and the recipient is employed by us at all times beginning on the grant date and ending on the date three months prior to the exercise date, then all gain or loss realized upon the sale will be capital gain or loss and we will not receive any deduction.

In general, an individual who receives an award of restricted stock will recognize ordinary income at the time such award vests in an amount equal to the difference between the value of the vested shares and the purchase price for such shares, if any, and we generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the recipient at such time.

The recipient of an award of restricted stock units generally will recognize ordinary income upon the issuance of the shares of common stock underlying such restricted stock units in an amount equal to the difference between the value of such shares and the purchase price for such units and/or shares, if any, and we generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the recipient at such time.

With respect to other equity-based awards, upon the payment of cash or the issuance of shares or other property that is either not restricted as to transferability or not subject to a substantial risk of forfeiture, the participant will generally recognize ordinary income equal to the cash or the fair market value of shares or other property delivered, less any amount paid by the participant for such award. Generally, we will be entitled to a deduction in an amount equal to the ordinary income recognized by the participant.

Our 401(k) Plan

We maintain a 401(k) Plan. The plan permits eligible employees to make voluntary, pre-tax contributions to the plan up to a specified percentage of compensation, subject to applicable tax limitations. We may make a discretionary matching contribution to the plan equal to a pre-determined percentage of an employee's voluntary, pre-tax contributions and may make an additional discretionary profit sharing contribution to the plan, subject to applicable tax limitations. Eligible employees who elect to participate in the plan are generally vested in any matching contribution after three years of service with the company. The plan is intended to be tax-qualified under Section 401(k) of the Internal Revenue Code so that contributions to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan, and so that our contributions, if any, will be deductible by us when made.

RELATED PARTY TRANSACTIONS

Arrangements with Solitair Corp.

In July 1999, Chautauqua entered into an agreement with Solitair Corp., a wholly-owned subsidiary of Solitair Kapital AB. Solitair Kapital AB is controlled by Solitair Intressenter AB, a wholly-owned subsidiary of Wexford Solitair Corp. Wexford Solitair Corp. is an affiliate of WexAir LLC, our sole stockholder. Pursuant to the agreement as currently in effect, Chautauqua has agreed to purchase Embraer regional jets from Solitair which had contracts to purchase such jets from Embraer. Solitair is required to sell the firm aircraft to Chautauqua. To date, we have purchased 10 aircraft from Solitair under this arrangement and third party lessors which lease the aircraft to us have purchased 38 aircraft from Solitair. Through December 31, 2001, the cost to us per aircraft was equal to the purchase price paid by Solitair, including Solitair's expenses related to the purchase of the aircraft, plus $500,000. In addition to the three aircraft we have purchased during the three months ended March 31, 2002, we will purchase the remaining five aircraft on firm order at a cost per aircraft equal to the purchase price paid by Solitair, including Solitair's expenses related to the purchase of the aircraft, plus $440,000. In those situations where we lease aircraft from a third party, we have included the amounts we pay that are over and above Solitair's cost to acquire the aircraft in our leasing arrangement. With respect to each aircraft purchased by Chautauqua, Chautauqua has the option to enter into a short-term lease with Solitair for a maximum of 30 days commencing on the date Solitair acquires the aircraft and ending on the date Chautauqua purchases the aircraft. This monthly lease rate is equal to $136,000 per month. Pursuant to the agreement with Solitair, Chautauqua made the following payments in connection with our acquisition of the aircraft covered by the agreement:

		Years Ended December 31,
		1999		2000		2001
		(In thousands)
Short-term lease payments		$	703	$	957	$	36
Reimbursement of expenses			8		131		121
Fee			2,046		7,000		13,500

	Total	$	2,757	$	8,088	$	13,657

In connection with Solitair's agreement to assign its option to purchase 20 aircraft from Embraer to us, we have agreed to pay Solitair an amount equal to $253,645 as of March 31, 2002.

Transactions with Wexford Capital LLC

In May 1998, WexAir LLC, a limited liability company formed by several investment funds managed by Wexford Capital LLC, purchased all of our outstanding capital stock, for an aggregate purchase price of $8,133,000 and loaned us $12,000,000. We used these proceeds to purchase Chautauqua for a purchase price of $20,133,000 (including expenses). We intend to use a portion of the proceeds of this offering to repay the loan from WexAir LLC. See "Use of Proceeds."

At March 31, 2002, approximately $18.9 million of principal and accrued interest was outstanding under the loan from WexAir LLC. The loan matures on the earliest of (1) demand by WexAir LLC, (2) May 14, 2003 or (3) the closing of the offering. The note currently bears interest at a rate of 11.5% annually and interest is compounded semi-annually. We intend to use a portion of the proceeds of this offering to repay this indebtedness. See "Use of Proceeds."

In July 1999, Imprimis Investors LLC, one of the members of our sole stockholder, loaned Chautauqua $1,000,000 for working capital purposes. In April 2000, Imprimis loaned Chautauqua an additional $1,500,000 for working capital purposes. These loans were evidenced by a note that bore interest at a rate of 7.5% per annum and were due on demand. In May 2000, Chautauqua issued to Imprimis 10.295828 shares of Chautauqua's Series A preferred stock in payment of principal and accrued interest on the note, which totaled $2,573,950. In May 2000, Chautauqua sold to Imprimis an additional six shares of Chautauqua's Series A preferred stock for an aggregate purchase price of $1,500,000. Chautauqua used the proceeds from the sale of the preferred stock for working capital. These preferred shares are now owned by Wexford Special Situations 1997 Institutional, L.P. following a distribution by Imprimis to its members. Under the terms of the preferred stock, we are required to redeem the preferred stock for a cash payment equal to the stated value ($250,000 per share) plus all accrued and unpaid dividends, upon the consummation of this offering. The preferred stock has an annual dividend of $25,000 per share, which cumulates to the extent not paid. We intend to use a portion of the proceeds of this offering to redeem this preferred stock. See "Use of Proceeds."

Employees of Wexford Capital provide certain administrative functions to us, including legal services and assistance with financing transactions. We paid Wexford Capital $421,000, $139,000 and $77,000 for these services in the years ended December 31, 1999, 2000 and 2001 and $41,000 for the three months ended March 31, 2002.

In December 2001, we decided to phase out of revenue service and return to the lessors our entire fleet of leased Saab 340A aircraft. Saab Aircraft Leasing, Inc. and affiliates, referred to here as "lessor", have agreed to lease 22 of the 24 Saab 340A aircraft when new lessees are identified. The remaining 2 Saab 340A aircraft are leased from a different lessor and will be returned to that lessor upon the expiration of these leases in September 2002. An agreement was signed between the lessor and a new lessee (a company controlled by Wexford Capital with a minimal net worth) for 16 Saab aircraft, with options for 2 additional aircraft, at fair market lease rates. We recorded a charge of approximately $8.1 million in the quarter ended December 31, 2001, to reflect our estimate of the cost associated with the complete phase out and the related asset impairment of our entire Saab 340A turboprop fleet. If no new lessees lease the remaining Saab aircraft and/or if any new lessee defaults on its lease, we may incur additional charges of up to $22.4 million through the remaining terms of the leases.

We have contracts to sell our Saab 340 turboprop inventories and spare parts at net book value, which approximates net realizable value, to a company owned by Wexford Capital.

Wexford Capital has advised us that following the closing of the offering it and the investment funds it manages will not enter into any transaction with us unless the transaction is approved by the disinterested members of our board of directors.

Our by-laws provide that any interested party transaction involving Wexford Capital, any of its affiliates and us, shall be approved by a majority of our directors not otherwise affiliated with Wexford Capital or any of its affiliates.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of June 7, 2002 regarding the beneficial ownership of our common stock as of the date of this prospectus for:

•: each person who is known by us to be the beneficial owner of more than 5% of our common stock;
•: each executive officer named in the summary compensation table;

•: each of our directors; and
•: all directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities. Except as otherwise indicated, the persons or entities listed below have sole voting and investment power with respect to all shares of common stock beneficially owned by them, except to the extent such power may be shared with a spouse.

		Percent Beneficially Owned(1)
Name and Address	Shares Beneficially Owned Prior to Offering	Before Offering		After Offering
WexAir LLC(2)	20,000,000	81.0	%	67.4	%
Bryan K. Bedford(3)	975,000	4.1	%	3.3	%
Robert H. Cooper(4)	237,500	1.0	%	*
Arthur Amron(5)	20,000,833	81.0	%	67.4	%
Charles E. Davidson(5)	20,000,833	81.0	%	67.4	%
Joseph M. Jacobs(5)	20,000,833	81.0	%	67.4	%
Douglas J. Lambert(5)	20,000,833	81.0	%	67.4	%
Jay L. Maymudes(5)	20,000,833	81.0	%	67.4	%
Lawrence J. Cohen(6)	833	*		*
Mark E. Landesman(7)	833	*		*
Mark L. Plaumann(8)	833	*		*
All directors and executive officers as a group (10 persons)(9)	21,219,164	85.9	%	71.5	%
Delta Air Lines, Inc.(10)	3,000,000	12.1	%	10.1	%

*: Less than 1%.
(1): For purposes of this table, information as to the shares of common stock assumes, in the case of the column "After Offering," that the underwriters' over-allotment option is not exercised. In addition, a person or group of persons is deemed to have "beneficial ownership" of any shares of common stock when such person or persons has the right to acquire them within 60 days after the date of this prospectus. For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any shares which such person or persons have the right to acquire within 60 days after the date of this prospectus is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
(2): Imprimis Investors LLC, Wexford Spectrum Fund I, L.P., Wexford Offshore Spectrum Fund, and Wexford Partners Investment Co. LLC, each a member of WexAir LLC, may be deemed to beneficially own more than 5% of our common stock because the same persons serve as managing members or general partners of each of these entities. Wexford Special Situations 1997, L.P., and Wexford Special Situations 1997 Institutional, L.P., each a member of Imprimis Investors LLC, may be deemed to beneficially own more than 5% of our common stock because the persons who serve as managing members or general partners of the members of WexAir LLC also serve as the general partner of these entities. Each of these entities disclaims beneficial ownership of the shares owned by WexAir except to the extent of its pecuniary interest therein. The address at each of the entities listed in this footnote is: Wexford Plaza, 411 West Putnam Avenue, Greenwich, Connecticut 06830.
(3): Includes 975,000 shares subject to stock options.
(4): Includes 237,500 shares subject to stock options.
(5): This individual may be deemed to be the beneficial owner of the shares of our common stock owned by WexAir LLC by virtue of being a managing member or general partner of WexAir LLC or each of the members of WexAir LLC. This individual disclaims beneficial ownership of the shares owned by WexAir LLC except to the extent of his interest in such shares through his interest in each member of WexAir LLC. Also includes 833 shares subject to stock options.
(6): Consists of 833 shares subject to stock options. The address for Mr. Cohen is: c/o Pembroke Companies, Inc., 70 East 55^th Street, 7^th Floor, New York, New York 10022.
(7): Consists of 833 shares subject to stock options. The address for Mr. Landesman is: c/o ML Management Associates, Inc., 1740 Broadway, 15th Floor, New York, New York 10019.
(8): Consists of 833 shares subject to stock options. The address for Mr. Plaumann is: c/o Greyhawke Capital Advisors, 475 Steamboat Road, 1^st Floor, Greenwich, Connecticut 06830.
(9): Includes 1,219,164 shares subject to stock options.
(10): Consists of 3,000,000 shares subject to warrants exercisable within 60 days after the date of this prospectus.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 75,000,000 shares of common stock, par value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per share.

Of the authorized shares of common stock, 5,000,000 shares are being offered hereby, or 5,750,000 shares if the underwriters exercise their over-allotment option. No shares of our preferred stock will be outstanding.

Common Stock

Voting

The holders of common stock are entitled to one vote per share. Voting rights of non-U.S. citizens are limited as described under "—Limitation on Voting by Foreign Owners." Common stockholders do not have the right to cumulate their votes in the election of directors. Accordingly, a plurality of the votes cast in any election of directors may elect all of the directors standing for election. As a result, as long as WexAir LLC owns a majority of our common stock, it will control all matters put to a vote of stockholders, including the election of directors and the sale of Republic Airways. See "Risk Factors—We will be controlled by Wexford Capital as long as they own or control a majority of our common stock, and they may make decisions with which you disagree."

Rights to Dividends and on Liquidation, Dissolution or Winding Up

Common stockholders participate ratably in any dividends or distributions on the common stock. In the event of any liquidation, dissolution or winding up of our company, common stockholders are entitled to share ratably in our assets available for distribution to the stockholders, subject to the prior rights of holders of any outstanding preferred stock.

Limitation on Voting by Foreign Owners

Our certificate of incorporation provides that shares of capital stock may not be voted by, or at the direction of, persons who are not citizens of the United States unless the shares are registered on a separate stock record. Applicable restrictions currently require that no more than 25% of our voting stock be owned or controlled, directly or indirectly, by persons who are not U.S. citizens, and that our president and at least two-thirds of our directors or other managing officers be U.S. citizens. For purposes of the certificate of incorporation, "U.S. citizen" means:

•: an individual who is a citizen of the United States;
•: a partnership each of whose partners is an individual who is a citizen of the United States; or
•: a corporation or association organized under the laws of the United States or a State, the District of Columbia, or a territory or possession of the United States, of which the president and at least two-thirds of the board of directors and other managing officers are citizens of the United States, and in which at least 75% of the voting interest is owned or controlled by persons that are citizens of the United States.

In addition, the U.S. Department of Transportation has broad authority to determine on a case-by-case basis whether an air carrier is effectively owned and controlled by U.S. citizens, and has indicated that the ownership of less than 50% of an air carrier's total equity securities by non-U.S. citizens, taken alone, is not indicative of foreign control of the airline. Registration on the foreign stock record is made in chronological order based on the date we receive a written request for registration.

Other

No stockholder has preemptive or other rights to subscribe for additional shares of our common stock.

Registration Rights

The current holders of our common stock and Delta are entitled to registration rights under the terms of a registration rights agreement. Subject to the limitations specified in this agreement, the registration rights include the following:

Piggyback Registration Rights. The existing holders of our common stock and Delta have rights to have their shares registered for resale under the Securities Act if we register any of our securities, either for our own account or for the account of other security holders, except with respect to this offering, and subject to the right of underwriters to limit the number of shares included in an underwritten offering.

Demand Registration Rights. The existing holders of our common stock and Delta have the right, at their request, to have their shares registered for resale under the Securities Act. They may exercise this right 17 times.

All holders of Registrable Securities have agreed not to exercise their registration rights, if at all, until 180 days following the effective date of this prospectus.

We will bear all registration expenses incurred in connection with any of the above registrations. Each selling stockholder participating in any registration will pay their own underwriting discounts, selling commission and stock transfer taxes applicable to the sale of their securities.

Preferred Stock

The board of directors has the authority, without action by the stockholders, to designate and issue preferred stock and to designate the rights, preferences and privileges of each series of preferred stock, which may be greater than the rights attached to the common stock. It will not be possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until the board of directors determines the specific rights attached to that preferred stock. The effects of issuing preferred stock could include one or more of the following:

•: restricting dividends on the common stock;
•: diluting the voting power of the common stock;
•: impairing the liquidation rights of the common stock; or
•: delaying or preventing a change of control of our company.

Warrants

To induce American to enter into the code-sharing agreement with us, we paid American a contract rights fee in the form of a warrant to purchase shares of our common stock. The warrant gives American the right to purchase 8.75% of the greater of (a) the number of shares of common stock that are sold pursuant to our initial public offering plus any shares eligible to be sold pursuant to the over-allotment option granted to the underwriters, whether or not exercised or (b) 60% of the number of shares of common stock outstanding immediately prior to the closing of our initial public offering (computed on a fully diluted basis). The exercise price for the common stock that may be purchased by

American pursuant to the warrant is 93% of the per share price at which the IPO shares are offered to the public in this offering. The warrant vests as follows:

•: 42.9% of the number of warrant shares vest ratably over ten years beginning June 11, 2001; and
•: 57.1% of the number of warrant shares vest ratably over five years beginning June 11, 2006.

If American terminates its code-sharing agreement with us, the unvested portion of the warrant will terminate. The warrant will represent 5% of our outstanding common stock. American may exercise its rights for a period of five years after vesting occurs.

To induce America West to enter into the code-sharing agreement with us, we will pay to America West a contract rights fee in the form of our agreement to issue them, upon the consummation of this offering, a warrant to purchase shares of our common stock. The warrant gives America West the right to purchase 2% of the greater of (a) the number of shares of common stock that are sold pursuant to our initial public offering plus any shares eligible to be sold pursuant to the over-allotment option granted to the underwriters, whether or not exercised, or (b) 35% of the number of shares of common stock outstanding immediately prior to the closing of our initial public offering (computed on a fully diluted basis). The exercise price for the common stock that may be purchased by America West pursuant to the warrant is the per share price at which the shares are sold to the underwriters in this offering and is subject to downward adjustment if we issue additional shares of our common stock at a price below the exercise price. The warrant will be fully vested upon issuance and America West can exercise its rights for up to three years thereafter. The warrant will represent 1% of our outstanding common stock.

In connection with the issuance of the America West warrant, we agreed to give America West registration rights for the shares underlying the warrant. According to our agreement with them, they have the right to require us to register under the Securities Act all or a portion of their shares of common stock during the period commencing 180 days after the date of this prospectus and ending three years from the date of the warrant. This right may only be exercised once. In addition, if we propose to register any of our shares pursuant to the Securities Act, America West has the right to require us to include all or a portion of their shares of common stock in that registration. The underwriter, if any, of any such offering will have the right to limit or exclude registrable securities from such registration. Furthermore, if we become eligible to register our common stock on a Form S-3 registration statement, America West can require us to register their common stock on that form. In the event America West exercises its right to reduce the fleet below the contemplated 12 aircraft or we divert the aircraft to non-America West usage, then any warrant issued to America West shall become null and void.

To induce Delta to enter into the code-sharing agreement with us, we paid Delta a contract rights fee in the form of a warrant to purchase 1,500,000 shares of our common stock. The exercise price for the common stock that may be purchased by Delta pursuant to the warrant is $12.50 per share and is subject to downward adjustment if we issue additional shares of our common stock in certain instances. The warrant is fully vested and Delta can exercise its rights until June 7, 2012. In addition, we also agreed to issue to Delta upon the closing of this offering a warrant to purchase 1,500,000 shares of our common stock, subject to reduction if, in certain instances, Delta or we eliminate aircraft from service for Delta prior to January 1, 2010. The exercise price for the common stock that may be purchased by Delta pursuant to this warrant is equal to 95% of the per share price at which our common stock is offered to the public in this offering and is subject to downward adjustment if we issue additional shares of our common stock in certain instances. The warrant is fully vested and Delta can exercise its rights until the tenth anniversary of the closing of this offering. Furthermore, pursuant to our code-sharing agreement with Delta, we have agreed to issue to Delta upon the placement of each aircraft into service under our code-sharing agreement that is in excess of the original 22 aircraft (21 in service plus 1 spare) a warrant to purchase 60,000 shares of our common stock. The exercise price for

the common stock that may be purchased by Delta pursuant to these warrants will be equal to the lesser of (1) the closing price of our common stock on the day before it is publicly announced that an additional aircraft has been placed into service for Delta by us, and (2) the average closing price of our common stock on Nasdaq for the 30 days prior the public announcement that an additional aircraft has been placed into service for Delta by us. The exercise price will be subject to downward adjustment if we issue additional shares of our common stock in certain instances. The warrants will be fully vested and Delta will be able to exercise its rights under these warrants for ten years after the date upon which each warrant is issued.

Limitation On Liability and Indemnification Matters

Our certificate of incorporation limits the liability of our directors to us and our stockholders to the fullest extent permitted by Delaware law. Specifically, our directors will not be personally liable for money damages for breach of fiduciary duty as a director, except for liability:

•: for any breach of the director's duty of loyalty to us or our stockholders;
•: for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
•: under Section 174 of the Delaware General Corporation Law, which concerns unlawful payments of dividends, stock purchases or redemptions; and
•: for any transaction from which the director derived an improper personal benefit.

Our certificate of incorporation and by-laws also contain provisions indemnifying our directors and officers to the fullest extent permitted by Delaware law. The indemnification permitted under Delaware law is not exclusive of any other rights to which these persons may be entitled.

In addition, we maintain directors' and officers' liability insurance to provide our directors and officers with insurance coverage for losses arising from claims based on breaches of duty, negligence, errors and other wrongful acts.

Anti-Takeover Provisions

A number of provisions under Delaware law and in our certificate of incorporation and by-laws may make it more difficult to acquire control of us. These provisions could deprive the stockholders of opportunities to realize a premium on the shares of common stock owned by them. In addition, these provisions may adversely affect the prevailing market price of the common stock. These provisions are intended to:

•: enhance the likelihood of continuity and stability in the composition of the board and in the policies formulated by the board;
•: discourage certain types of transactions which may involve an actual or threatened change in control of our company;
•: discourage certain tactics that may be used in proxy fights; and
•: encourage persons seeking to acquire control of our company to consult first with the board of directors to negotiate the terms of any proposed business combination or offer.

Special Meetings of Stockholders

Our certificate of incorporation provides that special meetings of the stockholders may be called only by the chairman of our board of directors, our president or a majority of our whole board of directors and may not be called by the holders of common stock.

Advance Notice Procedure for Director Nominations and Stockholder Proposals

Our by-laws provide that adequate notice must be given to nominate candidates for election as directors or to make proposals for consideration at annual meetings of stockholders. Notice of a stockholder's intent to nominate a director or propose business to be considered by the stockholders must be delivered to our principal executive offices as follows:

•: nominations or other business to be brought before an annual meeting of stockholders, not less than 45 days nor more than 75 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year's annual meeting of stockholders; and
•: nominations to be brought before a special meeting of stockholders, not earlier than 90 days prior to the special meeting and not later than the later of (1) 70 days prior to the special meeting or (2) ten days following the public announcement of the special meeting.

Authorized but Unissued Shares of Common Stock

The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Corporate Opportunities

Under our certificate of incorporation, we have renounced any interest or expectancy in being offered any business opportunities presented to Wexford Capital or any of its affiliates from whatever source other than us. Therefore, if Wexford becomes aware of a potential transaction that may be a corporate opportunity for both Wexford or any of its affiliates and us, Wexford will have no duty to communicate or present this corporate opportunity to us and will not be liable to us or our stockholders for breach of any fiduciary duty as a stockholder by reason of the fact that Wexford pursues or acquires the corporate opportunity for itself, directs the corporate opportunity to another person or does not communicate information regarding such corporate opportunity to us. Similarly, in the event that one of our directors who is also a principal, officer or employee of Wexford acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both us and Wexford or its affiliates, that person will have no duty to communicate or present this corporate opportunity to us. We will have no duty to communicate corporate opportunities to Wexford, and nothing will prohibit us from competing against Wexford for future corporate opportunities.

Transfer Agent And Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company. Its address is 59 Maiden Lane, New York, New York 10038.

Quotation on the Nasdaq Stock Market's National Market

We expect our common stock to be approved for quotation on the Nasdaq National Market under the symbol "RJET."

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock. Future sales in the public market of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, could adversely affect prevailing market prices and impair our ability to raise equity capital in the future.

Rule 144 Securities. Upon the consummation of this offering, we will have 25,000,000 shares of common stock outstanding, assuming no exercise of the underwriters' over-allotment options and no exercise of outstanding options. All of the shares of common stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any of the shares that are acquired by "affiliates" as that term is defined in Rule 144 under the Securities Act. The

20,000,000 shares of common stock held by WexAir and our directors and executive officers and American after the offering will be "restricted" securities under the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act, unless an exemption from registration is available, including exemptions pursuant to Rule 144 or Rule 144A under the Securities Act.

In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of either of the following:

•: 1% of the number of shares of common stock then outstanding, which will equal approximately 250,000 shares outstanding immediately after this offering, or
•: the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Under Rule 144(k), a person who is not deemed to have been one of our "affiliates" at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an "affiliate," is entitled to sell its shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately upon the completion of this offering. The sale of these shares, or the perception that sales will be made, could adversely affect the price of our common stock after the offering because a greater supply of shares would be, or would be perceived to be, available for sale in the public market.

We, our executive officers and directors and Wexford have agreed that, without the prior written consent of Merrill Lynch on behalf of the underwriters, we will not, during the period ended 180 days after the date of this prospectus, sell shares of common stock or take certain related actions, subject to limited exceptions, all as described under "Underwriting."

The shares held by WexAir will be eligible for sale in the public market, subject to compliance with the volume restrictions described above, beginning 180 days after the date of this prospectus, or earlier to the extent Merrill Lynch consents to such sale.

Rule 701. In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases common stock from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this prospectus is entitled to resell those shares 90 days after the effective date of this prospectus in reliance on Rule 144, without having to comply with certain restrictions (including the holding period) contained in Rule 144.

Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. It permits non-affiliates to sell their Rule 701 shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares.

Stock Options. Following the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock issued or reserved for issuance under the 2002 Equity Incentive Plan and certain stock option agreements. The registration statement will become effective automatically upon filing. As of March 31, 2002, options to purchase 1,920,000 shares of common stock were issued and outstanding, of which 1,234,583 shares have vested. Accordingly, shares registered will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the 180-day lock-up agreements expire.

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc. and Raymond James & Associates, Inc. are acting as representatives of the underwriters named below. Subject to the terms and conditions described in a purchase agreement between us and the underwriters, we have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from us, the number of shares listed opposite their names below.

Underwriter		Number of Shares
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Deutsche Bank Securities Inc.
Raymond James & Associates, Inc.
Total		5,000,000

Subject to the terms and conditions in the purchase agreement, the underwriters have agreed to purchase all the shares of our common stock being sold pursuant to the purchase agreement if any of these shares of our common stock are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreement may be terminated.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriters of officers' certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

The representatives have advised us that the underwriters propose initially to offer the shares to the public at the initial public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After the initial public offering, the public offering price, concession and discount may be changed.

The following table shows the public offering price, underwriting discount and the proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment options.

	Per Share	Without Option	With Option
Public offering price	$	$	$
Underwriting discount	$	$	$
Proceeds, before expenses, to Republic Airways	$	$	$

The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by us.

Overallotment Option

We have granted an option to the underwriters to purchase up to 750,000 additional shares at the initial public offering price less the underwriting discount. The underwriters may exercise this option for 30 days from the date of this prospectus solely to cover any overallotments. If the underwriters exercise this option, each underwriter will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter's initial amount reflected in the above table.

Reserved Shares

At our request, the underwriters have reserved for sale, at the initial public offering price, up to shares offered by this prospectus for sale to some of our directors, officers, employees, business associates and related persons. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not orally confirmed for purchase within one day of the pricing of this offering will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.

No Sales of Similar Securities

We, our executive officers, directors, our stockholder and American, America West and Delta have agreed, with certain exceptions, not to sell or transfer any common stock for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Specifically, we and these other individuals have agreed not to directly or indirectly

•: offer, pledge, sell or contract to sell any common stock;
•: sell any option or contract to purchase any common stock;
•: purchase any option or contract to sell any common stock;
•: grant any option, right or warrant for the sale of any common stock;
•: lend or otherwise dispose of or transfer any common stock;
•: request or demand that we file a registration statement related to the common stock; or
•: enter into any swap or other agreement that transfers, in whole or in part, the economic consequences of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.

This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.

Electronic Distribution

Merrill Lynch will be facilitating Internet distribution for this offering to certain of its Internet subscription customers. Merrill Lynch intends to allocate a limited number of shares for sale to its online brokerage customers. An electronic prospectus is available on the Internet Web site maintained by Merrill Lynch. Other than the prospectus in electronic format, the information on the Merrill Lynch Web site is not a part of this prospectus.

Quotation on the Nasdaq National Market

We expect our common stock to be approved for quotation on the Nasdaq National Market, subject to notice of issuance, under the symbol "RJET."

Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives. In addition to prevailing market conditions, the factors considered in determining the initial public offering price are

•: the valuation multiples of publicly traded companies that the representatives believe to be comparable to us;
•: our financial information;
•: the history of, and the prospects for, our company and the industry in which we compete;
•: an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;
•: the present state of our development; and
•: the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

An active trading market for the shares of our common stock may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price. The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.

Price Stabilization, Short Positions and Penalty Bids

Until the distribution of the shares is completed, rules of the Securities and Exchange Commission may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.

In connection with the offering, the underwriters may make short sales of our common stock. Short sales involve the sale by the underwriters at the time of the offering of a greater number of shares than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the public offering price at which they may purchase the shares through the over-allotment option.

Naked short sales are sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

Similar to other purchase transactions, the purchases by the underwriters to cover syndicate short positions may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than it would otherwise be in the absence of these transactions.

The representatives may also impose a penalty bid on underwriters and selling group members. This means that if the representatives purchase shares of our common stock in the open market to reduce the underwriter's short position or to stabilize the purchase of such shares, they may reclaim the amount of the selling commission from the underwriters and selling group members who sold those shares. The imposition of a penalty bid may also affect the price of the shares of our common stock in that it discourages resales of those shares.

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters make any representation that the representatives or the lead managers will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Other Relationships

Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions.

LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Fulbright & Jaworski L.L.P., New York, New York. Certain legal matters related to the offering will be passed upon for the underwriters by Cahill Gordon & Reindel, New York, New York.

EXPERTS

The consolidated financial statements as of December 31, 2000 and 2001, and for each of the three years in the period ended December 31, 2001 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Commission a registration statement on Form S-1, which includes amendments, exhibits, schedules and supplements, under the Securities Act and the rules and regulations under the Securities Act, for the registration of the common stock offered by this prospectus. Although this prospectus, which forms a part of the registration statement, contains all material information included in the registration statement, parts of the registration statement have been omitted from this prospectus as permitted by the rules and regulations of the Commission. For further information about us and the common stock offered by this prospectus, please refer to the registration statement. Statements contained in this prospectus as to the contents of any contracts or other document referred to in this prospectus are not necessarily complete and, where such contract or other document is an exhibit to the registration statement, each such statement is qualified in all respects by the provisions of such exhibit, to which reference is now made. The registration statement can be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at other public reference facilities maintained by the Commission. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the registration statement is publicly available through the Commission's site on the Internet's World Wide Web, located at: http://www.sec.gov.

After the offering, we will be subject to the full informational requirements of the Securities Exchange Act. To comply with these requirements, we will file periodic reports, proxy statements and other information with the Commission.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPUBLIC AIRWAYS HOLDINGS INC.

		Page
Consolidated Financial Statements
	Independent Auditors' Report	F-2
	Consolidated Balance Sheets as of December 31, 2000 and 2001 and (unaudited) March 31, 2002	F-3
	Consolidated Statements of Operations for the years ended December 31, 1999, 2000 and 2001 and for the (unaudited) three months ended March 31, 2001 and 2002	F-4
	Consolidated Statements of Stockholder's Equity for the years ended December 31, 1999, 2000 and 2001 and for the (unaudited) three months ended March 31, 2002	F-5
	Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001 and for the (unaudited) three months ended March 31, 2001 and 2002	F-6
	Notes to the Consolidated Financial Statements	F-7

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Republic Airways Holdings Inc.

We have audited the accompanying consolidated balance sheets of Republic Airways Holdings Inc. and subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Republic Airways Holdings Inc. and subsidiary as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP
Indianapolis, Indiana
March 7, 2002
(June 4, 2002 as to the
"Net Income (Loss) Available
for Common Stockholders Per Share"
Section of Note 2)

F-2

REPUBLIC AIRWAYS HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

				December 31,					March 31,
				2000			2001		2002
									(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents			$	389		$	3,272	$	5,021
	Receivables, net of allowance for doubtful accounts of $592, $415 and $689 at December 31, 2000 and 2001 and March 31, 2002, respectively				8,136			7,240		7,229
	Inventories				5,557			6,628		7,423
	Assets held for sale:
		Inventories			480			3,226		2,933
		Aircraft and other equipment			895			9,675		8,885
	Prepaid expenses and other current assets				2,695			3,063		4,485
	Deferred income taxes				3,688			5,340		5,339

			Total current assets		21,840			38,444		41,315
Aircraft and other equipment, net					25,529			133,810		183,496
Other assets					10,435			18,335		19,994
Deferred income taxes					631			878		878
Goodwill, net					14,166			13,335		13,335

			Total assets	$	72,601		$	204,802	$	259,018

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
	Current portion of long-term debt			$	11,314		$	14,533	$	9,971
	Subordinated notes payable to affiliates				15,025			16,883		18,203
	Accounts payable				9,045			9,986		10,805
	Accrued liabilities				15,684			30,889		35,453

			Total current liabilities		51,068			72,291		74,432
Long-term debt, less current portion					6,546			99,934		149,006
Deferred credits					6,605			18,038		17,576

			Total liabilities		64,219			190,263		241,014
Commitments and contingencies
Redeemable preferred stock of subsidiary at redemption value					4,329			4,747		4,849
Stockholder's Equity:
	Preferred stock, $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding
	Common stock, $.001 par value; one vote per share; 75,000,000 shares authorized; 20,000,000 shares issued and outstanding				20			20		20
	Additional paid-in capital				7,858			7,843		7,896
	Accumulated earnings (deficit)				(3,825	)		1,929		5,239

			Total stockholder's equity		4,053			9,792		13,155

			Total liabilities and stockholder's equity	$	72,601		$	204,802	$	259,018

See accompanying notes to consolidated financial statements.

F-3

REPUBLIC AIRWAYS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

				For the Years Ended December 31,									For the Three Months Ended March 31,
				1999			2000			2001			2001			2002
													(Unaudited)
OPERATING REVENUES:
	Passenger			$	86,588		$	145,850		$	236,843		$	52,134		$	70,943
	Freight and other				1,671			1,627			1,801			380			1,305

			Total operating revenues		88,259			147,477			238,644			52,514			72,248

OPERATING EXPENSES:
	Wages and benefits				22,679			30,782			45,107			10,213			12,709
	Aircraft fuel				7,119			22,192			39,042			8,096			11,797
	Passenger fees and commissions				15,038			12,883			11,065			2,927			1,315
	Landing fees				2,105			3,753			7,091			1,431			2,626
	Aircraft rent				9,249			22,903			46,160			9,730			14,527
	Maintenance and repair				12,813			19,667			34,069			7,336			9,734
	Insurance and taxes				1,528			2,822			5,710			1,146			3,549
	Depreciation and amortization				4,303			4,110			7,783			1,265			2,158
	Impairment loss and accrued aircraft return costs				6,603						8,100
	Other				17,398			21,143			26,710			6,557			6,051
	Stabilization Act compensation										(7,640	)

			Total operating expenses		98,835			140,255			223,197			48,701			64,466

OPERATING INCOME (LOSS)					(10,576	)		7,222			15,447			3,813			7,782
OTHER INCOME (EXPENSE):
	Interest expense:
		Non-related party			(1,707	)		(1,797	)		(4,283	)		(367	)		(1,749	)
		Related party			(1,512	)		(1,753	)		(1,944	)		(478	)		(513	)
	Other income				96			1,792			1,607			1,430			242

			Total other income (expense)		(3,123	)		(1,758	)		(4,620	)		585			(2,020	)

INCOME (LOSS) BEFORE INCOME TAXES					(13,699	)		5,464			10,827			4,398			5,762
INCOME TAX (EXPENSE) BENEFIT					4,845			(2,942	)		(4,760	)		(1,870	)		(2,350	)

NET INCOME (LOSS)					(8,854	)		2,522			6,067			2,528			3,412
Preferred stock dividends								(255	)		(418	)		(101	)		(102	)

Net income (loss) available for common stockholders				$	(8,854	)	$	2,267		$	5,649		$	2,427		$	3,310

Basic net income (loss) available for common stockholders per share				$	(0.44	)	$	0.11		$	0.28		$	0.12		$	0.17

Diluted net income (loss) available for common stockholders per share				$	(0.44	)	$	0.11		$	0.27		$	0.12		$	0.16

See accompanying notes to consolidated financial statements.

F-4

REPUBLIC AIRWAYS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(In thousands)

		Comprehensive Income			Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Earnings (Deficit)			Total
Balance at January 1, 1999					$	20	$	8,113					$	2,507		$	10,640
Net loss														(8,854	)		(8,854	)

Balance at December 31, 1999						20		8,113						(6,347	)		1,786
Dividends on redeemable preferred stock of subsidiary								(255	)								(255	)
Net income														2,522			2,522

Balance at December 31, 2000						20		7,858						(3,825	)		4,053
Stock compensation expense								90									90
Dividends on redeemable preferred stock of subsidiary								(105	)					(313	)		(418	)
Net income		$	6,067											6,067			6,067
Other comprehensive income:
	SFAS No. 133 transition adjustment, net of tax		248							$	248						248
	Realization of deferred amounts, net of tax		(248	)							(248	)					(248	)

Comprehensive income		$	6,067

Balance at December 31, 2001						20		7,843			—			1,929			9,792
Stock compensation expense (unaudited)								53									53
Dividends on redeemable preferred stock (unaudited)														(102	)		(102	)
Net income (unaudited)			3,412											3,412			3,412

Comprehensive income (unaudited)		$	3,412

Balance at March 31, 2002 (unaudited)					$	20	$	7,896		$	—		$	5,239		$	13,155

See accompanying notes to consolidated financial statements.

F-5

REPUBLIC AIRWAYS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

					For the Years Ended December 31,									For the Three Months Ended March 31,
					1999			2000			2001			2001			2002
														(Unaudited)
OPERATING ACTIVITIES:
	Net income (loss)				$	(8,854	)	$	2,522		$	6,067		$	2,528		$	3,412
	Adjustments to reconcile net income (loss) to net cash from operating activities:
		Depreciation and amortization				4,303			4,110			7,783			1,265			2,158
		(Gain) loss on aircraft and other equipment disposals				351			(31	)		(460	)		8			(36	)
		Impairment loss and accrued aircraft return costs				6,603						8,100
		Amortization of deferred credits							(278	)		(889	)		(191	)		(300	)
		Unrealized (gain) loss on fuel swaps							(841	)		202
		Stock compensation expense										90						53
		Deferred income taxes				(4,016	)		2,166			(1,899	)		(166	)
		Change in certain assets and liabilities:
			Receivables			(317	)		(884	)		896			(323	)		146
			Inventories			(2,076	)		(1,597	)		579			(274	)		(10	)
			Prepaid expenses and other current assets			(373	)		(373	)		(368	)		240			(1,422	)
			Accounts payable			1,307			2,512			1,490			(1,822	)		819
			Accrued liabilities			5,412			7,164			10,826			2,921			2,559
			Other assets			(158	)		(7,760	)		(9,461	)		(2,291	)		(373	)

				Net cash from operating activities		2,182			6,710			22,956			1,895			7,006

INVESTING ACTIVITIES:
	Purchase of aircraft and other equipment					(9,270	)		(10,812	)		(28,879	)		(4,091	)		(5,836	)
	Proceeds from sale of spare aircraft equipment											16,189			44			171

				Net cash from investing activities		(9,270	)		(10,812	)		(12,690	)		(4,047	)		(5,665	)

FINANCING ACTIVITIES:
	Revolving credit facility, net					8,986			(2,517	)		(2,227	)		2,468			1,027
	Proceeds from short-term borrowings					3,729			1,500
	Payments on short-term borrowings					(2,729	)
	Payments on long-term debt					(5,463	)		(1,932	)		(7,857	)		(509	)		(998	)
	Proceeds from long-term debt					2,286			2,322			1,850						1,197
	Proceeds from issuance of redeemable preferred stock of subsidiary								1,500
	Change in deferred credits								1,913			1,400			280			50
	Other					302			1,189			(549	)					(868	)

				Net cash from financing activities		7,111			3,975			(7,383	)		2,239			408

NET CHANGE IN CASH						23			(127	)		2,883			87			1,749
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD						493			516			389			389			3,272

CASH AND CASH EQUIVALENTS AT END OF PERIOD					$	516		$	389		$	3,272		$	476		$	5,021

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Interest paid				$	1,129		$	2,001		$	4,216		$	327		$	813
	Income taxes paid (refunded)					420			(532	)		4,771			30			1,391
NON-CASH TRANSACTIONS:
	Deferred credits				$	677		$	4,326		$	8,858		$	1,750
	Conversion of debt and accrued interest to redeemable preferred stock of subsidiary								2,574
	Conversion of accrued interest to subordinated note payable to Parent					1,440			1,585			1,858
	Purchase, sale and leaseback of aircraft								15,500
	Preferred stock dividends declared								255			418			101		$	102
	Aircraft, inventories, and other equipment purchased through financing arrangements											104,841			17,579			50,102

See accompanying notes to consolidated financial statements.

F-6

REPUBLIC AIRWAYS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 1999, 2000 and 2001
and the (unaudited) three months ended March 31, 2001 and 2002
Dollars in thousands, except share and per share amounts

1. ORGANIZATION & BUSINESS

Republic Airways Holdings Inc. (the "Company" or "Republic") is an airline holding company wholly-owned by WexAir LLC ("Parent"). The Company was incorporated in the state of Delaware in 1996 and acquired all of the common stock of Chautauqua Airlines, Inc. ("Chautauqua") in May 1998.

Chautauqua operates as an air carrier providing scheduled passenger and airfreight service as US Airways Express, AmericanConnection, and America West Express under code-sharing agreements with US Airways Inc. ("US Airways"), AMR Corporation ("American"), and America West Airlines, Inc. ("America West"). Chautauqua has two agreements with US Airways and offers passenger and freight service from US Airways' hub airports in Philadelphia and Pittsburgh, Pennsylvania, Indianapolis, Indiana, Boston, Massachusetts and New York, New York (LaGuardia). Under the agreement with American, Chautauqua offers passenger and freight service from American's hub airport in St. Louis, Missouri. The agreement with America West offers passenger and freight service from America West's hub airport in Columbus, Ohio.

Under the US Airways' code-sharing agreements, which expire in 2009, Chautauqua provides service to designated areas utilizing turboprop and jet aircraft. The agreements provide Chautauqua with a nonexclusive license to US Airways' trademarks as well as general air carrier support services and contain provisions relating to the size and use of aircraft, insurance requirements and service requirements. Under the US Airways' code-sharing agreements, US Airways is required to provide fuel, reservation systems, ground handling and other services to Chautauqua. Chautauqua paid $16,181, $26,846 and $37,059 for the years ended December 31, 1999, 2000 and 2001, respectively, for these products and services. As of December 31, 2001, Chautauqua has twenty-five turboprops, of which eleven were in service dedicated to US Airways and fourteen were taken out of service to prepare the aircraft to be returned to the lessor or due to the decrease in routes available for these aircraft (See Note 16).

The US Airways' code-sharing agreement with Chautauqua was amended on December 20, 2000 to allow Chautauqua to operate twenty-six (twenty-five scheduled and one spare) Embraer 145-LR regional jets on a fixed-fee basis with reimbursement of certain pass-through costs. As of December 31, 2001, Chautauqua has twenty-six jets dedicated to US Airways' service.

Chautauqua started jet service for American in August 2000. The code-sharing agreement with American, which expires in 2013, is on a fixed-fee basis with reimbursement of certain pass-through costs. The agreement may be terminated by American without cause at any time after September 30, 2005 with 180 days notice. As of December 31, 2001, Chautauqua has fifteen jets dedicated to American service.

Chautauqua started jet service for America West in August 2001. The code-sharing agreement with America West provides for twelve aircraft to be placed into service by November 2002 and expires in 2012. The agreement is on a fixed-fee basis with reimbursement of certain pass-through costs. The agreement allows America West to discontinue operating one aircraft after August 2007 and two aircraft after August 2009. The service is operated out of America West's Columbus, Ohio hub. As of December 31, 2001, Chautauqua has four jets dedicated to America West service.

F-7

Approximately 67%, 31%, and 2% of Chautauqua's passenger revenues for the year ended December 31, 2001 were earned from services provided to passengers connecting to US Airways, American and America West, respectively. At December 31, 2001, approximately 41%, 4% and 4% of receivables are due from US Airways, American and America West, respectively. Termination of any regional jet code-share agreements is likely to have a material adverse effect on Chautauqua's business prospects, financial position, results of operations and cash flows.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Consolidated Financial Statements—The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) applicable to interim financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and consists only of normal and recurring adjustments. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

Basis of Consolidation—The consolidated financial statements for the years ended December 31, 1999, 2000 and 2001 include the accounts of the Company and its wholly-owned subsidiary, Chautauqua. All intercompany accounts and transactions are eliminated in consolidation.

Risk management—Chautauqua has fuel price risk for its US Airways' turboprop operations and enters into fuel swap agreements to hedge this risk. Prior to January 1, 2001, hedging gains and losses were accounted for under Statement of Financial Accounting Standard ("SFAS") No. 80, Accounting for Futures Contracts, with net realized gains recorded in aircraft fuel expense. Fuel swap gains or losses for gallons in excess of those needed for the US Airways' turboprop operations were recorded in other income with the fair value of the fuel swaps recorded in prepaid expenses and other current assets.

On January 1, 2001, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was adopted and a gain of $248, net of tax, was recorded in other comprehensive income. During 2001, the deferred gain was realized as the fuel swap agreements matured. Fuel swaps are not designated as hedging instruments and, accordingly, are carried at fair value in prepaid expenses and other current assets or accrued liabilities with gains and losses recorded in other income.

Cash and cash equivalents—Cash equivalents consist of short-term, highly liquid investments with maturities of three months or less when purchased.

Inventories consist primarily of spare parts and supplies, which are charged to expense as they are used in operations. Inventories are valued at average cost.

Inventories Held for Sale are comprised of Jetstream 31 and Saab 340 turboprop aircraft inventories (see Note 16). Chautauqua currently has a contract to sell the Saab 340 inventories at net book value, which approximates net realizable value, to a company owned by Wexford Capital LLC. Jetstream 31 inventories are recorded at estimated net realizable value. Net realizable values are determined by obtaining current price quotes from an unrelated party.

F-8

Aircraft and Other Equipment Held for Sale are comprised of two Saab 340 turboprop aircraft and Jetstream 31 and Saab 340 rotable inventories associated with these fleets (see Note 16). Chautauqua currently has a contract to sell the Saab 340 rotable inventories to a company owned by Wexford Capital LLC at net book value, which approximates fair value. The Jetstream 31 rotable inventories have been written down to their estimated fair value less costs to sell. Fair values are determined by obtaining current price quotes from an unrelated party.

Aircraft and Other Equipment are carried at cost. Incentives received from the aircraft manufacturer are recorded as reductions to the cost of the aircraft. Depreciation is computed on a straight-line basis to salvage value over the estimated useful lives of the related assets, which are 8 to 16.5 years for aircraft and 3 to 10 years for other equipment. Leasehold improvements are amortized over the expected life or lease term, whichever is less.

Debt Issue Costs are included in other assets and are amortized, using the effective interest method, to interest expense over the life of the related debt.

Goodwill is amortized over 20 years using the straight-line method. Accumulated amortization is $2,130 and $2,937 at December 31, 2000 and 2001, respectively.

Long-Lived Assets—Management reviews goodwill and other long-lived assets for possible impairment, if there is a significant event that detrimentally affects operations. The primary financial indicator used by the Company to assess the recoverability of its long-lived assets, including goodwill, is undiscounted future cash flows from operations. The amount of impairment, if any, is measured based on estimated fair value less costs to sell or projected future cash flows using a discount rate reflecting the Company's average cost of funds. Certain long-lived assets held for sale are recorded at estimated fair value less costs to sell.

Deferred Credits consist of credits for parts and training from the aircraft and engine manufacturers and deferred gains from the sale and leaseback of one aircraft and seven spare jet engines. Deferred credits are amortized on a straight-line basis as a reduction of aircraft rent over the term of the respective leases.

Comprehensive Income—Republic reports comprehensive income in accordance with SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income for the year ended December 31, 2001 consists of net income and the SFAS No. 133, Accounting for Derivatives and Hedging Activities, transition adjustment and the realization of this deferred amount. There were no comprehensive income (loss) components for the years ended December 31, 1999 and 2000.

Income Taxes—Republic accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts for existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax assets is adjusted

F-9

by a valuation allowance, if necessary, to recognize the future tax benefits to the extent, based on available evidence, it is more likely than not they will be realized.

Aircraft Maintenance and Repair is charged to expense as incurred under the direct expense method. Engines and some of the airframe component overhaul and repair costs are subject to power-by-the-hour contracts with external vendors and are accrued as the aircraft are flown.

Preoperating Costs related to the introduction of the Embraer jet aircraft are expensed as incurred.

Other Income for the years ended December 31, 2000 and 2001 includes gains of $1,684 and $1,470, respectively, for fuel swap agreements.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue Recognition—Revenues are recognized in the period the service is provided. Chautauqua does not have an air traffic liability, or the related asset, under the US Airways' turboprop revenue-sharing agreement as all ticket sales are made on US Airways ticket stock.

Stock Compensation—Republic applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for stock options. No compensation expense is recorded for stock options with exercise prices equal to or greater than fair market value on the grant date. Warrants issued to non-employees are accounted for under SFAS No. 123, Accounting for Stock-Based Compensation, at fair value on the measurement date.

Net Income (Loss) Available for Common Stockholders Per Share is based on the weighted average number of shares outstanding during the period. On June 4, 2002, the board of directors declared a 200,000:1 stock split. Common stock, additional paid-in capital, and all per share amounts, number of shares and options outstanding in the consolidated financial statements have been adjusted for the stock split.

F-10

The following is a reconciliation of the weighted average common shares for the basic and diluted per share computations:

	For the Years Ended December 31,			For the Three Months Ended March 31,
	1999	2000	2001	2001	2002
				(Unaudited)
Weighted-average common shares outstanding for basic net income (loss) available for common stockholders per share	20,000,000	20,000,000	20,000,000	20,000,000	20,000,000
Effect of dilutive employee stock options	—	—	689,886	—	845,310

Adjusted weighted-average common shares outstanding and assumed conversions for diluted net income (loss) available for common stockholders per share	20,000,000	20,000,000	20,689,886	20,000,000	20,845,310

Employee stock options are not included in the calculation of net income (loss) applicable to common stockholders per share for the year ended December 31, 1999 and for the three months ended March 31, 2001 due to their anti-dilutive impact.

Segment Information—The Company has one operating segment for the scheduled transportation of passengers and freight under code-sharing agreements.

New Accounting Standards—In July 2001, SFAS No. 141, Business Combinations, was issued. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company has had no business combinations subsequent to June 30, 2001 and, therefore, SFAS No. 141 has no impact on the consolidated financial statements.

In July 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was issued and is effective for Republic on January 1, 2002. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization and an annual assessment of impairment. Republic recorded goodwill amortization of $807 in each of the years ended December 31, 1999, 2000, and 2001. Effective January 1, 2002, the Company will no longer amortize goodwill, but will evaluate it on an annual basis to determine whether there is an impairment of goodwill. Discontinuing goodwill amortization did not have a material effect on income for the three months ended March 31, 2002, and based upon the initial impairment analysis, the Company determined its goodwill was not impaired.

In August 2001, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued, which is effective for Republic on January 1, 2002. Among other things, this statement will supersede SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, and the accounting and reporting provisions of APB No. 30, Reporting the Results of

F-11

Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 changes the treatment for the disposal of a business segment and establishes one method of accounting for long-lived assets to be disposed of by sale. Management has determined that the adoption of SFAS No. 144 did not have an impact on the Company's financial position, results of operations and cash flows.

3. AIR TRANSPORTATION SAFETY AND SYSTEM STABILIZATION ACT

As a result of the large financial losses attributed to the terrorist attacks on the United States that occurred on September 11, 2001, the Senate and House of Representatives of the United States of America passed, and the President signed into law H.R. 2626, the Air Transportation Safety and System Stabilization Act (the "Stabilization Act"). The intent of the Stabilization Act is to preserve the continued viability of the United States air transportation system. This legislation included support to passenger airlines in the form of a $4.5 billion grant, $10 billion in loan guarantees, and assistance with increased insurance costs. The $4.5 billion grant provided assistance for direct losses incurred as a result of the temporary shut down of the air transportation system and for incremental losses incurred through December 31, 2001 as a direct result of the terrorist attacks. The loan guarantees will be made to air carriers for which credit is not reasonably available and guarantees are subject to certain conditions. The federal government is providing insurance assistance because, as a result of September 11, 2001, aviation insurers have significantly reduced the maximum amount of insurance coverage available to commercial air carriers for war-risk coverage. In addition, the insurance carriers have significantly increased the premiums for this coverage as well as for aviation insurance in general. In addition, the federal government has issued war-risk coverage to U.S. air carriers for renewable 30-day periods.

The terrorist attacks of September 11, 2001 had a significant impact on Chautauqua. Following the attacks, the air transportation system was temporarily shut down, resulting in the cancellation of flights. The cancelled flights and loss of consumer confidence in the airline industry resulted in lost revenue from these cancelled flights and lower load factors and revenue yield on flights operated. Chautauqua was also impacted because fixed costs continued during the temporary shutdown while revenue from Chautauqua's code-share partners decreased.

Subsequent to September 11, 2001, the Company recorded $7,640 as a reduction of operating expenses for amounts claimed under the Stabilization Act. The Company received $6,493 in 2001 and the remaining $1,147 is included in accounts receivable at December 31, 2001. Amounts paid or payable under the Stabilization Act are subject to audit and adjustment by the federal government.

4. AIRCRAFT AND OTHER EQUIPMENT

At December 31, 2001, Chautauqua has a fleet of seventy aircraft, including twenty-five 30-seat Saab 340 aircraft, thirty-eight 50-seat Embraer 145-LR jet aircraft, and seven 44-seat Embraer 140-LR jet aircraft. Chautauqua owns two Saab 340 aircraft, four Embraer 145-LR aircraft and three Embraer 140-LR aircraft, and leases all other aircraft under operating lease agreements.

F-12

Aircraft and other equipment, excluding aircraft and other equipment held for sale, consists of the following:

		December 31,
		2000		2001
Aircraft		$	5,595	$	117,040
Flight equipment			21,443		18,634
Furniture and equipment			1,692		1,911
Leasehold improvements			2,028		2,020

	Total aircraft and other equipment		30,758		139,605
Less accumulated depreciation and amortization			5,229		5,795

	Aircraft and other equipment, net	$	25,529	$	133,810

Depreciation expense for the years ended December 31, 1999, 2000, and 2001 was $3,298, $3,105, and $6,777, respectively.

5. OTHER ASSETS

Other assets consist of the following:

	December 31,
	2000		2001
Prepaid aircraft rent	$	6,245	$	15,694
Restricted cash		1,500		1,500
Deposits and other		2,690		1,141

	$	10,435	$	18,335

In accordance with a lease agreement, Chautauqua maintains a $1,500 certificate of deposit with a bank that bears an interest rate of 1.5%.

6. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

		December 31,
		2000		2001
Accrued wages and benefits and related taxes		$	2,873	$	4,693
Accrued maintenance and inventory			2,827		6,091
Accrued aircraft return costs			1,404		6,202
Accrued property taxes			1,832		2,122
Accrued interest payable to affiliates			1,140		1,227
Other			5,608		10,554

	Total accrued liabilities	$	15,684	$	30,889

F-13

7. DEBT AND NOTES PAYABLE

Debt and notes payable consists of the following:

		December 31,
		2000		2001
Revolving credit facility with Fleet Capital Corporation (the "Bank"), maximum of $23,000 available (including outstanding letters of credit), subject to 90% of eligible ticket revenue and eligible inventory and equipment. Interest is payable monthly at the Bank's LIBOR rate plus spreads ranging from 2.25% to 2.5% or the Bank's base rate (which is generally equivalent to the prime rate) plus 0.50%. The weighted average interest rates for the years ended December 31, 2000 and 2001 are 10.76% and 6.15%, respectively. Fees are payable at .375% on the unused revolver amount. The credit facility expired on March 31, 2002 and is collateralized by all of Chautauqua's assets, excluding the owned aircraft and engines.		$	9,271	$	7,044
Promissory notes with Embraer-Empresa Brasileira de Aeronautica, S.A., collateralized by aircraft, bearing interest at a fixed rate of 7.5%, monthly principal and interest payments of $952, due dates ranging from June 20, 2002 through November 23, 2002. The maturity dates can be extended at each maturity date.					103,362
Subordinated note payable to Parent, bearing interest at 11.5% as of December 31, 2001. Accrued and unpaid interest and principal are due on May 15, 2002 or upon sale by the Company of any capital stock.			15,025		16,883
Term loans with the Bank due December 2006 or upon termination of the Bank credit facility, with monthly principal payments of $56, and interest payable monthly at the Bank's LIBOR rates plus spreads ranging from 2.25% to 2.5% or the Bank's base rate (which is generally equivalent to the prime rate) plus 0.50% (6.46% at December 31, 2001). The term loans are collateralized by substantially all of Chautauqua's assets, including the two Saab 340 aircraft held for sale.			4,050		3,375
Term loans with the Bank due July 2006 or upon termination of the Bank credit facility, with monthly principal payments of $6, and interest payable monthly at the Bank's LIBOR rates plus spreads ranging from 2.25% to 2.5% or the Bank's base rate (which is generally equivalent to the prime rate) plus 0.50% (4.18% at December 31, 2001). The term loans are collateralized by substantially all of Chautauqua's assets, including the Saab 340 aircraft and equipment held for sale.			3,728		321
Other obligations			811		365

	Total		32,885		131,350
Current portion			26,339		31,416

Debt and notes payable, less current portion		$	6,546	$	99,934

F-14

Chautauqua's debt agreements with the Bank contain restrictive covenants that require, among other things, that Chautauqua maintain a certain fixed charge coverage ratio and leverage ratio. Chautauqua has outstanding letters of credit totaling $140 and $1,032 as of December 31, 2000 and 2001, respectively.

Future maturities of debt at December 31, 2001 are as follows:

2002		$	31,416
2003			4,822
2004			5,080
2005			5,352
2006			5,640
Thereafter			79,040

	Total	$	131,350

New Credit Facilities (Unaudited)

On March 27, 2002 the Company entered into a new $15,000 credit facility with the Bank, subject to 90% of eligible ticket revenue and eligible inventory and equipment. Interest is payable monthly at the Bank's LIBOR rate plus spreads from 2.75% to 3.0% or the Bank's base rate (which is generally equivalent to the prime rate) plus 0.75%. Fees are payable at 0.375% on the unused revolver amount. This credit facility expires March 27, 2004 and is collateralized by all of Chautauqua's assets, excluding the owned aircraft and engines.

On March 27, 2002 the Company refinanced certain term loans with the Bank which increased the monthly principal payments to $89 and changed the due date to March 1, 2005.

In January 2002, four promissory notes payable to Embraer-Empresa Brasileira de Aeronautica, S.A. ("Embraer") were refinanced with fifteen-year term loans. The amounts outstanding at December 31, 2001 that were refinanced with the term loans total $60,786. The new term loans require semi-annual principal and interest payments which began in March 2002. The first payment in March 2002 was $663 and $2,790 is due on each semi-annual payment date thereafter. The new term loans are collateralized by the aircraft.

During the three months ended March 31, 2002, the Company entered into three promissory notes with Embraer-Empresa Brasileira de Aeronautica totaling $42,959, for the purchase of the three 44-seat Embraer 140-LR jet aircraft. These notes are collateralized by the aircraft and require monthly principal and interest payments of $128. Due dates range from August 20, 2002 to September 28, 2002, but can be extended at each maturity date.

8. REDEEMABLE PREFERRED STOCK

Chautauqua has authorized 1,000,000 shares of Series A redeemable preferred stock at a par value of $.01 per share. In May 2000, 10.295828 shares of Series A redeemable preferred stock were issued

F-15

with a stated value of $250,000 per share in full satisfaction of a related party note payable and accrued interest thereon, and Chautauqua issued six shares of Series A redeemable preferred stock for cash of $1,500. At December 31, 2001, 16.295828 shares are issued and outstanding and held by two related parties. The preferred stockholders are entitled to receive cumulative dividends equal to 10% per annum of the stated value of the preferred stock. Redeemable preferred stock dividends have priority over dividends declared and paid on Chautauqua's common stock. Cash dividends cannot be declared or paid on shares of Chautauqua's common stock unless all cumulative dividends on the shares of redeemable preferred stock have been paid. As of December 31, 2000 and 2001, Chautauqua had accrued dividends of $255 and $673, respectively.

The preferred stockholders have a liquidation preference equal to the sum of the stated value and all accrued and unpaid dividends. The redeemable preferred stock is subject to a mandatory redemption clause, which requires Chautauqua to redeem all the outstanding preferred stock, at the stated value plus accrued interest, upon the earlier of Republic's initial public offering ("IPO") or December 31, 2010.

9. COMMITMENTS

As of December 31, 2001, Chautauqua leases 61 aircraft with varying terms extending through 2018 and leases terminal space, operating facilities and office equipment with terms extending through 2012. Rent expense is as follows:

		For the years ended December 31,
		1999		2000		2001
Aircraft rent		$	9,249	$	22,903	$	46,160
Other			1,961		2,334		2,275

	Total rent expense	$	11,210	$	25,237	$	48,435

Chautauqua has long-term maintenance agreements with engine and aircraft equipment manufacturers through June 2009. Payments under such agreements are based upon flight hours and were $4,082, $8,211, and $17,163 for the years ended December 31, 1999, 2000 and 2001, respectively. Chautauqua is responsible for all other maintenance costs of its aircraft and must meet specified return conditions upon lease expiration for both the airframes and engines.

F-16

Future minimum payments at December 31, 2001, under noncancellable operating leases are as follows:

		Aircraft
		Turboprop		Jet		Other		Total
2002		$	9,174	$	55,148	$	2,321	$	66,643
2003			8,676		55,148		2,324		66,148
2004			6,426		55,148		2,287		63,861
2005			2,146		55,148		2,267		59,561
2006			444		55,148		1,913		57,505
Thereafter					537,936		17,323		555,259

	Total	$	26,866	$	813,676	$	28,435	$	868,977

Future turboprop lease payments will be reduced by future lease payments made by a new lessee (see Note 16). As of December 31, 2001, Chautauqua has purchase commitments of $5,000 for two spare jet engines to be delivered in 2002, and a sale-leaseback facility is in place at December 31, 2001 to finance the spare jet engines.

10. CONTINGENCIES

Chautauqua was recently informed by the Federal Aviation Administration ("FAA") that it is investigating shipments sent by Chautauqua on cargo airlines consisting of approximately 46 packages that may have contained regulated hazardous materials without properly training Chautauqua's employees and/or without properly labeling, declaring, marking, describing or packaging the shipments for transportation in air commerce in accordance with applicable requirements. Management is cooperating with the FAA's investigation, which is at an early stage. Chautauqua could be subject to civil penalties of up to $28 for each violation; however, given the early stage of the investigation and the discretion the FAA has on imposing penalties, management is unable to estimate the amount of penalties, if any, Chautauqua might be required to pay.

Chautauqua is also subject to certain legal and administrative actions which management considers routine to their business activities. As of December 31, 2001, management believes, after consultation with legal counsel, the ultimate outcome of any pending legal matters will not have a material adverse effect on our financial position, liquidity, or results of operations.

As of December 31, 2001, approximately 78% of Chautauqua's workforce is employed under union contracts, and 52% of this workforce is under a contract that is amendable on November 1, 2002.

11. RELATED PARTY TRANSACTIONS

Fees are paid to an affiliated company for administrative functions not performed by Republic and its subsidiary. Fees incurred were approximately $421, $139, and $77 for the years ended December 31, 1999, 2000 and 2001, respectively.

F-17

In addition to the administrative functions performed by an affiliated company, Republic receives advances for working capital purposes. As of December 31, 2000 and 2001, advances to the Company were $463 and $530, respectively.

During 1999, Chautauqua entered into an agreement with Solitair Corp. ("Solitair"), an affiliate of WexAir LLC, to purchase or lease Embraer regional jets from Solitair. As of December 31, 2001, Chautauqua has purchased seven aircraft and leased thirty-eight aircraft from third parties, who acquired the aircraft from Solitair. The cost per aircraft was equal to the purchase price paid by Solitair, including all direct and indirect costs and expenses ($8, $131 and $121 for the years ended December 31, 1999, 2000 and 2001, respectively) relating thereto, plus up to $500 per aircraft. Under this agreement, Chautauqua will purchase or lease eight additional aircraft at a cost per aircraft equal to the purchase price paid by Solitair, including all direct and indirect costs and expenses relating thereto, plus $440 per aircraft. With respect to each aircraft purchased by Chautauqua, Chautauqua has the option to enter into a short term lease with Solitair for a maximum of 30 days commencing on the date Solitair acquires the aircraft and ending on the date Chautauqua purchases the aircraft. This monthly lease rate is equal to $136 per month and amounted to $703, $957 and $36 of lease payments paid to Solitair for the years ended December 31, 1999, 2000, and 2001, respectively.

During 2000, Chautauqua purchased an aircraft from Solitair. Subsequently, this aircraft was sold to an unrelated third party and leased back. The gain of $720 is deferred and is being accreted to rent expense on a straight-line basis over the related lease term.

12. CAPITAL STOCK AND STOCK OPTIONS

Common Stock

On May 15, 1998, WexAir LLC acquired 100 shares of Republic's common stock for cash of $8,133. These proceeds and the proceeds from the subordinated promissory note (see Note 7) were used by Republic to acquire the common stock of Chautauqua.

Stock Options

In connection with employment agreements for certain key employees, Republic granted options to purchase shares of Republic's common stock. The stock options vest ratably over the term of the employment agreements (generally 48 months) and are exercisable for five years following the vesting date. Because the exercise price of the options equal fair value on the grant dates, no compensation expense was recorded for options granted in 1999 and 2000. Compensation expense of $90 was recorded in 2001 for options issued in August 2001, because the exercise price of such options was less than the fair value on the grant date.

F-18

The following is a summary of stock option activity for the stock options outstanding at the end of the respective periods.

	December 31, 1999			December 31, 2000			December 31, 2001
	Options	Weighted Average Exercise Price		Options	Weighted Average Exercise Price		Options	Weighted Average Exercise Price
Outstanding, beginning of year				1,700,000	$	1.75	1,920,000	$	1.75
Granted	1,700,000	$	1.75	220,000		1.75	120,000		7.83

Outstanding, end of year	1,700,000	$	1.75	1,920,000	$	1.75	2,040,000	$	2.11

Weighted average remaining contractual life in years	6.6			5.7			4.8
Options exercisable at end of year	202,083	$	1.75	657,083	$	1.75	1,149,583	$	1.82

Had compensation expense for the options been determined based on fair value at the grant dates for awards consistent with the fair value method of SFAS No. 123, the pro forma net income (loss) available for common stockholders and pro forma net income (loss) available for common stockholders per share would have been as follows:

				Net income (loss) available for common stockholders per share
	Net income (loss) available for common stockholders
	Net income (loss) available for common stockholders			Basic			Diluted
1999
As reported	$	(8,854	)	$	(0.44	)	$	(0.44	)
Pro forma		(8,993	)		(0.45	)		(0.45	)
2000
As reported	$	2,267		$	0.11		$	0.11
Pro forma		1,954			0.10			0.10
2001
As reported	$	5,649		$	0.28		$	0.27
Pro forma		5,287			0.26			0.26

The per share weighted average fair value of options granted in 1999, 2000 and 2001 was $1.15, $1.11 and $4.39, respectively. The fair value of the option grants is estimated on the date of the grant using the Black Scholes option pricing model with the following assumptions: no dividend yield; risk-free interest rates ranging from 4.84% to 6.70%; volatility of 50%; and an expected life of 6.5 years. The pro forma amounts are not representative of the effects on reported earnings for future years.

F-19

13. INCOME TAXES

The components of the provision for income tax expense (benefit) are as follows:

		For the years ended December 31,
		1999			2000		2001
Federal:
	Current	$	(2,488	)	$	700	$	5,299
	Deferred		(1,432	)		1,659		(1,462	)

			(3,920	)		2,359		3,837
State:
	Current		(188	)		74		1,360
	Deferred		(737	)		509		(437	)

			(925	)		583		923

Income tax expense (benefit)		$	(4,845	)	$	2,942	$	4,760

A reconciliation of the expense (benefit) for taxes on income at the applicable federal statutory income tax rate to the tax provision as reported is as follows:

		For the years ended December 31,
		1999			2000		2001
Federal income tax expense (benefit) at statutory rate		$	(4,658	)	$	1,858	$	3,681
State income tax expense (benefit), net of federal benefit			(701	)		385		609
Nondeductible meals and entertainment			239			393		156
Goodwill amortization			275			275		275
Other						31		39

	Income tax expense (benefit)	$	(4,845	)	$	2,942	$	4,760

F-20

The components of deferred tax assets and liabilities are as follows:

			December 31, 2000
			Assets		Liabilities			Total
Current:
	Nondeductible accruals		$	1,982				$	1,982
	Nondeductible accrued interest			1,739					1,739
	Alternative minimum tax credit			273					273
	Unrealized gain				$	(351	)		(351	)
	Prepaid rent			45					45

				4,039		(351	)		3,688
Noncurrent:
	Nondeductible accruals			2,270					2,270
	Accelerated depreciation and fixed asset basis differences for tax purposes					(2,644	)		(2,644	)
	Prepaid rent			698					698
	Deferred credits and sale leaseback gain			307					307

				3,275		(2,644	)		631

		Total	$	7,314	$	(2,995	)	$	4,319

			December 31, 2001
			Assets		Liabilities			Total
Current:
	Nondeductible accruals		$	2,623				$	2,623
	Nondeductible accrued interest			2,551					2,551
	Other			166					166

				5,340					5,340
Noncurrent:
	Nondeductible accruals			3,819					3,819
	Accelerated depreciation and fixed asset basis differences for tax purposes				$	(7,294	)		(7,294	)
	Asset impairment for book			733					733
	Prepaid rent			1,276					1,276
	Deferred credits and sale leaseback gain			2,344					2,344

				8,172		(7,294	)		878

		Total	$	13,512	$	(7,294	)	$	6,218

Management has evaluated the available evidence about the realization of deferred tax assets and does not believe a valuation allowance is necessary.

F-21

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in an arm's length transaction between knowledgeable, willing parties. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Fuel Swap Agreements—The fair value reflects the estimated amounts that would be received or paid to terminate the contract at the reporting date based upon quoted market prices of comparable contracts. The fair values of fuel swap agreements at December 31, 2000 and 2001 are $1,254 and ($202), respectively.

Long-Term Debt—The fair value is estimated based on discounting expected cash flows at the rates currently offered to Republic for debt of the same remaining maturities. As of December 31, 2000 and 2001, the carrying value of long-term debt approximates its fair value.

Subordinated notes payable to affiliates-—It is not practicable to estimate fair value of related party financial instruments because the related parties most likely have investment strategies and expectations different from unrelated third parties.

15. BENEFIT PLAN—401(K)

Chautauqua has a defined contribution retirement plan covering substantially all eligible employees. Chautauqua matches up to 2.5% of eligible employees' wages. Employees are generally vested in matching contributions after three years of service with Chautauqua. Employees are also permitted to make pre-tax contributions of up to 15% and after-tax contributions of up to 10% of their annual compensation. Chautauqua's expense under this plan was $225, $246, and $312 for the years ended December 31, 1999, 2000 and 2001, respectively.

16. IMPAIRMENT LOSS AND ACCRUED AIRCRAFT RETURN COSTS

Jetstream 31 Turboprop Aircraft

During the fourth quarter of 1999, Chautauqua made the decision to return the entire fleet of leased Jetstream 31 turboprop aircraft to the lessors and to dispose of related equipment, spare parts and supplies. Chautauqua continued to use the aircraft to fly routes under the US Airways code sharing agreement through December 2000. Certain routes were replaced with Saab 340 turboprop aircraft and the remaining routes were eliminated. Pursuant to the lease agreements, Chautauqua was required to return the aircraft to the lessors in the same condition that the aircraft were delivered; therefore, Chautauqua accrued estimated return costs of $2,636 in 1999. During 2000 and 2001, Chautauqua incurred return costs of $1,232 and $1,234, respectively. Accrued return costs for these aircraft at December 31, 2000 and 2001 are $1,404 and $170, respectively. In addition, an impairment loss of $3,967 was recorded in 1999 to reduce the carrying amounts of assets to be disposed of (consisting of spare engines, parts and supplies needed to maintain and operate the Jetstream 31 fleet) to estimated fair value, less costs to sell, or net realizable value.

F-22

Saab 340 Turboprop Aircraft

On December 26, 2001, management made the decision to exit its Saab 340 turboprop operations (representing 32% of 2001 revenue) in an orderly manner by July 2002. The exit plan includes the scheduled removal of aircraft (consisting of twenty-four leased and two owned aircraft) from flight service, the preparation of the aircraft for return to the lessors or for sale, and the sale of related spare engines, parts and supplies used to maintain and operate the Saab fleet.

Saab Aircraft Leasing, Inc. and affiliates (collectively referred to as "lessor") have agreed to lease twenty-two of the twenty-four Saab 340 aircraft when new lessees are identified. An agreement was signed between the lessor and a new lessee (a company controlled by Wexford Capital LLC) for up to eighteen (16 firm and 2 option) Saab 340 aircraft at fair market lease rates. The lessor is actively seeking new lessees for the remaining aircraft. The current leases will terminate when a new lease is obtained; however, if new leases are not entered into, or are entered into and subsequently terminated, Chautauqua will be obligated for the original lease payments. Chautauqua will pay the lessor a rent differential, based on our original lease payments compared to lease payments of the new lessees. Chautauqua has accrued $2,646 for this rent differential at December 31, 2001. In addition, Chautauqua is responsible for the lease payments on the remaining two Saab 340 aircraft until expiration of these leases (September 2002). Lease payments of $1,886 are accrued at December 31, 2001 for the period from the date the aircraft is removed from service through the later of the end of the lease term or the date the aircraft is expected to be re-leased by the lessor.

While the aircraft are out of flight service, they will be inspected and overhauled to the required return condition. Chautauqua accrued $1,500 for estimated overhaul and return costs at December 31, 2001.

An impairment loss of $2,068 was recorded in 2001 to reduce the carrying amounts of assets to be disposed of (consisting of two owned aircraft, leasehold improvements, and all assets needed to maintain and operate the Saab fleet) to estimated fair value or net realizable value. Estimated fair value for owned aircraft are based on quotations from aircraft dealers, less selling costs. Chautauqua has an agreement to sell the spare engines, parts and supplies to the new lessee at net book value, which approximates net realizable value based on quotations from aircraft parts manufacturers and dealers.

17. WARRANTS

In connection with the America West code-sharing agreement entered into in March 2001, Republic agreed to grant a warrant to America West as an inducement to execute such agreement. The warrant to purchase Republic shares will be issued with an exercise price equal to the underwriters' price on the closing date of Republic's IPO. The number of shares granted will be 2% of the greater of (a) the number of shares registered in an IPO or (b) 35% of the number of shares of common stock outstanding immediately prior to the closing of an IPO (computed on a fully diluted basis) and expire three years after the grant date.

F-23

In connection with the American code-sharing agreement entered into in June 2001, Republic granted a warrant to American to purchase shares of its common stock at 93% of the IPO price as an inducement to enter into such agreement. The number of shares of common stock to be issued under the warrant agreement is 8.75% of the greater of (a) the number of shares registered in an IPO or (b) 60% of the number of shares of common stock outstanding immediately prior to the closing of an IPO (computed on a fully diluted basis). Beginning June 2002, 42.9% of the warrant shares vest at 10% per year for ten years and, beginning June 2006, 57.1% of the warrant shares vest at 20% per year for five years. The warrant shares are exercisable for a five-year period after vesting.

18. VALUATION AND QUALIFYING ACCOUNTS

Description	Balance at Beginning of Year		Additions Charged to Expenses		Deductions(1)			Balance at End of year
	(In thousands)
Allowance for doubtful accounts deducted from receivables
December 31, 2001	$	592	$	334	$	(511	)	$	415
December 31, 2000		326		486		(220	)		592
December 31, 1999		154		763		(591	)		326

(1): Uncollectible accounts written off net of recoveries.

F-24

[Graphic of Plane in Sky]

Through and including , 2002 (the 25^th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

5,000,000 Shares

Common Stock

P R O S P E C T U S

Merrill Lynch & Co.

Deutsche Bank Securities

Raymond James

, 2002

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered (other than underwriting accounts and commissions) are estimated to be as follows:

Securities and Exchange Commission registration fee		$	7,820
National Association of Securities Dealers filing fee		$	9,000
Nasdaq National Market Listing Fee		$	100,000
Legal fees and expenses		$	750,000
Blue Sky fees and expenses		$	15,000
Accounting fees and expenses		$	900,000
Transfer agent's fees and expenses		$	3,500
Printing and engraving fees		$	400,000
Miscellaneous		$	314,680

	Total	$	2,500,000

Item 14. Indemnification of Directors and Officers

Section 145(a) of the General Corporation Law of the State of Delaware provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

Section 145(b) provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under standards similar to those discussed above, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine that despite the adjudication of liability, such person is fairly and reasonably entitled to be indemnified for such expenses which the Court shall deem proper.

Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation may purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him

II-1

against such liabilities under such Section 145. The Company's directors and officers are insured against losses arising from any claim against them as such for wrongful acts or omissions, subject to certain limitations.

Section 102(b)(7) of the DGCL provides that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director provided that such provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which the director derived an improper personal benefit.

The Company's Certificate of Incorporation and Bylaws provide that the Company shall indemnify certain persons, including officers, directors and controlling persons, to the fullest extent permitted by the General Corporation Law of the State of Delaware.

Item 15. Recent Sales of Unregistered Securities

The following is a summary of our transactions since May 1998 involving sales of our securities that were not registered under the Securities Act of 1933, as amended:

Since May 1998, Republic Airways has issued and sold the following securities that were not registered under the Securities Act (all sales of information regarding sales of common stock give effect to the recapitalization pursuant to which each outstanding share of Republic Airways common stock was exchanged for shares of Republic Airways common stock and each outstanding option or warrant to purchase one share of our common stock became an option or warrant to purchase shares of our common stock):

(1) In May 1998, we issued a note in the aggregate principal amount of $12 million to WexAir, LLC, in connection with our purchase of Chautauqua. In May 2002, we issued in substitution of our May 1988 note a note in the aggregate principal amount of approximately $18.9 million to WexAir, LLC, an accredited investor, representing all outstanding principal and interest obligations due under our May 1998 note.

(2) In May 1998 we issued 100 shares of our common stock to WexAir LLC for $8,133,000, in connection with our purchase of Chautauqua.

(3) In June 1999, we granted an option to purchase 1,200,000 shares of our common stock to Bryan K. Bedford, our chairman, chief executive officer and president, pursuant to an employment agreement, dated June 1999, between Chautauqua and Bryan K. Bedford with an exercise price equal to $1.75 per share.

(4) In July 1999, we granted an option to purchase 300,000 shares of our common stock to Robert H. Cooper, our vice president and chief financial officer, pursuant to an employment agreement, dated July 1999, between Chautauqua and Robert H. Cooper with an exercise price equal to $1.75 per share.

(5) In July 1999, we granted an option to purchase 200,000 shares of our common stock to Wayne C. Heller, our vice president—flight operations, pursuant an employment agreement, dated July 1999, between Chautauqua and Wayne C. Heller with an exercise price equal to $1.75 per share.

(6) In November 1999, we granted an option to purchase 100,000 shares of our common stock to Jeffrey Jones, our vice president, planning and corporate development, pursuant to a letter agreement, dated November 1, 1999, between Chautauqua and Jeffrey Jones with an exercise price equal to $1.75 per share.

II-2

(7) In March 2001, we agreed to issue to American West Airlines, Inc. a warrant effective as of the date of this offering to purchase 160,440 shares of our common stock at an aggregate exercise price per share of $12.09 in connection with our entrance into a code-sharing agreement with them. The number of shares issuable under the warrant is subject to increase under certain circumstances.

(8) In June 2001, we issued to American Airlines, Inc. a warrant effective as of the date of this offering to purchase 1,209,000 shares of our common stock at an exercise price per share of $12.09 in connection with our entrance into a code-sharing arrangement with them. The number of shares issuable under the warrant is subject to increase under certain circumstances.

(9) In June 2001, we granted American the right to purchase up to five percent of the common stock that we may offer for sale in connection with our initial public offering. American has elected to waive this right.

(10) In July 2001, we granted an option to purchase 120,000 shares of our common stock to Warren R. Wilkinson, our vice president—marketing and corporate communications, pursuant to a letter agreement, dated June 25, 2001, between Chautauqua and Warren R. Wilkinson with an exercise price equal to $7.83 per share.

(11) In June 2002, we issued to Delta Air Lines, Inc. a warrant to purchase 1,500,000 shares of our common stock at an exercise price per share at $12.50 as a condition to our entering into a code-sharing agreement with them. The number of shares issuable under the warrant is subject to increase under certain circumstances.

(12) In June 2002, we issued to Delta Air Lines, Inc. a warrant effective as of the date of this offering to purchase 1,500,000 shares of our common stock at an exerise price per share equal to 95% of the public offering price as a condition to our entering into a code-sharing agreement with them. The number of shares issuable under the warrant is subject to increase under certain circumstances.

(13) In June 2002, we granted Delta Air Lines, Inc. the right to purchase up to five percent of the common stock that we may offer for sale in connection with our initial public offering as a condition to our entering into a code-sharing agreement with them.

The sale and issuance of securities in the transactions described above were exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering, where the purchasers were sophisticated investors who represented their intention to acquire securities for investment only and not with a view to distribution and received or had access to adequate information about the Registrant or in reliance on Rule 701 promulgated under the Securities Act. Appropriate restrictive legends were affixed to the stock certificates issued in the above transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. No underwriters were employed in any of the above transactions.

II-3

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits.

Exhibit No.		Description
1.1*		Form of Underwriting Agreement.
3.1*		Amended and Restated Certificate of Incorporation.
3.2*		Amended and Restated Bylaws.
4.1*		Specimen Stock Certificate.
5.1		Opinion of Fulbright & Jaworski L.L.P.
10.1		2002 Equity Incentive Plan.
10.1(a)		Form of Option Agreement for Non-Employee Directors.
10.1(b)		Form of Option Agreement for Officers.
10.2†*		Code Share and Revenue Sharing Agreement, by and between America West Airlines and Chautauqua Airlines, Inc., dated as of March 20, 2001.
10.2(a)†*		First Amendment to Code Share and Revenue Sharing Agreement, by and between America West Airlines and Chautauqua Airlines, Inc., dated as of December 24, 2001.
10.3†*		Agreement, by and between America West Airlines and Chautauqua Airlines, Inc., dated as of March 20, 2001.
10.4		Amended and Restated Warrant Issuance Agreement, by and among America West Airlines, Chautauqua and Republic Airways Holdings Inc. dated as of May 31, 2002.
10.5†		Amended and Restated Regional Jet Air Services Agreement, dated as of June 12, 2002, by and between AMR Corporation and Chautauqua Airlines, Inc.
10.5(a)*		Amended and Restated Warrant to Purchase Shares of Common Stock of Republic Airways Holdings Inc., issued to AMR Corp.
10.6†*		Service Agreement between US Airways, Inc. (previously USAir, Inc.) and Chautauqua Airlines, Inc., as amended, dated as of February 9, 1994.
10.6(a)*		Third Amendment to the Service Agreement, by and between US Airways, Inc. (previously USAir, Inc.) and Chautauqua Airlines, Inc., as amended, dated as of March 19, 1999.
10.7†		Chautauqua Jet Service Agreement, by and between US Airways, Inc. and Chautauqua Airlines, Inc., dated as of March 19, 1999.
10.7(a)†*		First Amendment to the Chautauqua Jet Service Agreement, by and between US Airways, Inc. and Chautauqua Airlines, Inc., dated as of September 6, 2000.
10.7(b)†*		Second Amendment to the Chautauqua Jet Service Agreement, by and between US Airways, Inc. and Chautauqua Airlines, Inc., dated as of September 20, 2000.
10.8*		Agreement between Chautauqua Airlines, Inc. and Teamsters Airline Division Local 747 representing the Pilots of Chautauqua Airlines, dated as of November 17, 1998.

II-4

10.9*		Agreement between Chautauqua Airlines, Inc. and the Flight Attendants of Chautauqua Airlines, Inc. as represented by the Airline Division, International Brotherhood of Teamsters, AFL-CIO, dated as of March 9, 1999.
10.10*		Agreement between Chautauqua Airlines, Inc. and the Flight Dispatchers in the employ of Chautauqua Airlines, Inc. as represented by Transport Workers Union of America, AFL-CIO, dated as of February 19, 2001.
10.11*		Agreement between Chautauqua Airlines, Inc. and the Passenger and Fleet Service Employees in the service of Chautauqua Airlines, Inc. as represented by the International Brotherhood of Teamsters, dated as of December 15, 1999.
10.12*		Agreement among Republic Airways Holdings Inc., Chautauqua Airlines, Inc. and Solitair Corp., dated as of February 12, 2002.
10.13†		EMB-145LR Amended and Restated Purchase Agreement Number GCT-025/98, by and between Embraer—Empresa Brasileira de Aeronáutica S.A. and Republic Airways Holdings Inc., dated as of April 19, 2002.
10.13(a)†*		Partial Assignment and Assumption of Purchase Agreement GCT-025/98, by and between Republic Airways Holdings Inc. and Solitair Corp., and consented to by Embraer—Empresa de Aeronáutica S.A., dated as of April 18, 2002.
10.13(b)†		Amendment Number 1 to Amended and Restated Purchase Agreement GCT-025/98 between Republic Airways Holdings Inc and Embraer—Empresa Brasileira de Aeronáutica S.A., dated as of June 7, 2002.
10.14†		Amended and Restated Letter Agreement GCT-026/98, by and between Embraer—Empresa de Aeronáutica S.A. and Republic Airways Holdings Inc., dated as of April 19, 2002.
10.14(a)†		Amendment Number 1 to Amended and Restated Letter Agreement GCT-026/98 between Republic Airways Holdings Inc and Embraer—Empresa Brasileira de Aeronáutica S.A., dated as of June 7, 2002.
10.15		Amended and Restated Registration Rights Agreement, dated as of June 7, 2002, by and among Republic Airways Holdings Inc., Imprimis Investors, LLC, Wexford Spectrum Fund I, L.P., Wexford Offshore Spectrum Fund, Wexford Partners Investment Co. LLC, WexAir LLC, and Delta Air Lines, Inc.
10.16*		Loan and Security Agreement, by and between Fleet Capital Corporation and Chautauqua Airlines, Inc., dated as of December 9, 1998.
10.17*		Consolidated Amendment No. 1 to Loan and Security Agreement, by and between Fleet Capital Corporation and Chautauqua Airlines, Inc., dated as of March 27, 2002.
10.18*		Amendment No. 1 to the Term Note, dated as of March 27, 2002, by and between Fleet Capital Corporation and Chautauqua Airlines, Inc.
10.19†		Participation Agreement (N281SK) dated as of February 23, 2001, among Chautauqua Airlines, Inc., as Lessee, First Security Bank, National Association, as Owner Trustee and General Electric Capital Corporation, as Owner Participant. There are fifteen additional Participation Agreements which are substantially identical in all material respects except as indicated on the exhibit.

II-5

10.20*		Letter Agreement (N281SK) dated as of February 23, 2001, among Chautauqua Airlines, Inc., as Lessee, First Security Bank, National Association, as Owner Trustee and General Electric Capital Corporation, as Owner Participant. There are fifteen additional Letter Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.21†*		Lease Agreement (N281SK) dated as of February 23, 2001, between First Security Bank, National Association, as Owner Trustee and Chautauqua Airlines, Inc., as Lessee. There are fifteen additional Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.22*		Lease Supplement No. 1 (N281SK) dated February 23, 2001, between First Security Bank, National Association, as Owner Trustee and Chautauqua Airlines, Inc., as Lessee. There are fifteen additional Lease Supplement No. 1 which are substantially identical in all material respects except as indicated on the exhibit.
10.23†*		Lease Agreement (N296SK), by and between Wells Fargo Bank Northwest, National Association, Owner Trustee, Lessor and Chautauqua Airlines, Inc., Lessee, dated as of December 20, 2001. There are twelve additional Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.24†*		Participation Agreement (N296SK), by and among Wells Fargo Bank Northwest, National Association, not in its individual capacity (except as otherwise expressly set forth herein) but solely as Owner Trustee, Chautauqua Airlines, Inc., as Lessee, and Silvermine River Finance Two, Inc., as Owner Participant, dated as of December 20, 2001. There are twelve additional Participation Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.25*		Letter Agreement (N296SK), dated as of December 20, 2001, among Chautauqua Airlines, Inc., as Lessee, Wells Fargo Bank Northwest, National Association, as Owner Trustee and Silvermine River Finance Two, Inc., as Lessor. There are twelve additional Letter Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.26*		Side Letter Agreement to the Lease Agreement, by and among Chautauqua Airlines, Inc., as Lessee, Wells Fargo Bank Northwest, National Association, as Owner Trustee and Silvermine River Finance Two, Inc., as Lessor and acknowledged by Solitair Corp. There are twelve additional Side Letter Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.27*		Lease Agreement by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc. dba US Airways Express, dated as of June 17, 1994.
10.27(a)*		First Amendment to Office Lease Agreement, by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of July 17, 1998.
10.27(b)*		Second Amendment to Office Lease Agreement, by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of October 2, 1998.
10.27(c)*		Third Amendment to Office Lease Agreement, by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of November 6, 1998.

II-6

10.27(d)*		Fourth Amendment to Office Lease Agreement, by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of September 3, 1999.
10.28*		Letter Agreement by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of July 17, 2000, amending Lease Agreement for office space.
10.29†*		Aircraft Lease Agreement (N260SK), dated as of June 25, 1999 between ICX Corporation, as Lessor and Chautauqua Airlines, Inc., as Lessee.
10.30†*		Aircraft Lease Agreement dated as of September 2, 1999, between Finova Capital Corporation, as Lessor and Chautauqua Airlines, Inc., as Lessee. There are three additional Aircraft Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.31†*		First Amendment to the Aircraft Lease Agreement (N261SK) dated as of January 1, 2000, between Finova Capital Corporation, as Lessor and Chautauqua Airlines, Inc., as Lessee. There are three additional First Amendments to the Aircraft Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.32†		Aircraft Purchase Agreement (N288SK) dated as of June 5, 2001 among Solitair Corp., as Seller, Chautauqua Airlines, Inc., as Lessee, Mitsui & Co. (U.S.A.), Inc., as Beneficiary and Wells Fargo Bank Northwest, National Association, as Owner Trustee. There are two additional Aircraft Purchase Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.33†*		Aircraft Lease Agreement (N288SK) dated as of June 5, 2001 between Wells Fargo Bank Northwest, National Association, as Owner Trustee and Chautauqua Airlines, Inc., as Lessee. There are two additional Aircraft Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.34*		Lease Supplement No. 1 (N288SK) dated June 5, 2001 between Wells Fargo Bank Northwest, National Association, as Owner Trustee and Chautauqua Airlines, Inc., as Lessee. There are two additional Lease Supplement No. 1 which are substantially identical in all material respects except as indicated on the exhibit.
10.35†*		Engine Lease Common Terms Agreement, by and between General Electric Capital Corporation and Chautauqua Airlines, Inc., dated as of December 18, 2001.
10.36†*		Master Engine Lease Agreement, by and between Aviation Financial Services Inc. and Chautauqua Airlines, Inc., dated as of December 18, 2001, and incorporating the provisions of an Engine Lease Common Terms Agreement.
10.37*		Engine Lease Supplement, by and between Aviation Financial Services Inc. and Chautauqua Airlines, Inc., dated as of December 19, 2001.
10.38*		Side Letter Agreement, by and between Aviation Financial Services Inc. and Chautauqua Airlines, Inc., dated as of December 18, 2001.
10.39†*		Engine Purchase Agreement, by and between Aviation Financial Services Inc. and Chautauqua Airlines, Inc., dated as of December 18, 2001.

II-7

10.40†*		Loan Agreement between Chautauqua Airlines, Inc. and Agência Especial de Financiamento Industrial (FINAME), dated as of December 27, 2001. There are ten additional Loan Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.41*		Aircraft Security Agreement between Chautauqua Airlines, Inc. as Borrower and JPMorgan Chase Bank as Security Trustee, dated as of December 27, 2001. There are ten additional Aircraft Security Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.42*		Security Agreement Supplement No. 1 between Chautauqua Airlines, Inc. as Borrower and JPMorgan Chase Bank as Security Trustee, dated as of January 17, 2002. There are ten additional Security Agreement Supplements No. 1 which are substantially identical in all material respects except as indicated on the exhibit.
10.43†*		Securities Account Control Agreement among Chautauqua Airlines, Inc. as Debtor, Agência Especial de Financiamento Industrial (FINAME) as Lender, and JPMorgan Chase Bank as Securities Intermediary and Security Deposit Trustee, dated as of December 27, 2001. There are ten additional Securities Account Control Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.44†*		Security Deposit Agreement, among Chautauqua Airlines, Inc. as Debtor, Agência Especial de Financiamento Industrial (FINAME) as Lender, and JPMorgan Chase Bank as Securities Intermediary and Security Deposit Trustee, dated as of December 27, 2001. There are ten additional Security Deposit Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.45†*		Funding Agreement between Chautauqua Airlines, Inc. and Agência Especial de Financiamento Industrial (FINAME), dated as of December 27, 2001. There are ten additional Funding Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.45(a)†**		First Amendment to the Funding Agreement, dated as of June 11, 2002, by and between Chautauqua Airlines, Inc. and Agência Especial de Financiamento Industrial.
10.46†*		Aircraft Lease Agreement (N266SK) between First Security Bank, N.A., as owner-trustee, as lessor and Chautauqua Airlines Inc., as lessee, dated as of May 18, 2000.
10.47†		Junior Loan Agreement, dated as of June 11, 2002, by and between Chautauqua Airlines, Inc. and Embraer—Empresa Brasileira de Aeronáutica S.A. There are six additional Junior Loan Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.47(a)†		Promissory Note between Chautauqua Airlines, Inc. and Embraer—Empresa Brasileira de Aeronáutica S.A., dated as of June 11, 2002 and relating to the Junior Loan Agreement. There are six additional Promissory Notes which are substantially identical in all material respects except as indicated on the exhibit.
10.48		Agreement, dated as of June 7, 2002, by and between Republic Airways Holdings Inc. and Delta Air Lines, Inc.
10.49		Warrant to purchase shares of common stock of Republic Airways Holdings Inc. issued to Delta Air Lines, Inc., dated as of June 7, 2002.

II-8

10.50		Form of warrant to purchase shares of common stock of Republic Airways Holdings Inc. issued to Delta Air Lines, Inc.
10.51		Form of warrant to purchase shares of common stock of Republic Airways Holdings Inc. issued to Delta Air Lines, Inc.
10.52†		Delta Connection Agreement, dated as of June 7, 2002, by and among Delta Air Lines, Inc., Chautauqua Airlines, Inc., and Republic Airways Holdings Inc.
10.53*		Promissory Note of Republic Airways Holdings Inc. (FKA Wexford Air Holdings Inc.) (FKA Wexford III Corp.), dated as of May 15, 2002, in favor of WexAir, LLC in the principal amount of $18,879,828.01, bearing interest at the rate of 11.5% per annum.
10.54*		Employment Agreement by and between Bryan K. Bedford and Republic Airways Holdings Inc., dated as of June 25, 1999.
10.54(a)*		Letter Agreement Relating to Stock Options, dated March, 2002, by and between Republic Airways Holdings Inc. and Bryan K. Bedford.
10.54(b)		Amended and Restated Employment Agreement by and between Bryan K. Bedford and Republic Airways Holdings Inc., effective as of the date of this offering.
10.55*		Employment Agreement by and between Robert H. Cooper and Republic Airways Holdings Inc., dated as of July 16, 1999.
10.55(a)*		Letter Agreement Relating to Stock Options, dated March, 2002, by and between Republic Airways Holdings Inc. and Robert H. Cooper.
10.55(b)		Amended and Restated Employment Agreement by and between Robert Cooper and Republic Airways Holdings Inc., effective as of the date of this offering.
10.56*		Employment Agreement by and between Wayne Heller and Chautauqua Airlines, Inc., dated as of July 16, 1999.
10.56(a)*		Letter Agreement Relating to Stock Options, dated March, 2002, by and between Republic Airways Holdings Inc. and Wayne Heller.
10.56(b)		Amended and Restated Employment Agreement by and between Wayne Heller and Chautauqua Airlines, Inc., effective as of the date of this offering.
10.57*		Port Columbus International Airport Signatory Airline Operating Agreement and Lease, dated as of January 1, 2000.
10.58*		Office/Shop Space Permit by and between Signature Combs and Chautauqua Airlines, Inc., dated as of January 16, 2001.
10.59*		Hangar and Office Lease by and between AMR Combs, Inc. and Chautauqua Airlines, Inc., dated as of December 22, 1998.
21.1*		Subsidiaries of Republic Airways Holdings Inc.
23.1		Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
23.2		Consent of Deloitte & Touche LLP, Independent Auditors.
24.1		Power of Attorney (on signature page).

*: Previously filed.
**: To be filed by amendment.

II-9

†: A request for confidential treatment was filed for certain portions of the indicated document. Confidential portions have been omitted and filed separately with the Commission as required by Rule 406.

All other schedules are omitted because they are not required or are not applicable or the information is included in the financial statements or notes thereto.

Item 17. Undertakings

A. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described above in Item 14, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

B. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.

C. The undersigned Registrant hereby undertakes that:

1.: For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.
2.: For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-10

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Indianapolis, State of Indiana on June 18, 2002.

		REPUBLIC AIRWAYS HOLDINGS INC.
		By:	*
			Name: Bryan K. Bedford Title: Chairman of the Board, Chief Executive Officer and President

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

Signature	Title	Date

* Bryan K. Bedford	Chairman of the Board, Chief Executive Officer and President (principal executive officer)	June 18, 2002
/s/ ROBERT H. COOPER Robert H. Cooper	Executive Vice President and Chief Financial Officer (principal financial and accounting officer)	June 18, 2002
* Arthur H. Amron	Director	June 18, 2002
* Charles E. Davidson	Director	June 18, 2002
* Joseph M. Jacobs	Director	June 18, 2002
* Douglas J. Lambert	Director	June 18, 2002
* Jay L. Maymudes	Director	June 18, 2002

*By:

/s/ ROBERT H. COOPER

*Robert H. Cooper
Attorney-In-Fact

II-11

EXHIBIT INDEX

Exhibit No.		Description
1.1*		Form of Underwriting Agreement.
3.1*		Amended and Restated Certificate of Incorporation.
3.2*		Amended and Restated Bylaws.
4.1*		Specimen Stock Certificate.
5.1		Opinion of Fulbright & Jaworski L.L.P.
10.1		2002 Equity Incentive Plan.
10.1(a)		Form of Option Agreement for Non-Employee Directors.
10.1(b)		Form of Option Agreement for Officers.
10.2†*		Code Share and Revenue Sharing Agreement, by and between America West Airlines and Chautauqua Airlines, Inc., dated as of March 20, 2001.
10.2(a)†*		First Amendment to Code Share and Revenue Sharing Agreement, by and between America West Airlines and Chautauqua Airlines, Inc., dated as of December 24, 2001.
10.3†*		Agreement, by and between America West Airlines and Chautauqua Airlines, Inc., dated as of March 20, 2001.
10.4		Amended and Restated Warrant Issuance Agreement, by and among America West Airlines, Chautauqua and Republic Airways Holdings Inc. dated as of May 31, 2002.
10.5†		Amended and Restated Regional Jet Air Services Agreement, dated as of June 12, 2002, by and between AMR Corporation and Chautauqua Airlines, Inc.
10.5(a)*		Amended and Restated Warrant to Purchase Shares of Common Stock of Republic Airways Holdings Inc., issued to AMR Corp.
10.6†*		Service Agreement between US Airways, Inc. (previously USAir, Inc.) and Chautauqua Airlines, Inc., as amended, dated as of February 9, 1994.
10.6(a)*		Third Amendment to the Service Agreement, by and between US Airways, Inc. (previously USAir, Inc.) and Chautauqua Airlines, Inc., as amended, dated as of March 19, 1999.
10.7†		Chautauqua Jet Service Agreement, by and between US Airways, Inc. and Chautauqua Airlines, Inc., dated as of March 19, 1999.
10.7(a)†*		First Amendment to the Chautauqua Jet Service Agreement, by and between US Airways, Inc. and Chautauqua Airlines, Inc., dated as of September 6, 2000.
10.7(b)†*		Second Amendment to the Chautauqua Jet Service Agreement, by and between US Airways, Inc. and Chautauqua Airlines, Inc., dated as of September 20, 2000.
10.8*		Agreement between Chautauqua Airlines, Inc. and Teamsters Airline Division Local 747 representing the Pilots of Chautauqua Airlines, dated as of November 17, 1998.
10.9*		Agreement between Chautauqua Airlines, Inc. and the Flight Attendants of Chautauqua Airlines, Inc. as represented by the Airline Division, International Brotherhood of Teamsters, AFL-CIO, dated as of March 9, 1999.
10.10*		Agreement between Chautauqua Airlines, Inc. and the Flight Dispatchers in the employ of Chautauqua Airlines, Inc. as represented by Transport Workers Union of America, AFL-CIO, dated as of February 19, 2001.

10.11*		Agreement between Chautauqua Airlines, Inc. and the Passenger and Fleet Service Employees in the service of Chautauqua Airlines, Inc. as represented by the International Brotherhood of Teamsters, dated as of December 15, 1999.
10.12*		Agreement among Republic Airways Holdings Inc., Chautauqua Airlines, Inc. and Solitair Corp., dated as of February 12, 2002.
10.13†		EMB-145LR Amended and Restated Purchase Agreement Number GCT-025/98, by and between Embraer—Empresa Brasileira de Aeronáutica S.A. and Republic Airways Holdings Inc., dated as of April 19, 2002.
10.13(a)†*		Partial Assignment and Assumption of Purchase Agreement GCT-025/98, by and between Republic Airways Holdings Inc. and Solitair Corp., and consented to by Embraer—Empresa de Aeronáutica S.A., dated as of April 18, 2002.
10.13(b)†		Amendment Number 1 to Amended and Restated Purchase Agreement GCT-025/98 between Republic Airways Holdings Inc and Embraer—Empresa Brasileira de Aeronáutica S.A., dated as of June 7, 2002.
10.14†		Amended and Restated Letter Agreement GCT-026/98, by and between Embraer—Empresa de Aeronáutica S.A. and Republic Airways Holdings Inc., dated as of April 19, 2002.
10.14(a)†		Amendment Number 1 to Amended and Restated Letter Agreement GCT-026/98 between Republic Airways Holdings Inc and Embraer—Empresa Brasileira de Aeronáutica S.A., dated as of June 7, 2002.
10.15		Amended and Restated Registration Rights Agreement, dated as of June 7, 2002, by and among Republic Airways Holdings Inc., Imprimis Investors, LLC, Wexford Spectrum Fund I, L.P., Wexford Offshore Spectrum Fund, Wexford Partners Investment Co. LLC, WexAir LLC, and Delta Air Lines, Inc.
10.16*		Loan and Security Agreement, by and between Fleet Capital Corporation and Chautauqua Airlines, Inc., dated as of December 9, 1998.
10.17*		Consolidated Amendment No. 1 to Loan and Security Agreement, by and between Fleet Capital Corporation and Chautauqua Airlines, Inc., dated as of March 27, 2002.
10.18*		Amendment No. 1 to the Term Note, dated as of March 27, 2002, by and between Fleet Capital Corporation and Chautauqua Airlines, Inc.
10.19†		Participation Agreement (N281SK) dated as of February 23, 2001, among Chautauqua Airlines, Inc., as Lessee, First Security Bank, National Association, as Owner Trustee and General Electric Capital Corporation, as Owner Participant. There are fifteen additional Participation Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.20*		Letter Agreement (N281SK) dated as of February 23, 2001, among Chautauqua Airlines, Inc., as Lessee, First Security Bank, National Association, as Owner Trustee and General Electric Capital Corporation, as Owner Participant. There are fifteen additional Letter Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.21†*		Lease Agreement (N281SK) dated as of February 23, 2001, between First Security Bank, National Association, as Owner Trustee and Chautauqua Airlines, Inc., as Lessee. There are fifteen additional Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.22*		Lease Supplement No. 1 (N281SK) dated February 23, 2001, between First Security Bank, National Association, as Owner Trustee and Chautauqua Airlines, Inc., as Lessee. There are fifteen additional Lease Supplement No. 1 which are substantially identical in all material respects except as indicated on the exhibit.

10.23†*		Lease Agreement (N296SK), by and between Wells Fargo Bank Northwest, National Association, Owner Trustee, Lessor and Chautauqua Airlines, Inc., Lessee, dated as of December 20, 2001. There are twelve additional Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.24†*		Participation Agreement (N296SK), by and among Wells Fargo Bank Northwest, National Association, not in its individual capacity (except as otherwise expressly set forth herein) but solely as Owner Trustee, Chautauqua Airlines, Inc., as Lessee, and Silvermine River Finance Two, Inc., as Owner Participant, dated as of December 20, 2001. There are twelve additional Participation Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.25*		Letter Agreement (N296SK), dated as of December 20, 2001, among Chautauqua Airlines, Inc., as Lessee, Wells Fargo Bank Northwest, National Association, as Owner Trustee and Silvermine River Finance Two, Inc., as Lessor. There are twelve additional Letter Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.26*		Side Letter Agreement to the Lease Agreement, by and among Chautauqua Airlines, Inc., as Lessee, Wells Fargo Bank Northwest, National Association, as Owner Trustee and Silvermine River Finance Two, Inc., as Lessor and acknowledged by Solitair Corp. There are twelve additional Side Letter Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.27*		Lease Agreement by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc. dba US Airways Express, dated as of June 17, 1994.
10.27(a)*		First Amendment to Office Lease Agreement, by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of July 17, 1998.
10.27(b)*		Second Amendment to Office Lease Agreement, by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of October 2, 1998.
10.27(c)*		Third Amendment to Office Lease Agreement, by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of November 6, 1998.
10.27(d)*		Fourth Amendment to Office Lease Agreement, by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of September 3, 1999.
10.28*		Letter Agreement by and between the Indianapolis Airport Authority and Chautauqua Airlines, Inc., dated as of July 17, 2000, amending Lease Agreement for office space.
10.29†*		Aircraft Lease Agreement (N260SK), dated as of June 25, 1999 between ICX Corporation, as Lessor and Chautauqua Airlines, Inc., as Lessee.
10.30†*		Aircraft Lease Agreement dated as of September 2, 1999, between Finova Capital Corporation, as Lessor and Chautauqua Airlines, Inc., as Lessee. There are three additional Aircraft Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.31†*		First Amendment to the Aircraft Lease Agreement (N261SK) dated as of January 1, 2000, between Finova Capital Corporation, as Lessor and Chautauqua Airlines, Inc., as Lessee. There are three additional First Amendments to the Aircraft Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.

10.32†		Aircraft Purchase Agreement (N288SK) dated as of June 5, 2001 among Solitair Corp., as Seller, Chautauqua Airlines, Inc., as Lessee, Mitsui & Co. (U.S.A.), Inc., as Beneficiary and Wells Fargo Bank Northwest, National Association, as Owner Trustee. There are two additional Aircraft Purchase Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.33†*		Aircraft Lease Agreement (N288SK) dated as of June 5, 2001 between Wells Fargo Bank Northwest, National Association, as Owner Trustee and Chautauqua Airlines, Inc., as Lessee. There are two additional Aircraft Lease Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.34*		Lease Supplement No. 1 (N288SK) dated June 5, 2001 between Wells Fargo Bank Northwest, National Association, as Owner Trustee and Chautauqua Airlines, Inc., as Lessee. There are two additional Lease Supplement No. 1 which are substantially identical in all material respects except as indicated on the exhibit.
10.35†*		Engine Lease Common Terms Agreement, by and between General Electric Capital Corporation and Chautauqua Airlines, Inc., dated as of December 18, 2001.
10.36†*		Master Engine Lease Agreement, by and between Aviation Financial Services Inc. and Chautauqua Airlines, Inc., dated as of December 18, 2001, and incorporating the provisions of an Engine Lease Common Terms Agreement.
10.37*		Engine Lease Supplement, by and between Aviation Financial Services Inc. and Chautauqua Airlines, Inc., dated as of December 19, 2001.
10.38*		Side Letter Agreement, by and between Aviation Financial Services Inc. and Chautauqua Airlines, Inc., dated as of December 18, 2001.
10.39†*		Engine Purchase Agreement, by and between Aviation Financial Services Inc. and Chautauqua Airlines, Inc., dated as of December 18, 2001.
10.40†*		Loan Agreement between Chautauqua Airlines, Inc. and Agência Especial de Financiamento Industrial (FINAME), dated as of December 27, 2001. There are ten additional Loan Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.41*		Aircraft Security Agreement between Chautauqua Airlines, Inc. as Borrower and JPMorgan Chase Bank as Security Trustee, dated as of December 27, 2001. There are ten additional Aircraft Security Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.42*		Security Agreement Supplement No. 1 between Chautauqua Airlines, Inc. as Borrower and JPMorgan Chase Bank as Security Trustee, dated as of January 17, 2002. There are ten additional Security Agreement Supplements No. 1 which are substantially identical in all material respects except as indicated on the exhibit.
10.43†*		Securities Account Control Agreement among Chautauqua Airlines, Inc. as Debtor, Agência Especial de Financiamento Industrial (FINAME) as Lender, and JPMorgan Chase Bank as Securities Intermediary and Security Deposit Trustee, dated as of December 27, 2001. There are ten additional Securities Account Control Agreements which are substantially identical in all material respects except as indicated on the exhibit.

10.44†*		Security Deposit Agreement, among Chautauqua Airlines, Inc. as Debtor, Agência Especial de Financiamento Industrial (FINAME) as Lender, and JPMorgan Chase Bank as Securities Intermediary and Security Deposit Trustee, dated as of December 27, 2001. There are ten additional Security Deposit Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.45†*		Funding Agreement between Chautauqua Airlines, Inc. and Agência Especial de Financiamento Industrial (FINAME), dated as of December 27, 2001. There are ten additional Funding Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.45(a)†**		First Amendment to the Funding Agreement, dated as of June 11, 2002, by and between Chautauqua Airlines, Inc. and Agência Especial de Financiamento Industrial.
10.46†*		Aircraft Lease Agreement (N266SK) between First Security Bank, N.A., as owner-trustee, as lessor and Chautauqua Airlines Inc., as lessee, dated as of May 18, 2000.
10.47†		Junior Loan Agreement, dated as of June 11, 2002, by and between Chautauqua Airlines, Inc. and Embraer—Empresa Brasileira de Aeronáutica S.A. There are six additional Junior Loan Agreements which are substantially identical in all material respects except as indicated on the exhibit.
10.47(a)†		Promissory Note between Chautauqua Airlines, Inc. and Embraer—Empresa Brasileira de Aeronáutica S.A., dated as of June 11, 2002 and relating to the Junior Loan Agreement. There are six additional Promissory Notes which are substantially identical in all material respects except as indicated on the exhibit.
10.48		Agreement, dated as of June 7, 2002, by and between Republic Airways Holdings Inc. and Delta Air Lines, Inc.
10.49		Warrant to purchase shares of common stock of Republic Airways Holdings Inc. issued to Delta Air Lines, Inc., dated as of June 7, 2002.
10.50		Form of warrant to purchase shares of common stock of Republic Airways Holdings Inc. issued to Delta Air Lines, Inc.
10.51		Form of warrant to purchase shares of common stock of Republic Airways Holdings Inc. issued to Delta Air Lines, Inc.
10.52†		Delta Connection Agreement, dated as of June 7, 2002, by and among Delta Air Lines, Inc., Chautauqua Airlines, Inc., and Republic Airways Holdings Inc.
10.53*		Promissory Note of Republic Airways Holdings Inc. (FKA Wexford Air Holdings Inc.) (FKA Wexford III Corp.), dated as of May 15, 2002, in favor of WexAir, LLC in the principal amount of $18,879,828.01, bearing interest at the rate of 11.5% per annum.
10.54*		Employment Agreement by and between Bryan K. Bedford and Republic Airways Holdings Inc., dated as of June 25, 1999.
10.54(a)*		Letter Agreement Relating to Stock Options, dated March, 2002, by and between Republic Airways Holdings Inc. and Bryan K. Bedford.
10.54(b)		Amended and Restated Employment Agreement by and between Bryan K. Bedford and Republic Airways Holdings Inc., effective as of the date of this offering.
10.55*		Employment Agreement by and between Robert H. Cooper and Republic Airways Holdings Inc., dated as of July 16, 1999.
10.55(a)*		Letter Agreement Relating to Stock Options, dated March, 2002, by and between Republic Airways Holdings Inc. and Robert H. Cooper.

10.55(b)		Amended and Restated Employment Agreement by and between Robert Cooper and Republic Airways Holdings Inc., effective as of the date of this offering.
10.56*		Employment Agreement by and between Wayne Heller and Chautauqua Airlines, Inc., dated as of July 16, 1999.
10.56(a)*		Letter Agreement Relating to Stock Options, dated March, 2002, by and between Republic Airways Holdings Inc. and Wayne Heller.
10.56(b)		Amended and Restated Employment Agreement by and between Wayne Heller and Chautauqua Airlines, Inc., effective as of the date of this offering.
10.57*		Port Columbus International Airport Signatory Airline Operating Agreement and Lease, dated as of January 1, 2000.
10.58*		Office/Shop Space Permit by and between Signature Combs and Chautauqua Airlines, Inc., dated as of January 16, 2001.
10.59*		Hangar and Office Lease by and between AMR Combs, Inc. and Chautauqua Airlines, Inc., dated as of December 22, 1998.
21.1*		Subsidiaries of Republic Airways Holdings Inc.
23.1		Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
23.2		Consent of Deloitte & Touche LLP, Independent Auditors.
24.1		Power of Attorney (on signature page).

*: Previously filed.
**: To be filed by amendment.
†: A request for confidential treatment was filed for certain portions of the indicated document. Confidential portions have been omitted and filed separately with the Commission as required by Rule 406.

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TABLE OF CONTENTS
PROSPECTUS SUMMARY
Our Company
The Offering
Summary Consolidated Financial Information
RISK FACTORS
Risks Related to Our Operations
Risks Associated With The Airline Industry
Risks Related To Our Common Stock
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REGIONAL AIRLINE INDUSTRY OVERVIEW
BUSINESS
MANAGEMENT
RELATED PARTY TRANSACTIONS
PRINCIPAL STOCKHOLDERS
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REPUBLIC AIRWAYS HOLDINGS INC.
INDEPENDENT AUDITORS' REPORT
REPUBLIC AIRWAYS HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
REPUBLIC AIRWAYS HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
REPUBLIC AIRWAYS HOLDINGS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (In thousands)
REPUBLIC AIRWAYS HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
REPUBLIC AIRWAYS HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 1999, 2000 and 2001 and the (unaudited) three months ended March 31, 2001 and 2002 Dollars in thousands, except share and per share amounts
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
EXHIBIT INDEX
EX-5.1 3 a2082173zex-5_1.txt EXHIBIT 5.1 Exhibit 5.1 [Letterhead] June 14, 2002 Republic Airways Holdings Inc. 2500 S. High School Road, Suite 160 Indianapolis, IN 46241 Dear Sirs: In connection with the Registration Statement on Form S-1, Registration No. 333-84092 (the "Registration Statement"), filed by Republic Airways Holdings Inc., a Delaware corporation (the "Company"), under the Securities Act of 1933, as amended (the "Act"), relating to the public offering by the Company of an aggregate of up to 5,750,000 authorized but heretofore unissued shares of the Company's Common Stock, par value $0.001 per share (the "Common Stock") (including up to 750,000 shares of Common Stock which will be purchased by the underwriters if the underwriters exercise the option granted to them by the Company to cover over-allotments, if any), we, as counsel for the Company, have examined such corporate records, other documents and questions of law as we have considered necessary or appropriate for the purposes of this opinion. Our opinion set forth below is limited to the General Corporation Law of the State of Delaware. We assume that appropriate action will be taken, prior to the offer and sale of the shares of Common Stock, to register and qualify such shares for sale under applicable state and securities or "blue sky" laws. In our examination of the foregoing documents, we have assumed the genuineness of all signature and the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such latter documents. Based on the foregoing, we advise you that in our opinion the shares of Common Stock being issued and sold by the Company have been duly and validly authorized and, when issued and sold in the manner contemplated by the Underwriting Agreement, a form of which has been filed as an exhibit to the Registration Statement (the "Underwriting Agreement"), and upon receipt by the Company of payment therefor as provided in the Underwriting Agreement, will be legally issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the reference to this firm under the caption "Legal Matters" in the prospectus contained therein. This consent is not to be construed as an admission that we are a party whose consent is Republic Airways Holdings Inc. June 14, 2002 Page 2 required to be filed with the Registration Statement under the provisions of the Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. The opinion expressed herein is solely for your benefit, and may be relied upon only by you. Very truly yours, /s/ Fulbright & Jaworski L.L.P. EX-10.1 4 a2082173zex-10_1.txt EXHIBIT 10.1 2002 EQUITY INCENTIVE PLAN EXHIBIT 10.1 REPUBLIC AIRWAYS HOLDINGS INC. 2002 EQUITY INCENTIVE PLAN 1. PURPOSE. The purpose of the Republic Airways Holdings Inc. 2002 Equity Incentive Plan (the "Plan") is to establish a flexible vehicle through which Republic Airways Holdings Inc., a Delaware corporation (the "Company"), can offer equity-based compensation incentives to eligible personnel of the Company and its subsidiaries and affiliates in order to attract, retain and motivate such personnel and to further align the interests of such personnel with those of the stockholders of the Company. 2. TYPES OF AWARDS. Awards under the Plan may be in the form of (a) options to purchase shares of the Company's common stock, $.001 par value ("Common Stock"), including options intended to qualify as "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and options which do not qualify as ISOs ("NQSOs"), (b) restricted shares of Common Stock, (c) restricted stock units, and (d) other equity-based awards related to shares of Common Stock, including stock appreciation rights and dividend equivalents, which the Committee (as hereinafter defined) determines to be consistent with the purposes of the Plan. In addition, Non-Employee Directors (as hereinafter defined) shall receive automatic grants of NQSOs pursuant to Section 9 hereof. 3. ADMINISTRATION. (a) COMMITTEE. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Board") or such other committee or subcommittee thereof appointed by the Board from time to time (the "Committee"), provided however that, (i) the Board may, in its sole discretion, make awards under the Plan, and (ii) to the extent permitted by applicable law, the Board may, in its sole discretion, delegate to an executive officer or officers of the Company the authority to grant a specified number of options under the Plan, on such terms and conditions as the Board shall establish from time to time, to employees of the Company or its subsidiaries or affiliates who are not officers or directors of the Company. If a Committee is appointed, then, unless the Board determines otherwise, its members shall consist solely of two (2) or more individuals who qualify as "non-employee directors" under Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as "outside directors" under Section 162(m) of the Code. If for any reason the Committee does not satisfy the "non-employee director" requirements of Rule 16b-3 or the "outside director" requirements of Section 162(m) of the Code, such non-compliance shall not affect the validity of the awards, interpretations or other actions of the Committee. To the extent that the Plan is administered by the Board, the Board shall have all the authority and responsibility granted to the Committee herein. (b) AUTHORITY OF COMMITTEE. Subject to the limitations of the Plan, the Committee, acting in its sole and absolute discretion, shall have full power and authority to (i) select the persons to whom awards shall be made under the Plan, (ii) make awards to such persons and prescribe the terms and conditions of such awards, (iii) construe, interpret and apply the provisions of the Plan and of any agreement or other document evidencing an award made under the Plan, (iv) prescribe, amend and rescind rules and regulations relating to the Plan, including rules governing its own operations, (v) correct any defect, supply any omission and reconcile any inconsistency in the Plan, (vi) amend any outstanding award in any respect, including, without limitation, to accelerate the time or times at which the award becomes vested, unrestricted or may be exercised, (vii) carry out any responsibility or duty specifically reserved to the Committee under the Plan, and (viii) make any and all determinations and interpretations and take such other actions as may be necessary or desirable in order to carry out the provisions, intent and purposes of the Plan. A majority of the members of the Committee shall constitute a quorum. The Committee may act by the vote of a majority of its members present at a meeting at which there is a quorum or by unanimous written consent. All decisions of the Committee pursuant to the provisions of the Plan, including questions of construction, interpretation and administration, shall be final, conclusive and binding on all persons. (c) INDEMNIFICATION. To the maximum extent permitted by law, the Company shall indemnify and hold harmless each member of the Committee and any employee or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan is delegated from and against any loss, cost, liability (including any sum paid in settlement of a claim with the approval of the Board), damage and expense (including legal and other expenses incident thereto) arising out of or incurred in connection with the Plan, unless and except to the extent attributable to such person's fraud or willful misconduct. 4. SHARE LIMITATIONS. Subject to adjustment pursuant to Section 13 hereof, the aggregate number of shares of Common Stock that may be issued (or used for reference purposes) under the Plan is 2,180,000. For this purpose, the following shares shall be deemed not to have been issued and shall be deemed to remain available for issuance: (a) shares covered by the unexercised portion of an option or stock appreciation right that terminates, expires or is canceled, (b) shares of restricted stock that are forfeited or repurchased in accordance with the terms of the award, (c) shares represented by restricted stock units or other-equity based awards that are forfeited, canceled or otherwise terminated, and (d) shares that are withheld in order to pay the purchase price for shares covered by any award or to satisfy the tax withholding obligations associated with any award under the Plan. Shares of Common Stock available for issuance under the Plan may be authorized and unissued, held by the Company in its treasury or otherwise acquired for purposes of the Plan. No fractional shares of Common Stock shall be issued under the Plan. 5. ELIGIBILITY. Awards under the Plan may be made to such officers, directors, employees (including prospective employees), consultants and other individuals who may perform services for the Company or its subsidiaries or affiliates, as the Committee may select. In making awards under the Plan, the Committee may give consideration to the functions and responsibilities of a potential recipient, the potential recipient's previous and/or expected future contributions to the business of the Company or its subsidiaries or affiliates and such other factors as the Committee deems relevant under the circumstances. 6. STOCK OPTIONS. Subject to the provisions of the Plan, the Committee may grant options to eligible personnel upon such terms and conditions as the Committee deems appropriate. The terms and conditions of any option shall be evidenced by a written option agreement or other instrument approved for this purpose by the Committee. - 2 - (a) EXERCISE PRICE. The exercise price per share of Common Stock covered by an option granted under the Plan may not be less than the Fair Market Value per share on the date of grant (or, in the case of an ISO granted to an optionee who, at the time the option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or a "subsidiary" or "parent" of the Company within the meaning of Section 424 of the Code, 110% of such Fair Market Value). (b) TERM OF OPTIONS. No option granted under the Plan may be exercisable (if at all) more than ten (10) years after the date the option is granted (or, in the case of an ISO granted to a ten percent (10%) stockholder within the meaning of Section 424 of the Code, five (5) years). (c) VESTING OF OPTIONS. The Committee may establish such vesting and other conditions and restrictions on the exercise of an option and/or upon the issuance of Common Stock in connection with the exercise of an option as it deems appropriate. (d) METHOD OF EXERCISE. Subject to satisfaction of applicable withholding requirements, once vested and exercisable, an option may be exercised by transmitting to the Company (i) a notice specifying the number of shares to be purchased and (ii) payment of the aggregate exercise price of the shares so purchased in cash or its equivalent, and any taxes due thereon in accordance with Section 14 hereof. As determined by the Committee, in its sole discretion, payment of the exercise price of an option in whole or in part may also be made (1) if the Common Stock is publicly traded, by means of any cashless exercise procedure approved by the Committee, (2) in the form of unrestricted shares of Common Stock which, (x) in the case of shares acquired upon exercise of an option, have been owned by the optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares of Common Stock as to which such option shall be exercised, (3) any other form of consideration approved by the Committee and permitted by applicable law or (4) any combination of the foregoing. (e) LOANS. The Company or its subsidiaries or affiliates may make loans available to optionees for the payment of the exercise price of outstanding options. Such loans shall (i) be evidenced by promissory notes entered into by the optionee in favor of the Company or its subsidiaries or affiliates, (ii) bear interest at a fair interest rate on the exercise date as determined by the Committee, (iii) be subject to such other terms and conditions, not inconsistent with the Plan, as the Committee shall determine, and (iv) be subject to the approval of the Committee. Unless the Committee determines otherwise, when a loan is made, shares of Common Stock having an aggregate Fair Market Value at least equal to the principal amount of the loan shall be pledged by the optionee to the Company as security for payment of the unpaid balance of the loan, and such pledge shall be evidenced by a pledge agreement, the terms of which shall be determined by the Committee, in its sole discretion; provided that each loan shall comply with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve System and any other governmental agency having jurisdiction. (f) RIGHTS AS A STOCKHOLDER. No shares of Common Stock shall be issued in respect of the exercise of an option until full payment of the exercise price and the applicable tax withholding obligation with respect to such exercise has been made or provided for. The holder - 3 - of an option shall have no rights as a stockholder with respect to any shares covered by an option until the date such shares are issued. Except as otherwise provided herein, no adjustments shall be made for dividend distributions or other rights for which the record date is prior to the date such shares are issued. (g) BUY OUT AND SETTLEMENT. The Committee, on behalf of the Company, may at any time offer to buy out any outstanding option on such terms and conditions as the Committee shall establish. 7. RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Subject to the provisions of the Plan, the Committee may award restricted shares of Common Stock and/or restricted stock units tied to shares of Common Stock to eligible personnel upon such terms and subject to such conditions and restrictions as the Committee deems appropriate. The terms and conditions of any restricted stock or restricted stock unit award shall be evidenced by a written agreement or other instrument approved for this purpose by the Committee. (a) PURCHASE PRICE. The purchase price payable for shares of restricted stock and for shares issued pursuant to the settlement of a restricted stock unit may be as low as zero, provided, however, that to the extent required by applicable law, the purchase price per share shall be no less than the par value of a share of Common Stock. In the sole discretion of the Committee, loans may be made to a recipient in connection with the purchase of restricted stock under substantially the same terms and conditions as provided in Section 6(e) hereof with respect to the exercise of options. (b) RESTRICTIONS AND VESTING. The Committee may establish such conditions and restrictions on the vesting of restricted stock and restricted stock units and on the issuance of shares of restricted stock as it deems appropriate, including, without limitation, conditions and restrictions based upon continued service, the attainment of specified performance goals and/or other factors and criteria deemed relevant for this purpose. (c) RIGHTS AS A STOCKHOLDER. The holder of restricted stock units awarded under the Plan shall have only the rights of a general unsecured creditor of the Company and shall have no rights as a stockholder with respect to the shares of Common Stock referenced by such units until such shares are issued in the name of the holder following the satisfaction or expiration of the vesting and other conditions and restrictions applicable to such units. The recipient of restricted stock shall have the rights of a stockholder with respect to the restricted stock, subject to any restrictions and conditions as the Committee may impose. (d) STOCK CERTIFICATES FOR RESTRICTED STOCK. Unless the Committee elects otherwise, shares of restricted stock shall be evidenced by book entries on the Company's stock transfer records pending the expiration of restrictions thereon. If a stock certificate for shares of restricted stock is issued, it shall bear an appropriate legend to reflect the nature of the restrictions applicable to the shares represented by the certificate, and the Committee may require that any or all such stock certificates be held in custody by the Company until the applicable restrictions have lapsed. The Committee may establish such other conditions as it deems appropriate in connection with the issuance of certificates for shares of restricted stock, - 4 - including, without limitation, a requirement that the grantee deliver a duly signed stock power, endorsed in blank, for the shares covered by the award. (e) LAPSE OF RESTRICTIONS. If and when the vesting conditions and other restrictions applicable to a restricted stock or restricted stock unit award are satisfied or expire, a certificate for the shares covered or referenced by the award, to the extent vested and free of restrictions, shall be delivered to the holder. All legends shall be removed from said certificates at the time of delivery except as otherwise required by applicable law. 8. OTHER EQUITY-BASED AWARDS. The Committee may grant other types of equity-based awards, including, without limitation, the grant or offer for sale of unrestricted shares of Common Stock and/or the grant of stock appreciation rights or dividend equivalents, in such amounts and subject to such terms and conditions as the Committee shall determine. Such awards may entail the transfer of actual shares of Common Stock to recipients, or payment in cash or otherwise of amounts based on the value of shares of Common Stock and may include, without limitation, awards designed to comply with or take advantage of the applicable local laws or jurisdictions other than the United States. 9. NON-EMPLOYEE DIRECTOR STOCK OPTIONS. (a) AUTOMATIC GRANTS. Subject to adjustment pursuant to Section 13 hereof, without further action by the Board or the stockholders of the Company: (i) each director who is a Non-Employee Director on the day prior to the date of the initial public offering of the Common Stock (the "IPO Date") shall automatically be granted an option to purchase 10,000 shares of Common Stock (the "IPO Options"); (ii) each director who first becomes a Non-Employee Director after the IPO Date shall automatically be granted an option to purchase 10,000 shares of Common Stock on the first trading day following the date he or she commences service as a Non-Employee Director (the "Initial Options"); and (iii) each Non-Employee Director shall automatically be granted an option to purchase 2,500 shares of Common Stock on the first trading day following each Annual Meeting of Stockholders after the IPO Date at which such director is re-elected to the Board, provided that such Non-Employee Director did not receive an IPO Option or an Initial Option during the one hundred eighty (180) day period ending on the date of such Annual Meeting of Stockholders (the "Annual Options" and, collectively with the IPO Options and Initial Options, the "Director Options"). For purposes hereof, "Non-Employee Director" shall mean any member of the Board who is not employed by the Company of any of its subsidiaries and shall include, without limitation, any director who serves as an officer of the Company but who is not remunerated by the Company for such service. (b) EXERCISE PRICE. The exercise price per share covered by a Director Option shall be equal to the Fair Market Value of the Common Stock on the date of grant, which for - 5 - purposes of the IPO Options shall be equal to the initial public offering price of the Common Stock. (c) TERM OF DIRECTOR OPTIONS. Except as otherwise provided herein, if not previously exercised, each Director Option shall expire on the tenth anniversary of the date of grant. (d) VESTING OF DIRECTOR OPTIONS. Each IPO Option and Initial Option shall, subject to the optionee remaining in continuous service as a director of the Company through each applicable vesting date, become vested and exercisable with respect to 1/24 of the shares of Common Stock covered thereby on the first day of each month for the first (12) twelve months commencing after the date of the grant, and with respect to 1/48 of the shares of Common Stock covered thereby on the first day of each month for the next twenty-four (24) months commencing thereafter. Each Annual Option shall, subject to the optionee remaining in continuous service as a director of the Company through each applicable vesting date, become vested and exercisable with respect to 1/12 of the shares of Common Stock covered thereby on the first day of each month for the first twelve (12) months commencing after the date of the grant. Notwithstanding anything in this Section 9(d) to the contrary, each Director Option shall become fully vested and exercisable upon the occurrence of a Change in Control (as hereinafter defined) of the Company. For this purpose, a "Change in Control" of the Company shall be deemed to have occurred upon any of the following: (i) there occurs (x) any consolidation or merger in which the Company is not the continuing or surviving entity or pursuant to which shares of the Common Stock would be converted into cash, securities or other property, other than (1) a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger, or (2) a consolidation or merger which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (by being converted into voting securities of the continuing or surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the surviving or continuing entity immediately after such consolidation or merger and which would result in the members of the Board immediately prior to such consolidation or merger (including, for this purpose, any individuals whose election or nomination for election was approved by a vote of at least two-thirds of such members), constituting a majority of the board of directors (or equivalent governing body) of the surviving or continuing entity immediately after such consolidation or merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the Company's assets; (ii) the Company's stockholders approve any plan or proposal for the liquidation or dissolution of the Company; (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of forty percent (40%) or more of the Common Stock other than pursuant to a plan or arrangement entered into by such person and the Company; or - 6 - (iv) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the entire Board shall cease for any reason to constitute a majority of the Board unless the election or nomination for election by the Company's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. (e) METHOD OF EXERCISE. Once vested and exercisable, a Director Option may be exercised by transmitting to the Company (i) a notice specifying the number of shares to be purchased and (ii) payment of the aggregate exercise price of the shares so purchased in cash or its equivalent. Payment, in whole or in part, of the exercise price of a Director Option may also be made (1) if the Common Stock is publicly traded, by means of a cashless exercise procedure approved by the Committee, (2) in the form of unrestricted shares of Common Stock which, (x) in the case shares acquired upon exercise of an option, have been owned by the optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares of Common Stock as to which such option shall be exercised, or (3) any combination of the foregoing. (f) EFFECT OF TERMINATION OF SERVICE AS A DIRECTOR. (i) TERMINATION BY REASON OF DEATH OR DISABILITY. If an optionee's service as a director of the Company terminates by reason of his or her death or Disability (as defined in Section 10 below), then: (1) any portion of a Director Option that is exercisable on the date of termination shall remain exercisable by the optionee (or, in the event of death, the optionee's beneficiary) during the one year period following the date of termination but in no event after expiration of the stated term thereof and, to the extent not exercised during such period, shall thereupon terminate, provided that, in the event of a termination due to Disability, if the optionee dies during such one-year period, then the deceased optionee's beneficiary may exercise the Director Option, to the extent exercisable by the deceased optionee immediately prior to his or her death, for a period of one year following the date of death but in no event after expiration of the stated term thereof, and (2) any portion of a Director Option that is not exercisable on the date of termination shall thereupon terminate. (ii) OTHER TERMINATION. If an optionee's service as a director of the Company terminates for any other reason (other than those described in Section 9(f)(i) above), then: (1) any portion of a Director Option that is exercisable on the date of termination shall remain exercisable by the optionee during the one hundred eighty (180) day period following the date of termination but in no event after expiration of the stated term thereof and, to the extent not exercised during such period, shall thereupon terminate, and (2) any portion of a Director Option that is not exercisable on the date of termination shall thereupon terminate. 10. TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless otherwise determined by the Committee at grant or, if no rights of the recipient are thereby reduced, thereafter, and subject to earlier termination in accordance with the provisions hereof, the following rules apply with regard to awards (other that Director Options) held by a recipient at the time of his or her termination of employment or other service with the Company and its subsidiaries and affiliates (collectively, the "Company Group"): - 7 - (a) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. (i) TERMINATION BY REASON OF DEATH, DISABILITY OR RETIREMENT. If a recipient's employment or other service with the Company Group is terminated due to his or her death, Disability (as hereinafter defined) or Retirement (as hereinafter defined), then (1) any portion of an option or stock appreciation right that is exercisable on the date of termination shall remain exercisable by the recipient (or, in the event of death, the recipient's beneficiary) during the one year period following the date of termination but in no event after expiration of the stated term thereof and, to the extent not exercised during such period, shall thereupon terminate, provided that, in the event of a termination due to Disability, if the recipient dies during such one-year period, then the deceased recipient's beneficiary may exercise the option or stock appreciation right, to the extent exercisable by the deceased recipient immediately prior to his or her death, for a period of one year following the date of death but in no event after expiration of the stated term thereof, and (2) any portion of an option or stock appreciation right that is not exercisable on the date of termination shall thereupon terminate. "Disability" means, unless otherwise determined by the Committee, a recipient's absence from employment or other service for at least one hundred eighty (180) days in any twelve (12) month period as a result of his or her incapacity due to physical or mental illness, as determined by the Committee. "Retirement" means a recipient's voluntary termination of employment or other service when no ground for termination for Cause exists and (A) the recipient has attained age sixty (60), (B) the recipient as attained age fifty-five (55) and completed at least ten (10) years of employment or other service with the Company Group, or (C) the recipient has attained age fifty (50) and the Committee specifically determines that the termination of the recipient's employment or other service constitutes a "Retirement" for purposes hereof. (ii) TERMINATION FOR CAUSE. If a recipient's employment or other service is terminated by the Company Group for Cause (as hereinafter defined), then, notwithstanding anything to the contrary contained herein, any option or stock appreciation right held by the recipient (whether or not otherwise exercisable) shall immediately terminate and cease to be exercisable. A termination for "Cause" means (1) in the case where there is no employment or consulting agreement between the recipient and the Company Group or where such an agreement exists but does not define "cause" (or words of like import), a termination classified by the Company Group, in its sole discretion, as a termination due to the recipient's dishonesty, fraud, insubordination, willful misconduct, refusal to perform services or materially unsatisfactory performance of his or her duties, or (2) in the case where there is an employment or consulting agreement between the recipient and the Company Group that does define "cause" (or words of like import), a termination that is or would be deemed for "cause" (or words of like import), as classified by the Company Group in its sole discretion, under such agreement. (iii) OTHER TERMINATION. If a recipient's employment or other service with the Company Group terminates for any other reason (other than those described in Section 10(a)(i) or 10(a)(ii) above) or no reason, then: (1) any portion of an option or stock appreciation right that is exercisable on the date of termination shall remain exercisable by the recipient during the thirty (30) day period following the date of termination but in no event after expiration of the stated term thereof and, to the extent not exercised during such period, shall thereupon terminate, and (2) any portion of an option or stock appreciation right that is not exercisable on the date of termination shall thereupon terminate. - 8 - (b) RESTRICTED STOCK, RESTRICTED STOCK UNITS AND OTHER-EQUITY BASED AWARDS. Unless otherwise determined by the Committee, upon the termination of a recipient's employment or other service for any reason (including, without limitation, death or Disability) or no reason, any shares of restricted stock, restricted stock units or other equity-based awards (other than stock options and stock appreciation rights covered by Sections 9 or 10(a) hereof) which have not yet become fully vested shall be forfeited, and any certificate therefor or book entry with respect thereto or other evidence thereof shall be canceled. 11. FAIR MARKET VALUE. For purposes of the Plan, "Fair Market Value" as of a particular date shall mean the fair market value of a share of Common Stock as determined by the Committee in its sole discretion; provided that (a) if the shares of Common Stock are admitted to trading on a national securities exchange, fair market value of a share of Common Stock on any date shall be the closing sale price reported for such share on such exchange on the last date preceding such date on which a sale was reported, (b) if the shares of Common Stock are admitted to quotation on the National Association of Securities Dealers Automated Quotation ("Nasdaq") System or other comparable quotation system and have been designated as a National Market System ("NMS") security, fair market value of a share of Common Stock on any date shall be the closing sale price reported for such share on such system on the last date preceding such date on which a sale was reported, or (c) if the shares of Common Stock are admitted to quotation on the Nasdaq System but have not been designated as an NMS security, fair market value of a share of Common Stock on any date shall be the average of the highest bid and lowest asked prices of such share on such system on the last date preceding such date on which both bid and ask prices were reported. 12. NON-TRANSFERABILITY. No stock option or stock appreciation right granted under the Plan shall be transferable by the recipient other than upon the recipient's death to a beneficiary designated by the recipient in a manner acceptable to the Committee, or, if no designated beneficiary shall survive the recipient, pursuant to the recipient's will or by the laws of descent and distribution. All stock options and stock appreciation rights shall be exercisable during the recipient's lifetime only by the recipient (or, in the event of the recipient's incapacity, his or her guardian or legal representative). Shares of restricted stock and restricted stock units may not be transferred prior to the date on which shares are issued or, if later, the date on which such shares have vested and are free of any applicable restriction imposed hereunder. Except as otherwise specifically provided by law or the provisions hereof or the applicable award agreement or instrument, no award received under the Plan may be transferred in any manner, and any attempt to transfer any such award shall be void, and no such award shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such award, nor shall it be subject to attachment or legal process for or against such person. Notwithstanding the foregoing, the Committee may determine at the time of grant or thereafter that a stock option is transferable in whole or part to such persons, under such circumstances, and subject to such conditions as the Committee may prescribe. 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Upon any increase, reduction, or change or exchange of the Common Stock for a different number or kind of shares or other securities, cash or property by reason of a reclassification, recapitalization, merger, consolidation, reorganization, stock dividend, stock split or reverse stock split, combination or exchange of shares or any other similar corporate action that affects the capitalization of the - 9 - Company (a "Change in Capitalization"), an equitable substitution or adjustment may be made in (a) the aggregate number and/or kind of shares reserved for issuance (or reference purposes) under the Plan, (b) the number and/or kind of shares for which prospective option awards to Non Employee Directors pursuant to Section 9 hereof are made, (c) the kind, number and/or exercise price of shares or other property subject to outstanding options granted under the Plan (including outstanding options granted pursuant to Section 9 hereof), and (d) the kind, number and/or purchase price of shares or other property subject to outstanding awards of restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and other equity-based awards granted under the Plan, in each case as may be determined by the Committee, in its sole discretion. Such other equitable substitutions or adjustments shall be made as may be determined by the Committee, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Committee may provide, in its sole discretion, for the cancellation of any outstanding awards in exchange for payment in cash or other property of the Fair Market Value of the shares of Common Stock covered by such awards (whether or not otherwise vested or exercisable), reduced, in the case of options, by the exercise price thereof. In the event of any adjustment in the number of shares covered by any award pursuant to the provisions hereof, any fractional shares resulting from such adjustment shall be disregarded, and each such award shall cover only the number of full shares resulting from the adjustment. All adjustments under this Section 13 shall be made by the Committee, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. 14. TAX WITHHOLDING. As a condition to the exercise of any award or the delivery of any shares of Common Stock pursuant to any award or the lapse of restrictions on any award, or in connection with any other event that gives rise to a federal or other governmental tax withholding obligation on the part of the Company Group relating to an award, (a) the Company Group may deduct or withhold (or cause to be deducted or withheld) from any payment or distribution to a grantee whether or not pursuant to the Plan or (b) the Company Group shall be entitled to require that the grantee remit cash to the Company Group (through payroll deduction or otherwise), in each case in an amount sufficient in the opinion of the Company to satisfy such withholding obligation. If the event giving rise to the withholding obligation involves a transfer of shares of Common Stock, then, at the discretion of the Committee, the grantee may satisfy the withholding obligation described under this Section 14 by electing to have the Company withhold shares of Common Stock (which withholding shall be at a rate not in excess of the statutory minimum rate) or by tendering previously owned shares of Common Stock, in each case having a Fair Market Value equal to the amount of tax to be withheld (or by any other mechanism as may be required or appropriate to conform with local tax and other rules). 15. AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan, provided, however, that no such action may affect adversely the rights of the holder of any outstanding award without the consent of the holder. Except as otherwise provided in Section 13 hereof, any amendment which would increase the number of shares of Common Stock that may be issued (or used for reference purposes) under the Plan or modify the class of employees eligible to receive awards under the Plan shall be subject to the approval of the Company's stockholders to the extent such approval is necessary or desirable to comply with applicable law or listing requirements. The Committee may amend the terms of any agreement or certificate made or issued hereunder at any time and from time to time, provided, however, that no - 10 - amendment which would affect adversely the rights of the holder of any outstanding award may be made without the consent of such holder. 16. GENERAL PROVISIONS. (a) COMPLIANCE WITH LAW. Shares of Common Stock shall not be issued hereunder unless the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act and the requirements of any stock exchange or market upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) INVESTMENT REPRESENTATION. The Committee may require each person acquiring shares of Common Stock to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer. (c) TRANSFER ORDERS; PLACEMENT OF LEGENDS. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange or market upon which the Common Stock may then be listed, and any applicable federal or state securities law. The Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. (d) LOCK-UP. Unless the Committee expressly provides otherwise, in connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, for such period as the Company or its underwriters may request and subject to such other provisions as the Committee may deem necessary or desirable, the recipient of an award shall not, directly or indirectly, sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any shares of Common Stock acquired under the Plan without the prior written consent of the Company or its underwriters. (e) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing contained in the Plan or in any award agreement shall confer upon any recipient of an award any right with respect to the continuation of his or her employment or other service with the Company or its subsidiaries or affiliates, or interfere in any way with the right of the Company or any subsidiary or affiliate at any time to terminate such employment or other service or to increase or decrease, or otherwise adjust, the other terms and conditions of the recipient's employment or other service with the Company and its subsidiaries and affiliates. (f) DECISIONS AND DETERMINATIONS FINAL. All decisions and determinations made by the Board pursuant to the provisions hereof and, except to the extent rights or powers - 11 - under the Plan are reserved specifically to the discretion of the Board, all decisions and determinations of the Committee, shall be final, binding and conclusive on all persons. 17. GOVERNING LAW. All rights and obligations under the Plan and each award agreement or instrument shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws. 18. TERM OF THE PLAN. The Plan shall become effective upon its adoption by the Board, subject to approval by the stockholders of the Company within twelve (12) months of the date of such adoption. Unless sooner terminated by the Board, the Plan shall terminate on the tenth anniversary of the date of its adoption by the Board. The rights of any person with respect to an award made under the Plan that is outstanding at the time of the termination of the Plan shall not be affected solely by reason of the termination of the Plan and shall continue in accordance with the terms of the award (as then in effect or thereafter amended) and the Plan (as then in effect or thereafter amended). - 12 - EX-10.1A 5 a2082173zex-10_1a.txt EXHIBIT 10.1A Exhibit 10.1(a) DIRECTOR IPO GRANT STOCK OPTION AGREEMENT PURSUANT TO THE REPUBLIC AIRWAYS HOLDINGS INC. 2002 EQUITY INCENTIVE PLAN AGREEMENT, made as of the __ day of _________________, 2002, by and between Republic Airways Holdings Inc., a Delaware corporation (the "Company"), and _____________ (the "Optionee"). 1. GRANT OF OPTION. Pursuant to Section 9 of the Company's 2002 Equity Incentive Plan (the "Plan"), the Optionee, as a Non-Employee Director of the Company, has been automatically granted an option (the "Option") to purchase 10,000 shares of the Company's common stock, $.001 par value (the "Common Stock"), at a purchase price per share of $[INSERT IPO PRICE]. 2. TAX STATUS OF OPTION. The Option is not intended to qualify as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended. 3. TERM OF OPTION. The term of the Option shall be for a period of ten (10) years from the date hereof, subject to earlier termination as provided herein. 4. VESTING OF OPTION. Subject to the Optionee remaining in continuous service as a director of the Company through each applicable vesting date, the Option shall become vested and exercisable with respect to 1/24th of the shares of Common Stock covered hereby on the first day of each month for the first (12) twelve months commencing after the date hereof, and with respect to 1/48th of the shares of Common Stock covered hereby on the first day of each month for the next twenty-four (24) months commencing thereafter. Notwithstanding anything in this Section 4 to the contrary, the Option shall become fully vested and exercisable upon the occurrence of a Change in Control of the Company. For this purpose, a "Change in Control" of the Company shall be deemed to have occurred upon any of the following: (a) there occurs (x) any consolidation or merger in which the Company is not the continuing or surviving entity or pursuant to which shares of the Common Stock would be converted into cash, securities or other property, other than (1) a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger, or (2) a consolidation or merger which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (by being converted into voting securities of the continuing or surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the surviving or continuing entity immediately after such consolidation or merger and which would result in the members of the Board immediately prior to such consolidation or merger (including, for this purpose, any individuals whose election or nomination for election was approved by a vote of at least two-thirds of such members), constituting a majority of the board of directors (or equivalent governing body) of the surviving or continuing entity immediately after such consolidation or merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the Company's assets; (b) the Company's stockholders approve any plan or proposal for the liquidation or dissolution of the Company; (c) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of forty percent (40%) or more of the Common Stock other than pursuant to a plan or arrangement entered into by such person and the Company; or (d) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the entire Board shall cease for any reason to constitute a majority of the Board unless the election or nomination for election by the Company's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 5. EFFECT OF TERMINATION OF SERVICE AS A DIRECTOR. (a) If the Optionee's service as a director of the Company terminates by reason of the Optionee's death or Disability (as defined in the Plan), then: (i) any portion of the Option that is exercisable on the date of termination shall remain exercisable by the Optionee (or, in the event of death, the Optionee's beneficiary) during the one year period following the date of termination but in no event after expiration of the stated term hereof and, to the extent not exercised during such period, shall thereupon terminate, provided that, in the event of a termination due to Disability, if the Optionee dies during such one-year period, then the deceased Optionee's beneficiary may exercise the Option, to the extent exercisable by the deceased Optionee immediately prior to death, for a period of one year following the date of death but in no event after expiration of the stated term hereof, and (ii) any portion of the Option that is not exercisable on the date of termination shall thereupon terminate. (b) If the Optionee's service as a director of the Company terminates for any other reason (other than those described in Section 5(a) above), then: (i) any portion of the Option that is exercisable on the date of termination shall remain exercisable by the Optionee during the one hundred eighty (180) day period following the date of termination but in no event after expiration of the stated term hereof and, to the extent not exercised during such period, shall thereupon terminate, and (ii) any portion of the Option that is not exercisable on the date of termination shall thereupon terminate. 6. METHOD OF EXERCISE. Once vested and exercisable, the Option may be exercised in whole or in part by delivering to the Secretary of the Company (a) a written notice specifying the number of shares of Common Stock to be purchased and (b) payment of the aggregate exercise price of the shares of Common Stock so purchased in cash or its equivalent, and any taxes due thereon in accordance with Section 14 of the Plan. Payment, in whole or in part, of the exercise price of the Option may also be made (i) if the Common Stock is publicly traded, by means of a 2 cashless exercise procedure approved by the Committee, (ii) in the form of unrestricted shares of Common Stock which, (x) in the case shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares of Common Stock as to which the Option is exercised, or (iii) any combination of the foregoing. 7. RIGHTS AS A STOCKHOLDER. No shares of Common Stock shall be issued hereunder until full payment for such shares has been made and any other exercise conditions have been fully satisfied. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date such shares are reflected as having been issued to the Optionee on the Company's records. No adjustment shall be made for dividends or distributions or the granting of other rights for which the record date is prior to the date such shares are issued. 8. NONTRANSFERABILITY. The Option is not assignable or transferable other than to a beneficiary designated to receive the Option upon the Optionee's death in a manner acceptable to the Company or by will or the laws of descent and distribution, and the Option shall be exercisable during the lifetime of the Optionee only by the Optionee (or, in the event of the Optionee's incapacity, the Optionee's legal representative or guardian). Any attempt by the Optionee or any other person claiming against, through or under the Optionee to cause the Option or any part of it to be transferred or assigned in any manner and for any purpose shall be null and void and without effect upon the Company, the Optionee or any other person. 9. LOCK-UP. The Optionee shall not during the period commencing on the date of the final prospectus relating to the Company's initial public offering and ending on the date specified by the Company and the managing underwriter (but not to exceed one hundred eighty (180) days) (a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the shares of Common Stock. The foregoing provisions of this Section 9 shall apply only to the Company's initial public offering of equity securities and shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Upon a Change in Capitalization (as defined in the Plan), an equitable substitution or adjustment may be made in the kind, number and/or exercise price of shares or other property subject to the Option as may be determined by the Committee, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Committee may provide, in its sole discretion, for the cancellation of the Option in exchange for payment in cash or other property of the Fair Market Value of the shares of Common Stock covered by the Option (whether or not otherwise vested or exercisable), reduced by the exercise price of the Option. 11. PROVISIONS OF THE PLAN CONTROL. This Agreement is subject to all the terms, conditions and provisions of the Plan and to such rules, regulations and interpretations as may be established or made by the Committee acting within the scope of its authority and responsibility under the Plan. The Optionee acknowledges receipt of a copy of the Plan prior to execution of this Agreement. The applicable provisions of the Plan shall govern in any situation where this 3 Agreement is silent or where the applicable provisions of this Agreement are contrary to or not reconcilable with such Plan provisions. 12. COMPLIANCE WITH LAW. Shares of Common Stock shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange or market upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Committee may require each person acquiring shares of Common Stock to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. All certificates for shares of Common Stock delivered hereunder shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange or market upon which the Common Stock may then be listed, and any applicable federal or state securities law. The Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. 13. MISCELLANEOUS. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be amended, except as provided in the Plan, other than by a written instrument executed by the parties hereto. (Signature Page Follows) 4 IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. REPUBLIC AIRWAYS HOLDINGS INC. By: ------------------------------------- Name: Title: ----------------------------------------- [Name of Optionee] 5 EX-10.1B 6 a2082173zex-10_1b.txt EXHIBIT 10.1B Exhibit 10.1(b) OFFICER IPO FORM STOCK OPTION AGREEMENT PURSUANT TO THE REPUBLIC AIRWAYS HOLDINGS INC. 2002 EQUITY INCENTIVE PLAN AGREEMENT, made as of the __ day of _________________, 2002, by and between Republic Airways Holdings Inc., a Delaware corporation (the "Company"), and _____________ (the "Optionee"). 1. GRANT OF OPTION. The Company hereby grants to the Optionee, pursuant to the Company's 2002 Equity Incentive Plan (the "Plan"), an option (the "Option") to purchase _______ shares of the Company's common stock, $.001 par value (the "Common Stock"), at a purchase price per share of $[INSERT 110% OF IPO PRICE]. 2. TAX STATUS OF OPTION. The Option is not intended to qualify as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended. 3. TERM OF OPTION. The term of the Option shall be for a period of ten (10) years from the date hereof, subject to earlier termination as provided herein. 4. VESTING OF OPTION. (a) Except as otherwise provided herein and subject to the Optionee remaining in the continuous employ of, or other service with, the Company or any of its subsidiaries or affiliates (collectively, the "Company Group") through each applicable vesting date, the Option shall become vested and exercisable as to 1/24th of the shares of Common Stock covered hereby on the last day of each month beginning in August 2003. (b) If, under the Amended and Restated Employment Agreement by and between the Optionee and the Company or Chautauqua Airlines, Inc. (the "Employment Agreement"), the Executive shall become entitled to receive Severance Compensation pursuant to Section 4(c) of the Employment Agreement, then, subject to Section 4(c) below, that portion of the Option that would have become vested and exercisable during the twelve (12) month period after the Optionee's termination, or such lesser period through the end of the term of the Employment Agreement (if the Optionee's employment had not been terminated), shall immediately become vested and exercisable. (c) In the event the Executive terminates the Employment Agreement or his employment for Cause (as defined in Section 8(b) of the Employment Agreement) as a result of a Change of Control (as defined herein), the Option shall immediately become fully vested and exercisable. As used herein, a "Change of Control" shall mean a transaction, other than a public or private offering of Common Stock by the Company pursuant to which a stockholder other than Wexford Capital LLC or any of its direct or indirect subsidiaries or affiliates acquires majority voting control the Company. 5. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. (a) TERMINATION BY REASON OF DEATH, DISABILITY OR RETIREMENT. If the Optionee's employment or other service with the Company Group is terminated due to his or her death, Disability (as hereinafter defined) or Retirement (as hereinafter defined), then (i) any portion of the Option that is exercisable on the date of termination shall remain exercisable by the Optionee (or, in the event of death, the Optionee's beneficiary) during the one year period following the date of termination but in no event after expiration of the stated term hereof and, to the extent not exercised during such period, shall thereupon terminate, provided that, in the event of a termination due to Disability, if the Optionee dies during such one-year period, then the deceased recipient's beneficiary may exercise the Option, to the extent exercisable by the deceased recipient immediately prior to his or her death, for a period of one year following the date of death but in no event after expiration of the stated term hereof, and (ii) any portion of the Option that is not exercisable on the date of termination shall thereupon terminate. "Disability" means the Optionee's absence from employment or other service for at least one hundred eighty (180) days in any twelve (12) month period as a result of his or her incapacity due to physical or mental illness. "Retirement" means the Optionee's voluntary termination of employment or other service when no ground for termination for Cause exists and (A) the Optionee has attained age sixty (60), (B) the Optionee as attained age fifty-five (55) and completed at least ten (10) years of employment or other service with the Company Group, or (C) the Optionee has attained age fifty (50) and the Committee specifically determines that the termination of the Optionee's employment or other service constitutes a "Retirement" for purposes hereof. (b) TERMINATION FOR CAUSE. If the Optionee's employment or other service is terminated by the Company Group for Cause (as defined in Section 8(a) of the Employment Agreement), then, notwithstanding anything to the contrary contained herein, the Option (whether or not otherwise exercisable) shall immediately terminate and cease to be exercisable. (c) OTHER TERMINATION. If the Optionee's employment or other service with the Company Group terminates for any other reason (other than those described in Section 5(a)(i) or 5(a)(ii) above) or no reason, then: (i) any portion of the Option that is exercisable on the date of termination shall remain exercisable by the Optionee during the thirty (30) day period following the date of termination but in no event after expiration of the stated term hereof and, to the extent not exercised during such period, shall thereupon terminate, and (ii) any portion of the Option that is not exercisable on the date of termination shall thereupon terminate. 6. METHOD OF EXERCISE. Once vested and exercisable, the Option may be exercised in whole or in part by delivering to the Secretary of the Company (a) a written notice specifying the number of shares of Common Stock to be purchased and (b) payment of the aggregate exercise price of the shares of Common Stock so purchased in cash or its equivalent, and any taxes due thereon in accordance with Section 14 of the Plan. If the Common Stock is publicly traded, payment, in whole or in part, of the exercise price of the Option may also be made by means of a cashless exercise procedure approved by the Committee. 2 7. RIGHTS AS A STOCKHOLDER. No shares of Common Stock shall be issued hereunder until full payment for such shares has been made and any other exercise conditions have been fully satisfied. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date such shares are reflected as having been issued to the Optionee on the Company's records. No adjustment shall be made for dividends or distributions or the granting of other rights for which the record date is prior to the date such shares are issued. 8. NONTRANSFERABILITY. The Option is not assignable or transferable other than to a beneficiary designated to receive the Option upon the Optionee's death in a manner acceptable to the Company or by will or the laws of descent and distribution, and the Option shall be exercisable during the lifetime of the Optionee only by the Optionee (or, in the event of the Optionee's incapacity, the Optionee's legal representative or guardian). Any attempt by the Optionee or any other person claiming against, through or under the Optionee to cause the Option or any part of it to be transferred or assigned in any manner and for any purpose shall be null and void and without effect upon the Company, the Optionee or any other person. 9. LOCK-UP. The Optionee shall not during the period commencing on the date of the final prospectus relating to the Company's initial public offering and ending on the date specified by the Company and the managing underwriter (but not to exceed one hundred eighty (180) days) (a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the shares of Common Stock. The foregoing provisions of this Section 9 shall apply only to the Company's initial public offering of equity securities and shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Upon a Change in Capitalization (as defined in the Plan), an equitable substitution or adjustment may be made in the kind, number and/or exercise price of shares or other property subject to the Option as may be determined by the Committee, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Committee may provide, in its sole discretion, for the cancellation of the Option in exchange for payment in cash or other property of the Fair Market Value of the shares of Common Stock covered by the Option (whether or not otherwise vested or exercisable), reduced by the exercise price of the Option. 11. PROVISIONS OF THE PLAN CONTROL. This Agreement is subject to all the terms, conditions and provisions of the Plan and to such rules, regulations and interpretations as may be established or made by the Committee acting within the scope of its authority and responsibility under the Plan. The Optionee acknowledges receipt of a copy of the Plan prior to execution of this Agreement. The applicable provisions of the Plan shall govern in any situation where this Agreement is silent or where the applicable provisions of this Agreement are contrary to or not reconcilable with such Plan provisions. 12. COMPLIANCE WITH LAW. Shares of Common Stock shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, 3 the Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange or market upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Committee may require each person acquiring shares of Common Stock to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. All certificates for shares of Common Stock delivered hereunder shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange or market upon which the Common Stock may then be listed, and any applicable federal or state securities law. The Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. 13. MISCELLANEOUS. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be amended, except as provided in the Plan, other than by a written instrument executed by the parties hereto. (Signature Page Follows) 4 IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. REPUBLIC AIRWAYS HOLDINGS INC. By: ------------------------------------- Name: Title: ----------------------------------------- [Name of Optionee] 5 EX-10.4 7 a2082173zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 AMENDED AND RESTATED WARRANT ISSUANCE AGREEMENT THIS AMENDED AND RESTATED WARRANT ISSUANCE AGREEMENT (the "Agreement") is made and entered into as of May 31, 2002, by and among Republic Airways Holdings Inc., a Delaware corporation ("Republic"), Chautauqua Airlines, Inc., a New York corporation and wholly-owned subsidiary of Republic ("Chautauqua") and America West Airlines, Inc., a Delaware corporation ("AWA"). RECITALS WHEREAS, concurrent with the entering into by AWA and Chautauqua of that certain Warrant Issuance Agreement, dated as of March 20, 2001 (the "Original Agreement"), AWA and Chautauqua entered into a Code Share and Revenue Sharing Agreement (the "Code Share Agreement"); and WHEREAS, Republic, AWA, and Chautauqua desire to amend and restate the Original Agreement to provide for the issuance by Republic to AWA of a warrant (the "Warrant") to purchase shares of common stock, $.001 par value (the "Common Stock"), of Republic on the terms and conditions set forth herein; and WHEREAS, no warrant has been issued pursuant to the Original Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties, and covenants hereinafter set forth and for other good valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. ISSUANCE OF WARRANT 1.1 ISSUANCE OF WARRANT. Upon the later of (a) the date of the initial public offering of shares of Common Stock of Republic (the "IPO"), or (b) the date that there are 12 Committed Aircraft (as defined below) (the "Issuance Date") Republic shall issue to AWA the Warrant to purchase the number of shares of Common Stock (the "Warrant Shares") determined as set forth below at the exercise price (the "Exercise Price") determined as set forth below. For the purposes of this Agreement and the Warrant, "Committed Aircraft" means the number of aircraft committed into flight service by AWA pursuant to the Code Share Agreement. 1.2 NUMBER OF WARRANT SHARES. The number of Warrant Shares shall be equal to two percent (2%) of the greater of (a) the number of shares of Common Stock offered to the public, including any overallotment option granted to the underwriters whether or not exercised, pursuant to the IPO or (b) thirty five percent (35%) of the number of shares outstanding immediately prior to the closing of the IPO on a fully diluted basis (assuming the exercise or conversion of any outstanding rights, options and convertible securities). 1.3 EXERCISE PRICE. The Exercise Price shall be the price to the underwriters in the IPO (the "IPO Price"). 1.4 FORM OF WARRANT. The Warrant will be in the form attached hereto as Exhibit A. 1.5 AMENDMENT OF ORIGINAL AGREEMENT. This Agreement shall amend and restate the terms of the Original Agreement in their entirety and anything contained therein or as an exhibit thereto shall be superceded by this Agreement. In the event that (i) the number of Committed Aircraft is reduced below 12 by AWA, (ii) the Company or Chautauqua issues a Diversion Notice (as such term is defined in the Code Share Agreement) to divert the Aircraft (as such term is defined in the Code Share Agreement) under Section 1.2.1 of the Code Share Agreement, or (iii) AWA issues a notice of its election to exercise the 2002 Elimination under Section 1.2.3 of the Code Share Agreement, then the Warrant shall immediately be cancelled and all rights to purchase the Warrant Shares contained therein or hereunder to the extent not previously exercised, and any rights granted to AWA pursuant to Section 2 hereof shall immediately terminate. 2. REGISTRATION RIGHTS 2.1 IPO NOTICE. Republic will give AWA not less than ten (10) days prior written notice before the closing date of its IPO. 2.2 DEMAND REGISTRATION 2.2.1 If Republic shall receive a written request from AWA that Republic file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the registration of at least a majority of the Warrant Shares then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed five million dollars ($5,000,000)), then Republic shall expeditiously effect the registration under the Securities Act of all shares of Common Stock (including any Warrant Shares) that AWA has requested to be registered (the "Registrable Securities"). 2.2.2 If AWA intends to distribute the Registrable Securities covered by its request by means of an underwriting, it shall so advise Republic as a part of its request made pursuant to this Section 2.2 and Republic shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by AWA (which underwriter or underwriters shall be reasonably acceptable to Republic). Notwithstanding any other provision of this Section 2.2, if the underwriter advises Republic that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then Republic shall so advise AWA, and the number of Registrable Securities that may be included in the underwriting shall be allocated among AWA, Republic and any other stockholders including shares of Common Stock in such registration on a PRO RATA basis based on the number of shares of Common Stock held by all such holders. (a) Republic shall not be required to effect a registration pursuant to this Section 2.2: (b) prior to the earlier of (i) the third anniversary of Issuance Date and (ii) one hundred eighty (180) days following the effective date of the registration statement pertaining to the IPO; and -2- (c) after Republic has effected one registration pursuant to this Section 2.2, and such registration has been declared or ordered effective. 2.3 PIGGYBACK REGISTRATIONS. 2.3.1 In addition to the notice requirement set forth in Section 2.1, on and after the Issuance Date Republic shall notify AWA in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of Republic (including, but not limited to, registration statements relating to secondary offerings of securities of Republic, but excluding registration statements relating to any employee benefit plan or to any corporate reorganization) and will afford AWA an opportunity to include in such registration statement all or part of any shares of Common Stock held by AWA. If AWA desires to include in any such registration statement any shares of Common Stock held by AWA it shall, within ten (10) days after the above-described notice from Republic, so notify Republic in writing. If AWA decides not to include any shares of Common Stock in any registration statement filed by Republic, AWA shall nevertheless continue to have the right to include any shares of Common Stock in any subsequent registration statement or registration statements as may be filed by Republic with respect to offerings of its securities, all upon the terms and conditions set forth herein. 2.3.2 Notwithstanding any other provision of this Agreement, if the underwriter with respect to an underwritten offering (other then an underwritten offering pursuant to Section 2.2) determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the holders of Common Stock (including AWA) on a PRO RATA basis based on the total number of shares of Common Stock held by such holder. 2.4 FORM S-3 REGISTRATION. If Republic shall receive from AWA a written request or requests that Republic effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Common Stock owned by AWA, the Company will as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of the Registrable Securities; PROVIDED, HOWEVER, that Republic shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (a) if Form S-3 is not available for such offering by AWA, or (b) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for AWA pursuant to this Section 2.4, or (c) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance, or (d) prior to the Issuance Date. -3- 2.5 Subject to the foregoing, Republic shall file such Form S-3 registration statement as soon as practicable after receipt of the request of AWA. Registrations effected pursuant to this Section 2.4 shall not be counted as a demand for registration effected pursuant to Section 2.2. 2.6 EXPENSES OF REGISTRATION. Except as specifically provided herein, all expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 2.2, 2.3 or 2.4, including, without limitation all registration and filing fees, printing expenses, fees and disbursements of counsel for Republic, reasonable fees and disbursements not to exceed twenty-five thousand dollars ($25,000) of a single special counsel for the selling stockholders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration shall be borne by Republic. All underwriting discounts and selling commissions incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered PRO RATA on the basis of the number of shares so registered. 3. SALE EVENT 3.1 SALE EVENT. At any time prior to the closing of the IPO, in the event that (i) Republic (a) liquidates, (b) dissolves, (c) winds up, (d) consolidates or merges with or into any other entity, or effects any other corporate reorganization, in which the stockholders of Republic immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the voting power of the surviving entity immediately after such consolidation, merger or reorganization, (e) effects any transaction or series of related transactions in which in excess of fifty percent (50%) of the voting power of Republic is transferred, or (f) sells, leases or otherwise disposes of all or substantially all of its assets (each a "Sale Event"), and (ii) the number of Committed Aircraft as of the date immediately prior to the Sales Event Closing (as defined below) is not less than 12, then upon the closing of such Sale Event (the "Sale Event Closing"), Republic will pay or will cause to be paid to AWA an amount equal to two percent (2%) of the consideration received in the Sale Event. For the purposes of this Section 3, "consideration" means thirty-five percent (35%) of the value of the aggregate consideration received by Republic and the stockholders of Republic upon the Sale Event Closing in excess of one hundred fifty million dollars ($150,000,000). For the purpose of determining the aggregate consideration received by Republic and the stockholders of Republic, (a) to the extent it consists of cash, it shall be computed at the gross amount of cash received by Republic and the stockholders without any deduction for payment of expenses or otherwise, (b) to the extent it consists of securities that are traded on a national securities exchange or admitted to unlisted trading privileges on such an exchange, or are listed on the Nasdaq National Market, it shall be valued at the average of the last reported sale price of such security for the five (5) trading days ended the day before the Sale Event Closing, and (c) to the extent that it consists of property other than cash or such securities, it shall be valued as Republic and AWA may mutually agree; PROVIDED that both parties shall negotiate in good faith, and if the parties are unable to reach an agreement as to value, either party shall have the right within thirty (30) days of the Sale Event Closing to commence an action seeking declaratory judgment with respect to such value. -4- 3.2 NOTICE OF SALE EVENT. Republic will give AWA not less than ten (10) days prior written notice before a Sale Event Closing. 4. MISCELLANEOUS 4.1 BINDING AGREEMENT. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.2 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents, made and to be performed entirely within the State of Delaware. 4.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 4.5 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to Republic at Republic Airways Holdings Inc., 2500 South High School Road, Indianapolis, Indiana, 46241, Fax No.: (317) 484-6060, Attention: President, with a copy to Wexford Capital LLC, 411 West Putnam Avenue, Greenwich, Connecticut, 06830, Fax No.: (203) 862-7312, Attention: General Counsel and AWA at America West Airlines, Inc., 111 West Rio Salado Parkway, Tempe, Arizona, 85281, Fax No.: (480) 693-5155, Attention: General Counsel, with a copy to Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, 94111, Fax No.: (415) 951-3699, Attention: Samuel Livermore, or at such other address as Republic or AWA may designate by ten (10) days advance written notice to the other party hereto. 4.6 MODIFICATION; WAIVER. No modification or waiver of any provision of this Agreement or consent to departure therefrom shall be effective unless in writing and approved by Republic and AWA. 4.7 ENTIRE AGREEMENT. This Agreement and the Exhibit hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein. -5- IN WITNESS WHEREOF, the parties have executed this AMENDED AND RESTATED WARRANT ISSUANCE AGREEMENT as of the date first written above. CHAUTAUQUA AIRLINES, INC. AMERICA WEST AIRLINES, INC. By: /s/ Jay Maymudes By: /s/ Scott Kirby --------------------------- --------------------------- Name: Jay Maymudes Name: Scott Kirby ------------------------- ------------------------- Title: Vice President Title: EVP Sales and Marketing ------------------------ ------------------------ REPUBLIC AIRWAYS HOLDINGS INC. By: /s/ Arthur Amron --------------------------- Name: Arthur Amron ------------------------- Title: Vice President ------------------------ -6- EXHIBIT A THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. REPUBLIC AIRWAYS HOLDINGS INC. WARRANT TO PURCHASE COMMON STOCK -------- ----,----- THIS CERTIFIES THAT, for value received, America West Airlines, Inc., with its principal office at 111 West Rio Salado Parkway, Tempe Arizona, 85281, or assigns (the "Holder" or "Purchaser"), is entitled to subscribe for and purchase at the Exercise Price (defined below) from Republic Airways Holdings Inc., a Delaware corporation, with its principal office at 2500 South High School Road, Indianapolis, Indiana, 46241 (the "Company"), ____________ shares of common stock of the Company, par value $0.001 per share (the "Common Stock"), as provided herein. Terms not otherwise defined herein shall have the meanings ascribed to them in the Amended and Restated Warrant Issuance Agreement, dated as of _______, 2002, by and among the Company, the Holder and Chautauqua Airlines, Inc. (the "Warrant Issuance Agreement"). 1. DEFINITIONS. As used herein, the following terms shall have the following respective meanings: (a) "Exercise Period" shall mean the time period commencing with the date of this Warrant and ending on the date three years from the date hereof. (b) "Exercise Price" shall mean _______, subject to adjustment pursuant to the terms herein. (c) "Exercise Shares" shall mean the shares of the Company's Common Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to the terms herein. 2. EXERCISE OF WARRANT; CANCELLATION. 2.1 EXERCISE. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder): (a) An executed Notice of Exercise in the form attached hereto; -7- (b) Payment of the Exercise Price either (i) in cash or by check, or (ii) by cancellation of indebtedness; and (c) This Warrant. Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised. The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 2.2 NET EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Holder may elect (the "Conversion Right") to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Common Stock (at the date of such calculation) B = Exercise Price (as adjusted to the date of such calculation) For purposes of the above calculation, the fair market value of one share of Common Stock shall be: (a) the product of (i) the average daily Market Price (as defined below) during the period of the most recent 10 days, ending on the last business day before the effective date of exercise of the Conversion Right, on which the national securities exchanges were open for trading and (ii) the number of shares of the Common Stock (as defined herein) into which each Exercise Share is convertible on such date; or -8- (b) if no class of Common Stock is then listed or admitted to trading on any national securities exchange or quoted in the over-counter market, the fair market value shall be the Market Price on the last business day before the effective date of exercise of the Conversion Right. If the Common Stock is traded on a national securities exchange or admitted to unlisted trading privileges on such an exchange, or is listed on the National Market System (the "National Market System") of the Nasdaq, the Market Price as of a specified day shall be the last reported sale price of Common Stock on such exchange or on the National Market System on such date or if no such sale is made on such day, the mean of the closing bid and asked prices for such day on such exchange or on the National Market System. If the Common Stock is not so listed or admitted to unlisted trading privileges, the Market Price as of a specified day shall be the mean of the last bid and asked prices reported on such date (x) by the Nasdaq or (y) if reports are unavailable under clause (x) above by the National Quotation Bureau Incorporated. If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and ask prices are not reported, the Market Price as of a specified day shall be determined in good faith by the Board of Directors of the Company. 2.3 CANCELLATION OF WARRANT. In the event that at any time (i) the number of Committed Aircraft is reduced below 12 by AWA, (ii) the Company or Chautauqua issues a Diversion Notice to divert the Aircraft under Section 1.2.1 of the Code Share Agreement, or (iii) AWA issues a notice of its election to exercise the 2002 Elimination under Section 1.2.3 of the Code Share Agreement, then this Warrant shall immediately be cancelled and all rights to purchase the Warrant Shares contained herein to the extent not previously exercised shall be of no further force and effect. 3. COVENANTS OF THE COMPANY. 3.1 COVENANTS AS TO EXERCISE SHARES. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. 3.2 NO IMPAIRMENT. Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment, PROVIDED that nothing herein shall in any manner restrict the Company from undertaking a Sale Event (as defined in the Warrant Issuance Agreement) based -9- on the good faith determination by the Company's Board of Directors that such transaction is in the best interests of the Company if the Company complies fully with Section 3 of the Warrant Issuance Agreement. 3.3 NOTICES OF RECORD DATE. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. 3.4 NOTICE OF EXPIRATION. If this Warrant has not been fully exercised on or before the date thirty (30) days prior to the end of the Exercise Period, the Company shall thereafter provide Holder with at least twenty (20) days advance written notice of the date on which this Warrant is to expire. If the Company fails to provide such notice, the Exercise Period shall be extended until the date thirty (30) days after the date said notice is provided to Holder. 4. REPRESENTATIONS OF HOLDER. 4.1 ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and warrants that it is acquiring the Warrant solely for its account for investment and not with a view to or for sale or distribution of said Warrant or any part thereof, other than potential transfers between affiliates. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only. 4.2 SECURITIES ARE NOT REGISTERED. (a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act of 1933, as amended (the "Act") on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention, other than potential transfers between affiliates. (b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. (c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. Holder is aware that the conditions for resale -10- set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future. 4.3 DISPOSITION OF WARRANT AND EXERCISE SHARES. (a) The Holder further agrees not to make any disposition of all or any part of the Warrant or Exercise Shares in any event unless and until: (i) The Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition; or (ii) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or (b) The Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition; provided, however, that such statement will not be required if the disposition is permitted under Rule 144 of the Act. (c) Notwithstanding the provisions of paragraph (a) above, the Holder may assign this Warrant and the Exercise Shares to any affiliate. 5. ADJUSTMENT OF EXERCISE PRICE. 5.1 STOCK DIVIDENDS; SPLITS; ETC. In the event of changes in the outstanding Common Stock of the Company after the date hereof by reason of stock dividends, splits, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same aggregate Exercise Price (the "Aggregate Exercise Price"), the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. 5.2 SALE OF SHARES BELOW EXERCISE PRICE. (a) If at any time or from time to time after the date hereof, the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock (as defined below), for an Effective Price (as defined below) less than the then effective Exercise Price, then and in each such case, the then existing Exercise Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined as set forth below and the Holder shall have the right to purchase on exercise of the Warrant the number of shares of Common Stock obtained by dividing the Aggregate Exercise Price by the Exercise Price as reduced. The Exercise Price shall be reduced by multiplying the Exercise Price in effect immediately prior to such issuance or sale by a fraction equal to: -11- (i) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the Aggregate Consideration received (as defined below) by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such Exercise Price, and (ii) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued. For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock outstanding, and (B) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible securities outstanding on the day immediately preceding the given date. (b) For the purpose of making any adjustment required under this Section 5.2, the aggregate consideration received by the Company for any issue or sale of securities (the "Aggregate Consideration") shall: (i) to the extent it consists of cash, be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale but without deduction of any expenses payable by the Company, (ii) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, and (iii) if Additional Shares of Common Stock, Convertible Securities (as defined below) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options. (c) For the purpose of the adjustment required under this Section 5.2, if after the date hereof the Company issues or sells (x) stock or other securities convertible into Additional Shares of Common Stock (such convertible stock or securities being herein referred to as "Convertible Securities") or (y) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such Additional Shares of Common Stock is less than the Exercise Price, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities plus: (i) in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options; and -12- (ii) in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); PROVIDED that if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses. (iii) If the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; PROVIDED FURTHER, that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities. (iv) No further adjustment of the Exercise Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock or the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Exercise Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Exercise Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities. 6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of an Exercise Share by such fraction. 7. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. -13- 8. TRANSFER OF WARRANT. Subject to applicable laws, this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. 9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 10. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at Republic Airways Holdings Inc., 2500 South High School Road, Indianapolis, Indiana, 46241, Fax No.: (317) 484-6060, Attention: President, with a copy to Wexford Capital LLC, 411 West Putnam Avenue, Greenwich, Connecticut, 06830, Fax No.: (203) 862-7312, Attention: General Counsel and the Holder at America West Airlines, Inc., 111 West Rio Salado Parkway, Tempe, Arizona, 85281, Fax No.: (480) 693-5155, Attention: General Counsel, with a copy to Cooley Godward llp, One Maritime Plaza, 20th Floor, San Francisco, California, 94111, Fax No. (415) 951-3699, Attention: Samuel Livermore, or at such other address as the Company or the Holder may designate by ten (10) days advance written notice to the other party hereto. 11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein. 12. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of Delaware. -14- IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of . ----------------------- REPUBLIC AIRWAYS HOLDINGS INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ -15- NOTICE OF EXERCISE TO: REPUBLIC AIRWAYS HOLDINGS INC. (1) / / The undersigned hereby elects to purchase ________ shares of the Common Stock of Republic Airways Holdings Inc. ("the Company") pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. / / The undersigned hereby elects to purchase ________ shares of the Common Stock of the Company pursuant to the terms of the net exercise provisions set forth in Section 2.2 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ------------------------ (Name) ------------------------ ------------------------ (Address) (3) The undersigned represents that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned's own interests; (iv) the undersigned understands that the shares of Common Stock issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; and (v) the undersigned is aware that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company and the Company has not made such information available and has no present plans to do so. - ----------------------- ---------------------------- (Date) (Signature) ---------------------------- (Print name) -16- ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to Name: ----------------------------------------------------------------------- (Please Print) Address: -------------------------------------------------------------------- (Please Print) Dated: ------------------------------------- Holder's Signature: ------------------------- Holder's Address: ------------------------- NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. -17- EX-10.5 8 a2082173zex-10_5.txt REGIONAL JET AIR SERVICE AGMT BTWN AMR & CHAUTAUQU EXHIBIT 10.5 CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 AMENDED AND RESTATED REGIONAL JET AIR SERVICES AGREEMENT BY AND BETWEEN AMR CORPORATION AND CHAUTAUQUA AIRLINES, INC. DATED AS OF JUNE 12, 2002, CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. THE OMITTED MATERIALS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. AMENDED AND RESTATED AIR SERVICES AGREEMENT This Amended and Restated Agreement (the "AGREEMENT"), dated as of June 12, 2002, but to be effective as of the SABRE Cutover Date (as defined below), is between AMR Corporation ("AMR"), a Delaware corporation having offices at 4333 Amon Carter Boulevard, Mail Drop 5494, Fort Worth, Texas, 75261, and CHAUTAUQUA AIRLINES, INC. ("CONTRACTOR"), a New York corporation having its principal place of business at Indianapolis International Airport, 2500 South High School Road, Indianapolis, IN 46241. Each covenant of AA (as defined below) made herein shall be construed to mean that AMR shall cause AA to perform such covenant. WITNESSETH: WHEREAS, AA holds a certificate of public convenience and necessity issued pursuant to the federal transportation statutes authorizing it to engage in air transportation of persons, property and mail, and is a major air carrier providing scheduled domestic and international air transportation; and WHEREAS, Contractor holds a certificate of public convenience and necessity issued pursuant to the Federal Transportation Statute authorizing it to engage in air transportation of persons, property and mail, and is a regional air carrier providing scheduled domestic air transportation; and WHEREAS, AMR and Contractor have entered into an agreement regarding the operation of Feeder Air Service (as defined herein) utilizing regional jets pursuant to that certain Air Services Agreement dated June 11, 2001 ("AIR SERVICES AGREEMENT"); and WHEREAS, AMR and Contractor desire to amend and restate said Air Services Agreement. NOW, THEREFORE, in consideration of the foregoing premises, mutual covenants and obligations hereinafter contained and subject to securing any and all necessary corporate and Federal, State and local regulatory approvals, and where necessary, airport consents or approvals, but only to the extent such approvals and consents are required for the performance of services hereunder, the parties agree as follows: DEFINITIONS 1. "AA" means American Airlines, Inc. 2. "AADAMS" means American Airlines Digital Asset Management System. 3. "AA TARIFFS" has the meaning ascribed to it in Exhibit H. 4. "AATV" means AA Travel Vouchers. 5. "AA UNAUTHORIZED OBLIGATION" has the meaning ascribed to it in Section 6.02(b). 6. "AMERICAN CONNECTION" means the name pursuant to which Contractor will operate Feeder Air Service. 1 7. "AMERICAN CONNECTION MARKS" shall mean those trademarks, service marks, tradenames, logos, emblems, uniform designs, and distinctive exterior and interior color decor and patterns for aircraft, all as used in connection with the AA American Connection brand of commuter air service and listed or described on Exhibit B-1. 8. "ACCEPTED FREQUENT FLYER PROGRAM" means the AAdvantage Frequent Flyer Program and any other carrier's frequent flyer program designated by AA. 9. "ACQUIRING PARTY" has the meaning ascribed to it in Section 9.02(b). 10. "ACT" means the Securities Act of 1933, as amended. 11. "AFFILIATE" means, with respect to a Person, any other Person controlling, controlled by, or under common control with, such Person. 12. "AIRPORT SUPPORT SERVICES" means those Ground Handling, Passenger Handling Duties associated with providing AA's desired ground service levels in conjunction with the Feeder Air Services contemplated herein. 13. "AMERICAN EAGLE" OR "AE" means AMR Corporation's wholly owned regional airline, American Eagle Airlines, Inc. 14. "AMR ENTITIES" means AMR Corporation and its successors, subsidiaries, Affiliates, parent companies, general partners, limited partners, predecessors and assigns, including but not limited to TWA, AA and AE. 15. "APPROVED AIRCRAFT" means any aircraft included in the Fleet Plan and made a part of this Agreement. 16. "ATAC" means AA's automated agent check out system. 17. "ATA MANUAL" means the Air Transportation Association's Air Cargo Council Trade Practice Manual. 18. "AUTOMATION EQUIPMENT" has the meaning ascribed to it in Exhibit L. 19. "BAGGAGE CLAIM" means notification by a passenger that his baggage has been lost, damaged, delayed, pilfered or stolen and may originate in the form of a report prepared on behalf of the passenger by airline personnel, which may or may not entitle the passenger to receive compensation. 20. "BANKRUPT PARTY" has the meaning ascribed to it in Section 7.02(a). 21. "BLOCK HOUR" means that time that commences when an aircraft moves under its own power for the purpose of flight and ends when the aircraft comes to rest after landing. 22. "BMAS" or "BAGGAGE MANAGEMENT ANALYSIS SYSTEM" means an internal AA baggage tracking system. 23. "CALL OPTION" has the meaning ascribed to it in Section 7.03. 2 24. "CAUSE" means termination of this Agreement prior to the end of the Term for any of the reasons specified in Section 7.02. 25. "CDO" means continual duty overnight. 26. "CHARTER FLIGHT" means an unpublished revenue flight marketed by an AMR Entity and operated by Contractor with an Approved Aircraft. 27. "CLAIMS" has the meaning assigned to it in Section 6.03(b). 28. "CLDR" means the Contractor Location Departure Ratio as defined in Exhibit E. 29. "COMMON STOCK" has the meaning ascribed to it in Section 9.03(d). 30. "COMPLETION FACTOR" means number of Scheduled Flights operated divided by number of Scheduled Flights. 31. "CONNECTING PASSENGERS" means passengers whose flight itinerary involves a transfer to (or from) a Contractor flight from (or to) an AA or AA Affiliate flight at the STL Hub, Focus City or other such location where Contractor has connections to multiple AA destinations. 32. "CONSUMER ADJUSTMENTS" has the meaning ascribed to it in Exhibit F. 33. "CONSUMER PRICE INDEX" or "CPI" means the reference index published by the Bureau of Labor Statistics Data, U.S. Department of Labor Statistics Data, U.S. Department of Labor for the Consumer Price Index - All-Urban Consumers, U.S. City average, all items (Base year 1982 - 1984 = 100). 34. "CONTRACTOR" means Chautauqua Airlines, Inc. 35. "CONTRACTOR CONVERSION" means the complete assumption by Contractor of ground operations at a Covered Location, which results in the Covered Location becoming a Contractor Location. 36. "CONTRACTOR LOCATION" means any Feeder Airport terminal facility where Contractor has managerial responsibility for the disposition of facilities and the performance of Airport Support Services pursuant to the operation of Contractor's Feeder Air Service Flights. 37. "CONTRACTOR TICKETING LOCATION" has the meaning ascribed to it in Exhibit F. 38. "CONTRACTOR UNAUTHORIZED OBLIGATION" has the meaning ascribed to it in Section 6.02(a). 39. "CONVERSION EXPENSES" has the meaning ascribed to it in Section 7.03. 40. "CORPORATE COMPLAINT RATIO" means Corporate Complaints per 1,000 boarded passengers. 3 41. "CORPORATE COMPLAINTS" means total number of complaints received by Contractor and AA from passengers which are attributable to Contractor's American Connection service, as tracked and reported in AA's CAARE System or any successor system. 42. "COSTS" has the meaning ascribed to it in Exhibit E. 43. "COVERED CONVERSION" means the complete assumption by an AMR Entity of ground operations at a Feeder Airport which results in the Feeder Airport becoming a Covered Location. 44. "COVERED LOCATION" means any Feeder Airport terminal facility where an AMR Entity has managerial responsibility for the disposition of facilities and the performance of Airport Support Services pursuant to the operation of Contractor's Feeder Air Service Flights. 45. "CRS" means computerized reservation system. 46. "CUSTOMER SERVICE POLICIES AND PROCEDURES" means the procedures prescribed in writing by AA from time to time, for various activities relating to the provision of air transportation services. 47. "DBC" means denied boarding compensation. 48. "DEFAULTING PARTY" has the meaning ascribed to it in Section 7.02(a). 49. "DESIGNATED USERS" has the meaning ascribed to it in Exhibit L. 50. "DISCREPANCY NOTICES" has the meaning ascribed to it in Exhibit F. 51. "DOD" means United States Department of Defense. 52. "DOT" means United States Department of Transportation. 53. "ENPLANEMENT TICKET TAXES" means Taxes required to be remitted by the operating carrier at the time of enplanement under applicable law or industry standard. 54. "ESCALATION PERCENT" and "EP" shall be defined and calculated pursuant to Schedule E-4. 55. "EXCLUDED TAXES" means Taxes measured or determined by gross or net income or profits, assets, capital or net worth. 56. "EXTRAORDINARY TRANSACTION" has the meaning ascribed to it in Section 9.03(a). 57. "FAA" means United States Federal Aviation Administration. 4 58. "FEEDER AIR SERVICE" and "FEEDER AIR SERVICE FLIGHTS" means scheduled air transportation utilizing the AA code, and operated by Contractor as American Connection or comparable AA fully branded flights under a non-exclusive license to use the AA Marks in connection with such transportation. 59. "FEEDER AIRPORT" means any airport, other than the Hub, where Contractor provides Feeder Air Service Flights at the request of AA pursuant to this Agreement. 60. "FINAME" means Agencia Especial de Financiamento Industrial - Finame, a Brazilian Federal public company. 61. "FIRM APPROVED AIRCRAFT" has the meaning ascribed to it in Schedule C-1. 62. "FLEET PLAN" shall mean the schedule of placing aircraft into operation for Feeder Air Service and code share flights as more fully set forth in Exhibit C. 63. "FOCUS CITY" shall mean any airport so designated by AA other than the STL Hub where AA and/or an AA Affiliate has connections to multiple points within the AA network. 64. "FORCE MAJEURE" has the meaning ascribed to it in Section 7.03. 65. "FOS" means AA's Flight Operations System. 66. "FTP" means File Transfer Protocol. 67. "GROUND HANDLING" and "GROUND HANDLING DUTIES" means the provision of one or more of the following: (1) handling, loading, and unloading of baggage, cargo and mail, (2) receipt and dispatch, including, towing/pushback, and observing aircraft engine start (3) baggage delivery, (4) servicing potable water (5) connection and removal of ground power unit and pre-conditioned air, (6) Light Aircraft Cleaning, and (7) any other similar duties agreed upon by the parties in writing. 68. "HOLDING COMPANY" has the meaning ascribed to it in Section 9.02. 69. "HUB" and "STL" means Lambert - St. Louis International Airport, St. Louis, Missouri. 70. "INSECURE PARTY" has the meaning ascribed to it in Section 7.02(a). 71. "IPO" has the meaning ascribed to it in Section 9.03(d). 72. "IPO PARTICIPATION RIGHT" has the meaning ascribed to it in Section 9.03(d). 73. "IPO SHARE PRICE" has the meaning ascribed to it in Section 9.03(d)(1). 74. "IPO SHARES" has the meaning ascribed to it in Section 9.03(d). 75. "LABOR CONTRACT RESTRICTIONS" means certain contractual limitations related to AA commuter carriers and the operation of regional jets as stated in the AA-Allied Pilots Association collective bargaining agreement dated May 5, 1997, as amended from time to time, or any successor agreement. 5 76. "LEASE" means a long-term aircraft lease for Approved Aircraft that complies with the provisions hereof. 77. "LIGHT AIRCRAFT CLEANING" means wiping interior surfaces and windows, sweeping/vacuuming, crossing seat belts, folding blankets, trash removal, clean/restock seatback pockets and overhead bins, mopping galley and lavatory, and lavatory service on an as needed basis. 78. "MAGSA" has the meaning ascribed to it in Exhibit E. 79. "MARKS" means any trademark, trade name, trade dress, service mark, domain name, or other indicia of ownership owned or used by the AMR Entities. 80. "MASTER AGREEMENT" means a Master Agreement, in substantially the form of Master Agreement 372, dated as of June 11, 2002, by and among American Eagle, Contractor and FINAME, relating to any Approved Aircraft. 81. "MISHANDLED BAGS" means total number of Baggage Claims received by AA from Connecting Passengers for which Contractor is at fault for lost, damaged, delayed, or pilfered baggage. 82. "MITIGATING FACTORS" means on days where AA operations control has advised Contractor operations control that AA is "thinning" its operation, the reduction of Contractor's maximum 100% completion number by the percentage of flights cancelled by AA and the exclusion of those "thinned" Contractor flights from the Completion Factor calculation for the purposes of assessing penalties pursuant to Exhibit J.2.C. 83. "NEW AHI CALCULATED RATE" has the meaning ascribed to it in Schedule E-3. 84. "NEW PLI CALCULATED RATE" has the meaning ascribed to it in Schedule E-3. 85. "NTSB" means the National Transportation Safety Board. 86. "OAG" means the Official Airline Guide. 87. "ON-TIME ARRIVAL" means a Scheduled Flight that arrives prior to 15 minutes after scheduled arrival time; cancelled and diverted flights are not considered on-time arrivals. 88. "ONE-TIME CALL OPTION" has the meaning ascribed to it in Section 7.03(b). 89. "ONE-TIME PUT OPTION" has the meaning ascribed to it in Section 7.03. 90. "ORIGINAL APPROVED AIRCRAFT" has the meaning ascribed to it in Schedule C-1. 91. "PASSENGER HANDLING" and "PASSENGER HANDLING DUTIES" means the provision of one or more of the following in conformance with Customer Service Policies And Procedures: (1) ticketing and check-in of passengers, including boarding pass issuance, re-accommodating and reprotecting passengers, (2) gate passenger processing, 6 including aircraft boarding and deplaning duties via jetway or ramp level, (3) baggage service office duties, (4) passenger security screening, (5) skycap services, (6) special passenger assistance, and (7) any other duties normally agreed upon by the parties in writing. 92. "PASS THROUGH COSTS" mean those specific costs identified in Schedule E-3. 93. "PAWOB" means passengers arriving without bags. 94. "PAYOR" has the meaning ascribed to it in Section 8(f). 95. "PERFORMANCE PERIOD" means a six (6) month period, from January 1 - June 30, and from July 1 - December 31. 96. "PERSON" means a natural person, a corporation, a partnership, a limited liability company, an estate, a governmental agency or any other entity. 97. "PRIVATE PLACEMENT SHARES" has the meaning ascribed to it in Section 9.03(d)(2). 98. "PROPOSED AGREEMENT" has the meaning ascribed to it in Section 10.04(c). 99. "REVENUE PASSENGER" means each passenger who holds a ticket (electronic or otherwise), flight coupon, voucher, or other form of document which is valid for travel. The term "Revenue Passenger" includes all passengers boarded on a Contractor American Connection flight except AA, Contractor, and/or other airline employees, dependents and other eligible persons traveling on a space available or positive space basis in conjunction with an employee travel benefits program. 100. "RJ TURN FEE" has the meaning ascribed to it in Exhibit E. 101. "RON" means remain over night. 102. "RPMs" means revenue passenger miles. 103. "SABRE CUTOVER DATE" means December 2, 2001, the date designated by AA that Contractor discontinues the use of WorldSpan technology and commences the use of Sabre Services in the performance of its duties under this Agreement. 104. "SABRE SERVICES" means the computerized SABRE Reservations and Ticketing Service (or any similar or substitute service offered by or on behalf of AA), including associated support systems as designated by AA that performs flight, hotel, rental car and other travel related services, reservations and ticket issuance functions. 105. "SCHEDULED FLIGHTS" means those flights published in AA's CRS as of seven (7) days prior to departure date. 106. "SHARED CODE SHARING JET FLIGHTS" shall mean the regional jet air transportation operated by Contractor, as may be designated in writing by AA from time to time, which flights are code shared with AA and a third party air carrier. 7 107. "SHIPMENTS" has the meaning ascribed to it in Exhibit H. 108. "SSIM" means Standard Schedules Information Manual. 109. "STANDARD MARKED" means Approved Aircraft painted with the "American Connection" markings and distinctive colors described in Exhibit B-1 in addition to being painted with Contractor's name in such fashion as AA shall approve, such approval not to be unreasonably withheld or delayed; PROVIDED, that with respect to the Original Approved Aircraft, until August 31, 2002, the term "Standard Marked" shall include the Trans World Express" markings and distinctive colors described in Exhibit B-2. 110. "TAX" or "TAXES" means any foreign, federal, state, local, municipal, provincial, territorial or port taxes, including, without limitation, sales and use taxes, gross receipts taxes in the nature of sales tax, value added taxes, goods and services taxes, stamp taxes and other similar taxes, fees, duties, imposts, licenses and charges (including interest and penalties thereon) assessed, levied or imposed by a competent authority under applicable law except for Excluded Taxes and Ticket Taxes. 111. "TERM" has the meaning ascribed to it in Section 7.01(a). 112. "TICKET TAXES" means any foreign, federal, state, local, municipal, provincial, territorial or port taxes, fees, duties, imposts, licenses and charges (and any interest and penalties thereon) that may be assessed, levied or imposed on, or otherwise collected from, customers in connection with the transportation of persons or property by air under applicable law or industry standards, including, without limitation, sales and use taxes, gross receipts taxes in the nature of sales taxes, stamp taxes, value added taxes, goods and services taxes, excise taxes, arrival/departure taxes, custom, immigration, agricultural and inspection fees, passenger facility charges and similar user charges or surcharges. 113. "TWA" means TWA Airlines, LLC, a subsidiary of American Airlines, Inc. 114. "TWA MARKS" means those trademarks, service marks, tradenames, logos, emblems, uniform designs, and distinctive exterior and interior color decor and patterns for aircraft all as used in connection with the Trans World Express brand of commuter air service and listed or described on Exhibit B-2. 115. "UNCONTROLLABLE CANCELLATIONS" means cancellations that are not due to any failure of Contractor or its vendors or subcontractors to provide equipment, facilities, personnel, aircraft and crews necessary to operate scheduled Feeder Air Service flights and include, without limitation cancellations due to acts or omissions of AA or any other third party or cancellations due to acts of God. 116. "USPS" means the United States Postal Service. 117. "WORLDTRACER" means an external AA baggage tracking system. * * * 8 ARTICLE 1 - OPERATION OF FEEDER AIR SERVICES 1.01 - USE OF MARKS (a) Contractor has no right or permission to use any of the Marks without first receiving AA's express written approval to do so. Subject to the terms of this Agreement, as amended, Contractor is hereby granted the non-exclusive, non-transferable right and license to use the TWA Marks (but only to the extent affixed to the Original Approved Aircraft) and to use the American Connection Marks both in connection with the operation of Contractor's Feeder Air Services. If Contractor receives written permission to reproduce any additional Marks, then Contractor will be given access to the AADAMS so that Contractor may retrieve accurate renditions of such Marks. Contractor acknowledges and agrees that it has permission to use to the extent provided herein only the TWA Marks and the American Connection Marks and those Marks to which it has been granted access on AADAMS. Contractor may not use the Marks in any manner other than as contemplated by this Agreement, as amended. Contractor acknowledges that the Marks are the property of the AMR Entities, and upon termination of this Agreement, Contractor will immediately cease use of the Marks. Under no circumstances will Contractor: (1) use or display any Marks (other than the TWA Marks) that Contractor obtained from a source other than AADAMS; (2) alter the Marks in any way; or (3) display the Marks without the appropriate proprietary rights notices. Contractor agrees that it shall in no way contest or deny the validity of, or the right or title of the AMR Entities in or to the Marks, and shall not encourage or assist others directly or indirectly to do so, whether during the Term of this Agreement or thereafter. Contractor will take no actions that are adverse to the AMR Entities' ownership rights in the Marks. Contractor shall not utilize the Marks in any manner that would diminish their value or harm the reputation of the AMR Entities. Contractor shall not use or register any domain name that is identical to or similar to any of the Marks without first receiving AA's prior written approval. Upon written request from AA, Contractor agrees to provide AA with reports at least every ninety days setting forth Contractor's use of the Marks. Contractor may combine these reports with any other report Contractor provides to AA under this Agreement. Contractor will not, under any circumstances, transfer, sell, or give away to a third party any products bearing the Marks that do not meet AA's quality standards. Notwithstanding the above, and except as may be otherwise provided herein, Contractor shall have no right to use the TWA Marks beyond the date that 145-08 is removed from service under the phase out plan set forth in Schedule C-1. (b) The Feeder Air Services operated by Contractor shall be identified as follows: 1. The name "American Connection" and/or other American Connection Marks shall be painted on aircraft and ground equipment used for Contractor's Feeder Air Service Flights in accordance with paint color and graphic design specifications of AA; no other identification shall appear on the aircraft and ground equipment except that Contractor's name shall appear in such fashion as AA shall approve. Use of the "American Connection" painted aircraft for Charter Flight use is also permitted. 2. Signage at the STL Hub and at Feeder Airport ticket counters and gates shall depict the name "American Connection" and/or other American Connection Marks in accordance with size, color and design specifications of AA. "American Connection" 9 is a Mark as defined by this Agreement and subject to the provisions relating to Marks, including but not limited to Section 1.01(a). 3. All Feeder Air Services shall be operated under the name "American Connection" or other such name, incorporating an AA Mark, as AA shall from time to time approve. All Feeder Air Service Flights shall be identified by an "AA" or "AA*" designator code, as appropriate, in the OAG; in AA, Contractor, and third party computer reservations systems, including internet reservation systems; in AA timetables; in airport flight information displays; and in passenger tickets and like media distributed to or accessed by travel agents, other airlines or the public. 4. Contractor personnel at Feeder Airports and Hub ramp positions and gates used for "American Connection" flights shall wear an AA designed "American Connection" uniform, if so designated by AA. 5. All ground equipment used by Contractor for the Feeder Air Services shall be painted in an AA's color scheme, and identified by an "American Connection" marking. 6. All advertising and promotion of the Feeder Air Services by Contractor or by AA shall use the name "American Connection," and not the Contractor name, except to the extent required by law for disclosure of the operating carrier. 7. To the extent not already implemented, AA and Contractor shall establish a Marks conversion timeline to effect the usage of the American Connection Marks at locations where TWA Marks are in use. (c) In the event AA adopts new or different American Connection Marks for which AA grants Contractor a license pursuant to subsection (a) above, AA may require Contractor to use such new or different American Connection Marks in connection with Contractor's Feeder Air Services and if AA does so, Contractor's right and license to use previously licensed American Connection Marks shall automatically terminate upon completion of Contractor's changeover to the new American Connection Marks pursuant to Section 1.02(l). Contractor's right and license to use any and all Marks shall also automatically terminate after 10 days prior written notice and opportunity to cure in the event Contractor does anything during the Term of this Agreement to contest, infringe or abridge AA's rights in any American Connection Marks or TWA Marks. (d) AA may from time to time change the Marks and logos used for "American Connection" service. At any time during the Term of this Agreement, and in the sole discretion of AA, Contractor may be required to use such new or different Marks, external or internal color decor and patterns on its Approved Aircraft and uniform design as AA may determine and to discontinue use of certain other Marks; PROVIDED, Contractor will not be required to discontinue its use of TWA Marks on the Original Approved Aircraft until August 31, 2002. Upon written notice from AA, which will include the specifications for any such changes, Contractor will effect such changes as promptly as practicable. Contractor will pay all costs it incurs in any painting and decor modification of its aircraft as a result of a change in AA's specifications of its external and internal decor; PROVIDED such modifications occur at the end of the useful life of the existing decor. For the purposes of this subsection, the parties agree that the useful life shall be forty-eight (48) months from the date the Approved Aircraft are decorated with the American Connection 10 Marks. If AA requires a change to new or different American Connection Marks on a Contractor aircraft which has been previously decorated with the American Connection Marks within the last four years, the cost of such modifications will be prorated between AA and Contractor based upon forty-eight (48) month useful life commencing on the date each aircraft is decorated with the American Connection Marks. For example, if AA requires Contractor to repaint an Approved Aircraft at the end of the third year (36th month) of its useful life, Contractor would be responsible for 75% of the cost and AA would be responsible for the remaining 25% of the cost. 1.02 - SERVICE DESCRIPTION (a) Contractor will continue Feeder Air Service with Original Approved Aircraft as described in the Fleet Plan in Schedule C-1. Further, Contractor will commence Feeder Air Service with Firm Approved Aircraft (as defined in Schedule C-1) upon the Sabre Cutover Date (which shall not be prior to October 1, 2001), including obtaining all DOD, DOT, FAA and other regulatory approvals and will phase-in operation of all Firm Approved Aircraft in accordance with the in service dates provided in the Fleet Plan in Schedule C-1. Contractor will discontinue operation of all Original Approved Aircraft in accordance with the phase-out dates indicated in the Fleet Plan provided in Schedule C-1. Unless otherwise agreed by AA, Contractor will operate all flights under this Agreement with such aircraft type and passenger seat capacity as specified in the Fleet Plan. Contractor acknowledges that in the event such Firm Approved Aircraft are not placed into service as of the date(s) indicated in the Fleet Plan, except to the extent any such delay or failure arises out of (i) an event that would give rise to a right to terminate this Agreement for Force Majeure, or (ii) a matter exempted from this Section 1.02(a) under the terms of Section 7.03(c), AA will suffer damages in connection with air transportation services AA intended to market and sell in connection with the use of such Firm Approved Aircraft. Accordingly, in such situation, [*]. (b) Contractor agrees to operate Feeder Air Services from concourse `B' or some other space at the STL Hub as designated by AA that is adequate to perform its duties hereunder. Contractor shall not operate Approved Aircraft in revenue service at the Hub except for the Feeder Air Services (other than occasional Charter Flights). (c) Contractor acknowledges and agrees that participation in the American Connection program obligates Contractor to offer and maintain a quality and professional level of service in terms of schedules, customer service, and the like. Accordingly, at the request of AA, the parties will: (1) meet to review and discuss the services, operations, and objectives of Contractor as an American Connection carrier; and (2) jointly develop a written business plan for the operations and services of Contractor. Contractor will use its commercially reasonable best efforts to comply with said business plan and to accommodate all reasonable recommendations of AA in these respects. (d) It is understood and agreed that the use of regional jets in the performance of services under this Agreement is subject to Labor Contract Restrictions. Further, with respect to AA, the provision of Feeder Air Service on certain routes and with certain aircraft types is subject to certain restrictions in existing agreements with other parties. Accordingly, Contractor agrees to dedicate such aircraft type and number to accommodate such Labor Contract Restrictions. Notwithstanding the foregoing, AA represents that Contractor 11 - ---------- *Confidential shall have the right to provide Contractor's Feeder Air Services with Firm Approved Aircraft. (e) Contractor may operate its Feeder Air Services as an American Connection carrier only as directed in writing by AA. Pursuant to the terms of this Agreement, AA hereby consents to Contractor's operation as an American Connection carrier with respect to such routes and frequency of service designated by AA in writing. At AA's request Contractor agrees to enter into such agreements(s) with another air carrier (holding a valid and effective Certificate of Public Convenience and Necessity or other appropriate authority) as may be necessary to implement Shared Code Sharing Jet Flights with such other carrier in connection with the Feeder Air Service Flights which are the subject of this Agreement, including, but not limited to, passenger and baggage transit procedures. (f) Contractor agrees to maintain the Feeder Air Service in accordance with the criteria set forth in Exhibits A and C, with respect to the aircraft types and operation of Feeder Air Service Flights. Within the operating capability of the aircraft used by Contractor, and subject to equipment availability and the other provisions of this Agreement, Contractor will comply with all requests by AA to increase, decrease, or in any other way adjust or terminate the flight frequencies or city pairs, or both, as operated and served pursuant to the provisions of Exhibit A. AA will cooperate with Contractor to optimize the use of its aircraft and crews to maintain schedule integrity and efficiency. Contractor agrees to assist AA with market planning and sales functions as requested by AA. Coinciding with each regular AA schedule change after the date hereof, Contractor shall adjust the scheduled times of operation of its Feeder Air Service Flights as directed by AA, based on a minimum connecting time of [*] or such other minimum connect time as AA may from time to time publish. Additionally, the Feeder Air Service Flights shall at all times be maintained by Contractor at levels sufficient to satisfy the Scheduled Flights. (g) AA shall be responsible for schedule production for Contractor's Feeder Air Service Flights and input of such schedules into AA's scheduling system. However, AA may delegate certain of those functions and responsibilities to a third party or by mutual agreement with Contractor, to Contractor. Such schedule changes will be included in the information sent to the OAG. (h) Procedures for regular submission of schedules shall be set forth in a procedures manual which will be jointly developed by Contractor and AA scheduling departments. (i) All aircraft used by Contractor to provide the Feeder Air Services shall comply with the applicable portions of Parts 298 and 25 of the Economic Regulations of the DOT and Part 121 of the Federal Aviation Regulations, or their successor regulations as applicable. Further, aircraft types shall be subject to acceptance by AA in accordance with the approved Fleet Plan provided for in Exhibit C. (j) All aircraft used for the Feeder Air Services shall be Standard Marked. From time to time, Contractor may temporarily (for not more than 60 days, unless approved in writing by AA, such approval not to be unreasonably withheld or delayed) operate Approved Aircraft that are not Standard Marked (as provided in Exhibit C(1)(A)(3)) but utilize an AA flight designator. All of Contractor's airport ticket counters and gates used for Feeder Air Services shall display AA timetables (and such promotional material as is 12 - ---------- *Confidential from time to time furnished by AA), and shall be identified by signage as described in Exhibit B-1. All Feeder Air Service Flights shall display on the exterior (adjacent to the boarding door) and in the interior of the aircraft, an AA approved sign or legend identifying the flight as an "American Connection" flight "operated by Chautauqua Airlines, Inc." Aircraft safety briefing cards shall incorporate the American Connection Marks. Contractor shall also distribute or place American Way or other magazines in the aircraft seat pockets as determined and provided by AA. No other airline magazine shall be placed in aircraft used for Feeder Air Services. (k) Contractor shall require all of its personnel in job classifications requiring direct public contact who provide Contractor's Feeder Air Services to wear uniforms and accessories furnished by Contractor which are of colors and styles as approved by AA from time to time. Other Contractor employees who are visible to the public and who provide Contractor's Feeder Air Services are to wear industry standard AA approved uniforms furnished by Contractor as are appropriate for the locale and environment. AA will consider modifications to such uniforms that may better represent the demands of the regional airline employee (E.G. exposure to elements and cross utilization). 1.03 - STANDARDS OF SERVICE AND PERFORMANCE Contractor agrees that, in providing services under this Agreement in conjunction with one or more of the AA Marks, it will maintain or exceed the Standards of Service and Performance Standards set forth in Exhibits D and J respectively. AA will have the right, from time to time, to inspect Contractor's Feeder Air Services to determine if they conform with such Standards. Failure on the part of AA to conduct such inspections will not relieve Contractor of its obligations to conform to the applicable standards. The extent to which Contractor meets, exceeds or fails to meet certain of the Performance Standards shall determine the amount of the performance incentive paid to Contractor by AA or performance penalty paid to AA by Contractor in accordance with the terms set forth in Exhibit J. ARTICLE 2 - SUPPORT SERVICES AND FACILITIES 2.01 - GENERAL AA and Contractor agree that support services and facilities shall be required to provide a high quality, seamless Feeder Air Service to passengers. Facilities must, at all times, be kept clean, up-to-date, and have adequate signage and lighting. Both parties agree to adhere to the provisions described herein as the mechanism by which such support services and facilities shall be managed. 2.02 - RESERVATIONS SUPPORT SERVICES AA, at its sole cost, will handle reservations for all Feeder Air Service Flights in the same manner and within the same standards that AA utilizes to handle its own reservations. 2.03 - COMPUTERIZED RESERVATIONS SYSTEM AND ASSOCIATED SERVICES (a) AA, at its sole cost, will provide Contractor with Sabre Services, including without limitation, maintenance of the Feeder Air Service Flights seat inventory and passenger processing, and other associated support systems as directed by AA. 13 (b) Contractor will perform and maintain in effect its standard SABRE equipment and systems use agreement at all times during the Term of this Agreement. Contractor shall comply with the provisions of Exhibit L. (c) Unless otherwise agreed to in writing between Contractor and AA, connecting reservations to or from AA or other air carriers in an "AA" itinerary will be made by AA and Contractor (and their respective agents) and by other airlines in accordance with AA's practices and any currently applicable industry methods and procedures. In all cases, SABRE will be used by Contractor to confirm the reservations of American Connection passengers through the entire itinerary of their scheduled trips. AA will make reasonable efforts to notify passengers of any last minute changes in Contractor's Feeder Air Service schedules or operations, consistent with notification practices and policies for AA's own flights. (d) Contractor shall provide AA in a timely manner, and in the format required by AA, such flight movement, bulkout, sales and other information as AA reasonably requires to enable it to carry out the reservations, sales, invoicing, audit, planning, and other services to be performed by AA under this Agreement. (e) AA shall be responsible for the collection and remittance of all booking fees, passenger facilities charges (PFCs), transportation Taxes, and the like, applicable to Contractor's Feeder Air Services. 2.04 - OPERATIONS (a) Contractor will provide accurate updates of its flights' planned and actual departure and arrival times (including updates of irregularities) in SABRE as soon as the planned flight schedule is changed, or the flight departs or arrives, or suffers an irregularity. In the event of flight delays, cancellations or other schedule irregularities affecting Contractor's Feeder Air Services Flights, and as soon as information concerning such irregularities is available, Contractor shall update AA's FOS system via SABRE to reflect such information. Further, when requested by AA, Contractor will notify the designated AA department/personnel regarding certain irregularities. For purposes of this Agreement, such scheduled and actual departure and arrival and irregularity information shall be known as "FLIFO." If Contractor becomes aware of any station(s) which have any deficiencies in reporting FLIFO as required by this Section, Contractor will promptly take corrective action to remedy such problem including, if requested by AA, the submission to AA of a corrective action plan. (b) Contractor will be solely responsible for, and AA will have no obligations or duties with respect to, the dispatch of Contractor's flights. For the purposes of this Section, the term "flight dispatch" will include, but will not be limited to, all planning of aircraft itineraries and routings, fueling and flight release. (c) Each party hereby represents, warrants and agrees that all air transportation services performed, including the maintenance of aircraft and engines, pursuant to this Agreement or otherwise shall be conducted in full compliance with all applicable statutes, orders, rules, regulations and notifications, whether now in effect or hereafter promulgated, of all governmental agencies having jurisdiction over its operations, including, but not limited to, the FAA, DOD, and DOT. Each party's compliance with such governmental statutes, orders, rules, regulations and notifications will be the sole and exclusive obligation of the 14 operating carrier, and the non-operating carrier will have no obligation, responsibility, or liability, whether direct or indirect, with respect to such matters. Additionally, Contractor will comply during the Term of this Agreement with the AA/American Connection Safety Standards, as described on Exhibit I. (d) From time to time and upon the request of Contractor or its flight crews, AA shall furnish Contractor's flight crews with such U.S. Weather Bureau information or data as may be available to AA, provided that in furnishing any such weather information or data to Contractor: (1) neither AA nor its employees or agents will be responsible or liable for the accuracy thereof; and (2) that any and all costs incurred by AA in connection with providing such weather information or data will be paid by Contractor. 2.05 - STATION FACILITIES, EQUIPMENT AND GROUND SUPPORT SERVICES (a) Covered Locations At all Covered Locations, AA, at its sole cost, shall provide Contractor with all Airport Support Services, equipment, and facilities, with the exception of the following: 1. aircraft on-call maintenance; 2. crew lounge; 3. equipment which is unique or specific for the operation of Approved Aircraft at that location; and 4. fuel services, to include into plane services. At Covered Locations where an AMR Entity has the capability to provide the above excluded equipment and Airport Support Services, Contractor agrees to allow AA to bid on these items, and will use AA if competitively priced. In the event AA requires that Contractor utilize third party vendors to provide Airport Support Services not excluded above, AA shall directly enter into agreements with such vendors at AA's sole cost. AA reserves the right, at its sole discretion, to instruct Contractor to directly enter into agreements with third party vendors to provide Airport Support Services not excluded above with any resulting charges to be handled in accordance with Exhibit E.1.C. (b) Contractor Locations 1. At all Contractor Locations, Contractor, at its sole cost, shall provide all manpower, equipment and airport facilities necessary to provide Airport Support Services for Contractor's Feeder Air Service Flights with the exception of any incremental fluid, manpower, or vendor costs associated with the de-icing of Contractor aircraft. Charges for such de-icing at Contractor Locations shall be handled in accordance with Exhibit E(1)(C)(3-4). 2. Contractor agrees to staff Contractor Locations that have three (3) or more daily round trips (weekdays) with its own employees where facility constraints permit. Contractor shall be given reasonable notice of schedule changes that will require it to staff under this provision. 15 3. In the event AA and/or its Affiliate(s) operates a flight to a Contractor Location and requests Contractor to handle such flight, AA agrees to pay Contractor for Airport Support Services provided by Contractor, at the rate of [*] per scheduled departure plus any incremental charges unique to such aircraft versus Contractor jet aircraft (E.G., jetways and special equipment, including the incremental cost of additional personnel to operate such special equipment). However, where AA operates flight(s) to Contractor Locations that utilize a third party vendor to provide Airport Support Services, AA shall, if it desires to use such vendor, directly enter into agreement(s) with such vendor. 4. For the initial purchase of new Contractor Location automation equipment, as defined in Exhibit L, Contractor and AA agree to adhere to the terms set forth in Exhibit E(3). (c) The Hub 1. Except as provided in subsection 3 below, at the Hub, Contractor, at its sole cost, shall be responsible for the gate operations of its passengers and aircraft, security screening charges, purchasing its equipment and leasing its facilities, including facilities improvement surcharges. Contractor, at its sole cost, shall enter into and maintain an operating agreement with AA for space adequate to perform its duties hereunder at Lambert - St. Louis International Airport. 2. At the Hub, AA, at its sole cost, shall be responsible for providing ticket counter services, skycap services, all passenger busing resulting from AA mandated remote parking of Contractor aircraft, remote de-icing service for regional jet aircraft (when such a remote de-icing operation is in effect for AA), and de-icing fluid for on-gate de-icing. Charges associated with the de-icing fluid for on-gate de-icing shall be handled in accordance with the provisions set forth in Exhibit E(1)(C)(3-4). 3. At AA's sole discretion, AA, and/or its Affiliate, or a third party may assume all gate and ramp handling duties at the Hub, as detailed in subsection 1 above, upon 120 days prior written notice. In such case and for this purpose only, the Hub would be considered a Covered Location. In such event, AA and Contractor shall modify the cost model to reflect such a change proportionately. (d) Contractor Conversion In the event AA or an AA Affiliate no longer staffs personnel at a Covered Location, AA reserves the right to designate such former Covered Location as a Contractor Location, and Contractor will completely assume ground operations at such former Covered Location. 16 - ---------- *Confidential (e) Covered Conversion In the event of a Covered Conversion, AA, at its sole discretion, may purchase and Contractor agrees to sell, at Contractor's net book value, any existing equipment necessary to operate AA flights. Furthermore, before hiring new employees in that city, provided they meet AA's eligibility requirements, AA shall allow Contractor's employees to apply for appropriate positions in that location. 2.06 - SALES; PROMOTION; PASSENGER SERVICE DOCUMENTS (a) AA will be responsible for advertising the Feeder Air Services except as otherwise provided for herein. (b) Contractor agrees to dedicate sales representatives, at its sole cost and expense to support the marketing of Feeder Air Services hereunder, at the request of AA. (c) Contractor will notify all Feeder Air Service passengers connecting to AA flights, via AA-provided ticket jackets and appropriate signage, AA's passenger liability limits (Warsaw and domestic), conditions of carriage, denied boarding compensation and like matters. Contractor also agrees to adopt and maintain AA's domestic (and if applicable, international) baggage liability rules as well as AA's PAWOB and DBC policies as are from time to time in effect. In selling air transportation of passengers, both on-line and off-line, Contractor will use AA passenger ticket stock. Contractor will report and remit to AA all ticket sales in accordance with the Accounting Procedures set forth in Exhibit F. (d) In the performance of its duties hereunder, Contractor will follow the Customer Service Policies and Procedures using AA passenger handling documents, including but not limited to ticket stock, travel vouchers, baggage tags, passenger refund and compensation checks, and the like. Contractor will reimburse AA for any expenses incurred as a result of Contractor's non-compliance with the Customer Service Policies and Procedures, in accordance with Exhibit F. (e) AA will include in its public timetables all of the Feeder Airports and the scheduled Feeder Air Services provided by Contractor pursuant to this Agreement, along with appropriate notations showing that services between the Hub and such Feeder Airports are flights operated by Contractor as an independent contractor. All such references in AA's public timetables shall also contain notations indicating that use of the name "American Connection" or any Marks by Contractor is pursuant to a limited trademark license from AA. (f) Area phone directories (white and yellow pages) for the Feeder Airports will include, at the earliest possible time (at the expense of AA), the AA toll free reservations phone number which shall be answered by AA reservations personnel in accordance with Section 2.02, and, if desired by AA, a local phone number for the station. (g) Contractor is authorized to, and shall, issue AA boarding passes to those passengers checking in at the Feeder Airports who are ticketed for AA, or an AA Affiliate and American Connection connections at the Hub. AA and its Affiliates, as appropriate will issue boarding passes to those passengers checking in for such Feeder Air Service Flights at all locations where AA or an AA Affiliate provides Passenger Handling Duties. 17 (h) AA shall be responsible for sales programs promoting "American Connection" and the Feeder Air Services including, without limitation, Contractor participation in AA's "AAdvantage" Program. No advertisement, solicitation, document or any other material using any AA Mark will be published or otherwise promulgated without AA's prior inspection and approval. No advertising that relates in any way to AA, American Connection or Contractor's Feeder Air Services will be placed by Contractor with an advertising agency unless AA has given its prior consent regarding copy, layout and the specific media plan. In addition, if AA has agreed to share the costs of any such advertising, Contractor will obtain the prior consent of AA regarding the funds to be expended for such advertising. (i) Contractor shall participate in the AAdvantage Frequent Flyer Program at no charge to Contractor. Feeder Air Service passengers shall be eligible to accrue and redeem mileage on such flights and on AA, and/or AA Affiliate flights consistent with AA's policies for AA. Contractor shall carry all passengers traveling pursuant to award travel from an Accepted Frequent Flyer Program at no charge to AA. 2.07 - BAGGAGE HANDLING AND SETTLEMENT (a) In the performance of its duties hereunder, Contractor will follow the Customer Service Policies and Procedures related to baggage handling, including procedures for delayed, pilfered, lost, and damaged baggage. Baggage Claims shall be settled in accordance with the procedures specified in Exhibit F. (b) The parties agree to report and search for AA (and/or AA Affiliate) and American Connection lost baggage in accordance with AA's procedures using WorldTracer and/or BMAS as appropriate.. ARTICLE 3 - PASSENGER FARES 3.01 - PASSENGER FARES AA has sole responsibility to establish all fares for Contractor's Feeder Air Services under this Agreement. 3.02 - CONTRACTOR COMPENSATION In consideration for the Feeder Air Services provided hereunder, AA shall pay Contractor the amounts set forth in Exhibit E. 3.03 - INVENTORY CONTROL AA shall establish and maintain all inventory and seat allocations on flights operated by Contractor pursuant to this Agreement. AA may at its discretion delegate this responsibility to a third party or to Contractor, subject to Contractor's concurrence to perform such duties for the time period requested by AA. 18 ARTICLE 4 - SMALL PACKAGE, FREIGHT AND MAIL Terms for an American Connection small package, freight and mail service on Feeder Air Service Flights are set forth in Exhibit H. Settlement of all small package and mail transportation transactions shall be in accordance with Exhibit F. ARTICLE 5 - OTHER ACTIVITIES (a) Contractor shall not either directly or indirectly engage (or attempt to engage) on its own behalf in any revenue air transportation (other than pursuant to this Agreement) in any of the routes between the Hub and Feeder Airports. (b) Nothing in this Agreement shall prohibit Contractor or its Affiliates from operating such air services as they may desire, except to the extent such activities directly conflict with the express provisions of this Agreement. In this regard, both parties recognize that this Agreement would be violated if: 1. Contractor, or any Affiliate of Contractor, entered into a cooperative marketing and service arrangement comparable to this Agreement with another air carrier providing feeder air service in connection with hub operations at MEM, BNA, MCI or any location within fifty (50) statute miles of the STL Hub. 2. Contractor or any of its Affiliates operates aircraft with Marks for non-Feeder Air Service (other than for Charter Flights). 3. Contractor, or any Affiliate of Contractor, markets any flight to or from the Hub with any name other than as provided herein, including but not limited to, under Contractor's or such Affiliate's own two letter airline code. (c) Contractor agrees to not engage in any conflicting activity referred to in (b) above unless the AA has given its advance written consent for such activity to be undertaken, except as may otherwise be provided for herein. (d) Nothing in this Agreement shall prohibit any of the AMR Entities from operating such air services as they may desire. Further, nothing in this Agreement shall prohibit AA from engaging in comparable "American Connection" cooperative marketing and services arrangements with other operators of aircraft. (e) Contractor will not use any of the services, facilities or equipment provided by AA to Contractor or its Affiliates under this Agreement for air transportation or related services provided by Contractor outside the scope of this Agreement. Neither Contractor nor any of its Affiliates will be permitted to operate aircraft bearing Marks in city pairs other than those specified by AA without the prior written consent of AA. Contractor will not, without AA's prior written consent, permit any third party, whether under a lease arrangement or otherwise, to operate any aircraft in revenue service bearing Marks. (f) AA reserves the right, at its sole discretion, to finance any option Aircraft and become the Lessor of such aircraft to Contractor under the terms of a Lease. 19 ARTICLE 6 - LIABILITY, INDEMNIFICATION AND INSURANCE 6.01 - INDEPENDENT CONTRACTORS (a) The employees, agents, and independent contractors of Contractor engaged in performing any of the services Contractor is to perform pursuant to this Agreement shall be deemed to be employees, agents or independent contractors of Contractor for all purposes, and under no circumstances shall be deemed to be employees, agents or independent contractors of AA or any of the other AMR Entities. In its performance under this Agreement, Contractor shall act, for all purposes, as an independent contractor and not as an agent of AA or any of the other AMR Entities. Neither AA nor any of the other AMR Entities shall have supervisory power or control over any employees, agents or independent contractors engaged by Contractor in connection with its performance hereunder, and all complaints or requested changes in procedures shall, in all events, be transmitted by AA to a designated officer of Contractor. Nothing contained in this Agreement is intended to limit or condition Contractor's control over its operations or the conduct of its business as an air carrier, and Contractor and its principals assume all risks or financial losses which may result from the operation of the air services to be provided by Contractor hereunder. (b) The employees, agents, and independent contractors of AA engaged in performing any of the services AA is to perform pursuant to this Agreement shall be deemed to be employees, agents, and independent contractors of AA for all purposes, and under no circumstances shall be deemed to be employees, agents or independent contractors of Contractor. In its performance under this Agreement, AA shall act, for all purposes, as an independent contractor and not as an agent of Contractor. Contractor shall have no supervisory power or control over any employees, agents or independent contractors engaged by AA in connection with its performance hereunder, and all complaints or requested changes in procedures shall, in all events, be transmitted by Contractor to a designated officer of AA. Nothing contained in this Agreement is intended to limit or condition AA's control over its operations or the conduct of its business as an air carrier. 6.02 - UNAUTHORIZED OBLIGATIONS (a) Nothing in this Agreement authorizes AA to make any contract, agreement, warranty, or representation on Contractor's behalf, or to incur any debt or obligation in Contractor's name ("CONTRACTOR UNAUTHORIZED OBLIGATION"); and AA hereby agrees to defend, indemnify, save, release, reimburse and hold Contractor, its officers, directors, shareholders, employees and agents harmless from any and all liabilities, claims, judgments and obligations which arise as a result of or in connection with, or by reason of any such Contractor Unauthorized Obligation made by AA, its officers, directors, shareholders, employees, agents or independent contractors in the conduct of AA's operations. (b) Nothing in this Agreement authorizes Contractor to make any contract, agreement, warranty, or representation on AA's behalf or on behalf of any other AMR Entity, or to incur any debt or obligation in AA's name or on behalf of any other AMR Entity ("AA UNAUTHORIZED OBLIGATION"); and Contractor hereby agrees to defend, indemnify, save, release, reimburse and hold AA, the AMR Entities, and their respective officers, directors, shareholders, employees and agents harmless from any and all liabilities, claims, judgments and obligations which arise as a result of or in connection with, or by 20 reason of any such AA Unauthorized Obligation made by Contractor, its officers, directors, shareholders, employees, agents or independent contractors in the conduct of Contractor's operations. (c) The fact that Contractor's operations are conducted under Marks and listed under the TW designator code will not affect their status as flights operated by Contractor for purpose of this Agreement or any other agreement between the parties. Further, both parties acknowledge that the Contractor's Feeder Air Services are flights operated by Contractor and both parties agree to advise passengers and all third parties of Contractor's operation of these flights as required by applicable law, rule, or regulation. 6.03 - INDEMNIFICATION AND INSURANCE (a) Each party, with respect to its own employees, accepts full and exclusive liability for the payment of worker's compensation and/or employer's liability insurance premiums with respect to such employees, and for the payment of all Taxes, contributions or other payments for unemployment compensation or old age benefits, pensions or annuities now or hereafter imposed upon employers by the government of the United States or by any state or local governmental body with respect to such employees measured by the wages, salaries, compensation or other remuneration paid to such employees, or otherwise, and each party further agrees to make such payments and to make and file all reports and returns, and to do everything necessary to comply with the laws imposing such Taxes, contributions or other payments. (b) Contractor shall indemnify, defend, hold harmless and promptly reimburse AA, the AMR Entities and their respective directors, officers, employees and agents from and against any and all claims, suits, penalties, liabilities, judgments, fines, losses and expenses of any nature or kind ("CLAIMS") arising out of, caused by or occurring in connection with (or alleged to arise out of, be caused by or be occurring in connection with): 1. The death of or injury to persons, or delay or loss of or damage to property (including aircraft, baggage or cargo) occurring while such persons or property are under the control or in the custody of, or being transported by Contractor (including, for the avoidance of doubt, claims arising out of death of or injury to Feeder Air Service passengers traveling on AA tickets that implement limits or conditions of liability or jurisdictional rules with respect to passenger claims that differ from those of Contractor), except to the extent caused by the willful misconduct of AA or another AMR Entity; and 2. Negligent acts or omissions of Contractor that are in any way related to services contemplated by this Agreement, except for Claims arising from the death of, or injury to, persons, or delay or loss of or damage to property occurring while such persons or property are in the control or custody of, or being transported by, AA of the type referred to in Section 6.03(c)(1), in which case AA shall indemnify and reimburse Contractor, notwithstanding such negligent (but not willful) acts or omissions of Contractor. (c) AA shall indemnify, defend and hold harmless Contractor and its directors, officers, employees and agents from and against any and all Claims arising out of, caused by or occurring in connection with (or alleged to arise out of, be caused by or occurring in connection with): 21 1. The death of or injury to persons, or delay or loss of or damage to property (including aircraft, baggage or cargo) occurring while such persons or property are under the control or in the custody of, or being transported by, AA, except to the extent caused by the willful misconduct of Contractor. 2. Negligent acts or omissions of AA that are in any way related to services contemplated by this Agreement, except for Claims arising from the death of, or injury to, persons, or delay or loss of or damage to property occurring while such persons or property are in the control or custody of, or are being transported by, Contractor of the type referred to in Section 6.03(b)(1) (in which event Contractor shall indemnify and reimburse AA notwithstanding such negligent (but not willful) acts or omissions of AA); and 3. Passenger claims based on AA's failure to properly issue and complete transportation documentation in accordance with the provisions of the standard Airlines Clearing House or IATA ticketing procedures, including the failure to put a proper notice of the limits of liability on such documentation (it being understood that in ticketing Feeder Air Service passengers, AA is entitled to apply the limits of liability provided for in its own conditions of carriage). (d) During the Term of the Agreement, Contractor agrees to maintain Airline Liability insurance, including comprehensive/commercial general liability, passenger (including passengers on Feeder Air Service flights, and all other revenue and non-revenue passengers), baggage, cargo, mail, and aircraft third party legal liability (all policies shall be extended to include war risks, hijacking, and allied perils), with limits of at least [*] per any one occurrence or such higher limits as Contractor may have in effect during the Term of this Agreement. Such insurance policies shall be with an insurance company or companies of recognized financial responsibility, and satisfactory to AA, and which at a minimum shall: 1. Name AA, the AMR Entities, and their directors, officers, employees, agents and representatives as Additional Insureds, 2. Contain a Breach of Warranty Clause in favor of AA and the other Additional Insureds, insuring AA's and their interests regardless of any breach or violation by Contractor of any warranties, declarations or conditions contained in such policies, 3. Contain a Waiver of Subrogation Clause in favor of AA and the other Additional Insureds, to the extent Contractor has waived its rights against AA under this Agreement, 4. Contain a Cross Liability Clause, providing AA and each of the other Additional Insureds the benefit of all of the provisions of the policy, except the limits of liability, in the same manner as if there were a separate policy covering each insured, 5. Specifically state that the indemnification agreement stated in (b) above is insured as a contractual obligation of Contractor's insurers, 6. Contain a provision requiring Contractor's insurers to provide AA with a written notice of any cancellation or adverse material change in such insurance and 22 - ---------- *Confidential providing that the same shall not be effective as to the benefit and interest of AA or any of the other Additional Insureds for thirty (30) days after written notice of such cancellation or adverse material change is received by Contractor and AA, 7. Contain a provision stating that Contractor's liability policy is primary without a right of contribution from any policy carried by AA or any of the other Additional Insureds. The notice period in respect of war and allied perils coverage shall be seven days or such lesser period as is or may be available in accordance with policy conditions, and 8. Contain a Date Recognition Limited Coverage Write-Back clause or endorsement, in the event Contractor's insurance policy contains a Date Recognition Exclusion clause. (e) Hull All Risk insurance, including war risk, which shall include a waiver of subrogation in favor of the AMR Entities to the extent of the indemnity specified in Section 6.03(b), and (f) Contractor agrees to furnish AA, in a timely manner, and not later than the expiration date of each respective policy, with certificates of insurance evidencing its maintaining and renewal of the insurance required under (d) above. 6.04 - ENVIRONMENTAL With respect to all matters which relate to or may affect the environment, each party agrees to conduct its operations (including its compliance with all federal, state and local laws and regulations relating to pollution or the environment) in a prudent manner consistent with industry policies and practices related to environmental matters, including, without limitation, taking reasonable preventive measures consistent with such policies and practices to avoid liabilities related to environmental matters. ARTICLE 7 - EFFECTIVE DATE, TERMINATION AND CANCELLATION 7.01 - EFFECTIVE DATE AND TERM (a) This Agreement became effective as of the SABRE Cutover Date and will continue in effect through February 1, 2013, unless terminated or canceled at an earlier date pursuant to one or more of the provisions of this Article 7 or Exhibit J(2)(D)(the "TERM"). (b) In the event there is any change in the statutes governing the economic regulation of air carriers, or in the applicable rules, regulations or orders of the DOT or some successor agency or department of the government having jurisdiction over air transportation which change or changes materially affect the rights and/or obligations presently in force with respect to the air transportation services of AA or Contractor, or both, or in the event for reasons wholly beyond the control of the parties, the AA designator code cannot for any reason be used as contemplated under this Agreement, then the parties will consult within thirty (30) days after any of the occurrences described herein, in order to determine what, if any, changes to this Agreement are necessary or appropriate, including but not limited to the early termination and cancellation of this Agreement. If the parties hereto are unable to agree whether any change or changes to this Agreement are necessary or appropriate, or as to the terms of such changes, or whether the Agreement should be 23 cancelled in light of the occurrences described above, then the parties shall submit the matter to a neutral third party mediator who will assist the parties in reaching a mutually agreeable settlement in accordance with the Commercial Mediation Rules of the American Arbitration Association. Each party covenants to cooperate in any such proceeding for up to thirty (30) days. 7.02 - TERMINATION In addition to the foregoing provisions of this Article: (a) If one party (the "DEFAULTING PARTY") becomes insolvent or fails to pay debts as they become due; or if the Defaulting Party takes steps leading to its cessation as a going concern; makes an assignment for the benefit of creditors or a similar disposition of the assets of the business; or if the Defaulting Party either ceases or suspends operations for reasons other than a strike, then the other party (the "INSECURE PARTY") may on five (5) business days prior written notice, terminate this Agreement on notice to the Defaulting Party unless the Defaulting Party, within said five (5) business days, gives adequate assurance of the future performance of this Agreement by establishing an irrevocable letter of credit, issued by a U.S. bank acceptable to the Insecure Party, on terms and conditions acceptable to the Insecure Party, and in an amount sufficient to cover all amounts potentially due from the Defaulting Party under this Agreement. Such letter of credit may be drawn upon by the Insecure Party if the Defaulting Party does not fulfill its obligations under this Agreement in a timely manner. If bankruptcy proceedings are commenced with respect to either party ("BANKRUPT PARTY") and if this Agreement has not otherwise terminated, then the non-bankrupt party may suspend all further performance of this Agreement until the Bankrupt Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Within thirty (30) days of the commencement of such bankruptcy proceeding, the Bankrupt Party agrees to move the Court in which such bankruptcy proceeding is pending to assume or reject this Agreement. Any such suspension of further performance by the non-bankrupt party pending the Bankrupt Party's assumption or rejection will not be a breach of this Agreement and will not affect the non-bankrupt party's right to pursue or enforce any of its rights under this Agreement or otherwise. (b) Unless provided for elsewhere in this Agreement, and except for the failure to make payments of amounts when due, if either party shall fail to perform, keep, and observe any of the material terms, covenants or conditions herein contained on the part of such party to be performed, kept or observed (other than insurance requirements or any other condition or requirement, noncompliance with which is specifically covered under another subsection of this Article 7), the other party may give notice in writing to correct the condition or cure the default and, if the condition or default continues for thirty (30) days after the receipt of notice by the defaulting party and, if within that thirty (30) day period the defaulting party has not prosecuted with due diligence and corrected or commenced efforts to correct the condition or default, the other party may then terminate this Agreement upon an additional thirty (30) days prior written notice, and this Agreement shall thereupon cease and expire at the end of such additional thirty (30) days in the same manner and with the same effect as if it were the expiration of the original term. For purposes of this Article 7.02 (b), Contractor's failure to comply with the Standards of Service as set forth in Exhibit D hereof, shall be deemed a material default. 24 If either party shall fail to make payment of amounts when due under this Agreement after receiving written notice thereof, the non-paying party shall have five (5) business days after the receipt of such written notice to cure such non-payment. If Contractor shall fail to make any "Escrow Payment" as defined in and required under any Escrow Agreement (as defined in any Master Agreement) entered into pursuant to a Master Agreement by and among Contractor, American Eagle and JP Morgan Chase Bank, Contractor shall have five (5) business days after receipt of written notice from AA of such failure to cure such non-payment and in the event Contractor fails to cure such failure within such period, AA may terminate this Agreement on such fifth business day. (c) In the event Contractor fails to meet any of the milestones, as may be provided in a corrective action plan pursuant to Exhibit J(3)(D), AA may terminate this Agreement upon fifteen (15) days written notice to Contractor. (d) If the services of the Airline Clearing House are withdrawn as to either party, or if either party suspends or is required to suspend all system operations for any safety reason, the other party may terminate this Agreement upon five (5) days prior written notice. (e) In the event of a material breach of any representation or warranty of Article 2.04(c), that in AA's reasonable discretion, creates a serious and imminent threat to the safe operation of Contractor's American Connection Services, AA may immediately terminate this Agreement in writing. (f) In the event of any material failure to comply with the insurance provisions of Article 6.03, this Agreement may be immediately terminated by AA. (g) Early termination or cancellation of this Agreement based on one or more of the provisions of this Article 7 shall not be construed so as to relieve any party hereto of any debts or monetary obligations to any other party that shall have accrued hereunder prior to the effective date of such termination or cancellation, or any damages suffered as a result of such termination, if such termination is due to a breach of this Agreement. (h) In the event of the replacement of the President and Chief Executive Officer of Contractor (or any executive performing the duties of a chief executive officer however so titled) (the "CEO"). Contractor shall have the right to designate an interim CEO. At such time as Contractor identifies or selects a proposed permanent replacement CEO (or at Contractor's option, one or more candidates for the position of permanent replacement CEO) (collectively, the "Proposed CEO"), Contractor shall provide written notice to AA identifying such Proposed CEO. AA shall have the right to approve (such approval not to be unreasonably withheld) or disapprove (such disapproval not to be unreasonably provided) such Proposed CEO, and shall provide written notice to Contractor of its approval or disapproval within 10 business days following AA's receipt of notice of the Proposed CEO. In the event AA fails to provide notice of its approval or disapproval within such 10 day period, AA shall be conclusively deemed to have approved the Proposed CEO. In the event Contractor fails to identify a Proposed CEO who is approved by AA as provided herein within 180 days after the replacement of the CEO, AA may terminate this Agreement. 25 (i) In the event of a termination of this Agreement prior to the end of the Term for any reason, AA agrees to reimburse Contractor for any pre-paid aircraft rents under any Lease for all Firm Approved Aircraft upon the date of such termination. (j) Upon termination of this Agreement for any reason, the right to use Marks granted herein will immediately revert back to AA. (k) AA may terminate this Agreement without Cause upon 180 days prior written notice; PROVIDED, that (1) such notice may not be given prior to September 30, 2005, (2) AA shall reimburse Contractor for the unamortized portion of training start up costs (principal only) pursuant to the amortization table attached hereto as Exhibit M corresponding to the month during which the Agreement terminates, (3) the provisions of Section 7.03 herein will apply, (4) such notice may not be given unless AMR shall have executed and delivered to Contractor a Guaranty of the obligations of American Eagle or its successor under each Master Agreement substantially in the form attached thereto; provided, however, that no Guaranty shall be required for any particular Master Agreement if AA shall have assumed American Eagle's obligations under such Master Agreement in accordance with the terms thereof, and (5) a termination without Cause shall be void and of no force and effect and this Agreement shall continue in full force and effect, if so required pursuant to Section 4.4(a) of any Master Agreement, in which case AA shall not be entitled to exercise its option pursuant to this Section 7.02(k) to terminate this Agreement without Cause until such time as the Termination Suspension Reason (as defined in the applicable Master Agreement) would no longer prevent the Leveraged Lease Conversion (as defined in the applicable Master Agreement) from occurring. As a condition to AA's conversion of any option Aircraft to Firm Approved Aircraft, AA and Contractor will negotiate a mutually acceptable extension of the date set forth in clause (1) of this Section 7.02(k) prior to conversion of the option Aircraft. (l) A material failure to represent the AA brand to the same extent as other users of the AA brand, including AE and other American Connection carriers, as reasonably specified by AA in writing and uniformly applied to all users of the AA brand, including AE and other American Connection carriers, will be deemed cause for termination of this Agreement as provided in Section 7.02, provided that such failure is noted in two consecutive audits. (m) The provisions of Sections 6.02, 6.03, 6.04, 7.03, 11.01, 11.02, 11.03, 11.04, 13.02 and Article 8 shall survive the termination of this Agreement. (n) In the event AA or AMR terminates this Agreement prior to April 30, 2008, or Contractor terminates this Agreement prior to April 30, 2008, based upon a breach by AA or AMR, AA shall reimburse Contractor for the unamortized portion of certain concessions granted by Contractor in this Agreement pursuant to the amortization table attached hereto as Exhibit N corresponding to the month during which the Agreement terminates. 26 7.03 - RECIPROCAL OPTION FOR ASSIGNMENT OF LEASES (a) In the event of a termination of this Agreement for Cause by AA, Contractor grants to AA an option to be assigned any or all of the Leases for the Firm Approved Aircraft (the "CALL OPTION"), exercisable at its sole discretion, at the date notice of such termination is delivered to Contractor. AA may exercise this Call Option by written notice delivered to Contractor, within 60 days following delivery of the notice of such termination, designating those Leases to be assigned to AA. Upon delivery of notice of such exercised Call Option, Contractor will be deemed to have assigned all of its rights and duties under the designated Leases to AA. Contractor shall pay within 30 days of invoice for any maintenance conversion expenses required to transfer the Firm Approved Aircraft subject to such Leases from compliance with the Contractor's FAA-approved maintenance program to AA's FAA-approved maintenance program ("CONVERSION EXPENSES"). Further, any parts and components subject to "power-by-the-hour" maintenance arrangements shall be paid in full by Contractor through the date of termination of this Agreement. (b) In the event of termination of this Agreement without Cause by AA: 1. AA grants to Contractor a one-time option to assign to AA any or all of the Leases for the Firm Approved Aircraft (the "ONE-TIME PUT OPTION"), exercisable, at its sole discretion, within 60 days after Contractor's receipt of written notice of termination by AA. Contractor may exercise this One-Time Put Option by written notice delivered to AA within such 60 days exercising the One-Time Put Option and designating those Leases to be put to AA. Upon delivery of notice of such exercise of the One-Time Put Option, AA will be deemed to assume the designated Leases on the schedule set forth in subsection (3) below. 2. Contractor grants to AA a one-time Call Option (the "ONE-TIME CALL OPTION") to be assigned any or all of the Leases for the Firm Approved Aircraft, exercisable, at its sole discretion, at the date notice of such termination is delivered to Contractor. AA may exercise this One-Time Call Option by written notice delivered to Contractor contemporaneously with the notice of such termination. Upon delivery of notice of such exercised One-Time Call Option, Contractor will be deemed to have assigned all of its rights and duties under the designated Leases to AA on the schedule set forth in subsection (3) below. 3. Following notice of the One-Time Put Option or One-Time Call Option under this subsection (b), the parties shall meet not later than 90 days following such notice, to effect a plan of orderly transition and wind down of the Agreement. Such transition plan shall include, but not be limited to a transition phasing of the designated aircraft from Contractor to AA (beginning not later than the 181st day following such notice), at a rate of two aircraft per month, on the last day of each month, for five months, based on a schedule to be determined by AA, followed by the remaining five aircraft on the last day of the sixth month. In such event, the Term of the Agreement will be deemed to continue until the last designated aircraft is phased from Contractor to AA, provided however that performance measurement pursuant to Exhibit J shall not be applicable during such a transition. Contractor will not be liable for Conversion Expenses under this Section 7.03(b), provided that Contractor continues to operate each Firm Approved Aircraft in strict 27 accordance with its approved maintenance program following notice of termination, up to and including the date of termination of this Agreement. Further, any parts and components subject to "power-by-the-hour" arrangements must be paid in full by Contractor through the date of termination of this Agreement in the event of the exercise of either a Put Option or Call Option pursuant to this Section 7.03(b). AA agrees to indemnify and hold harmless Contractor from and against any Claim arising from events or circumstances occurring after the date of assignment out of any Lease that AA is deemed to assume hereunder. Contractor agrees to indemnify and hold harmless AA from and against any Claim arising from events or circumstances occurring on or before the date of assignment out of any Lease that AA is deemed to assume hereunder. (c) Contractor agrees not to enter into any lease or similar arrangement (however so titled) for Firm Approved Aircraft other than pursuant to a Lease. Contractor will not amend any Leases, or waive any material rights thereunder, without the prior written consent of AA, such consent not to be unreasonably withheld. 1. Each Lease entered into by Contractor must, at a minimum, contain terms providing for the following: (1) the Lease must be not less than 13 years in duration; (2) the Lease must be assignable to AA without the consent of the Lessor and may not contain any provisions that, upon assignment of such Lease to AA, impose a penalty or any other adverse action on AA as a result of such assignment; (3) the Lease must be assignable to AA under the exact same terms and provisions as existed in the Lease immediately prior to such assignment and such terms may not become more onerous to the Lessee over the Term of the Lease; (4) shall contain a "half-life" return condition provision; and (5) AA must have the ability to purchase the leased aircraft on commercially reasonable terms reasonably acceptable to AA. 2. AA will make its representative reasonably available for consultation and assistance in negotiating a Lease. Once terms and provisions of a Lease have been agreed upon by Contractor and the lessor, Contractor shall provide a copy of such Lease to AA. AA will then have ten (10) business days to approve the Lease (such approval not to be unreasonably withheld) or to disapprove the Lease (such disapproval not to be unreasonably provided), and to provide written notice to Contractor of such approval or disapproval. If AA disapproves a Lease, it shall include in its notice of disapproval a detailed statement of the reasons for its disapproval and a detailed statement of any suggested non-economic changes, which if obtained by Contractor, would require AA to approve the Lease, as modified. In the event AA fails to provide notice of its approval or disapproval within such 10 business day period, AA shall be conclusively deemed to have accepted the Lease. Approval or disapproval of a Lease by AA shall not be considered a waiver of its rights hereunder with respect to future Leases. In the event that AA desires to change any non-economic term or provision of the Lease or add a new term or provision and such changes are reasonable taking into account the aircraft type subject to the proposed Lease and the relative bargaining power of Contractor, Contractor shall have 15 business days to seek to effect such changes. Further, during both the period in which AA reviews and comments on the Lease term (up to 10 business days) and the period in which Contractor seeks to effect such changes (up to 15 business days), Contractor shall be exempt from the [*] of delay liquidated damages provided for in 28 - ---------- *Confidential Section 1.02(a). If such changes cannot be agreed upon between Contractor and the lessor, then Contractor may not enter into the Lease. 3. To the extent that AA requires changes to a Lease that cause a delay in placing a Firm Approved Aircraft into service, AA will not be entitled to, and Contractor will not be liable for, the penalty of [*] of delay per regional jet, as liquidated damages, provided for pursuant to Section 1.02(a). 4. AA agrees that a Lease may be between (A) Solitair Corp., an affiliate of Contractor, as lessor and Contractor as lessee, (B) between Contractor as lessor and Contractor as lessee, or (C) between a subsidiary of Contractor as lessor and Contractor as lessee. The rent, residual and early buyout price and termination value schedule shall be determined on the commencement date of the Lease using the Warren & Selbert ABC Program using the inputs set forth and marked with an asterisk on Exhibit P attached hereto with such input items to be adjusted from time to time as provided therein. (d) Notwithstanding the foregoing, Contractor shall be entitled to finance its acquisition of Firm Approved Aircraft pursuant to a secured loan provided by FINAME, which secured loan shall be deemed to be a Lease, so long as in connection with such secured loan Contractor and FINAME enter into a Master Agreement with respect to such Firm Approved Aircraft (in which case AA or its assignee shall enter into such Master Agreement). For any Firm Approved Aircraft that is financed in such manner, the rent, residual and early buyout price and termination value schedule shall be determined on the commencement date of the applicable Master Agreement using the Warren & Selbert ABC Program using the inputs set forth and marked with an asterisk on Exhibit P attached hereto with such input items to be adjusted from time to time as provided therein. (e) AA hereby assigns to American Eagle its rights and obligations upon the exercise by either Contractor or AA, as applicable, of the One-Time Put Option, the One-Time Call Option or the Call Option for Approved Aircraft financed by FINAME and for which American Eagle, Contractor and FINAME have entered into, or shall enter into, a Master Agreement. For such Approved Aircraft, the exercise of the Call Option, One-Time Call Option or One-Time Put Option shall be deemed to be an exercise of an option to require a "Leveraged Lease Conversion" (as defined in the applicable Master Agreement) in respect of such Approved Aircraft rather than an assignment of a Lease, and the provisions of this Section 7.03 shall be superseded with respect to such Approved Aircraft by the provisions of the applicable Master Agreement upon the exercise of any such option. (i) If, in connection with an exercise by Contractor of its One-Time Put Option, Eagle has given Contractor a Deficiency Notice (as defined in the applicable Master Agreement) with respect to an Approved Aircraft and the Deferred Leveraged Lease Conversion Date (as defined in the applicable Master Agreement) applicable to such Approved Aircraft is greater than thirty (30) days after receipt of such Deficiency Notice by Contractor, each day after such thirtieth (30th) day that the applicable Approved Aircraft is not available for revenue service hereunder shall be excluded in determining the required minimum payment on the basis of seven Block Hours per day under Section 1.A. of Exhibit E hereto and 29 - ---------- *Confidential Contractor shall not otherwise be entitled to compensation in respect of such Approved Aircraft hereunder in respect of such days. (ii) If, after the exercise by AA of either the Call Option or the One-Time Call Option, Eagle cancels the Leveraged Lease Conversion (as defined in the applicable Master Agreement) with respect to any Approved Aircraft, pursuant to Section 2.3(a)(ii) of the applicable Master Agreement, AA agrees that its rights under the Call Option or the One-Time Call Option in respect of the applicable Approved Aircraft shall be of no further force and effect. 7.04 - FORCE MAJEURE Except for any payments due hereunder, neither party shall be liable for delays or failure in performance hereunder caused by acts of God, acts of terrorism or hostilities, war, strike, labor disputes, work stoppage, fire, act of government, court order, or any other cause, whether similar or dissimilar, beyond the control of that party including but not limited to non-delivery or delay in delivery of aircraft to Contractor or delay in completion of required training of Contractor's employees by the aircraft manufacturer or delay in receipt of any necessary government approvals ("FORCE MAJEURE"). If any such event of Force Majeure substantially prevents one party's performance of the Agreement for a period of [*] or more, the other party may terminate this Agreement on [*] prior written notice. ARTICLE 8 - TAXES (a) The parties, respectively, shall be responsible for their own Excluded Taxes attributable to the transactions contemplated by this Agreement. (b) Except as otherwise provided herein, AA shall collect from customers at the time of sale, and timely report and remit to the relevant competent authorities, applicable Ticket Taxes unless prohibited by applicable law or contrary to industry standards. Contractor, however, shall timely remit and report to the relevant competent authorities applicable Ticket Taxes required to be remitted by the operating carrier at the time of enplanement under applicable law or industry standard ("ENPLANEMENT TICKET TAXES") (E.G., Canadian AIF remittance and reporting, including annual certification). On receipt of written or electronic notice, supported by relevant flight manifest information, AA shall directly reimburse or otherwise account through the general billing arrangement between AA and Contractor for any such Enplanement Ticket Taxes remitted and reported by Contractor. (c) Each party shall be responsible for the payment of any Taxes it owes on the purchase by such party of goods or services from the other party. If invoiced, such Taxes shall be separately stated. (d) A party shall indemnify, reimburse or advance (on request), and hold the other party harmless from, an assessment of Taxes or Ticket Taxes by a competent authority, plus reasonable attorneys' fees and reasonable and severable costs incurred in defense thereof, for which the indemnifying party is ultimately responsible for the payment thereof under this Agreement. However, in the case of Enplanement Ticket Taxes, the scope of such indemnity shall exclude the assessment of interest and penalties if attributable to Contractor negligence. 30 - ---------- *Confidential (e) Each party shall promptly advise the other as it may become aware of changes to the rate or applicability of any Taxes or Ticket Taxes. Each party shall maintain and make available on a timely basis records to administer an audit and defend an assessment or otherwise substantiate a refund or credit concerning any Taxes or Ticket Taxes for which such party is responsible for remitting and reporting to a competent authority hereunder and shall implement procedures and controls to ensure timely and accurate reporting and remittance thereof. (f) Notwithstanding Section 6.03 of this Agreement, within 10 business days of receipt of notice of audit from a competent authority (or sooner if delay would be reasonably prejudicial) concerning any Taxes or Ticket Taxes an assessment for which the other party (the "PAYOR") would be ultimately responsible for payment under this Agreement, such notified party shall advise the Payor in writing about such audit and shall include a copy of the notice of audit. (g) The parties shall each bear their own costs in the administration of an audit and shall reasonably cooperate with the other party and take such action as may be requested from time to time, each at its own reasonable expense, to minimize any assessment or potential assessment of Taxes or Ticket Taxes by a competent authority in connection with this Agreement. The parties shall periodically apprise and consult with each other concerning the progress of the audit and subsequent action to be taken. AA, however, shall control strategic decisions concerning the administration of the audit and action to be taken in connection with an assessment of Taxes or Ticket Taxes arising therefrom, including selection of counsel and the defense, assertion and settlement of any tax controversy. The reasonable and severable costs of such counsel shall be borne by the party ultimately liable for payment of such Taxes or Ticket Taxes. ARTICLE 9 - ASSIGNMENT, MERGER AND EXTRAORDINARY TRANSACTION 9.01 - ASSIGNMENT This Agreement may be cancelled or terminated by either AA or Contractor if there is, by operation of law or otherwise, an assignment of this Agreement, or of any of the rights, duties or obligations created hereunder with respect to any party to this Agreement, without the written consent of the other party. In the event that this Agreement is assigned, whether by operation of law or otherwise, without such consent having been given in writing, the party not making the assignment shall have the right to terminate the Agreement following five (5) business days written notice to the other party and an opportunity to cure within such five (5) business days period. Notwithstanding the foregoing, (i) AA may, without consent of Contractor, assign and/or delegate any or all of its rights or obligations under this Agreement to any Affiliate (provided that with respect to the assignment of a Lease, AMR guarantees the performance of such Affiliate under such Lease) or any company into which or with which AA or its successor may be merged, combined or consolidated, or which may otherwise succeed to all or any substantial portion of AA's assets; (ii) Contractor may, without consent of AA, assign or transfer this Agreement pursuant to a transaction permitted under Section 9.02(a) hereof; and (iii) either party shall have the right to assign as security all of its rights to money to be received so long as all offsets in favor of, and amounts due to, the party not assigning such rights, have been or shall be taken into account. 31 9.02 - MERGER In the event Contractor merges with or is controlled or acquired by another air carrier, or a corporation Affiliated with such an air carrier ("HOLDING COMPANY"), or a corporation owned, controlled or Affiliated with any such Holding Company and except for any such merger with or acquisition by an entity that is under common control, directly or indirectly, with Contractor, AA will have the option to terminate this Agreement without liability to Contractor except as otherwise provided in Section 9.03 (b) below. 9.03 - EXTRAORDINARY TRANSACTION (a) For purposes of this Section, "EXTRAORDINARY TRANSACTION" means any (1) merger of Contractor with another company not under common control, directly or indirectly with Contractor, (2) sale, transfer or lease by Contractor of all or substantially all of its assets, rights or powers to an entity not under common control, directly or indirectly, with Contractor, or (3) the acquisition by another corporation or entity not under common control, directly or indirectly, with Contractor of all or a majority (at least 51%) of the outstanding voting power of Contractor. (b) Contractor may enter into an Extraordinary Transaction, provided that AA's consent to assignment of this Agreement is not otherwise required pursuant to Article 9.01 herein and Contractor obtains for AA an affirmation from any such third party, who succeeds to Contractor's interest in this Agreement, that guarantees the full and faithful performance of Contractor's Feeder Air Services under this Agreement. In the event Contractor is unable to obtain such affirmation, AA may, at its option, terminate this Agreement upon consummation of the Extraordinary Transaction. (c) Contractor agrees that (1) within thirty (30) days prior to the closing of any Extraordinary Transaction with a third party, or any initial or subsequent public offering of common stock of Contractor, or (2) within seven (7) days prior to the closing of any merger, sale, lease, or transfer of all or substantially all of its assets, or acquisition by another entity which is not an Extraordinary Transaction, Contractor will notify AA of such event. (d) Contractor grants to AA a right to purchase up to five percent (5%) of the common Stock of Contractor (the "COMMON STOCK") offered for sale in connection with any initial public offering of Common Stock ("IPO SHARES") by Contractor pursuant to an effective registration statement under the Act or comparable statement under any similar federal or other statute then in force that will result in the IPO Shares being listed or admitted to trading on a national securities exchange or nationally recognized automated interdealer quotation system ("IPO"). This right to purchase Common Stock of Contractor granted to AA ("IPO PARTICIPATION RIGHT") shall be subject to the following terms and conditions: 1. In the event that the effective date of the registration statement covering the IPO Shares under the Act occurs after February 15, 2002 (the one year anniversary of the granting of the IPO Participation Right), AA may purchase up to five percent (5%) of the IPO Shares in the IPO. The purchase price of the IPO Shares subject to the IPO Participation Agreement shall equal the per share price at which the IPO Shares are offered to the public pursuant to the IPO ("IPO SHARE PRICE"). AA may purchase less than all of the IPO Shares available under the IPO Participation Right. 32 2. [Intentionally Omitted] 3. Contractor shall give AA prompt notice of its determination to conduct an IPO, but in no event later than the date of the filing of the IPO Shares registration statement under the Act. Contractor shall provide to AA a copy of the preliminary prospectus concurrent with its distribution to the public. Contractor shall provide AA no less than 72 hours notice of the commencement of public trading of the IPO. AA shall inform Contractor of the number of IPO Shares or Private Placement Shares that AA will purchase pursuant to the IPO Participation Right no later than 48 hours prior to the commencement of public trading of the IPO. Further, in the event Contractor enters into an agreement with another air carrier to provide regional air service under a code share agreement and provides such other air carrier with the right to participate in an IPO on terms more favorable to such air carrier than the foregoing with respect to the type, amount or pricing of participation, Contractor agrees, subject to the provisions of this Section, to amend the type, amount and/or pricing of rights granted to AA to participate in an IPO so that they are not less favorable than the type, amount and pricing or rights granted to such other air carrier. Notwithstanding the foregoing, Contractor may provide another air carrier with the right to participate in an IPO with a type, amount or pricing of participation more favorable than that available to AA, provided that such more favorable treatment is proportionate to an increase in the number of regional jets subject to such third party code share agreement as compared to the Firm Approved Aircraft committed by AA to be placed in service under the terms of this Agreement (initially fifteen). (e) Sections 9.03 (b) and (c) herein above will not apply to any proposed sale or disposition by Contractor of its aircraft or assets that: (a) have become worn out or obsolete or are no longer used and useful in Contractor's day to day business; PROVIDED, however, that such sale or disposition does not impair or negatively affect Contractor's ability to complete scheduled service on a day to day basis under this Agreement; or (b) are being replaced with other assets of a similar type which are at least of equal quality and utility to Contractor in carrying on its day to day business and meeting its obligation under this Agreement. ARTICLE 10 - COMMUNICATIONS, TRAINING AND BENEFITS 10.01 - MEDIA COMMUNICATIONS The corporate communications functions and personnel of Contractor and AA will operate independently but in coordination with respect to "American Connection" joint marketing objectives. In the event of any Feeder Air Service accident or flight or ground incident involving the death of any person(s) or threat or injury or potential injury to persons or property, it is agreed that the provisions concerning emergency response procedures as set forth in Exhibit I shall apply and that the sole official spokespersons and liaison personnel with the media shall be those individuals designated in AA's Emergency Response Procedures Plan. 33 10.02 - TRAINING AND TRAINING MATERIALS Subject to the terms or specific training programs set forth in Exhibits D and H: (a) For existing programs, AA will provide to Contractor at AA's incremental cost, recurrent training and training materials pertaining to any specialized programs Contractor will be utilizing under this Agreement, such as WorldTracer and BMAS. (b) For new programs, AA will provide initial training and training materials to Contractor employees at AA's expense. Contractor shall be responsible for all Contractor employee expenses while attending such training. (c) Should Contractor request AA instructors for the purpose of exclusive training for Contractor employees either for existing or new programs, and if such training is permitted by AA, Contractor will pay AA the actual salary related costs, including fringe benefits, plus any reasonable and customary expenses incurred by the AA instructor(s). 10.03 - CONTRACTOR REPORTS (a) Upon departure of each Contractor Feeder Air Service flight from Feeder Air Service cities, flight close-out entries shall be made by Contractor in SABRE as required by AA. If Contractor becomes aware of any station(s) which have any deficiencies in making "close-out "entries as required by this Section, Contractor will promptly take corrective action to remedy such problem including the submission to AA of a corrective action plan. (b) Contractor will furnish to AA operating performance reports in accordance with Exhibit K. (c) Contractor will furnish to AA (1) within 45 days after the end of each of the three interim calendar quarters, unaudited financial statements including Contractor's then current corporate balance sheet and profit and loss statement, and (2) within 91 days after the end of Contractor's fiscal year, Contractor's then current, audited financial statements including, either separately or on a consolidated basis, the balance sheet and the profit and loss statement, together with associated footnotes, and a copy of the independent auditor's report. (d) AA may inspect Contractor's corporate records and accounts related to Contractor's Feeder Air Services, from time to time, upon reasonable notice during the life of this Agreement. (e) Each business day Contractor will furnish to AA (Attention: - Director - Planning) daily operating reports for each day of the week in a format specified by AA for the preceding day(s) as per Exhibit K. (f) Contractor will be responsible for filing all reports and plans relating to its operations with the DOD, DOT, FAA, NTSB or any state or airport authority, and Contractor will promptly furnish AA with copies of all such reports and such other available traffic and operating reports as AA may request from time to time during the life of this Agreement as per Exhibit K. 34 (g) Contractor will promptly furnish AA with a copy of every report and plan that Contractor prepares, whether or not such report is filed with the FAA, NTSB or any other governmental agency, relating to any accident or incident involving an aircraft used by Contractor in performing services under this Agreement, whether or not such aircraft bears any Marks, when such accident or incident is claimed to have resulted in the death or injury to any person or the loss of, damage to or destruction of any property. (h) Contractor shall advise AA's legislative affairs department (with a copy to AA Director - Planning) of all planned communications, whether written or oral, with government or civic officials in connection with Contractor's Feeder Air Services. If requested by AA, Contractor shall provide copies of any written communications. Further, each party will endeavor to report to the other party any unplanned meetings (where it is anticipated that negative media coverage could result) that occur between either party and any local, state, or federal governmental officials regarding Contractor's performance as an American Connection carrier. 10.04 - AGREEMENTS WITH OTHER CARRIERS (a) [*] (b) Subject to Article 5 herein, in the event Contractor enters into an agreement with a third party governing pursuant to which Contractor will provide services substantially similar to those provided to AA under this Agreement employing ERJ-140 aircraft, Contractor shall: (i) provide promptly to AA a copy of all documentation of same, and (ii) offer, on an all-or-nothing basis, to AA, the opportunity to amend this Agreement to incorporate prospectively from the date of AA's election all of the terms and conditions of such agreement to govern all Approved Aircraft, including any option Aircraft. AA, in its sole discretion, may elect, within 10 business days after receiving such notice from Contractor, to amend this Agreement to reflect such terms and conditions, and Contractor agrees to promptly approve such amendment in writing in accordance with Section 13.01 herein. The rights granted to AA pursuant to this Section 10.04(a) may be exercised an unlimited number of times throughout the Term of this Agreement. (c) Subject to Article 5 herein, in the event Contractor reaches agreement in principle on all of the material terms of a contemplated agreement with a third party pursuant to which Contractor proposes to provide services substantially similar to those provided under the terms of this Agreement employing aircraft other than ERJ-140 aircraft (a "PROPOSED AGREEMENT"), Contractor shall (i) provide promptly to AA written notice of such Proposed Agreement, including a detailed description of all of the material terms and conditions thereof, and (ii) offer, on an all-or-nothing basis, AA the opportunity to enter into an agreement on the same terms and conditions as such Proposed Agreement for the provision of the same type of services by Contractor employing the same aircraft that would be employed under such Proposed Agreement. AA shall have the right, on only one occasion, within 10 business days after receiving such notice from Contractor to elect to enter into an agreement with Contractor on the same terms and conditions as a Proposed Agreement, involving the provision of the same type of services by Contractor with the same aircraft as the Proposed Agreement; PROVIDED that either (i) AA elects concurrently to exercise its option on any option Aircraft for which the time to exercise such option has not already expired or (ii) AA has exercised all such options. If AA fails to accept such offer in writing, Contractor will be permitted to consummate the Proposed Agreement (on terms materially no more favorable to the third party than were offered to 35 - ---------- *Confidential AA) with a third party within 120 days of such failure to accept; PROVIDED, that if no transaction is consummated with a third party on such terms and conditions within such 120-day period, the provisions of this Section 10.04(b) shall again apply. (d) The provisions of Section 10.04(b) and 10.04(c) shall not apply to the provision by Contractor of additional aircraft pursuant to agreements between Contractor, on the one hand, and either America West or U.S. Airways (or any successor to such entities), on the other hand, existing as of the effective date of this Agreement. 10.05 - WAIVERS No failure by either party to exercise, or delay in exercising, any right, power or remedy, and no course of dealings between the parties shall constitute a waiver of such right, power or remedy. No waiver by either party or any default, misrepresentation or breach of warranty, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach. No waiver shall be valid unless in writing. Notwithstanding the foregoing, neither party shall recover costs (with the exception of interline settlements made in accordance with Exhibit F) or enforce monetary penalties or incentive payments to which it is entitled by the terms of this Agreement if the party seeking such recovery or enforcement either knew or, with reasonable due diligence, should have known of the facts or conditions giving rise to its claim and failed to notify the other party in writing within twelve (12) months thereafter. ARTICLE 11 - CONFIDENTIALITY 11.01 - NONDISCLOSURE OF AGREEMENT Except as required by law or in any proceeding to enforce the provisions of this Agreement, AA and Contractor hereby agree not to disclose or publicize to any third party the terms or conditions of the Agreement or any related Agreement except in the sole discretion and with the prior written consent of AA. Notwithstanding the foregoing, either party may disclose the terms of this Agreement on a need-to-know basis to its Affiliates, financial advisors, outside law and accounting firms, bank lenders, or to other financial entities or underwriters, provided such entities acknowledge the confidential nature of such information and agree to be bound by the non-disclosure requirements of this Article 11. 36 11.02 - NONDISCLOSURE OF INFORMATION For purposes of this Agreement, confidential information, whether oral, written or in any other form is that information which pertains to the business, marketing, or operational plans or procedures of the disclosing party and which should reasonably be understood by the receiving party by the circumstances of disclosure or by the nature of the information itself, to be proprietary and confidential to the disclosing party. Except as required by law or in any proceeding to enforce the provision of this Agreement, AA and Contractor hereby agree to use confidential information solely for purposes related to the performance of services under this Agreement and further agree not to disclose to any third party any confidential information received from the other party without the prior written consent of the party providing such confidential information or data. The foregoing restrictions for the use and/or disclosure of confidential information shall not apply to information that: (a) was publicly known at the time such information was communicated by the disclosing party to the receiving party; or (b) becomes publicly known through no fault of the receiving party subsequent to the disclosure of such information; or (c) was in the receiving party's possession, free of any obligation of confidence at the time of the disclosing party's communication to the receiving party; or (d) is developed by the receiving party independently of and without reference to the disclosing party's confidential information or other information that the disclosing party communicated in confidence to any third party; or (e) is rightfully obtained by the receiving party from third parties authorized to make such disclosure without restriction; or (f) is identified by the disclosing party as no longer proprietary or confidential. (g) is disclosed to an Affiliate on a need-to-know basis and that Affiliate agrees to abide by the provisions of this Section 11.02. 11.03 - NOTIFICATION If either party is served with a subpoena or other process requiring the production or disclosure of any of the Agreement or confidential information referenced in Article 11.02, then the party receiving such subpoena or other process, before complying with such subpoena or other process, shall immediately notify the other party of same and permit the other party a reasonable period of time to intervene and contest disclosure or production. 11.04 - RETURN OF INFORMATION Upon termination of this Agreement, each party must return to the other any confidential information or data received from the other and designated as such by the party providing such confidential information which is still in the recipient's possession or control. ARTICLE 12 - RELATED AGREEMENTS (a) Contemporaneously with the execution of this Agreement, AA and Contractor acknowledge that the parties have or will enter into the following additional agreements: Reduced Rate Agreement for Employee Travel Hub Real Estate Subleases 37 System Ground Handling Agreement Warrant Agreement of even date herewith Amendment No. 3 to the Amended and Restated Trans World Express Air Services Agreement, dated February 15, 2001 (b) Upon execution of this Agreement, the parties shall promptly meet and proceed to work together in good faith to negotiate and conclude the terms and conditions of each of the Related Agreements not executed simultaneously with this Agreement. (c) The agreements enumerated in this Article 12 are herein referred to as the "Related Agreements." Notwithstanding anything to the contrary contained in the Related Agreements, the term of each of the Related Agreements shall be coterminous with the Term of this Agreement. ARTICLE 13 - MISCELLANEOUS 13.01 - ENTIRE AGREEMENT AND AMENDMENTS This Agreement, including any Appendices, Attachments and Exhibits attached hereto or thereto, contains the complete, final and exclusive agreement between the parties hereto with respect to the subject matter hereof, and supersedes all previous agreements and understandings, oral and written, with respect to such specific matter. This Agreement will not be modified, amended or terminated by mutual agreement or in any manner except by an instrument in writing, executed by the parties hereto. 13.02 - GENERAL (a) Any and all notices, approvals or demands required or permitted to be given under this Agreement shall be sufficient if sent by certified or registered mail, postage prepaid, or if sent by courier or overnight delivery service, or via facsimile provided a confirming copy of such notice is sent via one of the foregoing methods, if addressed to AA: with a copy to: Director - Planning Corporate Secretary American Airlines, Inc. American Airlines, Inc. 4333 Amon Carter Blvd. 4333 Amon Carter Blvd., MD 5675 MD 5494 Ft. Worth, TX 76155 Ft. Worth, TX 76155 Fax: (817) 931-9325 Fax: (817) 967-4313 38 and if to Contractor, addressed to: with a copy to: President and CEO Wexford Capital, LLC Chautauqua Airlines, Inc. 411 West Putnam Avenue Indianapolis Int'l Airport Greenwich, CT 06830 Suite #160 Attention: President 2500 South High School Road Attention: General Counsel Indianapolis, IN 46241 Fax # 317-484-4547 Fax # 203-862-7312 or to such other addresses as either party may hereafter specify by notice as provided herein. (b) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas. (c) This Agreement may be executed in two or more counterparts, each of which will be deemed an original and all of which together will constitute one instrument. (d) If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the Term, the legality, validity, and enforceability of the remaining provisions of this Agreement shall not be affected thereby, and in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be legal, valid, and enforceable. (e) The prevailing party in any legal proceeding based upon this Agreement shall be entitled to reasonable attorney's fees and court costs, in addition to any other recoveries allowed by law. 39 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be entered into and signed by their proper officers thereunto duly authorized as of the day and year first above written. CHAUTAUQUA AIRLINES, INC. AMR CORPORATION By: /s/ Robert H. Cooper By: /s/ Charles D. MarLett ------------------------------- ------------------------------- Name: Robert H. Cooper Name: Charles D. MarLett Title: EVP and CFO Title: Corporate Secretary ---------------------------- ---------------------------- 40 EXHIBIT A - FEEDER AIRPORTS 1. ST. LOUIS FEEDER AIRPORTS AND SCHEDULING STANDARDS A. Subject to conditions specified elsewhere in the Agreement, Contractor will provide Feeder Air Service between AA designated Feeder Airports on the one hand, and the STL Hub on the other hand during and upon completion of the Fleet Plan phase-in. B. In scheduling Contractor operated aircraft, AA will not unduly require the use of more than one flight crew (pilots and flight attendants) per overnight ("RON"). In the event the marketing schedule does not provide the crew with "legal rest," Contractor shall either "stage" a replacement crew at the affected location or schedule the crew on a CDO. If a CDO or staged RON is required, AA shall reimburse Contractor its direct cost for such CDO or staged RON. C. AA shall designate which Approved Aircraft type will be operated to and from Feeder Airports and the STL Hub. D. AA shall schedule the Approved Aircraft to maintain average daily scheduled utilization within the minimum and maximum parameters noted on Schedules E-1a and E-1b. E. AA shall schedule the Approved Aircraft in an efficient manner at the Hub and Feeder Airports. F. AA shall have the discretion to change the frequency and deployment of Feeder Air Service Flights between the Hub and Feeder Airports provided reasonable notice, as defined in Section 2 below, is given to Contractor. 2. ROUTE CHANGES A. AA shall have the discretion to redeploy Approved Aircraft from time to time given reasonable prior written notice is provided to the Contractor. For the purposes of this Section, reasonable notice shall mean: (1) Thirty (30) days to add or delete service to Feeder Airports that are Covered Locations or locations served by a third party American Connection provider. (2) Sixty (60) days to add Feeder Airports that are new Contractor Locations. (3) Sixty (60) days to delete Feeder Airports that are Contractor Locations. In the event AA requests Contractor to operate routes other than to or from the STL Hub, Contractor and AA shall meet to determine what, if any, changes are required to the STL cost model for the operation of such non-STL Hub Feeder Air Service Flights. B. Beginning on the Effective Date and continuing through December 31, 2001, AA shall have the discretion to redeploy Approved Aircraft from time to time without regard to the notice provisions noted above; PROVIDED, that during such period, AA shall give commercially reasonable notice to Contractor of such redeployment. * * * 41 EXHIBIT B-1 -AMERICAN CONNECTION MARKS 1. THE AMERICAN CONNECTION MARKS ARE: A. "American Connection," "American Connection," and AA's aircraft interior and exterior decor, colors, and logos. Such American Connection Marks may be retrieved by Contractor when granted access to AADAMS pursuant to Section 1.01(a) on or after the execution date of this Agreement. The American Connection Marks may be revised by AA from time to time. B. "AA" and "AA*", as appropriate as code to designate Feeder Air Service Flights in the OAG, airline and third party reservations systems, airport flight information displays, passenger tickets, and similar media. C. The "AAdvantage" frequent traveler program for promotion and benefits. D. Any other American Connection Mark which AA from time to time may designate. * * * 42 EXHIBIT B-2 - TWA MARKS 1. THE TWA MARKS ARE: A. "Trans World Express," "TWE," "TWExpress," and TWA's aircraft interior and exterior decor, colors, and logos. Such TWA Marks are depicted in the logo sheet previously furnished by TWA to Contractor, and attached hereto, which may be revised by AA from time to time. B. "TW" and "TW*", as appropriate as code to designate Feeder Air Service Flights in the OAG, airline and third party reservations systems, airport flight information displays, passenger tickets, and similar media. C. The "Aviators" frequent traveler program for promotion and benefits. D. Any other TWA Mark which AA from time to time may designate. * * * 43 EXHIBIT C - FLEET PLAN AND OTHER CONDITIONS 1. FEEDER AIR SERVICE APPROVED AIRCRAFT A. REGIONAL JET AIR TRANSPORTATION SERVICE (1) As directed by AA and subject to certain Labor Contract Restrictions, Contractor will utilize Embraer regional jet aircraft, types 145 and 140 (ERJ), configured in American Eagle specifications (including but not limited to airframe, powerplant, cabin interior, exterior trade dress, avionics, and the like). Each aircraft shall be equipped with cold galley, lavatory, and 3 crew personnel. Contractor may operate up to eight 145 LR version ERJs, subject to certain Labor Contract Restrictions, but all remaining aircraft shall be the 140 LR version. Both parties agree that the use of ERJ type 145 will require a separate schedule of Block Hour and passenger stipend charges. (2) Other regional jet and turbo-prop aircraft types may be used subject to AA's prior approval and corresponding amendment to this Agreement as appropriate. (3) In the event Contractor's operational performance for any month falls below target range as detailed in Exhibit J, upon commercially reasonable notice, AA may assign one or more Standard Marked Approved Aircraft as a spare aircraft to protect operations pursuant to this Agreement. However, the ratio of spare aircraft to scheduled aircraft shall never be less than 1:20 unless the parties otherwise agree. Approved Aircraft assigned as spares shall not be counted in utilization calculations used for Block Hour charge or Passenger Stipend determination. AA will compensate Contractor for spare Approved Aircraft in accordance with Exhibit E. B. RIGHT OF FIRST REFUSAL (1) Should Contractor have aircraft in excess of its operational needs, Contractor will grant AA a right of first refusal to place such aircraft in service for AA. All terms and conditions contained in this Agreement shall apply to any service operated by Contractor on behalf of AA with such additional aircraft; PROVIDED that AA must exercise such right within 30 days of notification by Contractor. (2) Should AA require additional regional jets beyond the first 25 jets to fly under the American Connection Marks in revenue service at STL, AA will grant Contractor a right of first refusal to supply up to five ERJ type 140 aircraft, such aircraft to be operated under the applicable terms and conditions of this Agreement; PROVIDED that Contractor must exercise such right within 30 days of notification by AA. 2. IN-SERVICE DATES / PHASE OUT DATES In-service and phase out dates shall be as indicated on Schedule C-1. 44 3. AIRCRAFT INTERIOR AND EXTERIOR SPECIFICATIONS AA shall direct Contractor regarding the exterior trade dress and interior fabric and color selection process of all aircraft Contractor operates under this Agreement to ensure consistency with AA's or AE's product appearance. 4. MAINTENANCE A. Contractor agrees to maintain the Firm Approved Aircraft fleet to the highest service non-mandatory bulletin/modification ("SB") status maintained on the other aircraft operated by Contractor. Contractor and AA agree to cause their maintenance personnel to meet at least once each calendar quarter, or more often at the request of AA, to review the SB status of the Firm Approved Aircraft fleet. In the event that Contractor determines a particular SB is not cost beneficial, AA may cause Contractor to perform the SB on the Firm Approved Aircraft under the following circumstances: (1) If AA performs an SB on its fleet and desires such SB to be performed on Contractor's Firm Approved Aircraft fleet when such SB is not already preformed or is not intended to be performed on any of the Contractor fleet, then: If AA provides a part or component to Contractor at no charge to Contractor, Contractor will provide, at no additional charge to AA, up to 100 man-hours per Firm Approved Aircraft of labor to comply with the SB. Any man-hours in excess of 100 shall be reimbursed by AA to Contractor at straight-time rates. B. During the Term, Contractor shall furnish to AA such information concerning the location, condition, use and operation of the Approved Aircraft as AA may reasonably request. Contractor shall permit any Person designated in writing by AA, at AA's expense, to visit and inspect (at any reasonable time, provided that such inspection shall not unreasonably interfere in any material respect with Contractor's business operations or operation or maintenance of the Approved Aircraft) the Approved Aircraft and the logs, manuals, records and other documentation maintained in connection therewith and, at AA's expense, to make copies of such records as AA may reasonably designate. AA shall have no duty to make any such inspection and shall not incur any liability or obligation by reason of making or not making any such inspection. Any such inspection of the Approved Aircraft shall be a visual, walk-around inspection which may include going on board the Approved Aircraft and shall not include opening any panels, bays, or the like; PROVIDED, that any such designee of AA shall be entitled to be present during any maintenance check of any Approved Aircraft at which any panels, bays or the like may be opened and shall have the right to inspect such items during such maintenance check. Upon written request from AA, Contractor shall provide AA with the anticipated dates of any scheduled major maintenance checks (including any "C", heavy "C" or "D" check) occurring within the six-month period following such request. Contractor shall promptly address any concerns of AA's Flight Operations, Ground Operations, Maintenance and Safety Departments. C. Contractor shall maintain, service, repair, overhaul and test or cause to be maintained, serviced, repaired, overhauled and tested each Approved Aircraft (and all parts and components thereof) in accordance with its FAA approved maintenance program, so as to keep each Approved Aircraft (and all parts and components thereof) in at least as good an 45 operating condition as when delivered, ordinary wear and tear excepted, and within the acceptable limits of performance provided in the manufacturer's manuals. * * * 46 SCHEDULE C-1 - FLEET PLAN AND IN-SERVICE DATES At the STL Hub, Contractor has agreed to continue to operate the following in service ERJ-145 LR aircraft until the phase out dates listed (the ERJ-145 units are collectively referred to as "ORIGINAL APPROVED AIRCRAFT"), and to place the following 15 firm ERJ-140 LR units into service according to the following schedule (the ERJ-140 LR units are collectively referred to as "FIRM APPROVED AIRCRAFT"). Subject to the provisions set forth herein, at no time will Contractor operate more than 15 aircraft under the American Connection Marks.

Note: For the purposes of Section 1.02, specific "in-service" date shall be confirmed to AA by Contractor not less than 90 days prior to the scheduled date of delivery. Additional Approved Aircraft may be added to the Fleet Plan by mutual written agreement between the parties and under the same terms and conditions stated herein. Contractor may, at its discretion, substitute 140 LR version ERJs for up to eight 145 LR version ERJs, upon notice delivered 30 days prior to the respective 145 LR version ERJ in-service dates set forth above. 47 - ---------- *Confidential EXHIBIT D - STANDARDS OF SERVICE 1. CUSTOMER SERVICE Contractor will perform all customer-related services in a professional, businesslike, and courteous manner. A. In order to ensure a high level of customer satisfaction, Contractor agrees that it will train or cause to be trained to proficiency, all Contractor customer service employees associated with Contractor's American Connection Services. B. Contractor will establish and maintain customer handling procedures and policies which conform with Customer Service Policies and Procedures or other such documentation as AA may from time to time adopt, to the extent that such procedures and policies are appropriate for an American Connection operation. Further, Contractor will establish, maintain, and enforce employee conduct, appearance and training standards and policies which are similar to those utilized by AA. C. Contractor agrees to participate in any and all special training or other programs that AA provides for its customer service employees. Contractor may elect to accomplish such training through the use of a "Train the Trainer" concept, if permitted by AA. D. Upon the request of either party, Contractor and AA will meet to discuss and review Contractor's customer handling procedures and policies and Contractor's employee conduct, appearance, and training standards and policies to ensure compliance with this Exhibit D. E. Contractor shall resolve all customer complaints in accordance with AA's Customer Service Policies and Procedures and will forward all customer complaints to AA's Customer Relations Department to ensure timely resolution of all customer concerns associated with the American Connection Services provided by Contractor. 2. IN-FLIGHT SERVICE PRODUCT AND DELIVERY Contractor shall cater flights as directed by AA. Contractor shall coordinate with AA's (or its Affiliate's) In-flight Services Department to ensure consistency and quality of Contractor's in-flight service product, including but not limited to non-safety related functions such as inflight marketing announcements, meal and beverage presentation and delivery, provisioning and usage of passenger amenity kits, and the like. Contractor shall implement suggestions made by AA's (or its Affiliate's) In-flight Services Department if such suggestions can be implemented without additional cost to Contractor. AA shall assist Contractor in obtaining commissary items (beverages and complimentary foodstuffs) at AA's actual cost, I.E. on a pass-through basis. If meal service is required by AA, Contractor shall pass the additional cost through to AA. Contractor will coordinate with AA to ensure consistency with AA's product delivery, including but not limited to AA logo napkins, stir rods, cups and the like. AA shall provide such amenities at no charge to Contractor. 48 3. REPRESENTATION AND PRESENTATION OF THE AA BRAND A material failure to represent the AA brand to the same extent as other users of the AA brand, including AE and other American Connection carriers as reasonably specified by AA in writing and uniformly applied to all users of the AA brand, including AE and other American Connection carriers, will be deemed cause for termination of this Agreement as provided in Section 7.02, provided that such failure is noted in two consecutive audits. * * * 49 EXHIBIT E - CHARGES PAYABLE 1. CHARGES PAYABLE BY AA A. BLOCK HOUR CHARGE (1) AA shall pay Contractor a fixed fee per actual Block Hour flown in revenue service. The Block Hour rate is based upon Contractor's fixed costs and will vary based upon the number of scheduled Block Hours on an average daily basis for each Approved Aircraft fleet (see Schedules E-1a and E-1b for ERJ-145 and ERJ-140 respectively). Contractor will bear all product reliability and operating cost risk unless otherwise stated herein. The rate per Block Hour shall be adjusted only in conjunction with schedule changes that affect the scheduled Block Hour utilization subject to a minimum payment calculated on the basis of [*] per day, regardless of whether the Approved Aircraft are scheduled for such number of Block Hours per day. (2) For the avoidance of doubt, AA will schedule the Firm Approved Aircraft for a minimum daily utilization of [*] per day on average. For example, in the event that AA schedules the Firm Approved Aircraft for an average of [*] but Contractor actually flies only [*] Contractor shall be paid for [*] at the Block Hour rate corresponding to [*] (3) Provided the Effective Date is prior to December 1, 2001, beginning on the Effective Date and continuing through December 31, 2001, the Block Hour rate reflected in Schedule E-1a and Schedule E-1b shall be reduced by five percent (5%). (4) Provided the Effective Date is prior to March 31, 2002, effective January 1, 2002 through March 31, 2002, the Block Hour rate reflected in Schedule E-1a and Schedule E-1b shall be reduced by two and one half percent (2.5%). (5) Certain components of the Block Hour cost shall be subject to periodic adjustment based upon Section C below. B. PASSENGER STIPEND (1) AA shall pay Contractor a passenger stipend for each Revenue Passenger carried onboard Contractor's aircraft. The applicable amount of passenger stipend is detailed in Schedules E-1a and E-1b. (2) Provided the Effective Date is prior to March 31, 2002, beginning on the Effective Date and continuing through June 30, 2002, AA shall not pay any passenger stipend with respect to Revenue Passengers carried onboard any ERJ. C. ADJUSTMENTS TO CHARGES In addition to the Block Hour charge and passenger stipend, AA agrees to pay Contractor the following items: 50 - ---------- *Confidential (1) AA agrees to reimburse Contractor for certain Pass Through Costs fully or partially excluded from the Block Hour charge or passenger stipend. These Pass Through Costs and their associated rules of application are listed in Schedule E-3(1)(I). (2) AA agrees to reimburse Contractor for all third party vendor charges incurred in providing Feeder Air Services at a Covered Location. Contractor should contract such services when necessary, pay the vendor directly, and then submit charges to AA as Other Pass Through Costs as described in Schedule E-3(1)(I). (3) AA agrees to reimburse Contractor for de-icing services provided by vendors at all locations. Contractor should contract such services when necessary, pay the vendor directly, and then submit charges to AA as Other Pass Through Costs as described in Schedule E-3(1)(I). (4) AA agrees to reimburse Contractor for de-icing fluid provided by AA maintenance at the Hub for purposes of on-gate de-icing of Approved Aircraft. Contractor should pay AA maintenance directly for such fluid, and then submit charges back to AA as Other Pass Through Costs as described in Schedule E-3(1)(I). (5) The Block Hour charge contemplates Contractor performing Passenger Handling and Ground Handling Duties for [*] That number will be adjusted for actual deployment by use of CLDR (or Contractor Location Departure Ratio) as defined herein. "CLDR" means the number of scheduled, weekday Feeder Air Service regional jet departures handled by Contractor, divided by the total number of scheduled weekday Feeder Air Service regional jet departures operated by Contractor. AA shall recompute the CLDR based upon the current marketing schedule then in effect. The computation of CLDR shall be made at the beginning of each calendar quarter when the total regional jet fleet count is less than 20 units and semi-annually (January 1 and July 1) when the total regional jet fleet count is 20 units or more. For purposes of Contractor cost reimbursement, the following calculations shall be performed on a monthly basis and AA agrees to reimburse Contractor the amount generated by such calculation: [*] NOTE: The [*] departure cost (the "RJ TURN FEE") is based upon April 2000 economics and is subject to the Escalation Percent (see Schedule E-4) beginning April 1, 2002. (6) If, during any calendar quarter, the level of Uncontrollable Cancellations incurred by Contractor is more than [*] of scheduled Block Hours, then AA shall pay to Contractor an amount determined in accordance with the following formula: [*] where [*] 51 - ---------- *Confidential [*] (7) Contractor shall receive for each designated spare Standard Marked Approved Aircraft the following: a) Fleet average Firm Approved Aircraft lease expense, up to $117,000 per ERJ 140 aircraft per calendar month b) Fleet average Firm Approved Aircraft hull insurance c) Fleet average Firm Approved Aircraft property tax d) Fleet average Firm Approved Aircraft war risk insurance Spare compensation shall be on a monthly basis prorated by aircraft day. Payments for the assignment of spare Approved Aircraft shall be made in accordance with Exhibit F. 2. CHARGES PAYABLE BY CONTRACTOR A. AA GROUND AND PASSENGER SUPPORT SERVICES TRAINING Contractor will provide, at no cost to AA, all necessary training to enable AA, and/or its Affiliate(s) to fulfill its obligations under any ground handling agreements. B. AUTOMATION 1. Contractor shall pay all automation maintenance costs in the Feeder Cities and Hub, as appropriate. 2. Contractor shall pay all communications charges associated with the transmission and reception of ACARS data. C. UNANTICIPATED COSTS Any costs incurred by Contractor in conjunction with Contractor's American Connection Services shall remain the responsibility of Contractor unless expressly subject to payment by AA as provided elsewhere in this Agreement. D. OTHER CHARGES INCURRED 1. Contractor agrees to pay AA for all costs or expenses, including fines and penalties ("COSTS") imposed on AA directly arising out of Contractor's failure to comply with AA's Customer Service Policies and Procedures with regard to the ticketing and boarding of any passenger for American Connection Services or any other passenger connecting to transportation services offered by AA, including but not limited to Costs arising out of Contractor's failure to verify travel documents or under collection or under remittance of fares, Taxes, PFC's, security surcharges or the like, except to the extent Contractor's non-compliance is due to the failure of AA to comply with any such applicable law, rule, regulation, or procedure. 2. Any services, if requested by Contractor and performed by AA, that are not otherwise identified in this Agreement shall be at [*] of Mutual Assistance Ground Service Agreement ("MAGSA") rates. 52 - ---------- *Confidential 3. SHARED COSTS AA and Contractor agree to share the following costs on an equal (50/50) basis: A. Ongoing SABRE automation equipment cost B. Installation of initial SABRE automation equipment at Contractor locations AA will purchase and install equipment, then bill Contractor fifty percent (50%) of such cost. AA will retain all rights to the equipment. In the event of a Covered Conversion, AA will reimburse Contractor's expenses for the initial purchase and installation. 4. HUB RELOCATION In the event AA requires Contractor to relocate to different facilities at the Hub other than Concourse B, AA and Contractor shall modify the cost model to reflect any changes as a direct result of the relocation proportionately. * * * 53 SCHEDULE E-1a - [*] [*] 54 - ---------- *Confidential SCHEDULE E-1b - [*] [*] 55 - ---------- *Confidential SCHEDULE E-2 - INTENTIONALLY OMITTED (SCHEDULE E-2 INTENTIONALLY OMITTED.) * * * 56 SCHEDULE E-3 - PASS THROUGH COSTS 1. The following cost groups shall be reconciled on a monthly basis, with the cost difference passed through to either AA or Contractor. The difference between the direct cost to Contractor and the cost assumed in the pricing model shall be reconciled monthly by Contractor and such reconciled difference shall be either reimbursed to Contractor (under payment) or credited to AA (over payment). The settlement date for all Pass Through Costs shall be made in accordance with the terms set forth in Exhibit F. AA reserves the right to audit Contractor's Pass Through Costs. A. Fuel (into-plane) - The Block Hour charge assumes a gross (into-plane including taxes and servicing) fuel price of [*] of Jet A fuel. To the extent that Contractor's actual fuel costs per gallon deviate from this amount, the difference, multiplied by the actual number of Jet A fuel gallons consumed by Contractor's Feeder Air Service Flights, shall either be reimbursed to Contractor or credited to AA. B. Landing Fees - The Block Hour charge assumes a gross landing fee (per 1,000 lbs. of maximum aircraft landing weight) [*] To the extent that actual landing fees paid by Contractor deviate from this amount, the difference, multiplied by the actual amount of landing weight for Contractor's Feeder Air Service Flights, shall either be reimbursed to Contractor or credited to AA. C. Passenger Liability Insurance - The Block Hour charge assumes an insurance cost of [*] per 1,000 RPMs. Each year, on the anniversary date of Contractor's policy, the rate shall adjust up or down [*]. To the extent that the insurance cost for Passenger Liability Insurance paid to Contractor by AA deviates from the New PLI Calculated Rate, the difference, multiplied by the actual number of RPMs (000) associated with Contractor's Feeder Air Service Flights shall be either reimbursed to Contractor or credited to AA. Alternatively, AA, at its sole discretion, may elect to offer Contractor Passenger Liability Insurance coverage for its Feeder Air Service operations with terms and conditions to be mutually agreed to by the parties. D. Aircraft Hull Insurance - The Block Hour charge assumes a cost of [*] of Aircraft Hull value. Each year, on the anniversary date of Contractor's policy, the rate shall adjust up or down [*]. To the extent that the insurance cost for Aircraft Hull Insurance paid to Contractor by AA deviates from the New AHI Calculated Rate, the difference, multiplied by the actual Hull values divided by $100, associated with Contractor's Feeder Air Service Flights shall be either be reimbursed to Contractor or credited to AA. Alternatively, AA, at its sole discretion, may elect to offer Aircraft Hull Insurance coverage for its Feeder Air Service operations with terms and conditions to be mutually agreed to by the parties. E. War Risk Insurance - War risk and allied perils insurance, including any surcharges paid to commercial insurance companies and premiums paid to governmental agencies. F. Aircraft Property Taxes - The Block Hour charge assumes a property Tax of [*] of assessed aircraft property value. To the extent that the actual property Tax ratio paid by Contractor deviates from this amount, the difference, multiplied by the actual assessed aircraft property value, shall either be reimbursed to Contractor or credited to AA. 57 - ---------- *Confidential G. De-Icing Services - The Block Hour charge does not include any expenses related to the cost of de-icing aircraft. Contractor shall pay for these services when required to do so and shall submit the direct cost of these services back to AA for reimbursement. AA shall reimburse Contractor for its actual cost of de-icing associated with Contractor's Feeder Air Service Flights. H. International Service Fees - The Block Hour charge does not include any cost associated with NAV-CANADA, customs clearance, or other service fees associated with operating service to non - US destination points. To the extent that Contractor incurs such costs in providing Feeder Air Service, AA agrees to reimburse Contractor its actual costs incurred. I. In-Flight Meals - The Block Hour charge does not include any expenses associated with meal service provided by Contractor on longer flights furnished in accordance with AA dining standards and directives. To the extent that Contractor incurs such costs in providing these meal services, AA agrees to reimburse Contractor its actual costs incurred. J. Other Pass Through Costs - AA agrees to reimburse Contractor for certain costs directly related to Contractor's Feeder Air Services and costs associated with vendor services at Covered Locations as set forth in Section 2.05. K. Aircraft Ownership Costs (1) [*] (2) [*] (3) [*] (4) [*] 58 - ---------- *Confidential SCHEDULE E-4 - ESCALATION PERCENT The escalation percent as computed below (the "ESCALATION PERCENT" or "EP") shall be applied to the Block Hour rates and Revenue Passenger stipend rates in Schedules E-1a and E-1b. The first escalation adjustment shall be made effective April 1, 2002, and shall be computed based upon the change (expressed as a percent) from the March 2000 CPI index of 171.2. Thereafter, the escalation adjustment shall be made effective April 1 of each subsequent year and shall be computed based upon the published report of CPI released during the immediately preceding March. The escalation adjustment shall be used to adjust the rates for the fiscal year beginning that April 1st by applying the EP to the rates in effect for the prior year. However, in no event shall any EP adjustment for any single year exceed [*] The Escalation Percent shall be computed as follows: [*] 59 - ---------- *Confidential EXHIBIT F - ACCOUNTING PROCEDURES The following accounting procedures reflect the understanding between AA and Contractor regarding various accounting, reporting and settlement procedures. These procedures are based on Contractor using AA stock, and each Contractor-operated AA ticketing location ("CONTRACTOR TICKETING LOCATION") operating as if it were an AA-operated AA ticketing location. 1. SALES REPORTING AND CASH TRANSFER A. Each Contractor Ticketing Location will be automated with AA's ATAC, and Contractor agrees to adhere to the same ticketing procedures, ticket reporting and cash remittance timing as required of a Covered Location, including: (1) Reporting of auditor coupons and other sale documents daily to AA's ticket lift processing facility in Juarez, Mexico. (2) Depositing cash and check sales the next business day into the local AA depository bank. These funds will be withdrawn automatically from the local depository bank (on the second business day following the day of the sale) by AA's central depository bank through utilization of the Bank Automated Clearing House system. B. AA and Contractor have agreed to establish the local depository bank accounts as AA accounts managed and overseen by AA. C. All sales by Contractor will be subject to the same sales audits, to be conducted at such times as AA may elect, as may be performed by AA on sales reports for any AA staffed location. The audit will include establishing discrepancy notices ("DISCREPANCY NOTICES") for ticketing errors, cash under collections or shortages, and unreported sales which have been determined to be the fault of Contractor. Contractor will be charged for these errors (up to the amount of any actual expense incurred by AA) in the same manner AA charges any AA staffed location, if not corrected, except as provided in Section 4.B of this Exhibit, within 90 days after the Discrepancy Notice is established. D. Sales will include those made using the same credit cards accepted by AA. The sale amount will be billed directly to the credit card companies for billing to their cardholders via AA's Advance Credit Billing System programs through ATAC. E. Contractor will be responsible for and will indemnify, hold harmless and reimburse/pay AA the tariff value of, any transportation furnished by AA or other carriers on AA ticket stock lost, stolen or fraudulently issued after delivery of the same to Contractor, up to the date that such ticket stock is blacklisted. Blacklisted ticket stock accepted by Contractor employees for transportation shall be subject to full reimbursement by Contractor to AA. 2. REFUNDS A. Contractor shall be responsible for and shall indemnify, hold harmless and reimburse/pay AA the tariff value of, any transportation refunded by AA or other carriers on AA ticket stock lost, stolen or fraudulently issued after delivery of the same to Contractor, up to the date that such ticket stock is blacklisted. Blacklisted ticket stock accepted by Contractor 60 employees for refund shall be subject to full reimbursement by Contractor to AA, if the refund applied to AA. B. Refunds made by Contractor are subject to audit and a Discrepancy Notice will be established for any over refunds issued at the error of Contractor. The original Discrepancy Notice will be sent to the issuing location with a copy to Contractor central accounting within 45 days of the issued refund. If the discrepancy is not corrected, Contractor will be charged 90 days after the Discrepancy Notice is established. C. Contractor shall adhere to AA's procedures pertaining to the flow of refund documents (unused coupons, lost ticket applications, and the like). AA will provide such procedures to Contractor in writing. D. Applications for refunds of lost AA tickets will follow standard AA procedures, including but not limited to collection and payment to AA by Contractor of the applicable AA lost ticket charge. E. For consumer adjustments, denied boarding, Baggage Claims or involuntary refunds pertaining to Contractor flights (collectively "CONSUMER ADJUSTMENTS"), Contractor shall be authorized to issue appropriate settlement documents as AA may direct and authorize from time to time, and in accordance with AA's policies and procedures pursuant to Section 2.06(d). F. Monthly compensation due Contractor for any designated spare Standard Marked Approved Aircraft shall be added to the total Block Hour charge paid in accordance with section B above. 3. INTERLINE SETTLEMENTS AND WIRE TRANSFERS A. Except as otherwise provided for herein, AA and Contractor agree to settle all interline transactions using the rules prescribed in the ACH Manual of Procedure and any other applicable industry procedures. B. AA shall pay Contractor for Feeder Air Services, via wire transfer, according to the provisions set forth below: (1) AA shall estimate Contractor monthly payment based upon the published flight schedule and shall pay Contractor [*] of the estimated Block Hour charges in the following installments: (a) On the 5th day of the month, or the next business day, AA shall pay Contractor [*] of the estimated Block Hour charge for the current month; (b) On the 10th day, or the next business day, AA shall pay Contractor [*] of the estimated Block Hour charge for the current month; and (c) On the 25th day, or the next business day AA shall pay Contractor [*] of the estimated Block Hour charge for the current month, plus the reconciliation of the prior month's Block Hours charges and prior month's passenger stipend, as detailed below, plus any amounts due 61 - ---------- *Confidential Contractor for Freight and Small Package shipments under Section 6 of Exhibit F below. AA may offset amounts due AA by Contractor against the prior month's reconciled amount identified in Section 1.C above. C. AA shall perform all revenue accounting functions for passenger revenue to the same degree as it would for any AA station, within the limits of AA's automation systems. Contractor may audit AA's procedures at any time upon reasonable notice. D. Within 60 days of the conclusion of a performance period as specified in Exhibit J, AA and Contractor will settle as appropriate under Exhibit J, based upon Contractor's performance and amount of bonus or penalty incurred. AA and Contractor will be jointly responsible for determining the payment to be made or any penalty to be credited to AA. E. Ticket Stock, AATVs, and the like will be payable by Contractor, and Contractor shall at all times be responsible for all accountable items, including but not limited to AATVs, ticket stock, and the like. There shall be no charge for proper use of AATVs for DBC. F.-N.[INTENTIONALLY OMITTED] O. BAGGAGE SETTLEMENTS Contractor shall handle all baggage related matters in accordance with AA's procedures, as may be amended from time to time. [*] Baggage Claims involving Connecting Passengers in which the cause or blame cannot be determined shall be [*] 4. FURTHER DEDUCTIONS FROM INTERLINE SETTLEMENTS / WIRE TRANSFERS A. [INTENTIONALLY OMITTED]. B. AA will deduct from its payment under Section 3.B above to Contractor any Discrepancy Notices issued to Contractor Locations which have not been paid or cleared within ninety (90) days from date of issuance. If Contractor, after making a good faith effort to collect, cannot do so because of the age of the item at the time the discrepancy was established, AA will consider adjusting the deduction, but is not obligated to do so. C. AA, in the exercise of its sole discretion, may elect to deduct from AA's payment to Contractor under Section 3.B above those charges to Contractor outlined in Exhibit E of this Agreement, or any other amounts or charges payable to AA by Contractor pursuant to this Agreement, or otherwise as may be authorized by Contractor, including Performance Penalties under Exhibit J(2)(C). D. In lieu of Section 4.C above, AA, may invoice Contractor through the ACH for passenger billings, non-transportation or any other charges payable to AA. 5. CREDIT TRANSACTIONS A. AA authorization and form of payment procedures will be followed for acceptance of credit cards and checks. 62 - ---------- *Confidential 6. SMALL PACKAGE, FREIGHT, AND MAIL A. Exhibit H sets forth the applicable procedures and revenue split for the carriage of Shipments and Mail, as those terms are defined in Exhibit H. Contractor shall use only AA documents for Shipments. (1) Contractor will report all Shipment transactions in accordance with AA's procedures. (2) Billing discrepancies detected at the time of an audit by AA will be handled consistent with Section 1 of this Exhibit F above. 7. AUDIT AND SECURITY MATTERS A. Contractor shall permit AA to examine Contractor Ticketing Locations to the same extent any AA staffed location is audited internally. B. Security reviews will be conducted as required by AA's Security Department. C. Contractor will follow AA policy and procedures for security of ticket stock, undeposited cash, and the like, copies of which shall be furnished to Contractor upon request. D. Contractor will observe all sine table security and other computer security measures that AA adopts for its own airport and sales functions. 8. AA ACCOUNTS A. AA shall maintain such books of accounts and records as shall be necessary to perform the foregoing accounting and settlement services, which books of accounts and records will be available at all reasonable times upon reasonable prior notice for inspection by Contractor or its designated representatives. B. AA will use the same degree of care and will apply the same standards and safeguards for the accounting and settlement services provided hereunder as AA uses for its own accounting services. * * * 63 EXHIBIT G - DIVISION OF PASSENGER REVENUE All passenger revenues shall accrue to the benefit of AA. * * * 64 EXHIBIT H - SMALL PACKAGE, FREIGHT AND MAIL 1. If requested by AA, Contractor will provide services under the terms of this Exhibit H. This Exhibit H sets forth the terms which will govern the transport of small packages ("Priority Parcel Service") and general air freight ("ExpressAAir" and all other products), but not mail (herein collectively referred to as "SHIPMENTS") carried from origin to destination in part on AA (or Affiliate, including third-party American Connection carriers) and in part, or entirely, on Contractor's Feeder Air Services. Shipments shall be as defined in AA's tariffs, as published in the ATPCO Official Local Cargo Rate Tariff (the "AA TARIFFS") for Domestic shipments and the TACT for International shipments. This Exhibit H also sets forth the terms which will govern the carriage of mail, when carried by Contractor at AA's request. Mail shall be defined as all items offered by the USPS for carriage on flights operated by AA, Contractor or both ("MAIL"). AA reserves the right to determine and amend procedures to be used by Contractor with respect to the provision of services associated with Shipments and Mail. 2. All Shipments shall be transferred between AA and Contractor at the designated transfer city as shown on the airbill of each Shipment. However, general air freight shall be originated only at AA cargo staffed stations. Freight originating from AA cargo or routed to a Contractor American Connection flight at the Hub may be accepted for carriage. Contractor shall not carry hazardous materials, as that term is defined by federal aviation regulations and/or the DOT, with the exception of Dry Ice, Class 9 (if permitted by Contractor's approved FAA operations manual). 3. The procedures which govern the interline transfer of Shipments between Contractor and AA, as described in this Exhibit H, shall be those set forth in the AA Tariffs as are in effect from time to time; PROVIDED that to the extent that any such procedures are inconsistent with the terms of this Agreement, this Agreement shall govern. Contractor agrees to adopt the AA Tariffs as from time to time are in effect. 4. AA will include Contractor's Feeder Air Service markets in ATPCO filings/tariffs at no charge to Contractor. Contractor shall neither publish nor provide rates or services to any customer or company independent of AA Cargo's tariffs for any AA Cargo product. 5. Contractor will handle small packages, freight, and Mail as directed by AA, and all such small packages, freight, and Mail revenues shall accrue to the benefit of AA. Except as otherwise provided in this Exhibit H, any additional small package or freight related costs incurred beyond those costs incurred in the provision of passenger and Mail services pursuant to this Agreement, as a result of the direction by AA for Contractor to handle such small packages and freight, will be borne by AA. 6. From time to time Contractor shall permit AA to inspect Contractor's cargo operations, including Contractor policies and procedures for the handling of cargo; PROVIDED however that any inspection of Contractor operations shall be conducted by AA so as to minimize any disruption to Contractor. Contractor shall promptly address all reasonable concerns of AA noted during such inspection, to AA's satisfaction. 7. Contractor agrees to adopt and implement, in accordance with AA's policies and procedures and at AA's cost, any automation (to the extent that the cost/benefit of such automation allows Contractor's to continue its cargo operations) required by any regulatory authority in connection with the security, tracking and accounting functions of handling and transporting small package shipments by air. Contractor shall comply with AA's reasonable request of Contractor to implement new automation/technology that is not required by regulation at AA's cost. For any 65 new automation functions, AA will provide training to Contractor training instructors per Section 10.02(b). 8. AA (or at AA's discretion, an Affiliate) will provide cargo training to Contractor employees requiring such training on a space available basis at no cost to Contractor. However, Contractor will pay the cost of its employee travel and expenses while attending such training. A. Each Contractor station manager shall receive approved AA cargo training. B. Each Contractor employee who bills, handles or processes small packages shall receive approved AA cargo training. C. If, in AA's sole discretion, Contractor experiences cargo service failures, AA will so advise Contractor in writing. Within thirty (30) days thereafter, Contractor shall discuss the situation with AA and commence corrective action. 9 The provisions of Sections 6, 7, and 8 of this Exhibit H shall equally apply to the carriage of Mail. However, Contractor bears the responsibility of obtaining any training that is provided or required by the USPS for the carriage of mail. 10. All revenues for Mail shall accrue to AA. 11. Contractor's compliance with the terms applying to the carriage of Mail in this Schedule H shall be at no additional cost to AA. 12. Contractor shall not be responsible for service failures in the carriage of Mail provided that identifiable service failure issues are promptly addressed to prevent future failures. 13. Mail shall be handled and carried by Contractor (or an AA approved subcontractor) at no additional charge to AA. Contractor will arrange all necessary staffing and ground handling to pickup Mail from the origin airport Mail facility and ensure such Mail is loaded on its flights. Mail scheduled for delivery to the Mail facility at a destination of a flight operated by the Contractor shall be delivered by the Contractor or its subcontractor to the designated facility. Contractor shall also be responsible to transfer Mail arriving on one of its flights to another Contractor flight, third party American Connection operator, AE, or AA, when the USPS has designated such a flight routing on the destination and routing label affixed to the Mail container(s). At the STL Hub, such transfer shall occur at a mutually agreeable Mail exchange point. 14. Contractor agrees to comply with all personnel screening requirements set forth by the USPS, and all other provisions of the USPS Air System Contract for transportation of Mail by air. The USPS Air System Contract shall be made available by AA to Contractor in the event Contractor is not already a signatory to the USPS offering. Contractor understands that any of its subcontractors who are engaged in mail handling as any part of their duties must comply with USPS personnel screening requirements in order to become and remain eligible subcontractors for mail handling services. 66 EXHIBIT I - AMERICAN CONNECTION SAFETY STANDARDS 1. Contractor shall comply with all applicable safety, operational, maintenance, and personnel standards. These shall include all applicable Federal Aviation Regulations; all DOD, DOT regulations; any appropriate directives from the NTSB and all special regulatory mandates, such as advisory circulars. Contractor shall coordinate with AA to ensure that Contractor's compliance with such initiatives is not inconsistent with AA's compliance (E.G. timing of placing defibrillators on board aircraft and associated training). 2. AA is entitled to audit all relevant aspects of Contractor's operations and facilities, including safety, flight operations, maintenance, cargo and ground operations. These audits shall be of reasonable length, and shall be in sufficient depth and detail to permit AA's auditors to properly certify Contractor's safety and compliance with all applicable regulations. AA shall notify Contractor of an intended audit with reasonable notice of the audit dates. The audit shall not unreasonably disrupt Contractor's operations. 3. AA and Contractor agree to fully comply with all provisions of the Family Assistance Act of 1996 and any amendments thereto. AA and Contractor shall maintain and file with the NTSB and DOT required plans which are fully compliant with the provisions of the Act. Copies of these plans shall be exchanged for effective planning purposes. 4. Within a reasonable time following the execution of this Agreement, AA and Contractor shall meet to set forth, at AA's direction, each party's role, responsibilities, and obligations in the event of an aviation disaster and the activation of each carrier's family assistance plan. Both parties shall accomplish all training and preparation necessary for their respective full and complete compliance with every requirement under the Family Assistance Act and for the coordinated response to a disaster involving either party, as determined by AA. * * * 67 EXHIBIT J - PERFORMANCE STANDARDS, INCENTIVES AND PENALTIES Pursuant to Article 1.02 (c) of this Agreement, both parties recognize the importance of maintaining the highest level of product delivery and customer satisfaction. Accordingly, Contractor agrees to adhere to the performance standards outlined in this Exhibit J. 1. PERFORMANCE STANDARDS Contractor agrees to use its best efforts to meet the target range standards of completion, on-time performance, customer service performance (complaints), and baggage delivery during each month of the Term of this Agreement, as indicated in the following table:

The above service categories shall be measured according to DOT definitions and rules unless otherwise agreed by AA and Contractor. Contractor shall make available to AA its statistics within 15 days of the close of each calendar month and in accordance with Exhibit K of this Agreement. AA may periodically audit Contractor statistics for accuracy and compliance to definitions. Contractor shall be held accountable to the PAWOB ratio performance standards to the extent Contractor performs Ground Handling Duties at the Hub. The parties agree to review performance status upon delivery of the 15th regional jet aircraft (as delineated in Exhibit C) to Contractor. Contractor agrees to negotiate in good faith other performance criteria that AA may request. 2. INCENTIVES/PENALTIES A. BONUS LEVEL In the event that Contractor meets the bonus level for any performance category on average for a Performance Period, AA shall pay to Contractor an amount equal to [*] per Revenue Passenger boarded during the Performance Period for each performance category met or exceeded, up to a maximum bonus of [*] enplaned Revenue Passenger. 68 - ---------- *Confidential B. TARGET RANGE Should Contractor fall within the target range levels for any performance category on average for a Performance Period, there shall be no payment due to/from Contractor for the performance category measured. C. PENALTY LEVEL In the event that Contractor falls within or below the penalty level for any performance category for a Performance Period, then Contractor shall pay to AA a penalty of [*] per Revenue Passenger enplaned during the Performance Period for each performance category within the penalty level range on average for the Performance Period, for a maximum penalty of [*] per Revenue Passenger enplaned. Mitigating Factors shall be taken into account for the purposes of assessing penalties pursuant to this Exhibit J, Section 2.C. D. DEFAULT LEVEL In the event that Contractor fails to achieve a level of performance above the lesser of (i) the default level, or (ii) [*] In the event that Contractor fails to meet the milestones of such approved plan, then AA may terminate this Agreement pursuant to Section 7.02(c). For each Performance Period in which Contractor's performance falls within the Default Level provided in the chart above in any category, [*] E. MEASUREMENT AND PAYMENT PARAMETERS (1) Measurement of the service categories shall be made on a semi-annual basis, from January 1 - June 30, and from July 1 - December 31. (2) The first Performance Period measured shall be January - July 2002, and thereafter all Performance Periods shall follow regularly. (3) AA and Contractor shall measure Contractor's monthly and semi-annual performance based upon the most recent information pursuant to the provision of reports in Exhibit K of this Agreement. Contractor and AA shall jointly share responsibility for performance measurement and calculation of incentive or penalty. Verification of performance shall be accomplished within 25 days following the end of every month and semi-annual Performance Period as appropriate, unless otherwise agreed to by the parties. (4) Contractor shall be eligible to receive the bonus payment from AA, or required to make its penalty payment to AA, within 60 days of the conclusion of the end of each Performance Period. All payments will be made by wire transfer between the parties. EXHIBIT K - REPORTS 1. BOARDING INFORMATION. Information reports containing data covering boarding and other information agreed to by the parties for Contractor's operations hereunder will be produced 69 - ---------- *Confidential from the close-out entries and provided by AA to Contractor, on a monthly basis as soon as available. 2. QUARTERLY COST DATA. Contractor will furnish to AA in a Microsoft Excel(R) spreadsheet format, within forty-five (45) days after the end of each quarter, the following reports: DOT Form 41 Schedule P-1.2 (Statement of Operations) and P-5.2 (Aircraft Operating Expenses by type). Contractor agrees to provide this information to AA regardless of its obligation to report to the DOT. 3. DAILY / MONTHLY OPERATIONS. Each day Contractor will furnish to AA (Attention: Director - Planning) daily operating reports for the preceding day which will include the number of revenue passengers boarded; the number of denied boardings, in both raw numbers and percentage terms (using a base of 1,000 passenger boardings); the number of scheduled flight departures; the number and percentage (compared to schedule) of actual flight departures; the reason for each flight cancellation; number of flight departures on time within five minutes; percentage of On-Time Arrivals in accordance with a format to be provided by AA or other mutually agreed upon format. The foregoing flight departure, flight cancellation and on-time performance response shall show a break down by equipment type. The above report shall be furnished to AA by Contractor and will include month-to-date numbers and an attachment describing Mitigating Factors, if any. 4. PASSENGER IRREGULARITY REPORTS. Contractor shall provide a copy (Attention: AA's Managing Director - Inflight) of any irregularity report involving a passenger travelling on Contractor's Feeder Air Services that is deemed reportable to any governing authority. 5. FURTHER INFORMATION. Additional information as may be reasonably requested by AA shall be furnished by Contractor upon request. * * * 70 EXHIBIT L - AUTOMATION INTEGRATION 1. COMPUTER RESERVATIONS SYSTEM USE A. INSTALLATION AND TRAINING Subject to the provisions of this Agreement, and notwithstanding any separate agreement between Contractor and SABRE, Contractor will maintain a minimum complement (as designated by AA, consistent with its standard automation installations) of terminals plus associated equipment for printing messages, data, air tickets, boarding passes, baggage tags, and the like ("AUTOMATION EQUIPMENT") at each of Contractor's Feeder Air Service airport locations and selected administrative locations. Any and all modifications, enhancements, improvements or developments pertaining to the Automation Equipment, or other new related technology, may be made available to Contractor by AA, in its sole discretion, under terms and conditions to be determined by AA on a case-by-case basis. AA will train Contractor employees in accordance with Section 10.02 of this Agreement, as applicable, in the proper use of SABRE and Automation Equipment. Where permitted by AA, Contractor agrees to establish a training program with internal instructors. Only qualified personnel who have satisfactorily completed an AA prescribed training program will be permitted to operate any Automation Equipment (hereinafter "DESIGNATED USERS"). AA may, at its discretion, monitor or test the proficiency level of Designated Users. If AA determines that their proficiency levels are insufficient for the proper use of the Automated Equipment or SABRE, then Contractor must arrange for its Designated Users to undertake any further training which AA determines necessary to bring such Designated Users to the desired proficiency level. B. STANDARDS OF USE (1) To maintain an effective interconnection between SABRE and the Automation Equipment and to prevent misuse thereof, Contractor agrees that SABRE and the Automation Equipment will be used and operated (1) in strict accordance with operating instructions provided by AA, and (2) solely for the performance of the specific business functions designated by AA. Any undesignated business use and all non-business uses are strictly prohibited. Prohibited uses include, but are not limited to, personal messages, servicing subscribers, travel agencies, or any other third party, training any other party or any other use designated as prohibited in the SABRE Manual. Contractor will maintain a list of all employees and agents who have access to SABRE and their assigned file number and passwords. AA may at any time deny access to SABRE to any employee of Contractor if such employee is found by AA to have engaged in unauthorized operation of SABRE or abused the Automation Equipment. Contractor will take all precautions necessary to prevent unauthorized operation or use of SABRE and the Automation Equipment. (2) Contractor will not alter or change the SABRE Services display as provided by AA or its Affiliates without the consent of AA as reflected in an amendment to this Agreement. Contractor may not provide SABRE or its data base to any other person or entity without the consent of AA as reflected in a written amendment to this Agreement. 71 (3) Except as expressly permitted in this Agreement or other written agreement with AA, Contractor will not allow (or permit) SABRE (including, but not limited to, its software, data bases, intellectual property, and customer information) to be used (as a basis for any software development or otherwise), commercially exploited, copied, redistributed, retransmitted, published, sold, rented, leased, marketed, sublicensed, pledged, assigned, disposed of, encumbered, transferred, or otherwise altered, modified or enhanced, without the express written permission of AA. (4) Contractor will not engage in any speculative booking or reservation of space for any airline, hotel, rental car company, or any other vendor's service or product available through SABRE. 2. TECHNOLOGY INTERFACE AA agrees to provide the necessary support to ensure dynamic transfer of operational data directly to Contractor's System Operational Control center in Indianapolis, IN. [*] AA may require Contractor to install and operate certain support programs necessary for AA's internal reporting systems. In such case, AA shall bear responsibility for purchase, installation, and training of Contractor employees for use of such support programs. * * * 72 - ---------- *Confidential EXHIBIT M - TRAINING COSTS TABLE [*] 73 - ---------- *Confidential EXHIBIT N - ECONOMIC CONCESSIONS TABLE Calculation of payment to contractor in the event of early termination for certain economic concessions given to AA as a result of the September 11, 2001 terrorist attack on the United States (see note below). [*] 74 - ---------- *Confidential EXHIBIT O [INTENTIONALLY OMITTED] 75 EXHIBIT P - LEASE PRICING ASSUMPTIONS [*] Purchase Price*: [*] Lease Term. [*] Closing Date*: [*] 5-yr Generic US Swap Rate*: [*] Equity After-Tax Yield*: [*] Composite Tax Rate: [*] Lender's Debt Rate*: [*] CIRR Rate: [*] Rent Structure: [*] Average Monthly Accounting Rent: [*] Residual: [*] Early Buyout Date: [*] Early Buyout Price: [*] 76 - ---------- *Confidential EX-10.7 9 a2082173zex-10_7.txt CHAUTAQUA JET SVC AGMT US AIR EXHIBIT 10.7 CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 CHAUTAUQUA JET SERVICE AGREEMENT Between US AIRWAYS And CHAUTAUQUA Dated as of March 19, 1999 CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. THE OMITTED MATERIALS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. TABLE OF CONTENTS

-i- TABLE OF CONTENTS (continued)

-ii- TABLE OF CONTENTS (continued)

-iii- CHAUTAUQUA JET SERVICE AGREEMENT This Agreement is made and entered as of this 19th day of March, 1999, by and between US Airways, Inc., (herein referred to as "US Airways"), a Delaware corporation having its principal place of business at 2345 Crystal Drive, Arlington, Virginia 22227, and Chautauqua Airlines, Inc., (herein referred to as "Chautauqua"), a New York corporation, having a principal place of business at 2500 S. High School Road, Indianapolis, Indiana 46251. WITNESSETH: WHEREAS, US Airways holds a certificate of public convenience and necessity issued by the Department of Transportation ("DOT") authorizing US Airways to engage in the interstate and overseas air transportation of persons, property and mail between all points in the United States, its territories and possessions; WHEREAS, Chautauqua engages in the interstate air transportation of persons, property and mail in the United States pursuant to an exemption under 14 C.F.R Part 298; WHEREAS, US Airways owns various trademarks, service marks and logos, including "US Airways," "US Airways Express," and distinctive exterior color decor and patterns on its aircraft, hereinafter referred to individually and collectively as the "US Airways servicemarks"; WHEREAS, Chautauqua desires to operate regional jets as US Airways Express air transportation services as provided in this Agreement and wishes to acquire a nonexclusive license for use of one or more of US Airways' Servicemarks for use in connection with Chautauqua's operation of such services; WHEREAS, US Airways desires to contract for the operation of such regional jets as scheduled air transportation services by Chautauqua and does hereby grant Chautauqua the use of one or more of US Airways' Servicemarks in connection with Chautauqua's operation of such services; and WHEREAS, both parties desire that Chautauqua be compensated by US Airways for operating such regional jets as air transportation services and that US Airways assume certain of the business obligations associated with the marketing and sale of such transportation services to the traveling public, in each case as more particularly described herein; NOW THEREFORE, for and in consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties to this Agreement hereby agree as follows: -2- ARTICLE 1 COMPLIANCE WITH REGULATIONS Chautauqua hereby represents, warrants and agrees that all air transportation services performed by it pursuant to this Agreement or otherwise shall be conducted in full compliance with any and all applicable statutes, orders, rules, and regulations, whether now in effect or hereafter promulgated, of all governmental agencies having jurisdiction over Chautauqua's operations, including, but not limited to the Federal Aviation Administration and the DOT (for purposes of this Agreement, any applicable regulatory authority, whether domestically or internationally, shall be referred to as the "FAA"). Chautauqua hereby accepts the sole and exclusive responsibility for complying with such governmental statutes, orders, rules, and regulations and the parties agree that US Airways will have no obligations or responsibilities, whether direct or indirect, with respect to such matters, except for sharing the costs associated therewith as and to the extent provided herein. -3- ARTICLE 2 AIR TRANSPORTATION SERVICES TO BE PROVIDED BY CONTRACTOR SECTION 2.1 SCHEDULE REQUIREMENTS At all times during the term of this Agreement and any amendment or extension thereof, Chautauqua will schedule and operate US Airways Express air transportation service between various U.S. domestic city-pairs and between various U.S - Canadian city-pairs selected in accordance with the immediately succeeding sentence (hereinafter referred to as the "Service") using ten (10) EMB-145 LR fifty (50) seat jet aircraft or such other aircraft as may be substituted therefore pursuant to the terms hereof (hereinafter referred to as the "Aircraft"), based on the implementation schedule set forth in Exhibit 2.1, attached hereto and made a part hereof. The city-pairs from which the air transportation services are to be provided by Chautauqua pursuant to this Agreement will be selected by US Airways, in its sole discretion, subject only to operations and safety requirements, minimum and maximum schedule requirements, and the other parameters set forth in Exhibit 2.1(a). US Airways may, on sixty (60) days advance written notice to Chautauqua, designate changes in the following: city-pairs served, aircraft routings or flight frequencies, provided that the new city-pairs, aircraft routings, and flight frequencies continue to satisfy the parameters set forth in Exhibit 2.1(a). SECTION 2.2 LEFT INTENTIONALLY BLANK SECTION 2.3 SECTION 2.3 TECHNICAL OPERATIONS During the term of this Agreement, Chautauqua will be responsible for the technical operation of the Aircraft and the safe performance of the flights in accordance with all applicable law (such law of any jurisdiction having authority, the "FAA Regulations'). Chautauqua shall retain full authority, operational control and possession of the Aircraft to enable it to do so. In particular, -4- Chautauqua or its agents or employees will, for the purpose of the safe performance of such flights, have absolute discretion in all matters concerning the preparation of the Aircraft for flight, the flight, the load carried and its distribution in so far as such matters affect the safety of the Aircraft, the decision whether or not such flight shall be undertaken, and all other matters relating to the technical operation of the Aircraft. Chautauqua will be solely responsible for, and US Airways will have no obligations or duties with respect to the dispatch of Chautauqua's flights operated pursuant to this Agreement or otherwise. For the purpose of this Section 2.3, the, term flight dispatch will include, but will not be limited to, all planning of flight itineraries and flight paths, fueling and flight release. SECTION 2.4 FAA REGULATIONS The operation of the Aircraft shall be carried out in accordance with the FAA Regulations and the approved standards and practices of Chautauqua thereunder. SECTION 2.5 OPERATING PROCEDURES Chautauqua will furnish to US Airways a copy of relevant operating specifications, operational regulations, manuals and calculations in respect of the Aircraft and will also furnish to US Airways a copy of all flight statistics in respect of the flights operated. SECTION 2.6 AIRCRAFT REGISTRATION During the term of this Agreement, the Aircraft will remain registered in the United States of America in accordance with the FAA Regulations. -5- SECTION 2.7 CHAUTAUQUA RESPONSIBILITIES Chautauqua will be responsible for providing, at its own cost, in connection with the Services provided under this Agreement, all services and materials identified under the heading "To Chautauqua" in Exhibit 2.8, attached hereto and made a part hereof (collectively, the "Chautauqua Services"). SECTION 2.8 SUBSTITUTE AIRCRAFT In addition to the Aircraft described in Section 2.1, Chautauqua may arrange for, and may have substitute aircraft as may be required to maintain effectively the seat miles which US Airways will purchase under this Agreement, during periods when Chautauqua's primary aircraft may be out of service due to unforeseen and irregular maintenance requirements. Chautauqua may substitute a cabin class aircraft (including, without limitation, a SAAB 340-A aircraft), in US Airways Express livery or another aircraft. In the case of another aircraft, US Airways' prior approval shall be required, but such approval not be unreasonably withheld or delayed. In such event, Chautauqua will be paid as follows with respect to the SAAB 340-A aircraft: [*]completed by such substitute aircraft. In addition, Chautauqua will be paid for the ASMs flown by such substituted aircraft in the same manner that it is paid for ASMs flown by the Aircraft. For all other Chautauqua Services involving substitute aircraft, Chautauqua will be compensated in accordance with specific rates mutually agreed upon between Chautauqua and US Airways. If a substitute aircraft is to be utilized for more than a two (2) day period, Chautauqua and US Airways will mutually agree upon the route that will be covered by the substitute aircraft. -6- - -------------- * Confidential ARTICLE 3 OPERATION UNDER THE "US AIRWAYS EXPRESS" NAME SECTION 3.1 SERVICE TRADEMARKS The Aircraft utilized by Chautauqua pursuant to this Agreement will bear US Airways Servicemarks, presently consisting of the red, white, gray and blue aircraft exterior color decor and pattern provided by US Airways and the name "US Airways Express." At any time during the term of this Agreement, and at the sole discretion of US Airways, Chautauqua shall use such new or different servicemarks and exterior color decor and patterns on its Aircraft as US Airways may determine. Interior color schemes must also be approved by US Airways. Upon written notice from US Airways, which will include the specifications for any such changes in servicemarks and/or exterior aircraft decor and patterns, Chautauqua will effect such changes as promptly as is reasonably practicable. Chautauqua will not be required to implement changes in the exterior color decor and pattern more than once in any consecutive three-year period. Any out-of-pocket expenses to repaint or to redecorate the Aircraft or reconfigure or redecorate the interior of the Aircraft as a result of changes required by US Airways, other than routine maintenance, shall be paid for by US Airways. SECTION 3.2 SIGNAGE In addition to use of the US Airways Servicemarks on the Aircraft, Chautauqua will use and display suitable signs on the interior and exterior of the Aircraft identifying Chautauqua as the operator of the services being provided pursuant to this Agreement. The location of the signs will be subject to the prior written approval, such approval not to be unreasonably withheld or delayed, of US Airways as to nature, size and location on Chautauqua's Aircraft provided that the signs will satisfy the FAA Regulations. -7- ARTICLE 4 US AIRWAYS' SUPPORT SERVICES AND FACILITIES SECTION 4.1 US AIRWAYS SERVICES US Airways and/or third party providers, at the discretion of US Airways, will provide at US Airways' cost and expense, marketing, reservations, ground support services, station facilities, and cargo and mail handling services, to the extent and in the manner set forth in the subsequent sections of this Article 4 (collectively, and together with the responsibilities of US Airways under Exhibit 2.8 hereof, the "US Airways Services"). Such services and facilities will be furnished only with respect to Chautauqua's Services offered under this Agreement. SECTION 4.2 RESERVATIONS (a) All reservations will be requested and confirmed for passengers using the Aircraft operated by Chautauqua under this Agreement through US Airways' internal reservations services. Connecting reservations to US Airways or to other air carriers will be requested and confirmed through US Airways' internal reservations system in accordance with currently established methods and procedures utilized by US Airways for its passengers. For passengers originating their travel at points other than those served by Chautauqua under this Agreement, either on US Airways' internal reservations system or on the reservations systems of other airlines, connecting reservations to the services of Chautauqua will also be made in accordance with currently established methods and procedures utilized by US Airways for its passengers. In all cases, US Airways will confirm the reservations of Chautauqua's passengers through the entire itinerary of their scheduled trips. When a contact number is supplied by the passengers making such reservations, US Airways will assume the responsibility of notifying passengers of any changes in Chautauqua's schedules or operations, provided that Chautauqua furnishes US Airways with sufficient advance notice of such changes. (b) In the event of flight delays, cancellations or other schedule irregularities affecting Chautauqua's scheduled services, and as soon as information concerning such irregularities is -8- available, Chautauqua will notify US Airways' reservations control center in a manner prescribed by US Airways and furnish such information in as much detail as is reasonably practicable. All schedule changes and passenger re-accommodations for Chautauqua passengers will be performed in the same manner as they would for US Airways passengers. (c) From time to time, and solely upon the request of Chautauqua or its flight crews, US Airways may furnish Chautauqua's flight crew with such U.S. weather bureau information or data as may be available to US Airways; provided, that in furnishing any such weather information or data to Chautauqua, neither US Airways nor its employees or agents will be responsible or liable for the accuracy thereof. SECTION 4.3 STATION FACILITIES AND GROUND SUPPORT SERVICE US Airways and/or third patty providers, at the discretion of US Airways, will provide, at US Airways' cost and expense, the following services at locations where Chautauqua provides air transportation services pursuant to this Agreement: (a) check-in and ticketing of passengers [*]; (b) use of US Airways' passenger facilities [*]; (c) [*]; (d) [*]; (e) [*]; (f) [*]; (g) [*]; and (h) [*]. SECTION 4.4 CARGO, COMPANY MATERIALS ("COMAT") AND MAIL HANDLING SERVICES (a) US Airways' personnel and/or third party personnel, at the discretion of US Airways, will process appropriate tickets and/or bills of lading and US Airways airbills, accept for -9- - -------------- * Confidential transportation, and will load on the regularly scheduled air transportation Services operated by Chautauqua under this Agreement, such cargo and U. S. mail as will be tendered to it by the United States Postal Service ("USPS") and by cargo customers, provided that no Hazardous Materials may be accepted and transported on Chautauqua Aircraft, except as permitted by the Department of Transportation pursuant to regulations contained in 49 C.F.R. Parts 171 through 180. (b) US Airways will observe and comply with all applicable regulations, instructions and procedures with respect to mail, CoMat and cargo packages. (c) Subject to subpart (b) of Section 4.4, above, US Airways will process any Chautauqua CoMat that Chautauqua may desire to send on Chautauqua Aircraft. (d) Chautauqua personnel will comply with US Airways' applicable instructions and procedures with respect to CoMat packages tendered to US Airways pursuant to this Agreement. SECTION 4.5 TERMS OF TRANSPORTATION, SALES AND PROMOTION (a) US Airways' Terms of Transportation, with certain exceptions listed therein, including procedures with respect to schedule change and passenger re-accommodation procedures, will be applicable to Chautauqua Services provided pursuant to this Agreement. Such Terms of Transportation will at all times be available for public inspection at Chautauqua's corporate offices and at each airport ticket counter and sales office maintained and operated by US Airways in connection with the Services provided under this Agreement. (b) All tickets issued for air passenger transportation, and all bills of lading, US Airways airbills and invoices issued for U. S. mail and cargo shipments, provided on the Service offered under this Agreement, will bear the "US Airways" airline designator code. (c) US Airways is responsible for [*]. -10- - -------------- * Confidential (d) US Airways will include the scheduled air services provided by Chautauqua pursuant to Article 2 of this Agreement in its public timetables (including Chautauqua's connecting schedules on the same basis as it does its own), if published. All references in US Airways' public timetables to Chautauqua's US Airways Express services will also contain notations indicating that such scheduled services are performed by Chautauqua as an independent contractor under the appropriate US Airways Servicemarks and will comply with all regulatory disclosure requirements. -11- ARTICLE 5 PURCHASE OF AVAILABLE SEAT MILES ("ASMS") SECTION 5.1 PRICING MODEL US Airways and Chautauqua have developed a certain model, hereinafter referred to as "the Pricing Model" and set forth in Exhibit 5.1, which will be used to determine the compensation to be paid by US Airways for city-pairs flown by Chautauqua pursuant to this Agreement. SECTION 5.2 CHAUTAUQUA COSTS AND PASS THROUGH COSTS The Pricing Model, which will be used to compensate Chautauqua, divides compensation into two categories, (1) "Chautauqua Costs" and (2) "Pass Through Costs." (a) Chautauqua will be reimbursed for "Chautauqua Costs" according to the rates set forth in Exhibit 5.1 based upon the following: (i) with respect to the Per Aircraft costs set forth therein, the number of Aircraft in Chautauqua's fleet that have been placed into service for US Airways Express operation under this Agreement; (ii) with respect to the Per Block Hour costs set forth therein, the Block Hours for flights actually flown by the Aircraft; (iii) with respect to the Per Flight Hour costs set forth therein, the number of Flight Hours actually flown by the Aircraft; (iv) with respect to the Per Departure costs set forth therein, the number of actual departures; and (v) with respect to the Fixed Costs set forth therein, the amount of such fixed costs. After [*] of the implementation of Service with the [*]Aircraft under this Agreement, and every [*] thereafter, the parties will review in good faith the [*]. To the extent that the [*] is not on average, equal to [*] and such [*] is not attributable to [*], the Per Block Hour Cost set forth in Exhibit 5.1 shall be adjusted to reflect the actual [*] and the resultant [*] -12- - -------------- * Confidential required by Chautauqua. Any disputes relating to an adjustment of the Per Block Hour Costs in Exhibit 5.1 shall be resolved in accordance with the dispute resolution procedure set forth in Article 15. (b) Each cost component will be adjusted annually at the beginning of each calendar year within the Term of this Agreement based upon the escalation factor set forth in Exhibit 5.1, except that with respect to [*] such escalation will take effect at the time of the increases provided for [*], currently [*], and currently [*]. (c) Chautauqua will be reimbursed for "Pass Through Costs" based upon the actual costs incurred by Chautauqua. SECTION 5.3 LEFT INTENTIONALLY BLANK SECTION 5.4 BASE COMPENSATION RATE (a) US Airways will pay Chautauqua on the first day of each month an amount based upon the Pricing Model's estimated figures, such amount being referred to as the Base Compensation Rate less an amount equal to [*]. US Airways will place the amount held back in a separate account hereinafter referred to as the "Incentive Fund." (b) After the end of the month, US Airways will pay Chautauqua an amount based upon the Pricing Model's figures using actual statistics and replacing the model's Pass Through Costs with actual amounts as discussed in Section 5.2 less the amount equal to [*] less the estimated amount paid by US Airways on the first day of the month per Section 5.4 (a). If it is determined that US Airways' estimated payment is more than the amount calculated after the end of the month, Chautauqua will be required to refund the overpayment amount promptly. (c) At the end of the month, a payment from the Incentive Fund (hereinafter "Incentive Payment"), if any, will be made to Chautauqua as described in Section 8.3. -13- - -------------- * Confidential (d) Notwithstanding the provisions set forth in this Article 5, in the event that Chautauqua is unable to provide the Chautauqua Services due to the grounding of the Aircraft as a result of a defect in the design or manufacture of the Aircraft or as a result of a strike by employees of Chautauqua, US Airways shall only be responsible for payment of Chautauqua's Fixed Costs and Per Aircraft costs as set forth in Exhibit 5.1 during such period for [*] days. In the event that Chautauqua is unable to provide the Chautauqua Services as a result of Chautauqua's failure to properly maintain the Aircraft, or to otherwise comply with FAA Regulations associated with the maintenance and/or operation of the Aircraft, US Airways payment obligation shall be fully suspended during such time period. In the event Chautauqua is unable to provide the Chautauqua Services as a result of any other reason, including without limitation, due to a US Airways strike, US Airways shall pay Chautauqua its Fixed Costs and Per Aircraft Costs as set forth in Exhibit 5.1 plus its Profit (as defined in Section 5.5 below) for such period based on the minimum number of ASM's guaranteed under this Agreement for each day during such period. SECTION 5.5 PROFIT In addition to the cost reimbursement set forth in Section 5.2 above, US Airways will pay Chautauqua monthly in arrears a "Profit" of [*] per actual Available Seat Mile (ASM) flown during the month provided that, if during the course of any year during the term of this Agreement, the actual number of ASMs flown is less than [*], Chautauqua will be paid a Profit for the lesser of (a) [*], and (b) [*]. The Profit will be escalated [*], beginning in the [*] year of this Agreement, and -14- - -------------- * Confidential thereafter, by [*]. SECTION 5.6 INTENTIONALLY LEFT BLANK SECTION 5.7 LEFT INTENTIONALLY BLANK SECTION 5.8 PAYMENTS All payments due under this Article will be paid directly to Chautauqua, or US Airways, as the case may be, within ten (10) business days of the calculation of any payment that is due under this Agreement, except as provided in Section 5.4(a). -15- - -------------- * Confidential ARTICLE 6 LIABILITY, INDEMNIFICATION AND INSURANCE SECTION 6.1 CHAUTAUQUA IS AN INDEPENDENT CONTRACTOR (a) The employees, agents, and/or independent contractors of Chautauqua engaged in performing any of the services Chautauqua is to perform pursuant to this Agreement will be employees, agents, and independent contractors of Chautauqua for all purposes, and under no circumstances will be deemed to be employees, agents or independent contractors of US Airways. 1n its performance under this Agreement, Chautauqua will act, for all purposes, as an independent contractor and not as an agent for US Airways. US Airways will have no supervisory power or control over any employees, agents or independent contractors engaged by Chautauqua in connection with its performance hereunder, and all complaints or requested changes in procedures will, in all events, be transmitted by US Airways to a designated officer of Chautauqua. Nothing contained in this Agreement is intended to limit or condition Chautauqua's control over its operations or the conduct of its business as an air carrier, and Chautauqua and its principals assume all risks of financial losses which may result from the operation of the air transportation services to be provided by Chautauqua hereunder. (b) The employees, agents, and/or independent contractors of US Airways engaged in performing any of the services US Airways is to perform pursuant to this Agreement will be employees, agents, and/or independent contractors of US Airways for all purposes, and under no circumstance will they be deemed to be employees, agents, and/or independent contractors of Chautauqua. Chautauqua will have no supervision or control over any such US Airways employees, agents, and/or independent contractors and any complaint or requested change in procedure will be transmitted by Chautauqua to US Airways' designated representative. -16- SECTION 6.2 LIABILITY AND INDEMNIFICATION (a) Each party hereto assumes full responsibility for any and all liability to its own directors, officers, employees, or agents arising from injury, or death resulting from or sustained in the performance of its respective services under this Agreement. (b) Chautauqua will indemnify, defend, protect, save, and hold harmless US Airways, its directors, officers, employees, and agents from and against any and all liabilities, claims, demands, suits, judgments, damages, and losses (including the reasonable costs, fees, and expenses in connection therewith and incident thereto), brought against US Airways, its directors, officers, employees or agents by or on behalf of any director, officers, employee, agent or independent contractor of Chautauqua or anyone else claiming through such persons, or by reason of damage or destruction of property of any such person, or injury to or death of such person, caused by or arising out of any act or omission of Chautauqua (collectively "Chautauqua Claims") occurring during the term of this Agreement except for claims based on matters for which US Airways is responsible under the terms of this Agreement or claims arising solely from the gross negligence or willful misconduct of US Airways. US Airways will give Chautauqua prompt and timely written notice of any claim made or suit instituted against US Airways which in any way results in indemnification hereunder, and Chautauqua will have the right to compromise or participate in the defense of same to the extent of its own interest, including the selection of counsel to represent its interest in the matter. (c) Each party, with respect to its own employees, accepts full and exclusive liability for the payment of worker's compensation and/or employer's liability insurance premiums with respect to such employees, and for the payment of all taxes, contributions or other payments for unemployment compensation or retirement benefits, pensions or annuities now or hereafter imposed upon employers by the government of the United States or by any state or local governmental body with respect to such employees measured by the wages, salaries, compensation or other remuneration paid to such employees, or otherwise, and each party further agrees to made such payments and to make and file all reports and returns, and to do everything necessary to comply with the laws imposing such taxes, contributions or other payments. -17- (d) US Airways will indemnify, defend, protect, save, and hold harmless Chautauqua, its directors, officers, employees, and agents from and against any and all reasonable liabilities, claims, demands, suits, judgments, damages, and losses (including all reasonable costs, fees and expenses in connection therewith or incident thereto), brought against Chautauqua, its directors, officers, employees or agents by or on behalf of any director, officer, employee, agent or independent contractor of US Airways or anyone else claiming through such persons, or by reason of damage or destruction of property of any such person, or injury to or death of such person, caused by or arising out of any act or omission of US Airways (collectively "US Airways Claims") occurring during the term of this Agreement except for claims based on matters for which Chautauqua is responsible under the terms of this Agreement or claims arising solely from the gross negligence or willful misconduct of Chautauqua. Chautauqua will give US Airways prompt and timely notice of any claim made or suit instituted against Chautauqua which in any way results in indemnification hereunder, and US Airways will have the right to compromise or participate in the defense of same to the extent of its own interest, including the selection of counsel to represent its interest in the matter. SECTION 6.3 INSURANCE COVERAGE (a) Chautauqua will, at all times during the effectiveness of this Agreement, have and maintain in full force and effect, policies of insurance satisfactory to US Airways, of the types of coverage, and in the minimum amounts stated below with companies reasonably satisfactory to US Airways and under terms and conditions reasonably satisfactory to US Airways, including coverage on all Aircraft from which Chautauqua Services are to be provided pursuant to this Agreement. Unless otherwise specified, the minimum amounts of insurance coverage required under this paragraph will be [*] combined single limit for all coverage required under this paragraph. -18- - -------------- * Confidential Minimum Amount of Insurance Coverage Type of Insurance Coverage (U.S. Currency - Per Occurrence) - ---------------------------------------- ------------------------------------ 1. Comprehensive Airline Liability Insurance (including Premises Liability Products and Completed Operations Liability Insurance) a. Bodily Injury - Passengers and Non-Passengers $[*] Each Occurrence b. Personal Injury - Passengers $[*] Each Occurrence c. Personal Injury - Non-Passengers $[*] Each Occurrence d. Property Damage $[*] Each Occurrence 2. Worker's Compensation Insurance [*] (Chautauqua's Employees) 3. Employer's Liability $[*] (Chautauqua's Employees) 4. All Risk Hull and Aviation Hull War [*] or such lesser amount as may be and Associated Perils (or equivalent) consented to by US Airways insurance on Aircraft performing Chautauqua services hereunder (b) The parties hereby agree that from time to time during the life of this Agreement, US Airways may require Chautauqua to have and maintain amounts different from those set forth in paragraph (a) above, should the circumstances and conditions of Chautauqua's operations under this Agreement be deemed in US Airways' reasonable judgment, to require reasonable increases in any or all of the foregoing minimum insurance coverage. (c) Chautauqua agrees, in addition, that all policies of insurance which it maintains pursuant to this Agreement, will: -19- - -------------- * Confidential (i) provide that any waiver of rights of subrogation against other parties by Chautauqua will not affect the coverage provided hereunder with respect to US Airways; (ii) with respect to the Services performed by the parties pursuant to this Agreement, provide that Chautauqua's underwriters will waive any and all subrogation rights against US Airways, its directors, officers, agents and employees, except for claims based solely upon the gross negligence or willful misconduct of US Airways or any such person; and (iii) be duly and properly endorsed to provide that each such policy or policies or any part or parts thereof will not be canceled, terminated, or materially altered, changed or amended by Chautauqua's insurance underwriters, until after [*] or such lesser period as may from time to time be applicable in the case of any war and allied/associated hull coverage) written notice to US Airways which [*] written notice will commence to run from the date such notice is mailed via reputable overnight carrier to the attention of US Airways. (d) With respect to policies of insurance described in subsection numbered 1 of Section 6.3 (a) of this Agreement, Chautauqua will provide that such policies: (i) endorse US Airways, its directors, officers, agents, and employees as Additional lnsureds thereunder; (ii) constitute primary insurance for such claims and acknowledge that any other insurance policy or policies of US Airways will be secondary or excess insurance; (iii) cover US Airways' [*]; and (iv) provide [*] clauses acceptable to US Airways, and a specific contractual liability insurance provision covering liability assumed by Chautauqua under this Agreement. (e) With respect to policies of insurance for coverage described in subsections 1 and 4 of Section 6.3(a) of this Agreement, a breach of warranty clause reasonably acceptable to US Airways must be provided by Chautauqua's insurers. (f) All aircraft hull insurance provided pursuant to subsection 4 of Section 6.3(a) of this Agreement will be provided on an agreed value basis, and, except with the consent of -20- - -------------- * Confidential US Airways, will not be subject to more than the standard market deductibles, as certified by a recognized broker in the event of loss, settled on the basis of a total loss, all losses will be payable in full. (g) In the event that any of Chautauqua's insurance policies under this Agreement are obtained directly from foreign underwriters, US Airways must be allowed to maintain against such foreign underwriters, a direct action in the United States upon said insurance policies and to provide for service of process to an attorney located within the United States, who maintains an office in Washington, D. C., or New York, New York. (h) Upon the effective date of this Agreement, and from time to time thereafter upon request by US Airways, Chautauqua will furnish to US Airways certificates of insurance satisfactory to US Airways of the aforesaid insurance coverage, limits and endorsements. In addition to the certificates of insurance, Chautauqua's insurance broker will provide their written opinion that the policy or policies of insurance carried by Chautauqua are in full compliance with all of the insurance requirements set forth herein and are in full force and effect. Initially, this evidence will be provided by certified copies of the policies required hereunder. In the event of a change of broker by Chautauqua, such certificates will be supplied to US Airways from broker reasonably satisfactory to US Airways. (i) In the event Chautauqua fails to maintain in full force and effect any of the insurance and endorsements described in this Section 6.3, US Airways will have the right (but not the obligation) to procure and maintain such insurance or any part thereof. The cost of such insurance will be payable by Chautauqua to US Airways upon demand by US Airways. The procurement of such insurance or any part thereof by US Airways does not discharge or excuse Chautauqua's obligation to comply with the provisions of this Section. Chautauqua agrees not to cancel, terminate or materially alter, change or amend any of the policies referred to in this Section until after providing [*] advance written notice to US Airways, of its intent to so cancel, terminate or materially alter, change or amend said policies or insurance, which [*] notice period will commence to run from the date notice is mailed via reputable overnight carrier to the attention of US Airways. -21- - -------------- * Confidential SECTION 6.4 CARGO LIABILITY INSURANCE US Airways will maintain cargo liability insurance coverage, in types and amounts required by law, for all air freight transported by Chautauqua under a US Airways airbill on flights operated pursuant to the Services provided by Chautauqua under this Agreement. -22- ARTICLE 7 TERM AND TERMINATION SECTION 7.1 EFFECTIVE DATE AND TERM This Agreement is effective as of the date and year first written above, and Services provided hereunder will continue, without interruption, for a period of seven (7) years from the implementation date of the first Aircraft, unless it is terminated on an earlier date pursuant to the provisions of this Article 7. US Airways, at its sole option, may extend the agreement by three (3) years with written notification any time up to twelve (12) months before the end of the first seven (7) year term. SECTION 7.2 REGULATORY CHANGES In the event of any change in the statutes and/or regulations governing the provision of the Services to be provided pursuant to this Agreement that materially and adversely affects the economic value of this Agreement, taken as a whole, to either US Airways or Chautauqua, or both, then the parties hereto will consult within thirty (30) days after any of the occurrences described herein in order to determine what, if any, changes to this Agreement are necessary or appropriate to preserve the essence of the Agreement. If the parties hereto are unable to agree whether any change or changes to this Agreement are necessary and proper, or as to the terms of such change or changes, or whether this Agreement should be canceled in light of the occurrences as described above, and such failure to reach agreement will continue for a period of thirty (30) days following the commencement of the consultations provided for by this Section 7.2, then this Agreement may be canceled by the party materially and adversely affected in such manner upon by providing the other party a minimum of ninety (90) days written notice of such cancellation -23- SECTION 7.3 TERMINATION US Airways may terminate this Agreement, for cause, upon not less than ninety (90) days written notice to Chautauqua, should any of the following conditions set forth in subparts (a) through (d) of this Section 7.3 occur during the term of this Agreement, subject to Chautauqua's right to cure such condition as set forth herein. After notice of termination is given, US Airways will meet with Chautauqua for the purpose of resolving the conditions so occurring. Should such conditions not be corrected within ninety (90) days (or action taken to begin correcting the problem if correction cannot be completed within ninety (90) days), then the termination is effective. If the conditions are corrected (or all steps to remedy the situation were promptly taken if the correction cannot be completed reasonably within ninety (90) days), the termination notice shall be deemed rescinded. The conditions arc: (a) If Chautauqua fails to retain and/or utilize the Aircraft in the manner required in Article 2, except as otherwise provided herein; or (b) If, after Chautauqua's introduction of services hereunder with the [*] Aircraft, Chautauqua's flight completion factor falls below the following standard due to [*] operational deficiencies that are within the responsibility of Chautauqua under thus Agreement: [*] for any [*] consecutive months, or [*] for any [*] consecutive months, or (c) If, after Chautauqua's introduction of services hereunder with the [*] Aircraft, Chautauqua's departure performance as measured in Section 8.2 of this Agreement falls below either of the following: [*] for any [*] months, or [*] for any [*] months; or (d) If Chautauqua admits liability or is found liable for safety infractions (other than routine ministerial fines) by the Federal Aviation Administration which could reasonably be expected to lead to the suspension or revocation of Chautauqua's operating certificate, or in US Airways' reasonable opinion, is not complying in any material respect with applicable safety and operational requirements. -24- - -------------- * Confidential SECTION 7.4 TERMINATION BY CHAUTAUQUA Chautauqua shall have the right to terminate this Agreement on ninety (90) days prior written notice to US Airways in the event US Airways terminates the Chautauqua Service Agreement dated as of February 9, 1994, as amended. SECTION 7.5 RETURN OF PROPERTY Upon final termination of this Agreement, each party will, as soon as practicable, return any and all property of the other party to such other party. -25- ARTICLE 8 PENALTIES FOR POOR PERFORMANCE SECTION 8.1 PERFORMANCE HOLDBACK Following Chautauqua's introduction of Services hereunder with the [*] Aircraft, US Airways will withhold [*] from the estimated monthly advance payment due under Section 5.4 ("Holdback"). This Holdback will be paid to Chautauqua based upon Chautauqua's operating performance in accordance with the terms of this Article 8. SECTION 8.2 PERFORMANCE MEASURES Chautauqua's operating performance will be measured each month following Chautauqua's introduction of services hereunder with the [*] Aircraft, based upon the following metrics: (a) The percentage of departures completed within [*] of scheduled departure time based on departures made within Aircraft turn times excluding [*] will be measured. Chautauqua will be awarded [*] for every day that more than [*] of scheduled departures meet goal. (b) The percentage of scheduled departures completed excluding [*] will be measured. Chautauqua will earn [*] for every day that Chautauqua completes more than [*] of scheduled departures. (c) Passenger complaints received for [*] will be tracked by US Airways. [*] will be awarded in any month where complaints received per one hundred thousand (100,000) passengers carried under the terms of this Agreement are less than [*]. SECTION 8.3 PERFORMANCE INCENTIVE PAYMENT -26- - -------------- * Confidential At the end of each month, US Airways will compute the total number [*] earned by Chautauqua and provide a summary statement summarizing the overall performance [*] earned by Chautauqua during the preceding month. US Airways will pay a performance incentive for the previous month based upon the following table: [*] [*] [*] [*] [*] [*] [*] [*] SECTION 8.4 POOR PERFORMANCE PENALTY DISPUTES Any disputes between US Airways and Chautauqua arising as a result of Penalties for Poor Performance will be resolved in accordance with the dispute resolution procedures set forth in Article 15. -27- - -------------- * Confidential ARTICLE 9 SERVICE MARK LICENSE FOR SERVICES PROVIDED PURSUANT TO THIS AGREEMENT SECTION 9.1 GRANT OF LICENSE US Airways hereby grants to Chautauqua a nonexclusive, nontransferable license to use such US Airways Servicemarks as US Airways may designate from time-to-time in connection with the services to be rendered by Chautauqua under this Agreement; PROVIDED, HOWEVER, that at any time during the term of this Agreement, US Airways may alter, amend or revoke the license hereby granted and require at US Airways' expense, if directed by US Airways, Chautauqua's use of any new or different US Airways Servicemarks in conjunction with the air transportation services provided hereunder as US Airways may determine in the exercise of its sole discretion and judgment. SECTION 9.2 TERMS AND CONDITIONS GOVERNING TRADEMARK LICENSE (a) Chautauqua hereby acknowledges US Airways' ownership of the US Airways Servicemarks, further acknowledges the validity of the US Airways Servicemarks, and agrees that it will not do anything in any way to infringe or abridge US Airways' rights in its Servicemarks or directly or indirectly to challenge the validity of the US Airways Servicemarks. (b) Chautauqua agrees that, in providing the Services contemplated under this Agreement or the Service Agreement dated February 9, 1994, as amended, it will not advertise or make use of the US Airways Servicemarks without the prior written approval of US Airways. US Airways will have absolute discretion to withhold its consent concerning any and all such advertising and use of the US Airways Servicemarks in advertising by Chautauqua. In the event US Airways approves the use of such US Airways Servicemarks in any advertising, such advertising will identify US Airways as the owner of such servicemarks, and conform with any additional requirements specified by US Airways. -28- (c) To the extent that Chautauqua is licensed to use the US Airways Servicemarks or the Service Agreement dated as of February 9, 1994, as amended, they will only be used in conjunction with the Chautauqua Services specifically covered by this Agreement and not in connection with any other businesses or activities of Chautauqua or any other entity. (d) Nothing in this Agreement will be construed to give Chautauqua the exclusive right to use the US Airways Servicemarks, or to abridge US Airways' right to use and/or license its Servicemarks, and US Airways hereby reserves the right to continue use of the US Airways Servicemarks and to license such other uses of said Servicemarks as US Airways may desire. (e) No term or provision of this Agreement will be construed to give Chautauqua the exclusive right to use the US Airways Servicemarks. US Airways hereby reserves the right to continue use of the US Airways Servicemarks and to license such other uses of said Servicemarks as US Airways may desire. (f) No term or provision of this Agreement will be construed to preclude the use of the Servicemarks "US Airways Express" or the aircraft exterior color decor and patterns by other individuals or entities not covered by this Agreement. (g) Upon the cancellation or termination of this Agreement, the license and use of the US Airways Servicemarks by Chautauqua will cease, and such use will not thereafter occur except as appropriate in any phase-out of service of this Agreement. -29- ARTICLE 10 FORCE MAJEURE SECTION 10.1 FORCE MAJEURE Notwithstanding anything to the contrary herein contained, it is agreed that either Party will be relieved of its obligations hereunder in the event and to the extent that performance hereof is delayed or prevented by any cause beyond its control and not caused by the Party claiming relief hereunder, including, without limitation, acts of God, public enemies, war, labor shortages, strikes, insurrection, acts or orders of governmental authorities, fire, flood, explosion, or riots or the recovery from such cause ("force majeure"), PROVIDED, HOWEVER, that the foregoing will not apply to the obligations of the parties under Article 6 or the obligations of US Airways to pay for the Chautauqua Services as and to the extent provided under Article 5 of this Agreement. SECTION 10.2 RESUMPTION OF SERVICE Chautauqua agrees that where relief is obtained under this provision to make its best efforts to resume Service. Chautauqua further agrees to consult with and advise US Airways of any anticipated delay or failure, as soon as it becomes aware of such anticipated delay or failure or the possibility thereof, whether for FORCE MAJEURE or otherwise, and where applicable, to reestablish applicable timetables. -30- ARTICLE 11 NOTICES Except where specified elsewhere in this Agreement, any and all notices, approvals or demands required or permitted to be given by the Parties hereto will be sufficient if made in writing and sent by certified mail, postage prepaid, overnight courier or delivered by hand. When sent by mail, such notices will also be sent by facsimile. Notices to US Airways will be addressed to: US Airways, Inc.: Chautauqua Airlines, Inc.: Gregory T. Taylor Vice President, US Airways Express President US Airways, Inc. Chautauqua Airlines, Inc. 2345 Crystal Drive 2500 S. High School Road Arlington, VA 22227 Indianapolis, IN 46251 Facsimile: (703)872-7312 Telephone: (317)484-6000 Telephone: (703)872-7062 Facsimile: (317)484-6060 with copies delivered at the same address with copies delivered to: to the attention of US Airways' General Counsel, Facsimile: (703)872-5252 Arthur Amron Senior Vice President and General Counsel Wexford Management, LLC 411-West Putnam Avenue Greenwich, CT 06830 Telephone: (203)862-7012 Facsimile: (203)862-7312 and to Joseph Jacobs President Wexford Management, LLC 411 West Putnam Avenue Greenwich, CT 06830 Telephone: (203)862-7020 Facsimile: (203)862-7320

-31- ARTICLE 12 MAINTENANCE COST ADJUSTMENT SECTION 12.1 MAINTENANCE COST RISK SHARING Chautauqua (and/or third party providers at the direction of Chautauqua) will maintain the Aircraft and the costs will be considered as Chautauqua Costs. At the end of the initial seven (7) year term of this Agreement, and in the event of an extension of such term, at the end of such extended term, Chautauqua will account to US Airways for the maintenance costs actually incurred during such term. In the event the cumulative aggregate Actual Aircraft Maintenance Costs incurred during such term (the "Actual Maintenance Costs") exceed one hundred five percent (105%) of the cumulative aggregate Aircraft maintenance costs paid by US Airways to Chautauqua during such term (the "Paid Maintenance Costs"), US Airways shall pay Chautauqua one half (1/2) of the amount of such excess, provided that US Airways shall not be required to pay more than three percent(3%) of the Paid Maintenance Costs. In the event the cumulative aggregate Actual Maintenance Costs are less than ninety five percent (95%) of the Paid Maintenance Costs, Chautauqua shall pay US Airways one half (1/2) of the amount of such savings, provided that Chautauqua shall not be required to pay more than three percent (3%) of the Paid Maintenance Costs. SECTION 12.2 INTENTIONALLY DELETED SECTION 12.3 MAINTENANCE COST SUMMARY The Actual Aircraft Maintenance Cost includes the labor, materials, and third party costs associated with maintaining the items shown in Exhibit 12.2. Within ninety (90) days after the end of each calendar year, Chautauqua will provide a detailed summary of the Actual Maintenance Costs incurred during such calendar year prepared according to the generally -32- accepted accounting principals. US Airways will have thirty (30) days to review and accept the maintenance cost summary. SECTION 12.4 MAINTENANCE COST DISPUTES Any disputes between US Airways and Chautauqua arising as a result of the application of the Maintenance Cost Adjustment will be resolved in accordance with the dispute resolution procedure set forth in Article 15. -33- ARTICLE 13 MISCELLANEOUS SECTION 13.1 ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties hereto unless subsequently amended in writing, executed by duly authorized representatives of both parties or their respective successors in interest. SECTION 13.2 HEADINGS Article titles and subheadings contained herein are inserted only as a matter of convenience and for reference. Such titles in no way define, limit, or describe the scope or extent of any provision of this Agreement. SECTION 13.3 SEVERABILITY If, for any reason, any portion of this Agreement will be deemed unenforceable or determined by a court of competent jurisdiction to be in violation of or contrary to any applicable statute, regulation, ordinance, order, or common law doctrine, then that portion will be of no effect. Nevertheless, the balance of the Agreement will remain in full force and effect as if such provision were never included. SECTION 13.4 WAIVER Except as otherwise specifically provided in this Agreement, a waiver by either Party of any breach of any provision of this Agreement, or either Party's decision not to invoke or enforce any right under this Agreement, will not be deemed a waiver of any right or subsequent breach, and all provisions of this Agreement will remain in force. -34- SECTION 13.5 ASSIGNABILITY The Parties agree that this Agreement and the rights and obligations established hereunder, may not be assigned, in whole or in part, without the prior written consent of the other, where such consent will not be unreasonably withheld, except that US Airways may assign its rights to US Airways Group, Inc., or any subsidiary of that company, or any successor through merger, asset sale, operation of law or the like. Chautauqua may assign its right to Wexford III Corp., or any subsidiary of that company, or any successor through merger, asset sale, operation of law or the like. Notwithstanding any such assignment, the Parties agree that they will remain responsible for their financial obligations under this Agreement. SECTION 13.6 GOVERNING LAW This Agreement will be governed by, construed and enforced in accordance with the laws of the United States and the State of New York, as though the entire contract were performed in New York and without regard to New York's conflict of laws, rules, or statutes. The parties further agree that they consent to the jurisdiction of the Courts of New York or the federal courts located within the State of New York and waive any claim of jurisdiction or FORUM NON CONVENIENS. SECTION 13.7 NO FRANCHISE Nothing is this Agreement is intended to imply or confer upon the arrangements contemplated hereunder, any status as a "franchise" as recognized under any state law. Accordingly, no franchiser-franchisee relationship exists between US Airways and Chautauqua as a result of this Agreement. -35- ARTICLE 14 CONFIDENTIALITY SECTION 14.1 CONFIDENTIALITY OF AGREEMENT The Parties agree that the terms of this Agreement and any other Confidential Information (as defined in Section 14.2 hereof) furnished hereunder will be treated as confidential and will not be disclosed to any other person or entity without the express written consent of the other party; provided that each party may, without the consent of the other party, disclose Confidential Information as expressly permitted below: (a) to directors, officers, employees, permitted assigns and agents of each party and their respective Affiliates (as defined in Section 14.4 or 14.5 hereof); or (b) to prospective financial institutions for the purposes of providing financing of Aircraft for Chautauqua; or (c) to subcontractors, auditors, accountants or legal and financial advisors of such party and its Affiliates; or (d) to such other parties as may be required by law, by government regulation or order, by subpoena or by any other legal process. In the event that a disclosure becomes necessary, as provided in this subclause (d) of this Section 14.1, each party shall consult and cooperate with the other party to limit (to the extent permissible) the scope and form of such disclosure. In the event of such disclosure required by law, only those portions of this Agreement required to be disclosed will be released. The disclosing party will make good faith efforts to minimize the portions to be disclosed and will seek confidential treatment by the receiving party or agency or any portions disclosed. In the event of one party being served a subpoena or discovery request, prior to responding to the subpoena or request, the party served will notify the other party, so that the other party will have an opportunity to contest, if it chooses to do so, the disclosure of the content of this Agreement. -36- SECTION 14.2 CONFIDENTIAL INFORMATION "Confidential Information" means all restricted information having business value, regardless of the form in which it exists, including, without limitation, the terms of this Agreement, written documents, oral communications, recordings, videos, software, databases, business plans, and electronic/magnetic media, provided to or observed by either party pursuant to this Agreement, including information owned or provided by either party to the other party, except otherwise as expressly provided in Section 14.3 hereof. Each party agrees that it will maintain all Confidential Information in confidence using the same degree of care with respect to such Confidential Information as it uses in protecting its own proprietary information, and will use it solely for purposes of its own business operations in accordance with the terms hereof. Such Confidential Information will be distributed within each party's company only to personnel with a need to know such information for permitted purposes or in compliance with a court order or statutory or regulatory requirements; PROVIDED, HOWEVER, that prior to any such latter disclosure, the party shall inform all such persons of the confidential nature of the information, and that it is subject to this non-disclosure obligation, and shall further instruct such persons to treat such information confidentially. The parties expressly acknowledge and agree that the terms and conditions of this Agreement and any reports, invoices, or other communications between US Airways and Chautauqua given hereunder or in connection herewith constitute Confidential Information of both parties. SECTION 14.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION Notwithstanding the foregoing, Confidential Information will not be considered confidential and each party and their respective Affiliates may disclose any item of Confidential Information without restriction in any of the following circumstances if such item: (a) is publicly available (either to the general public or to any relevant trade or industry) prior to either party's receipt of it from the other party hereto; -37- (b) is thereafter made publicly available (either to the general public or to any relevant trade or industry) by another party hereto or by a third party which is entitled to make such item publicly available; (c) becomes available to either party hereto on a non-confidential basis from a source which has represented to such party that such source is entitled to disclose it; or (d) was known to either party hereto on a non-confidential basis prior to its disclosure to such party by another party hereto. The provisions of this Article 14 will survive any termination of this Agreement for a period of three (3) years. SECTION 14.4 INFORMATION SHARED WITH US AIRWAYS GROUP, INC. Notwithstanding anything to the contrary herein, Chautauqua acknowledges and agrees that any Confidential Information shared or given to US Airways pursuant to this Agreement may be shared by US Airways on a confidential basis with US Airways Group, Inc., and US Airways Affiliates, where US Airways Affiliates is defined as subsidiaries of US Airways Group, Inc., each of which shall be deemed "Affiliates" of US Airways for purposes of this Article 14. SECTION 14.5 INFORMATION SHARED WITH CHAUTAUQUA Notwithstanding anything to the contrary herein, US Airways acknowledges and agrees that any Confidential Information shared or given to Chautauqua pursuant to this Agreement may be shared by Chautauqua on a confidential basis with Wexford Management LLC, Wexford III Corp. and entities that are wholly owned or controlled by Wexford Management LLC or Wexford III Corp., each of which shall be deemed "Affiliates" of Chautauqua for the purposes of this Article 14. SECTION 14.6 RETURN OF DOCUMENTS (a) Upon the reasonable request of either party, each party will immediately return to the other party, at its own expense, all documents of the requesting party and all copies of such -38- documents in its possession or under the control either directly or indirectly of its agents. Each party acknowledges and agrees that the other party will have the right to exercise this right as many times as it deems necessary throughout the term of this Agreement. (b) Upon termination of this Agreement, with or without cause and for any reason, each party shall, within ninety (90) days of such termination, either deliver to the other party, of destroy, all of such other party's Confidential Information (including copies thereof encoded or stored on magnetic or other electronic media or processors; PROVIDED, HOWEVER, that neither party shall be required to purge or destroy any Confidential Information for so long as such Confidential Information is reasonably necessary continued administration and operation of their respective programs or is reasonably necessary in connection with the resolution of any disputes which may have at the time arisen pursuant to the terms of this Agreement; PROVIDED, FURTHER, that any Confidential Information not purged or destroyed pursuant to the preceding proviso shall be purged or destroyed as soon as it is no longer reasonably necessary for continued administration or resolution of disputes. SECTION 14.7 REMEDIES Each party acknowledges and agrees that the party disclosing Confidential Information under this Agreement will have no adequate remedy at law if there is a breach or threatened breach of this Article 14 and accordingly, that the disclosing party shall be entitled to an injunction or other equitable or preventative relief against the other party or its representatives for such breach or threatened breach. Nothing herein shall be construed as a waiver of any other legal or equitable remedies which may be available to the disclosing party in the event of a breach or threatened breach of this Article 14 and the disclosing party may pursue any other such remedy, including the recovery of damages. -39- ARTICLE 15 DISPUTE RESOLUTION SECTION 15.1 CERTAIN DISPUTES Any dispute, difference, controversy or claim arising out of or relating to a significant event that might affect the accumulation of Points or a Poor Performance Penalty under Section 8.2 of this Agreement, the Maintenance Cost Adjustment set forth in Article 12 or the adjustment of Per Block Hour Costs under Section 5.2(a), the breach or non-performance thereof shall first be attempted to be resolved by US Airways and Chautauqua through mutual negotiations, consultation and discussions for a period of thirty (30) days. SECTION 15.2 DISPUTE RESOLUTION PROCEEDINGS In the event that the parties are unable to settle their differences or disputes which may arise between them under Section 15.1, above, then either party may submit such dispute ("Dispute") for binding arbitration with the following conditions: (a) the proceeding will be held before a panel of three arbitrators where each party will choose one arbitrator and the third will be selected jointly by the two appointed arbitrators and, where such agreement cannot be reached, by appointment of the Administrator of the American Arbitration Association or his or her designee; (b) except as modified by this Article, the Arbitration Rules of the American Arbitration Association will govern the arbitration; (c) the proceeding will be conducted in the State of New York; (d) the law and common Law of the United States and the State of New York will be applied without regard to New York conflict of laws statutes; (e) the proceeding will be closed except to the parties, their attorneys, representatives, witnesses and experts, all of whom must agree to maintain the confidentiality of the dispute; -40- (f) the existence, proceeding and resolution of the Dispute will be kept confidential by the parties and will only be disclosed to parties and individuals with a need to know of its existence and who will agree to maintain confidentiality; (g) the arbitration will be binding upon the parties unless mutually agreed otherwise in writing; and (h) each party will be responsible for its own costs and expense incurred as a result of, or in connection with the arbitration, including the costs, fees, and expenses of its own representatives and designated arbitrator, in the proceeding, except that the costs of the third arbitrator will be shared jointly by the parties. IN WITNESS WHEREOF, US Airways and Chautauqua have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written. CHAUTAUQUA AIRLINES, INC. US AIRWAYS, INC. /s/ Arthur Amron /s/ Gregory T. Taylor - ---------------------------- ---------------------------- By: Bryan Bedford By: Bryan Bedford Title: Vice President Title: Vice President Chautauqua Airlines, Inc. US Airways Express /s/ Kia E. Hardy /s/ [ILLEGIBLE] - ---------------------------- ---------------------------- Witness Witness [SEAL] [SEAL] -41- EXHIBIT 2.1 *IMPLEMENTATION SCHEDULE OF AIRCRAFT DEPLOYMENT
DATE NUMBER OF OPERATIONAL AIRCRAFT July 1999 2 September 1999 3 December 1999 4 February 2000 5 April 2000 6 June 2000 7 August 2000 8 October 2000 9 December 2000 10
- ---------- * Subject to revision only due to delivery delays by Embraer. -42- EXHIBIT 2.1(a) SCHEDULE REQUIREMENTS The weekly schedules for the Aircraft specified by US Airways must meet the following [*] schedule parameters. [*] [*] Scheduled Block Hours per Aircraft per Day [*] [*] Scheduled Departures per Aircraft per Day [*] [*] Available Seat Miles per Aircraft per Day [*] [*] US Airways will meet the following criteria in devising the schedule: 1. Aircraft Turn Times For operations at US Airways designated hubs (for purposes of this Agreement only, Pittsburgh, Boston, Washington-National, New York LaGuardia, Charlotte, Philadelphia, and Dulles and any other hubs that US Airways may establish) the minimum turn time (defined as the time from Aircraft blocking to Aircraft unblocking) will be [*] minutes. For operations at a non US Airways hub, the minimum turn time will be [*] minutes. 2. Aircraft Maintenance Requirements During the period Chautauqua operates up to [*] Aircraft, [*] Aircraft will be scheduled for overnight maintenance for a minimum period of [*] per day for [*] each week. 1n addition, [*] Aircraft will be scheduled for [*] of continuous maintenance time each week beginning on Saturday afternoon. [*] -43- - -------------- * Confidential 3. Maintenance Base The schedule will allow for the establishment of a single maintenance base in Indianapolis, Indiana. 4. Crew Overnights The schedule will allow for [*] of crews in outstations and will not require Chautauqua to schedule [*]. 5. Crew Bases [*] 6. Hub Arrivals/Departures [*] 7. Consent to Schedule Changes To the extent that US Airways' schedule falls outside of the criteria set forth herein, US Airways shall request Chautauqua to consent to such schedule and Chautauqua shall not unreasonably withhold such consent provided that the schedule being requested will not impose additional costs upon Chautauqua and/or make Chautauqua's compliance with its performance requirements more difficult, further provided that US Airways shall have the right to reimburse Chautauqua for such additional costs and/or adjust the performance criteria so that the immediately proceeding proviso shall no longer be applicable to the schedule request in question. -44- - -------------- * Confidential EXHIBIT 2.8 DIVISION OF RESPONSIBILITIES (1) The parties will be responsible for providing, at their own cost, service and materials, as set forth below, Assignment of services and materials to categories will be according to generally accepted accounting principals and in keeping with Airline Industry Standard Functional Classifications as required for reporting Form 41 data to the Department of Transportation. Except as otherwise provided in Articles 4 and 5, the assignment of responsibility will be as follows: TO CHAUTAUQUA TO US AIRWAYS, INC. 5100 Flying Operations 5500 Passenger Service(1) 5200 Direct Maintenance 6200 Traffic Servicing 5300 Maintenance Burden(2) 6300 Related to Traffic Servicing 6100 Aircraft Servicing(3) 6500 Reservations and Sales 6300 Related to Aircraft Servicing 6600 Advertising and Publicity 6800 Related to Aircraft Operations 6800 Related to Passengers & Revenue 7000 Depreciation and Amortization related 7000 Depreciation and Amortization related to aircraftand maintenance equipment airport facilities and ground facilities and equipment 7100 Transport Related Expenses as they 7100 Transport Related Expenses as they relate relate to the above referenced items to the above referenced items

(2) Chautauqua will be responsible for providing, fuel (into plane), airport landing fees, passenger catering, passenger liability insurance, and property tax. Chautauqua will be fully reimbursed for these items (the "Pass Through Costs") as described in Section 5.4. - ---------- 1 Except Flight Attendant which will be the responsibility of Chautaugua 2 Except Station Ground Equipment which will be the responsibility of US Airways 3 De-icing costs and overnight aircraft parking shall be the responsibility of US Airways -45- EXHIBIT 5.1 PRICING MODEL SUBJECT TO REVIEW BY BOTH PARTIES [*] -46- - -------------- * Confidential EXHIBIT 12.2 AIRCRAFT MAINTENANCE ITEMS* APU (Sundstrand) Central MTC System (ATA ref. 45) Engine (Allison) Airborne Auxiliary Power (ATA ref 49) Avionics (Honeywell) Structures (ATA ref. 51) Placards & Markings (ATA ref 11) Doors (ATA ref. 52 and 53) AC Press (ATA ref. 21) Nacelles/Pylons (ATA ref 54) Auto Flight (ATA ref 22) Stabilizers (ATA ref 55) Communications (ATA ref. 23) Windows (ATA ref. 56) Electrical Power (ATA ref. 24) Wings (ATA ref 57 Interior (ATA ref. 25) Engine Mounting (ATA ref 71) Fire Protection (ATA ref. 26) Engines (ATA ref 72) Flight Controls (ATA ref. 27) Fuel & Control (ATA ref 73) Fuel System (ATA ref, 28) Ignition (ATA ref 74) Hydraulic Systems (ATA ref. 29) Engine Controls (ATA ref 76) Ice/Rain Prot (ATA ref. 30) Engine Indicating (ATA ref. 77) Indicating & Rec. (ATA ref. 31) Exhaust (ATA ref. 78) Landing Gear (ATA ref. 32) Oil (ATA ref 79) Lights (ATA ref. 33) Starting (ATA ref. 80) Navigation (ATA ref. 34) Oxygen (ATA ref. 35) Bleed Air (ATA ref. 36) Waste Water (ATA ref. 38) - -------- * Aircraft maintenance subjects as defined by the Air Transportation Authority (ATA) -1- EX-10.13 10 a2082173zex-10_13.txt EXHIBIT 10.13 EMB-145LR AMEND & RESTATED PUR AGMNT EXHIBIT 10.13 EMB-145LR --------- AMENDED AND RESTATED -------------------- PURCHASE AGREEMENT NUMBER GCT-025/98 ------------------------------------ EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. ------------------------------------------------ AND --- REPUBLIC AIRWAYS HOLDINGS, INC. ------------------------------- - ---------- Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933. The omitted materials have been filed separately with the Securities and Exchange Commission. INDEX ----- ARTICLE ------- 01 - DEFINITIONS 02 - SUBJECT 03 - PRICE 04 - PAYMENT 05 - DELIVERY 06 - CERTIFICATION 07 - ACCEPTANCE AND TRANSFER OF OWNERSHIP 08 - STORAGE CHARGE 09 - DELAYS IN DELIVERY 10 - INSPECTION AND QUALITY CONTROL 11 - CHANGES 12 - WARRANTY 13 - TECHNICAL ASSISTANCE SERVICES 14 - SPARE PARTS POLICY 15 - PUBLICATIONS 16 - ASSIGNMENT 17 - RESTRICTIONS AND PATENT INDEMNITY 18 - MARKETING AND PROMOTIONAL RIGHTS 19 - TAXES 20 - APPLICABLE LAW 21 - ARBITRATION 22 - JURISDICTION 23 - TERMINATION 24 - OPTION FOR THE PURCHASE OF ADDITIONAL EMB-145 AIRCRAFT 25 - INDEMNITY 26 - NOTICES 27 - CONFIDENTIALITY 28 - INTEGRATED AGREEMENT 29 - NEGOTIATED AGREEMENT 30 - COUNTERPARTS 31 - ENTIRE AGREEMENT 32 - NO WAIVER 33 - REPRESENTATIONS AND WARRANTIES 34 - EFFECTIVENESS ATTACHMENTS ----------- "A-1"- US AIRWAYS AIRCRAFT SPECIFIC CONFIGURATION, FINISHING AND REGISTRATION MARKS "A-2"- AMERICA WEST AIRCRAFT SPECIFIC CONFIGURATION, FINISHING AND REGISTRATION MARKS "B"- FERRY EQUIPMENT, SPARE PARTS POLICY AND LIST OF PUBLICATIONS "C" - WARRANTY CERTIFICATE - MATERIAL AND WORKMANSHIP "D" - AIRCRAFT PRICE ESCALATION FORMULA "E" - AUTHORIZED REPRESENTATIVE APPOINTMENT "F" - FORM OF WARRANTY BILL OF SALE "G" - FORM OF GUARANTEE AMENDED AND RESTATED -------------------- PURCHASE AGREEMENT NO. GCT-025/98 --------------------------------- This Amended and Restated Purchase Agreement is entered into as of this 19 day of April, 2002 by and between Embraer - Empresa Brasileira de Aeronautica S.A. and Republic Airways Holdings, Inc., for the purchase and sale of Embraer aircraft, services and related spare parts. Solitair Corp. ("Solitair") has assigned to Buyer (as defined below) all of Solitair's rights and obligations under the Purchase Agreement DCT-025/98 between Embraer and Solitair (as amended before the date of this agreement, the "Original Purchase Agreement"), with respect to the sale of twenty (20) unexercised option aircraft (as defined below). In connection with such assignment, Solitair has also assigned its remaining rights with respect to the fleet of aircraft delivered under the Original Purchase Agreement. Solitair has retained its rights and obligations with respect to the five (5) additional aircraft currently scheduled for delivery under the Original Purchase Agreement. This Agreement (as defined below): (a) amends and restates all rights and obligations of Embraer and Buyer with respect to the twenty (20) unexercised option aircraft under the Original Purchase Agreement; (b) states the rights and obligations of Embraer and Buyer with respect to seventeen (17) additional option aircraft that were previously connected to the Original Purchase Agreement; (c) states the terms and conditions upon which the "Buyer's" remaining rights under the Original Purchase Agreement will apply to the forty-eight (48) aircraft previously delivered under the Original Purchase Agreement and the five (5) additional aircraft scheduled for delivery under the Original Purchase Agreement. The sale covered by this Agreement shall be governed solely by the terms and conditions herein set forth, as well as by the provisions set forth in the attachments hereto. Except as expressly provided to the contrary herein, nothing in this Agreement shall be deemed to grant Buyer or Chautauqua (as defined herein) any rights with respect to undelivered aircraft other than the thirty-seven (37) Option Aircraft (as defined below). 1. DEFINITIONS - ---------- For the purpose of this Agreement, the following definitions are hereby adopted: a. Actual Delivery Date - shall mean, with respect to each Aircraft, the date on which Buyer obtains title to that Aircraft in accordance with Article 7(c). b. Aircraft - shall mean the EMB-145 LR aircraft or, where there is more than one of such aircraft, each of such Aircraft (including Firm Aircraft and Option Aircraft, as the context requires), manufactured by Embraer, for sale to Buyer pursuant to this Agreement, according to the Technical Description number TD-145/010, dated January 1998 (Appendix I), the Aircraft Specific Configuration, Finishing and Registration Marks described in Attachment `A-1' (or `A-2', if Buyer notifies Embraer that it desires to receive the Aircraft such configuration [*], and as may be amended from time to time by Buyer at its expense as specified in Article 11. [*] c. Agreement - shall mean this Amended and Restated Purchase Agreement No. GCT-025/98, its Schedules, and any Letter Agreement between the Parties executed on the date hereof. d. Business Day - shall mean days on which the banks in each of New York, New York, United States and Sao Paulo, and Sao Jose dos Campos, S.P. Brazil are open for the normal transaction of business. e. Basic Price - shall mean the Aircraft total price, effective on the date of execution of this Agreement contained in Article 3 (a)(1) or, in case of revision thereof, on the date of its revision. f. Buyer - shall mean REPUBLIC AIRWAYS HOLDINGS, INC., a Delaware corporation with its principal place of business at 2500 S. High School Road, Indianapolis, Indiana 46241, United States or its assignee pursuant to Article 16 hereof. g. Chautauqua - shall mean Chautauqua Airlines, Inc. h. Contractual Delivery Date - shall mean the delivery dates referred to in Article 5 hereof. i. CTA - shall mean the Aerospace Technical Center of the Brazilian Ministry of Aeronautics. j. Embraer - shall mean EMBRAER - Empresa Brasileira de Aeronautica S.A., a Brazilian corporation with its principal place of business at Av. Brigadeiro Faria Lima, 2170 - Putim, Sao Jose dos Campos, Sao Paulo, Brazil. - ---------- * Confidential k. FAA - shall mean the Federal Aviation Administration of the United States of America. l. Firm Aircraft - shall have the meaning specified in Article 2.a hereof. m. Initial Provision List or "IPL" - shall have the meaning specified in Article 2.b hereof. n. Option Aircraft - shall have the meaning specified in Article 2.a hereof. o. Parties - shall mean Embraer and Buyer. p. Purchase Price - shall mean the Aircraft total price, effective on the relevant Aircraft Contractual Delivery Date, resulting from the application of the Escalation Formula contained in Attachment "D" pursuant to the terms hereof. q. Services - shall mean technical assistance services, as specified in Article 13 hereof. r. Spares - shall mean line replaceable units, spare parts and ground support equipment, except engines, available for purchase through Embraer, to be selected and acquired by Buyer through the initial provisioning list agreed to by the Parties and provided pursuant to Article 2.b. (the "IPL"). 2. SUBJECT a. Embraer shall sell and Buyer shall purchase and take delivery of zero (0) firm order Aircraft ("Firm Aircraft") and, if Buyer so elects, up to thirty-seven (37) option Aircraft ("Option Aircraft") upon the terms and conditions contained in this Agreement. b. Embraer shall sell, and Buyer shall acquire, Spares for each of the Aircraft. Buyer shall inform Embraer at least [*] prior to the Contractual Delivery Date of the Spares for each Aircraft selected from IPL for such Aircraft and such Spares shall be delivered in accordance with Article 5.b. c. Embraer shall render the Services as specified in Article 13. 3. PRICE a. Buyer agrees to pay Embraer, subject to the terms and conditions of this Agreement, in United States dollars, the following prices: 1. The Aircraft Basic Price of [*] - ---------- * Confidential 2. Buyer shall have in its sole discretion the right to purchase up to [*], with respect to Spares. [*] b. The Services are to be provided [*]. c. The Aircraft Basic Price [*]. Such price as escalated shall be the Aircraft Purchase Price and [*]. 4. PAYMENT The prices specified in the previous Article shall be paid in cash, by means of a wire transfer, on each Business Day specified below by Buyer as follows for Firm Aircraft: a. Aircraft 1. An initial deposit of [*]. 2. A [*] progress payment [*] is due and payable [*] prior to each relevant Aircraft Contractual Delivery Date. 3. A [*] progress payment [*], is due and payable [*] prior to each relevant Aircraft Contractual Delivery Date. 4. A [*] progress payment [*], is due and payable [*] prior to each relevant Aircraft Contractual Delivery Date. 5. The balance of each Aircraft Purchase Price, shall become due and payable upon acceptance of each relevant Aircraft by Buyer. b. Spares: 1. [*] of the price of Spares for each Aircraft shall become due and payable [*] prior to the relevant Aircraft Contractual Delivery - ---------- * Confidential Date or the date of delivery of the Spares calculated in accordance with Article 5.b [*]. 2. [*] of the price of the Spares for each Aircraft shall become due and payable upon delivery of the Spares items as set forth in Article 5.b. c. Late Payments and Termination for Failure to Make Payments: Interest will accrue at a Rate of [*] on any amount not paid to Embraer as set forth in Article 4.a and 4.b above from the date on which such payments should have been made or as set forth therein until the actual receipt by Embraer of such amounts. [*] 5. DELIVERY a. AIRCRAFT: Subject to payment in accordance with Article 4 and the provisions of Articles 4, 7 and 9, the Aircraft shall be offered for delivery by Embraer to Buyer, by - ---------- * Confidential means of a notice, for inspection, acceptance and subsequent delivery in F.A.F. (Fly Away Factory) condition, at Sao Jose dos Campos, State of Sao Paulo, Brazil, according to the schedule set forth in Article 24 and subject to the terms of that article. b. SPARES: Subject to receipt by Embraer of the list of Spares selected by Buyer from the IPL in accordance with Article 2.b, such items shall be delivered by Embraer to Buyer in F.C.A. (Free Carrier - INCOTERMS 1990) condition, at Sao Jose dos Campos, State of Sao Paulo, Brazil, or at any other port of clearance that Embraer may identify to Buyer. The provision of Spares for each Aircraft shall be delivered on the relevant Aircraft Actual Delivery Date. [*] 6. CERTIFICATION On the Actual Delivery Date of an Aircraft, the EMB 145-LR aircraft shall have valid and effective type certificates issued by the CTA and FAA. The Aircraft shall also be delivered to Buyer with an export certificate of airworthiness issued by CTA complying with the requirements of FAA regulation ("FAR") Part 25 and the requirements of the FAA. The condition of the Aircraft on delivery and the documentation delivered with the Aircraft, including the above mentioned export certificate of airworthiness, shall be sufficient to enable Buyer to obtain an FAR Part 25 certificate of airworthiness for the Aircraft. Subject to the above, it shall be Buyer's responsibility to obtain such certificate of airworthiness for the Aircraft, at Buyer's sole expense, although Embraer will provide assistance if requested to do so, at Buyer's cost. [*] 7. ACCEPTANCE AND TRANSFER OF OWNERSHIP a. Unless Embraer notifies Buyer otherwise, the Aircraft shall be delivered in accordance with the provisions and schedules specified in Article 5 herein. Embraer shall give Buyer [*] advance notice of the date on which Embraer considers that each Aircraft will be ready for delivery in the condition specified herein. Upon successful completion of ground and flight tests performed by Embraer, Buyer will receive a confirmation from Embraer of the day that the Aircraft concerned is ready for inspection and will provide Buyer within [*] notice of the date of such inspection. - ---------- * Confidential b. Buyer shall be allowed a reasonable period of time to conduct a ground inspection and an acceptance flight or flights, if necessary ("Inspection") of each Aircraft prior to its delivery. [*] After such acceptance flight and if Buyer accepts the Aircraft in accordance with this Article 7, each Aircraft will be delivered by Embraer to Buyer in accordance with Article 6 hereof [*]. c. Buyer shall accept the Aircraft provided, in the reasonable determination of Buyer, the Aircraft meets the terms and conditions of this Agreement. Immediately after such acceptance, Buyer shall make the payments due, if any, according to Article 4 and accept delivery of such Aircraft, whereupon [*] title and risk of loss will be transferred to Buyer and Buyer shall execute the necessary title and risk transfer documents required in order to effect title transfer, including but not limited to an FAA form Bill of Sale and a Warranty Bill of Sale substantially in the form attached hereto as Schedule G. [*] d. If Buyer declines to accept an Aircraft after its Inspection because the Aircraft failed to meet the terms of this Agreement, Buyer shall immediately give Embraer notice of all specific reasons for such refusal and [*], commencing on the first Business Day after receipt of such notice, to take all necessary actions [*]. e. Buyer shall inspect the Aircraft, as provided for in Article 7.b., within [*] notice from Embraer that all necessary actions were taken ("Reinspection"). [*] f. Embraer shall ensure that the Spares for each Aircraft are available for inspection by Buyer on or before the date of delivery in accordance with Article 5.b. and shall notify Buyer of such availability. Buyer shall be allowed to inspect the Spares to be delivered in connection with each Aircraft. [*] - ---------- * Confidential g. Should Buyer fail to comply with the procedures specified in any of the preceding items 7 (a) through 7 (e), Embraer shall not be held liable for any delays in delivery resulting from such failure. h. [*] i. Buyer shall be permitted to delegate its duties in this Article 7 and in Article 5 as to the physical inspection, reinspection, and acceptance and delivery of the Aircraft and Spares to its authorized representative in the form attached hereto as Schedule F. j. [*] - ---------- * Confidential 8. STORAGE CHARGE a. A storage charge equal to [*] shall be charged by Embraer to Buyer commencing on: 1. Buyer's failure to perform Inspection or Re-inspection of an Aircraft, per the date or time period specified in writing by Embraer, according to Article 7. 2. Buyer's acceptance of an Aircraft when Buyer defaults in the fulfillment of any payment due and in taking title to such Aircraft immediately thereafter. 3. Buyer's failure within [*] after title transfer to remove an Aircraft from Embraer's facilities. Storage charges shall end on the earlier of i) Buyer's and Embraer's agreement to end such storage charge, ii) removal of the relevant Aircraft from Embraer's facilities or iii) in the event this Agreement with respect to such Aircraft is terminated in accordance with Article 23. If however, Buyer notifies Embraer in writing [*] in advance of its expected delay in the performance of its obligations set forth in this Article 8, the storage charge shall commence [*] after the occurrence of the events set forth in this Article 8.a. b. In the event that an Aircraft Contractual Delivery Date must be extended by Embraer from that which is designated in Article 5, due to Buyer's failure to perform any action or provide any information contemplated by this Agreement other than the ones specified in the preceding items, and the Aircraft otherwise was to be delivered on the Contractual Delivery Date, the storage charge shall commence [*] after the Contractual Delivery Date relative to such Aircraft. c. Buyer shall pay the storage charge set forth in Article 8.a. and 8.b., as applicable, per each month of delay or part thereof, within [*] after the presentation of each invoice by Embraer. 9. DELAYS IN DELIVERY a. EXCUSABLE DELAYS: - ---------- * Confidential 1. Embraer shall not be held liable or be found in default for any delays in the delivery of an Aircraft or any Spares or in the performance of any act to be performed by Embraer under this Agreement, resulting from the following events or occurrences, hereinafter referred to as "Excusable Delays": [*] 2. Within [*] after the occurrence of any of the above mentioned events which constitute causes of Excusable Delays in delivery of an Aircraft or any Spares or in the performance of any act to be performed by Embraer under this Agreement, Embraer shall send a notice to Buyer, [*]. 3. Any such delays shall extend the time for delivery of an Aircraft or Spares by [*]. 4. If the cause of such Excusable Delay is such as to last longer than [*], then Buyer shall have the option to terminate this Agreement without liability to either party, in accordance with Article 23.b. b. NON-EXCUSABLE DELAYS: - ---------- * Confidential 1. If the delivery of an Aircraft or Spares is delayed, not as a result of an Excusable Delay [*] 2. [*] 3. [*] 4. [*] 5. [*] - ---------- * Confidential c. DELAY DUE TO LOSS OR STRUCTURAL DAMAGE TO THE AIRCRAFT: Should any Aircraft be destroyed or damaged before acceptance by the Buyer to the extent that it becomes commercially useless, Buyer may, at its sole discretion take a replacement Aircraft under the same terms and conditions of this Agreement at a later delivery date to be agreed by the Parties. Within three (3) months after such loss, Embraer will provide Buyer with a new delivery date for a replacement Aircraft. [*] 10. INSPECTION AND QUALITY CONTROL a. Buyer is hereby permitted to have one or more authorized representatives at Embraer's facilities for a period commencing [*] prior to the Contractual Delivery Date of each Aircraft in order to assure that the Aircraft, Spares and Services were developed in accordance with the procedures specified in this Agreement and according to all applicable quality control standards. Buyer may communicate its concerns as to the production of the Aircraft and Spares to Embraer. b. Buyer shall communicate to Embraer the names of its authorized representatives, by means of notice, at least fifteen (15) days prior to the arrival of the authorized representatives. Buyer may substitute authorized representatives, provided written notice is given to Embraer fifteen (15) calendar days prior to effectivity. - ---------- * Confidential c. Such representatives may also be authorized to sign the acceptance and transfer of title and risk documents and accept delivery of the Aircraft and Spares pursuant to Article 7. d. With respect to this Article 10, Embraer shall provide for use in accordance with the Agreement at no cost to Buyer, communication facilities (telephone and facsimile) for Buyer's authorized representatives, as well as the necessary tools, measuring devices, test equipment and technical assistance as may be necessary to perform acceptance tests. e. Buyer's authorized representatives shall observe Embraer's administrative rules and instructions while at Embraer's facilities, and Buyer's representatives will be provided with all appropriate rules and regulations upon arrival. f. Buyer's authorized representatives shall be allowed exclusively in those areas related to the subject matter hereof and Buyer agrees to hold harmless Embraer from and against all and any kind of liabilities in respect to such representatives, for whom Buyer is solely and fully responsible under all circumstances and in any instance except to the extent caused by the gross negligence or willful misconduct of Embraer, its officers, directors, employees or agents. 11. CHANGES a. At delivery each Aircraft will comply with the standards defined in Attachment "A-1 or "A-2" as applicable and shall incorporate all modifications which are classified as Airworthiness Directives (AD's) mandatory by CTA or FAA and shall also at Delivery incorporate any change agreed upon by Buyer and Embraer in accordance with this Article 11. b. [*] c. Embraer may make changes in the design of the Aircraft, the definition of which and its respective classification shall be in compliance to the Aircraft type specification, as follows: 1. MINOR CHANGES: defined as those modifications which shall not adversely affect the Aircraft in any of the following: [*] - ---------- * Confidential 2. MAJOR CHANGES: defined as those modifications which affect at least one of the topics mentioned in item "c.1." above. d. Embraer shall have the right, without the prior consent of Buyer, to make Minor Changes, as referred to in item "c.1" above, in the design of the Aircraft. The costs of any such changes shall be borne by Embraer. e. Major Changes as referred to in item "c.2." above which are classified as AD's mandatory by CTA and or FAA shall be conveyed to Buyer by means of Service Bulletins, approved by said authorities. Incorporation of such Service Bulletins in all Aircraft and Spares yet to be delivered to Buyer will be made by Embraer at Embraer's own costs, in a commercially reasonable period of time. [*] Whenever warranty coverage is not available or applicable, item "e" of this Article 11 shall apply. [*] Embraer shall not be held liable for any delays in the Aircraft Contractual Delivery Date resulting from the execution of any change classified as mandatory by CTA or FAA when the Aircraft shall have already passed the specific production stage affected by the incorporation of said change. [*] - ---------- * Confidential f. Major Changes (other than those which are AD's mandatory per item "e" above), any change developed by Embraer as product improvement, and any change requested by Buyer which are either Major or Minor, including those changes required by FAA as a consequence of [*] shall be considered as optional and, pursuant to Buyer's request, the corresponding cost proposals shall be submitted by Embraer to Buyer for consideration and approval. Should Buyer not approve any such change, it shall not be incorporated in the Aircraft. g. Any change made by Embraer in accordance with the preceding items which affects the provisions of Attachment "A", shall be incorporated in said Attachment by means of an amendment. The amendment shall be submitted to Buyer for signature thirty (30) days prior to the relevant Aircraft Contractual Delivery Date, a copy of which shall be received by Embraer, duly signed, prior to such Aircraft Actual Delivery Date. h. [*] 12. WARRANTY The Aircraft and Spares will be warranted in accordance with the terms and conditions specified in Attachment "C". The warranty may not be assigned except as permitted by Article 16. 13. TECHNICAL ASSISTANCE SERVICES a. Familiarization and technical support programs specified below are being offered at no charge to Buyer unless otherwise specified, except for the expenses involved with travel and lodging of Chautauqua's trainees, which shall be borne by Buyer or Chautauqua. Such familiarization and technical support programs shall be in accordance with Embraer's training syllabus. b. Notwithstanding the use of the term "training" in this Article 13 or in the Agreement, the intent of the Services is solely to familiarize Chautauqua's pilots, mechanics, employees or representatives, duly qualified per the governing body - ---------- * Confidential in the United Sates of America, with the operation and maintenance of the Aircraft. It is not the intent of Embraer to provide basic training ("Ab-initio") to any representatives of Chautauqua. c. [*] Chautauqua must give notice to Embraer one-hundred and twenty (120) days in advance of its expected training schedule. Should Buyer or Chautauqua not take all or any portion of the Services on or before the delivery of Buyer's last Aircraft, Buyer and Chautauqua shall be deemed to have fully waived their rights to such service. No other penalty or indemnity shall be due from Embraer in this case. d. All Services shall be provided by Embraer or its qualified designated representative at Embraer's facilities at Fort Lauderdale, Florida, USA, or at such other location as Embraer shall reasonably designate in the United States, except that flight training may also be designated by Embraer to occur in Brazil if it cannot reasonably occur in the United States. e. The Services in regard to the Firm Aircraft shall include: 1. One (1) Pilot Familiarization Program [*] including ground familiarization as regards Aircraft systems, weight and balance, performance and normal/emergency procedures; Flight simulator training in accordance with Chautauqua's approved Flight Operations Training Program, up to, but not exceeding the equivalent training in Level C simulator. 2. One (1) Maintenance Familiarization Course [*]. This course shall consist of classroom familiarization with Aircraft systems and structures and shall be in accordance with ATA specification 104, level III. 3. One (1) Flight Attendant Familiarization Course [*]. This course shall consist of classroom familiarization, including a general description of Aircraft and systems to be used by flight attendants if requested, Embraer may demonstrate procedures described in the classroom, subject to Buyer's Aircraft availability. 4. [*] - ---------- * Confidential Thereafter, every time Buyer requests the placement of an Embraer technical representative at Chautauqua's installations, Embraer will charge Buyer according to Embraer's price list per month per each such Embraer technical representative's presence. At no charge to Embraer, Buyer shall insure and require Chautauqua to provide such representative with reasonable communication facilities (telephone and facsimile) as well as office space and facilities at the maintenance base(s) of Chautauqua. Buyer shall also cause Chautauqua to (a) arrange all necessary work permits and airport security clearances required for Embraer employees, to permit the accomplishment of the services mentioned in this item "4", in due time; and (b) obtain all necessary custom clearances both to enter and depart from the United States for Embraer's employees and their personal belongings and professional tools. During the stay of the Embraer's technical representative at Chautauqua's base, Buyer shall cause Chautauqua to permit access to the maintenance and operation facilities as well as to the data and files of Chautauqua's fleet of aircraft to the extent necessary to perform its obligations hereunder. [*] Buyer shall cause Chautauqua to make available at the office designated for the technical representative, one (1) set of updated Technical Publications referred to in Article 15, and it shall be Chautauqua's responsibility to perform the revision services in order to maintain such publications updated during the technical representative's stay at Chautauqua's base. Buyer shall bear all expenses related to the transportation, board & lodging of Embraer representative when such representative shall render the services specified herein in any place other than Chautauqua's main maintenance base. Without a previous written authorization from Embraer, Embraer technical representatives shall not participate in test flights or flight demonstrations. If Chautauqua obtains such authorization, Chautauqua shall include the technical representative in Chautauqua's insurance policy. Embraer reserves the right to stop the services mentioned in this item "4", should any of the following situations occur at Chautauqua's base: a) there is a declared strike in progress; b) war or war like operations, riots or insurrections; c) any condition which is dangerous to the safety or health of Embraer's employee; or d) the government of the United States refuses permission to Embraer's employee to enter the country. f. If Buyer or Chautauqua elects not to take all or any portion of the Services, [*]. Any other additional services shall depend on subsequent agreement and shall be charged by Embraer accordingly. - ---------- * Confidential g. Buyer and Chautauqua's authorized trainees and representatives at Embraer's facilities shall be allowed exclusively in those areas related to the subject matter hereof and Buyer agrees to, and to cause the relevant Designated Operator to, hold harmless Embraer from and against all and any kind of liabilities in respect of such trainees and representatives for whom Buyer and Chautauqua, as the case may be, are solely and fully responsible under all circumstances, except to the extent [*]. 14. SPARE PARTS POLICY [*] Such spare parts and ground support equipment shall be supplied according to the prevailing availability, sale conditions, delivery schedule and effective price on the date of acceptance by Embraer of the purchase order. The spare parts and ground support equipment may be supplied either by Embraer or through its subsidiaries or branch offices located abroad. 15. PUBLICATIONS a. AIRCRAFT PUBLICATIONS - Embraer has supplied, [*], copies of operational and maintenance publications applicable thereto, in the English language and in the quantities as specified in item "3" of Attachment "B", other than those to be supplied by Embraer together with each Aircraft at delivery. Such publications are issued under the applicable specification and are available in hard copies [*], and subsequently at a nominal fee. Such publications, to the extent not previously supplied by Embraer, will be delivered together with the Aircraft. b. VENDOR ITEMS PUBLICATIONS - With respect to vendor items installed in the Aircraft which have their own publications, Chautauqua will receive them in the quantity specified in item "3" of Attachment "B", in their original content and printed form, directly from the suppliers, which are also responsible to keep them continuously updated through a direct communication system with Chautauqua. 16. ASSIGNMENT AND GUARANTEE a. Buyer or Chautauqua may request, and Embraer will take, any action reasonably necessary for the purpose of causing an Aircraft and Spares at the time of - ---------- * Confidential delivery to be subject to an equipment trust conditional sale, lien or other arrangement for the initial financing of the Aircraft and Spares in connection with the delivery of such Aircraft and Spares to Chautauqua. b. Except as expressly permitted by this Article 16, Buyer's rights and obligations hereunder may not be assigned, conveyed, subcontracted, transferred or delegated, without Embraer's prior written consent. c. Chautauqua shall guarantee the obligations of Buyer hereunder pursuant to a guarantee in the form attached hereto as Attachment H, and it shall be a breach of this Agreement by Buyer if such guarantee is at any time not effective in accordance with its terms or if Chautauqua breaches, defaults, or fails to perform under such guarantee. 17. RESTRICTIONS AND PATENT INDEMNITY This sale does not include the transfer of designs, copyrights, patents, and other similar rights to Buyer. Subject to Buyer's or Chautauqua's duty to promptly advise Embraer of any alleged copyright or patent infringement, Embraer shall indemnify, defend, protect and hold Buyer and Chautauqua (including respective officers, controlling persons, employees and directors) harmless with respect to any claims, suits actions, judgments, liabilities, damages and costs, including reasonable attorney fees, made against it or them if the Aircraft or Spares with Embraer part numbers infringes copyright patents or the proprietary rights of others. In such event Embraer shall to the extent necessary and as promptly as possible at its sole option and expense either (i) procure for Buyer or Chautauqua the right under patent to use the system, accessory or equipment or part; (ii) replace such system accessory, equipment or part with such non-infringing item or part; or (iii) modify such system, accessory, equipment or part to make it non-infringing. 18. MARKETING PROMOTIONAL RIGHTS Embraer shall have the right to show for marketing purposes, free of any charge, the image of the Aircraft, painted with Buyer's colors and emblems or the colors and emblems of Chautauqua, affixed in photographs, drawings, films, slides, audiovisual works, models or any other medium of expression (pictorial, graphic, and sculptural works), through all mass communications media such as billboards, magazines, newspaper, television, movie, theaters, as well as in posters, catalogues, models and all other kinds of promotional material. In the event such Aircraft is sold to or operated by or for another company or person, Embraer shall be entitled to disclose such fact, as well as to continue to show the image of the Aircraft, free of any charge, for marketing purposes, either with the original or the new colors and emblems, unless otherwise notified by Buyer or Chautauqua, provided that such notification shall be subject to the reasonable satisfaction and agreement of Embraer. If accepted, said prohibition, however, shall in no way apply to the promotional materials or pictorial, graphic or sculptural works already existing or to any contract for the display of such materials or works already binding Embraer at the time of receipt of the notification. The provisions of this Article shall be included in all future sales or lease agreements concerning the Aircraft. 19. TAXES [*] 20. APPLICABLE LAW This Agreement, and the rights and obligations of the Parties hereunder, shall in all respects be governed by, and construed and interpreted in accordance with, the laws of the State of New York (excluding conflicts of law principles), and including all matters of construction, validity and performance. 21. ARBITRATION a. The Parties each irrevocably submit to the exclusive jurisdiction of arbitration and expressly and irrevocably waive its right to bring suit against the other party in any court of law except for the limited purposes of enforcing an arbitral award obtained with respect to a dispute, or for obtaining any injunctive, temporary or preventative order or similar order available to it under the laws of any jurisdiction for a breach or threatened breach by the other party of this Agreement which threatens irreparable damage. b. Any dispute submitted for arbitration must be finally settled by binding and confidential arbitration according to the Rules of the American Arbitration Association (the "Rules"), except as may be modified by mutual agreement of Embraer and Buyer. The arbitration, including the rendering of the award, will be conducted by arbitrators (selected as set forth below) who are fluent in the English language. The arbitration proceeding will be conducted with discovery in accordance with the Federal Rules of Civil Procedure. The arbitrators will be appointed in accordance with the Rules except as otherwise provided for herein. - ---------- * Confidential The arbitration proceedings will take place in New York, New York, and will be conducted in the English language. c. The Arbitrator will be selected as follows: within fifteen (15) Business Days of the referral of any matter to arbitration, each party will select an arbitrator. Thereafter, within fifteen (15) Business Days of each party's selection of an arbitrator, the two arbitrators selected by the Parties shall meet to select a mutually agreeable third arbitrator. In the event a party fails to select an arbitrator with in the time period specified above, the party that has timely complied with the selection of an arbitrator shall select a second arbitrator. These two arbitrators shall within seven (7) Business Days after the time in which the other party should have selected an arbitrator, meet to select a mutually agreeable third arbitrator. These three arbitrators shall comprise the arbitral panel and all arbitral proceedings shall be conducted in the presence of all three arbitrators. d. If there is a dispute submitted to arbitration, any subsequent additional disputes referred for arbitration (including counterclaims between the parties) will be consolidated in the same arbitration proceeding. e. The arbitral proceeding will not exceed one hundred (100) days commencing on the date the last arbitrator accepts his or her appointment. If the arbitral award is not issued within this time, then the arbitration proceeding will be automatically renewed for another one hundred (100) days. Evidence may not be taken in the arbitral proceeding except in the presence of both parties and all witnesses, if any , may be questioned by both parties. The only evidence which may be considered by the arbitrators in reaching their decision is that which is otherwise admissible in accordance with the then current United States Federal Rules of Evidence. f. Any decision or award of the arbitrators must be based solely on the terms of this Agreement and the substantive governing law applicable to this Agreement. The decision of the arbitrators must be issued in writing with an explanation of its reasoning, and will be final and conclusive when issued. Judgment upon the award rendered in the arbitration may be entered and enforced by the Court specified in Article 21.g. hereof. g. Each party irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York sitting in the County of New York for purposes of enforcing any arbitral award or for other legal proceedings arising out of this Agreement or any transactions contemplated in this Agreement as provided for herein. However nothing contained in this Agreement shall be deemed to prevent either party from enforcing any decision of the United States District Court for the Southern District of New York sitting in the County of New York for purposes of enforcing or collecting any such award in any court or jurisdiction as such party deems necessary or prudent. h. Each party shall bear its own costs and expenses of arbitration. The parties shall share equally the costs, expenses and fees of any arbitral panel designated pursuant to this Agreement. 22. SOVEREIGN IMMUNITY, VENUE AND FORUM NON CONVENIENCE Embraer, under the laws of the United States or of any other jurisdiction affecting Embraer, is subject to private commercial law and suit, and is not entitled to sovereign immunity under any such laws, for its performance of its obligations under this Agreement. Embraer's performance of its obligations hereunder constitute commercial acts done for commercial purposes. The parties hereto furthermore waive to the extent permitted by law any objections to venue of the United States District Court for the Southern District of New York sitting in the County of New York for purposes of enforcing any arbitral award and any right or claim to any transfer or dismissal of any enforcement proceeding in the United States District Court for the Southern District of New York sitting in the County of New York on the grounds of forum non convenience. 23. TERMINATION [*] - ---------- * Confidential [*] b.1 [*] c. [*] - ---------- * Confidential [*] d. [*] e. [*] 24. OPTION FOR THE PURCHASE OF ADDITIONAL EMB-145 AIRCRAFT [*] ----------------------------------------- 37 EMB-145 DEC03 ----------------------------------------- - ---------- * Confidential Under no circumstances shall Buyer be obligated to accept Aircraft more than seven (7) Business Days prior to the relevant Contractual Delivery Date. [*] a. INITIAL DEPOSIT: [*] b. BASIC PRICE: [*] unless otherwise modified by the Parties and the costs for such changes shall be in addition to the Basic Price. c. ESCALATION: [*] d. DEPOSIT AND PROGRESS PAYMENTS: The payment of the price specified in item "b" above, shall be made according to the following: 1. [*] 2. [*] - ---------- * Confidential 3. [*] 4. [*] 5. The balance of each relevant Option Aircraft escalated price is due and payable upon acceptance of each relevant Aircraft by Buyer. e. [*] f. [*] g. SERVICES: The services Embraer will provide pursuant to Article 13 in regard to the Option Aircraft which will be delivered pursuant to this Article 24 shall be in accordance with Article 13.e.1 - 4 above. 25. INDEMNITY Buyer agrees to indemnify and hold harmless Embraer and Embraer's officers, agents, employees and assignees from and against all liabilities, damages, losses, judgments, claims and suits, including costs and expenses incident thereto, which may be suffered by, accrued against, be charged to or recoverable from Embraer and/or Embraer's officers, agents, employees and assignees by reason of loss or - ---------- * Confidential damage to property or by reason of injury or death of any person (excluding Embraer's officers, directors, employees or agents) resulting from or in any way connected with the performance of services by employees, representatives or agents of Embraer for or on behalf of Buyer related to Aircraft delivered by Embraer to Buyer or Chautauqua, including, but not limited to, technical operations, maintenance, and training services and assistance performed while on the premises of Embraer, Chautauqua, or Buyer, while in flight on Aircraft after Actual Delivery or while performing any other service, at any place, in conjunction with the Aircraft [*] 26. NOTICES All notices permitted or required hereunder shall be in writing in the English language and sent, by registered mail, express courier or facsimile, to the attention of the Director of Contracts as to Embraer and of the President as to Buyer, to the addresses indicated below or to such other address as either party may, by written notice, designate to the other. In the event notice is issued by registered mail or express courier, it shall be deemed received on the day on which the party receiving such notice executes the delivery receipt. In the event notice is issued by facsimile, it shall be deemed received on the day on which the sender of such notice receives a facsimile confirmation receipt of such facsimile notice. a. Embraer: EMBRAER - Empresa Brasileira de Aeronautica S.A. Av. Brigadeiro Faria Lima, 2170 12.227-901 Sao Jose dos Campos - SP BRAZIL Attention: Director of Contracts Telephone: (55-12) 3927-1410 Facsimile: (55-12) 3927-1257 - ---------- * Confidential b. Buyer Republic Airways Holdings, Inc. 2500 S. High School Road Indianapolis, Indiana 46241 Attention: President Tel: 317-484-6047 Fax: 317-484-6060 With a Copy to: Wexford Capital LLC 411 West Putnam Avenue Greenwich, Connecticut 06830 Attention: Jay Maymudes Tel: 203-862-7050 Fax: 203-862-7350 27. CONFIDENTIALITY Neither Party shall have the right to disclose the terms of this Agreement except as required by law. To the fullest extent permitted by law, except as aforesaid, neither Party shall disclose any portion of this Agreement or its Attachments, amendments or any other supplement, to any third party, other than to its accountants, attorneys, agents, consultants or permitted assignees without the other Party's prior written consent, and any such accountants, attorneys, agents consultants or permitted assignees shall agree in writing to be bound by the terms of this Article 27. Without limiting the foregoing, in the event either Party is legally required to disclose the terms of this Agreement, the Parties agree to exert their reasonable best efforts to request confidential treatment of the clauses and conditions of this Agreement relevantly designated by either Party as confidential. Without limiting its obligations pursuant to the preceding sentence, Buyer agrees that if it is required, in the opinion of counsel, to file publicly or otherwise disclose the terms of this Agreement under applicable federal and/or state securities or other laws, it shall promptly (but in no case less than ten (10) Business Days prior to the proposed filing in question) notify Embraer so that Embraer has a reasonable opportunity to contest or limit the scope of such required disclosure, and Buyer shall request, and shall use its best reasonable efforts to obtain, confidential treatment for such sections of this Agreement as Embraer may designate. Buyer further agrees that it shall not in any circumstances file publicly or otherwise disclose the terms of this Agreement under applicable federal and/or state securities or other laws if it has not complied with its obligations pursuant to the previous sentence. Embraer shall have the right to terminate this Agreement pursuant to Article 23.c if Buyer fails to comply with its obligations pursuant to the previous two sentences (e.g., to notify Embraer that Buyer is required to file or otherwise disclose terms of this Agreement, to request and use its best reasonable efforts to obtain confidential treatment of sections designated by Embraer as confidential, or to file publicly or otherwise disclose the terms of this Agreement if it has not complied with its obligations). 28. INTEGRATED AGREEMENT All Attachments referred to in this Agreement and attached hereto are, by such reference and attachment, incorporated in this Agreement. This Agreement, including all Attachments and all amendments, modifications and supplements, is herein and hereinafter called the "Agreement" or the "Purchase Agreement". 29. NEGOTIATED AGREEMENT This Agreement, including all of its Attachments, has been the subject of discussion and negotiation and is fully understood by the Parties, and the rights, obligations and other agreements of the Parties contained in this Agreement are the result of complete discussion and negotiation between the Parties. 30. COUNTERPARTS This Agreement may be signed by the Parties in any number of separate counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument and all of which when taken together shall constitute one and the same instrument. 31. ENTIRE AGREEMENT This Agreement constitutes the entire agreement of the Parties with respect to the sale described as its subject and supersedes all previous and connected negotiations, representations and agreements between the Parties. This Agreement may not be altered, amended or supplemented except by a written instrument executed by the Parties. 32. NO WAIVER Any Party's forbearance from exercising any claim or remedy provided for herein shall not be deemed a waiver of such claim or remedy, and shall not relieve the other Party from the performance of such obligation at any subsequent time or from the performance of any of its other obligations hereunder. Buyer acknowledges that Embraer has not waived any rights it may have against Buyer, Chautauqua or Solitair Corp., arising out of any acts before the date this Purchase Agreement becomes effective. 33. REPRESENTATIONS AND WARRANTIES A. Effective as of the date of this Agreement and as of the Actual Delivery Date of each Aircraft, Embraer represents and warrants that: 1. Embraer is a corporation duly organized, validly existing and in good standing under the laws of Brazil, is the manufacturer of the EMB-145LR model aircraft and has all necessary corporate power and authority to conduct the business in which it is currently engaged and to enter into and perform its obligations under this Agreement. 2. Embraer has taken, or caused to be taken, all necessary corporate action to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. 3. The execution and delivery by Embraer of this Agreement, the performance by Embraer of its obligations hereunder and the consummation by Embraer of the transactions contemplated hereby, do not and will not (A) violate or conflict with any provision of the constitutional documents of Embraer, (B) violate or conflict with any law, rule, or regulation applicable to or binding on Embraer or (C) violate or constitute any breach or default (other than a breach or default that would not (x) result in a material adverse change to Embraer or (y) adversely affect Embraer's ability to perform any of its obligations hereunder),under any agreement, instrument or document to which Embraer is a party or by which Embraer or any of its properties is or may be bound or affected. 4. The execution and delivery by Embraer of this Agreement, the performance by Embraer of its obligations hereunder and the consummation by Embraer of the transactions contemplated hereby do not and will not require the consent, approval or authorization of, or the giving of notice to, or the registration with, or the recording or filing of any documents with, or the taking of any other action in respect of, (A) any trustee or other holder of any indebtedness or obligation of Embraer, (B) any national, state or municipal government regulatory, judicial, or administrative entity of competent jurisdiction, or (C) any other party. 5. This Agreement has been duly authorized, executed and delivered by Embraer and, assuming the due authorization, execution and delivery hereof by the other Party constitutes the legal, valid and binding obligation of Embraer enforceable against Embraer in accordance with the terms hereof, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity, whether considered in a proceeding at law or in equity. 6. Each of the foregoing representations and warranties shall survive the execution and delivery of this Agreement and any termination hereof. B. Effective as of the date of this Agreement and as of the Actual Delivery Date of each Aircraft, Buyer represents and warrants that: 1. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary corporate power and authority to conduct the business in which it is currently engaged and to enter into and perform its obligations under this Agreement. 2. Buyer has taken, or caused to be taken, all necessary corporate action to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. 3. The execution and delivery by Buyer of this Agreement, the performance by Buyer of its obligations hereunder and the consummation by Buyer of the transactions contemplated hereby, do not and will not (A) violate or conflict with any provision of the constitutional documents of Buyer, (B) violate or conflict with any law, rule, or regulation applicable to or binding on Buyer or (C) violate or constitute any breach or default (other than a breach or default that would not (x) result in a material adverse change to Buyer or (y) adversely affect Buyer's ability to perform any of its obligations hereunder),under any agreement, instrument or document to which Buyer is a party or by which Buyer or any of its properties is or may be bound or affected. 4. The execution and delivery by Buyer of this Agreement, the performance by Buyer of its obligations hereunder and the consummation by Buyer of the transactions contemplated hereby do not and will not require the consent, approval or authorization of, or the giving of notice to, or the registration with, or the recording or filing of any documents with, or the taking of any other action in respect of, (A) any trustee or other holder of any indebtedness or obligation of Buyer, (B) any national, federal, state or local government regulatory, judicial, or administrative entity of competent jurisdiction (other than recordation of the Aircraft with FAA) or (C) any other party. 5. This Agreement has been duly authorized, executed and delivered by Buyer and, assuming the due authorization, execution and delivery hereof by the other Party constitutes the legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with the terms hereof, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity, whether considered in a proceeding at law or in equity. 6. Each of the foregoing representations and warranties shall survive the execution and delivery of this Agreement and any termination hereof. 34. EFFECTIVENESS A. This Agreement shall become effective at the time all of the following events have occurred: (a) it is signed by an authorized officer of Buyer and executed by two authorized officers of Embraer; [*] B. At the time this Agreement becomes effective, neither Buyer nor Embraer shall have any rights or obligations to the other pursuant to the Original Purchase Agreement except as expressly restated herein. [*] [*] - ---------- * Confidential [*] [*] [*] [*] - ---------- * Confidential E. [*] - ---------- * Confidential IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers and to be effective as of the day and year first above written. EMBRAER - EMPRESA BRASILEIRA REPUBLIC AIRWAYS HOLDINGS, INC. DE AERONAUTICA S.A. By: /s/ Frederico Fleury Curado By: /s/ Bryan Bedford ____________________________ ____________________________ Name: Frederico Fleury Curado Name: Bryan Bedford __________________________ ___________________________ Title: E.V.P. Airline Market Title: President _________________________ __________________________ By: /s/ Flavio Rimoli ___________________________ Name: Flavio Rimoli ________________________ Title: Director of Centro C&S _______________________ Date: April 19, 2002 Date: April 19, 2002 _________________________ __________________________ Place:________________________ Place:_________________________ Witness: /s/ Fernando Beuvo Witness: /s/ Robert H. Cooper ______________________ _______________________ Name: Fernando Beuvo Name: Robert H. Cooper ________________________ __________________________ - ------------------------------------------------------------------------------ ATTACHMENT "A-1" AIRCRAFT UNDER US AIRWAYS CONFIGURATION - ------------------------------------------------------------------------------ AIRCRAFT SPECIFIC CONFIGURATION, FINISHING AND REGISTRATION MARKS ------------------------------------------------------------------ 1. STANDARD AIRCRAFT The Aircraft shall be manufactured according to the standard configuration specified in the Technical Description TD-145/010, dated January 1998 (Appendix I) (the "Technical Description") and the optional equipment described in item 2 below. [*] [*] [*] [*] [*] - ---------- * Confidential [*] [*] [*] 3. FINISHING a. EXTERIOR FINISHING: The Aircraft shall be painted according to the US Airways color and paint scheme, which has been supplied to Embraer by Buyer. b. INTERIOR FINISHING: Buyer has informed Embraer of its choice of materials and colors of all and any item of interior finishing such as seat covers, carpet, floor lining on galley areas, side walls and overhead lining, galley lining and curtain. In case Buyer elects to use different materials and or patterns, such schedule shall be agreed between the Parties at the time of signature of this Purchase Agreement. 4. REGISTRATION MARKS The Aircraft shall be delivered to Buyer with the registration marks painted on them, which shall be supplied to Embraer by Buyer no later than ninety (90) days before each relevant Aircraft Contractual Delivery Date. - ---------- * Confidential IF THERE IS ANY CONFLICT BETWEEN THE TERMS OF THIS ATTACHMENT "A-1" AND THE TERMS OF THE TECHNICAL DESCRIPTION, THE TERMS OF THIS ATTACHMENT "A-1" SHALL PREVAIL. - ------------------------------------------------------------------------------ ATTACHMENT "A-2" AIRCRAFT UNDER AMERICA WEST CONFIGURATION - ------------------------------------------------------------------------------ AIRCRAFT SPECIFIC CONFIGURATION, FINISHING AND REGISTRATION MARKS ----------------------------------------------------------------- 1. STANDARD AIRCRAFT The Aircraft shall be manufactured according to the standard configuration specified in the Technical Description TD-145/010, dated January 1998 (Appendix I) (the "Technical Description") and the optional equipment described in item 2 below. 2. [*] [*] [*] [*] [*] - ---------- * Confidential [*] [*] 3. FINISHING a. EXTERIOR FINISHING: The Aircraft shall be painted according to the America West color and paint scheme, which has been supplied to Embraer by Buyer. b. INTERIOR FINISHING: Buyer has informed Embraer of its choice of materials and colors of all and any item of interior finishing such as seat covers, carpet, floor lining on galley areas, side walls and overhead lining, galley lining and curtain. In case Buyer elects to use different materials and or patterns, such schedule shall be agreed between the Parties. 4. REGISTRATION MARKS The Aircraft shall be delivered to Buyer with the registration marks painted on - ---------- * Confidential them, which shall be supplied to Embraer by Buyer no later than ninety (90) days before each relevant Aircraft Contractual Delivery Date. IF THERE IS ANY CONFLICT BETWEEN THE TERMS OF THIS ATTACHMENT "A-2" AND THE TERMS OF THE TECHNICAL DESCRIPTION, THE TERMS OF THIS ATTACHMENT "A-2" SHALL PREVAIL. - ------------------------------------------------------------------------------ ATTACHMENT "B" - ------------------------------------------------------------------------------ FERRY EQUIPMENT, ---------------- SPARE PARTS POLICY AND LIST OF PUBLICATIONS ------------------------------------------- 1. FERRY EQUIPMENT If it is necessary for any ferry equipment to be installed by Embraer for the ferry flight between Brazil and the United States of America, Embraer may provide such equipment to Buyer, for a price to be agreed between the Parties. In this case, Buyer shall immediately upon its arrival remove such ferry equipment from the Aircraft and turn it over to Embraer in Brazil at Buyer's own expense. If Embraer provides any ferry equipment to Buyer and if such equipment is utilized, for any reason, or if such equipment is not returned by Buyer, in Embraer's sole judgment, complete and in perfect condition, Buyer shall fully indemnify Embraer for the value of such equipment, provided that in case of partial utilization of, or damage to any such equipment, the value to be charged shall be the price of a new complete set of equipment. [*] 2. SPARE PARTS 2.0 [*] [*] - ---------- * Confidential [*] 2.1 INITIAL PROVISIONING The objective of the IPL is to provide Buyer with accurate technical data supplied by Embraer, in order to enable an adequate selection of spares, aiming to support initial scheduled maintenance, based upon operational parameters established by Chautauqua. 2.2 PROVISIONING [*] 2.3 DATA Initial provisioning data has been supplied Chautauqua upon request. 2.3.1 INITIAL PROVISIONING DATA: Embraer has supplied initial provisioning data. 2.3.2 PROVISIONING DATA REVISIONS: As requested, the Chautauqua IPL will have the data updated by incorporating engineering and price changes. Embraer will maintain a master copy of the Chautauqua IPL updated until ninety (90) calendar days after delivery of the last Aircraft. 2.4 SPARE PARTS RECOMMENDATIONS [*] 2.5 DELIVERY OF SPARE PARTS Except for those spare parts referred to in item 2.4. above, Spare items (initial provisioning spare parts) are normally in inventory and available for delivery on the Aircraft Contractual Delivery Date. Nevertheless, delivery dates shall be those agreed between the Parties in the Purchase - ---------- * Confidential Agreement. Replenishment of Embraer made parts will be in accordance with the lead times quoted by Embraer. Embraer will deliver parts in FCA (Free Carrier - Incoterms 1990) condition, at Sao Jose dos Campos, State of Sao Paulo, Brazil, or at any other port of clearance that may be chosen by Embraer and informed to Buyer. 2.6 EMERGENCY SPARE PARTS SERVICE Embraer will maintain an emergency spare parts service, twenty four (24) hours a day, seven (7) days a week. [*] [*] - ---------- * Confidential [*] 2.8. [*] [*] 2.9. PARTS REPAIR PROGRAM - ---------- * Confidential For any repair required by Chautauqua on any Embraer or vendor repairable item, Embraer may assist Chautauqua to perform such repair in order to ensure the shortest turn around time (TAT). 2.10. PRICING Embraer will maintain a spare parts price list updated periodically. Items not shown on the list will be quoted on request. 3. LIST OF PUBLICATIONS As provided for in Article 15 of this Agreement, the technical publications covering operation and maintenance shall be delivered to Buyer in accordance with the following list: QTY TITLE (COPIES) ----- -------- OPERATIONAL [*] MAINTENANCE - BASIC SET [*] MAINTENANCE SUPPLEMENTARY SET [*] - ---------- * Confidential [*] If Buyer elects not to take all or any one of the publications mentioned in this Section 3, or revisions thereof, no refund or other financial adjustment of the Basic Price will be made since such publications are offered at no cost to Buyer as referred to in Article 15.a of the Purchase Agreement. - ---------- * Confidential - -------------------------------------------------------------------------------- ATTACHMENT "C" - -------------------------------------------------------------------------------- AIRCRAFT WARRANTY CERTIFICATE - MATERIAL AND WORKMANSHIP 1. Embraer, subject to the conditions and limitations hereby expressed, warrants the Aircraft as follows: a. For a period of forty-eight (48) months from the date of delivery to the first Buyer, each Aircraft will be free from: - Defects in materials, workmanship and manufacturing processes in relation to parts manufactured by Embraer or by its subcontractors holding an Embraer part number; - Defects inherent to the design of the Aircraft and its parts designed or manufactured by Embraer or by its subcontractors holding an Embraer part number. b. For a period of thirty-six (36) months from the date of delivery to the first Buyer, the Aircraft will be free from: - Defects in operation of vendor (Embraer's supplier) manufactured parts, not including the Engines, Auxiliary Power Unit (APU) and their accessories, as well as failures of mentioned parts due to incorrect installation or installation not complying with the instructions issued or approved by their respective manufacturers. - Defects due to non-conformity to the Technical Description Number TD 145 /010 dated January 1998 as may be amended by Buyer's Aircraft Technical Specification referred to in Article 1.b of the Purchase Agreement of the Aircraft. Once the above mentioned periods have expired, Embraer will transfer to Buyer the original warranty issued by the vendors, if it still exists. 2. Embraer, subject to the conditions and limitations hereby expressed, warrants that: a. All spare parts which have been manufactured by Embraer or by its subcontractors holding an Embraer part number, and by vendors which will permit their particular identification and which have been sold by Embraer or its representatives will, for a period of twenty four (24) months from the date of delivery of such spares to Buyer, be free from defects of material, - -------------------------------------------------------------------------------- Amended and Restated EMB-145LR Purchase Agreement Page 1 of 4 DCT-025/98 - Attachment C 45167443_3.DOC workmanship, manufacturing processes and defects inherent to the design of the above mentioned parts. b. All ground support equipment, which has been designed and manufactured by Embraer or by its subcontractors holding an Embraer part number and by vendors, not including Engines, APU and their accessories, and stamped with a serial number which will permit their particular identification and which have been sold by Embraer or its representatives will, for a period of twelve (12) months from the date of delivery to Buyer of said equipment, be free from malfunction, defect of material and manufacture. 3. The obligations of Embraer as expressed in this warranty and as specified in Article 11.e are limited to replacement, repair or rework of the defective item, depending solely upon Embraer's own judgment, of the parts that are returned to Embraer or its representatives within a period of sixty (60) days after the occurrence of the defect, at Buyer's own expense (including but not limited to, freight, insurance, taxes and, customs duties), adequately packed, provided that such components are actually defective and that the defect has occurred within the periods stipulated in this certificate. Should the defective part not be shipped to Embraer within such sixty (60) days period, Embraer may in its sole discretion, deny the warranty claim. In the event that it is not practical in the international commercial transportation industry to return the part or component which is the subject of a warranty claim under this Attachment C, to Embraer, because of either its extremely large size or its relationship to the Airframe, then thirty (30) days after a defect is found in such structural component (hereafter referred to as "Structural Component"), Buyer shall send notice of such defect to Embraer and notwithstanding the above, Buyer shall not be obligated to return such Structural Component to Embraer. Embraer shall thereafter send an appropriate inspection team to Buyer's facilities to inspect the Structural Component for the alleged defect. In the event that Embraer in its sole judgment finds the Structural Component defective, it shall either repair, rework, or replace the defective Structural Component. Notification of any defect claimed under three (3) above must be given to Embraer within thirty (30) calendar days after such defect is found. Parts supplied to Buyer as replacement for defective parts are warranted for the balance of the warranty period still available from the original warranty of the exchanged parts. However, freight, insurance, taxes and other costs eventually incurred during the shipment to Embraer or its representative, re-installation and adjustments are Buyer's responsibility. 4. Embraer will accept no warranty claims under any of the circumstances listed below unless it can be demonstrated in accordance with the standards of the - -------------------------------------------------------------------------------- Page 2 of 4 international aircraft manufacturing industry that such operation or maintenance or other circumstance did not cause the defect: a. When the Aircraft has been used in an attempt to break records, or subjected to experimental flights, or in any other way not in conformity with the flight manual or the airworthiness certificate, or subjected to any manner of use in contravention of the applicable aerial navigation or other regulations and rules, issued or recommended by government authorities of whatever country in which the aircraft is operated, when accepted and recommended by I.C.A.O.; b. When the Aircraft or any of its parts have been altered or modified by Buyer, without prior approval from Embraer or from the manufacturer of the parts through a service bulletin; c. Whenever the Aircraft or any of its parts have been involved in an accident, or when parts either defective or not complying to manufacturer's design or specification have been used; d. Whenever parts have had their identification marks, designation, seal or serial number altered or removed; e. In the event of negligence, misuse or maintenance services done on the Aircraft, or any of its parts not in accordance with the respective maintenance manual; f. In cases of deterioration, wear, breakage, damage or any other defect resulting from the use of inadequate packing methods when returning items to Embraer or its representatives. 5. The warranty hereby expressed does not apply to defects presented by expendable items, whose service life or maintenance cycle is lower than the warranty period, and to materials or parts subjected to deterioration. 6. The warranty hereby expressed is established between Embraer and the first Buyer, and it cannot be transferred or assigned to others, unless by written consent of Embraer, or as otherwise provided for pursuant to Article 16 of the Purchase Agreement of which this is an Attachment. 7. THE WARRANTIES, OBLIGATIONS AND LIABILITIES OF EMBRAER AND REMEDIES OF BUYER SET FORTH IN THIS WARRANTY CERTIFICATE ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND BUYER HEREBY WAIVES, RELEASES AND RENOUNCES, ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF EMBRAER AND ANY ASSIGNEE OF EMBRAER AND ALL - -------------------------------------------------------------------------------- Page 3 of 4 OTHER RIGHTS, CLAIMS AND REMEDIES OF BUYER AGAINST EMBRAER OR ANY ASSIGNEE OF EMBRAER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY NON-CONFORMANCE OR DEFECT OR FAILURE OR ANY OTHER REASON IN ANY AIRCRAFT OR OTHER THING DELIVERED UNDER THE PURCHASE AGREEMENT OF WHICH THIS IS AN ATTACHMENT, INCLUDING DATA, DOCUMENT, INFORMATION OR SERVICE, INCLUDING BUT NOT LIMITED TO: a. ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS; b. ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; c. ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OR OTHER RELATED CAUSES OF EMBRAER OR ANY ASSIGNEE OF EMBRAER, WHETHER ACTIVE, PASSIVE OR IMPUTED; AND d. ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO ANY AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO ANY AIRCRAFT OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 8. No representative or employee of Embraer is authorized to establish any other warranty than the one hereby expressed, nor to assume any additional obligation, relative to the matter, in the name of Embraer and therefore any such statements eventually made by, or in the name of Embraer, shall be void and without effect. 9. Provided the provisions hereof are still effective in accordance with their terms, then Buyer may assign Buyer's rights pursuant to this warranty to any entity (but for entities or air carriers which are owned, effectively controlled or managed by any other airframe manufacturer which competes in the thirty seven (37) to seventy (70) seat turbo jet market ("Transferee")) provided Buyer notifies Embraer of the identity of such Transferee at least thirty (30) calendar days prior to such transaction. In the event such Transferees or Other Transferees (as defined herein) subsequently transfer any Aircraft or Spares, any Transferees' or Other Transferees' rights which remain pursuant to this Warranty with respect to such Aircraft and Spares may also be transferred to any other entity (but for entities or air carriers which are owned, effectively controlled or managed by any other airframe manufacturer which competes in the thirty seven (37) to seventy (70) seat turbo jet market ("Other Transferees")) provided that the Transferees or Other Transferees notify Embraer of the identity of such other entity at least sixty (60) calendar days prior to such transaction. - -------------------------------------------------------------------------------- Page 4 of 4 - ------------------------------------------------------------------------------ ATTACHMENT D - ------------------------------------------------------------------------------ AIRCRAFT -------- ESCALATION FORMULA ------------------- [*] [*] - ---------- * Confidential ATTACHMENT E ------------ APPOINTMENT OF AUTHORIZED REPRESENTATIVE -------------------------------------- ("Buyer") hereby designates and appoints _________________ as the authorized representative of Buyer for the purpose of inspecting, reinspecting, and accepting delivery from EMBRAER-Empresa Brasileira de Aeronautica S.A. ("Embraer"), on behalf of and in the name of Buyer, of the Embraer Model EMB-145/EMB-135KL aircraft having Manufacturer's Serial No. 145___ (including the engines, appliances and parts installed thereon, the "Aircraft") and Spares, as defined in that certain Amended and Restated Purchase Agreement GCT-025/1998 between Republic Airways Holdings, Inc. and EMBRAER dated April __, 2002, to be delivered by Embraer to Buyer pursuant to the Purchase Agreement Assignment to be dated as of or about ______ __, 200_ between Republic Airways Holdings, Inc. and Buyer, including the authority to accept delivery of said Aircraft and Spares, and to execute and deliver any additional documents with respect to the delivery for said Aircraft and Spares in such form as such authorized representative executing the same shall deem appropriate. Dated: __________ __, 200_ ______________ By:_______________________ Name: Title: The foregoing appointment is hereby accepted - ------------------------ Name: - ------------------------------------------------------------------------------ ATTACHMENT "F" - ------------------------------------------------------------------------------ FORM OF WARRANTY BILL OF SALE ----------------------------- KNOW ALL MEN BY THESE PRESENTS THAT Embraer - Empresa Brasileira de Aeronautica S.A. ("SELLER"), a Brazilian company, whose address Av. Brigadeiro Faria Lima, 2170 - Putim, Sao Jose dos Campos, Sao Paulo, Brazil, is the owner of good and marketable title to that certain EMB-145 LR aircraft bearing Manufacturer's Serial No. ___________, with all appliances, parts, instruments, appurtenances, accessories, furnishings and/or other equipment or property incorporated in or installed on or attached to said engine (hereinafter collectively referred to as the "Aircraft") purchased by Republic Airways Holdings, Inc. ("BUYER") under the Amended and Restated Purchase Agreement No. 025/98, dated as of _______ __, 2002, including Attachments, Exhibits, Letters, Amendments and Agreements by and between SELLER and [BUYER]. THAT for and in consideration of the sum of US$ 10.00 and other valuable consideration, receipt of which is hereby acknowledged, SELLER does this __________ day of __________, 200_, grant, convey, transfer, bargain and sell, deliver and set over to BUYER and unto its successors and assigns forever, all of SELLER's rights, title and interest in and to the Aircraft. THAT SELLER hereby represents and warrants to BUYER, its successors and assigns: (i) that SELLER has good and marketable title to the Aircraft and the good and lawful right to the Aircraft and the good and lawful right to sell the same; and (ii) that good and marketable title to the Aircraft is hereby duly vested in BUYER free and clear of all claims, liens, encumbrances and rights of others of any nature. SELLER hereby covenants and agrees to defend such title forever against all claims and demands whatsoever. This Full Warranty Bill of Sale is governed by the laws of the state of New York, United States of America. IN WITNESS WHEREOF, SELLER has caused this instrument to be executed and delivered by its duly authorized officer and attorney in fact. Date as of ____________________, 200_. EMBRAER - EMPRESA BRASILIERA DE AERONAUTICA S.A. By: ___________________________ Name: ___________________________ Title: ___________________________ CHAUTAUQUA GUARANTY ------------------- [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential EX-10.13B 11 a2082173zex-10_13b.txt AMEND#1 TO AMEND & RE PUR AGREE Exhibit 10.13(B) CONFIDENTIAL AMENDMENT NUMBER 1 TO AMENDED AND RESTATED PURCHASE AGREEMENT GCT-025/98 This Amendment Number 1 to Amended and Restated Purchase Agreement GCT-025/98, dated as of June 7, 2002 ("Amendment No. 1") relates to the Amended and Restated Purchase Agreement GCT-025/98 (the "Purchase Agreement") between Embraer - Empresa Brasileira de Aeronautica S.A. ("Embraer") and Republic Airways Holdings, Inc. ("Buyer") dated April 19, 2002 as amended from time to time (collectively referred to herein as "Agreement"). This Amendment No. 1 is between Embraer and Buyer, collectively referred to herein as the "Parties". This Amendment No. 1 sets forth additional agreements between Embraer and Buyer relative to the incorporation of 22 firm aircraft and 30 option aircraft to the Agreement with certain specific and exclusive conditions for aircraft to be operated by Buyer's designee Chautauqua Airlines, Inc., for Delta Air Lines, Inc. These aircraft are in addition to the already existing 37 option aircraft. Except as otherwise provided for herein all terms of the Purchase Agreement shall remain in full force and effect. All capitalized terms used in this Amendment No. 1, which are not defined herein shall have the meaning given in the Purchase Agreement. In the event of any conflict between this Amendment No. 1 and the Purchase Agreement the terms, conditions and provisions of this Amendment No. 1 shall control. WHEREAS, the [*]. WHEREAS, in connection with the Parties' agreements with respect to additional aircraft and other terms and conditions, the Parties have now agreed to amend the Purchase Agreement as provided for below. NOW, THEREFORE, for good and valuable consideration which is hereby acknowledged Embraer and Buyer hereby agree as follows: 1. DEFINITION: Article 1.b shall be deleted and replaced with the following: b.1. EMB-145 Aircraft - shall mean the EMB-145 LR aircraft or, where there is more than one of such aircraft, each of such Aircraft (including Firm Aircraft and Option Aircraft, as the context requires), manufactured by Embraer, for sale to Buyer pursuant to this Agreement, [*], and as may be amended from time to time by Buyer at its expense as specified in Article 11. The Aircraft are composed entirely of vendor parts and parts manufactured by Embraer and Embraer subcontractors, and the parts manufactured by Embraer and Embraer subcontractors shall have Embraer part numbers. Page 1 of 4 - -------------- * Confidential Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933. The omitted materials have been filed separately with the Securities and Exchange Commission. CONFIDENTIAL b.2. EMB-135 Aircraft - shall mean the EMB-135 LR aircraft or, where there is more than one of such aircraft, each of such Aircraft (including Firm Aircraft and Option Aircraft, as the context requires), manufactured by Embraer, for sale to Buyer pursuant to this Agreement, [*]. The Aircraft are composed entirely of vendor parts and parts manufactured by Embraer and Embraer subcontractors, and the parts manufactured by Embraer and Embraer subcontractors shall have Embraer part numbers. b.3. Delta Aircraft - shall mean the Firm and Option EMB-145 Delta Aircraft and EMB-135 Delta Aircraft, as each term is defined in Article 2.a. 2. SUBJECT: Article 2.a shall be deleted and replaced with the following: a. Upon the terms and conditions contained in this Agreement, Embraer shall sell and Buyer shall purchase and take delivery of: o Fifteen (15) EMB-135 firm Aircraft ("Firm EMB-135 Delta Aircraft") and seven (7) EMB-145 firm Aircraft ("Firm EMB-145 Delta Aircraft"), as indicated on the table provided below in Section 4; and o if Buyer so elects, up to thirty (30) EMB-145 option Delta Aircraft ("Option Delta Aircraft") and thirty seven (37) other option EMB-145 Aircraft ("Other Option EMB-145 Aircraft"), as indicated in the table provided below in Section 5. 3. PRICE: [*]. 4. DELIVERY SCHEDULE: The following delivery schedule shall be inserted just after Article 5.a. The wording in the last two lines of Article 5.a ("...according to the schedule set forth in Article 24 and subject to the terms of that article".) shall be deleted. [*] 5. OPTION AIRCRAFT: 5.1 The Option Aircraft delivery schedule of Article 24 shall be deleted and replaced with the following: [*] 5.2 Items e. and f. of Article 24 shall be deleted and replaced with the following: [*]. - -------------- * Confidential Page 2 of 4 CONFIDENTIAL 6. SERVICES: Article 13.e.2 and 3 of the Purchase Agreement are hereby deleted and replaced with the following: "2. [*] Maintenance Familiarization Course for up to [*]. This course shall consist of classroom familiarization with Aircraft systems and structures and shall be in accordance with ATA specification 104, level III." [*]. 3. [*] Flight Attendant Familiarization Course for up to [*]. This course shall consist of classroom familiarization, including a general description of Aircraft and systems to be used by flight attendants [*] 7. [*] 8. MISCELLANEOUS: All other provisions of the Agreement which have not been specifically amended or modified by this Amendment No. 1 shall remain valid in full force and effect without any change. - -------------- * Confidential Page 3 of 4 CONFIDENTIAL IN WITNESS WHEREOF, EMBRAER and BUYER, by their duly authorized officers, have entered into and executed this Amendment No. 1 to Amended and Restated Purchase Agreement to be effective as of the date first written above. EMBRAER - Empresa Brasileira de Republic Airways Holdings, Inc. Aeronautica S.A. By /s/ Frederico Fleury Curado By /s/ Robert H. Cooper ---------------------------- ------------------------ Name: Frederico Fleury Curado Name: Robert H. Cooper Title: EVP Airline Market Title: EVP and CFO By /s/ Flavio Rimoli Date: June 14, 2002 ---------------------------- Place: Indianapolis, IN Name: Flavio Rimoli Title: Director of Contracts Date: June 7, 2002 Place: SJ Campos, Brazil Witness: /s/ Fernando Bueno Witness: /s/ Beth A. Taylor ------------------------- -------------------------- Name: Fernando Bueno Name: Beth A. Taylor ---------------------------- ----------------------------- Page 4 of 4 - -------------------------------------------------------------------------------- ATTACHMENT "D-1" - -------------------------------------------------------------------------------- [*] - -------- * Confidential - -------------------------------------------------------------------------------- ATTACHMENT "A-3" EMB-145 AIRCRAFT UNDER DELTA CONFIGURATION - -------------------------------------------------------------------------------- AIRCRAFT SPECIFIC CONFIGURATION, FINISHING AND REGISTRATION MARKS 1. STANDARD AIRCRAFT The Aircraft shall be manufactured according to the standard configuration specified in the Technical Description TD-145/010, dated January 1998 (Appendix I) (the "Technical Description") and the optional equipment described in item 2 below. 2. OPTIONAL EQUIPMENT [*] 3. FINISHING a. EXTERIOR FINISHING: The Aircraft shall be painted according to the Delta color and paint scheme, which has been supplied to Embraer by Buyer. b. INTERIOR FINISHING: Buyer has informed Embraer of its choice of materials and colors of all and any item of interior finishing such as seat covers, carpet, floor lining on galley areas, side walls and overhead lining, galley lining and curtain. In case Buyer elects to use different materials and or patterns, such schedule shall be agreed between the Parties at the time of signature of this Purchase Agreement. 4. REGISTRATION MARKS The Aircraft shall be delivered to Buyer with the registration marks painted on them, which shall be supplied to Embraer by Buyer no later than ninety (90) days before each relevant Aircraft Contractual Delivery Date. IF THERE IS ANY CONFLICT BETWEEN THE TERMS OF THIS ATTACHMENT "A-3" AND THE TERMS OF THE TECHNICAL DESCRIPTION, THE TERMS OF THIS ATTACHMENT "A-3" SHALL PREVAIL. ---------------------- *Confidential - -------------------------------------------------------------------------------- ATTACHMENT "A-4" EMB-135 AIRCRAFT UNDER DELTA CONFIGURATION - -------------------------------------------------------------------------------- AIRCRAFT SPECIFIC CONFIGURATION, FINISHING AND REGISTRATION MARKS 1. STANDARD AIRCRAFT The Aircraft shall be manufactured according to the standard configuration specified in the Technical Description number TD-135/005, dated June 2001 (Appendix I) (the "Technical Description") and the optional equipment described in item 2 below. 2. OPTIONAL EQUIPMENT [*] 3. FINISHING a. EXTERIOR FINISHING: The Aircraft shall be painted according to the Delta color and paint scheme, which has been supplied to Embraer by Buyer. b. INTERIOR FINISHING: Buyer has informed Embraer of its choice of materials and colors of all and any item of interior finishing such as seat covers, carpet, floor lining on galley areas, side walls and overhead lining, galley lining and curtain. In case Buyer elects to use different materials and or patterns, such schedule shall be agreed between the Parties at the time of signature of this Purchase Agreement. 4. REGISTRATION MARKS The Aircraft shall be delivered to Buyer with the registration marks painted on them, which shall be supplied to Embraer by Buyer no later than ninety (90) days before each relevant Aircraft Contractual Delivery Date. IF THERE IS ANY CONFLICT BETWEEN THE TERMS OF THIS ATTACHMENT "A-4" AND THE TERMS OF THE TECHNICAL DESCRIPTION, THE TERMS OF THIS ATTACHMENT "A-4" SHALL PREVAIL. -------- * Confidential EX-10.14 12 a2082173zex-10_14.txt EXHIBIT 10.14 AMEND AND RESTATED LETR AGMT Exhibit 10.14 - -------------------------------------------------------------------------------- AMENDED AND RESTATED LETTER AGREEMENT GCT-026/98 - -------------------------------------------------------------------------------- This Amended and Restated Letter of Agreement GCT-026/98 ("Agreement") dated April 19, 2002, is an agreement between Republic Airways Holdings, Inc. ("Buyer") with its principal place of business at 2500 S. High School Road, Indianapolis, Indiana 46241, United States, and Embraer - Empresa Brasileira de Aeronautica S.A. ("Embraer"), with its principal place of business at Sao Jose dos Campos, Sao Paulo, Brazil, relating to the Amended and Restated Purchase Agreement GCT-025/98 dated April __, 2002 (the "Purchase Agreement") for the purchase by Buyer of up to thirty-seven (37) new EMB-145 LR aircraft (the "Aircraft"). This Agreement constitutes an amendment and modification of the Purchase Agreement, and it sets forth additional agreements of the Parties with respect to the matters set forth in the Purchase Agreement. All terms defined in the Purchase Agreement shall have the same meaning when used herein, and in case of any conflict between this Agreement and the Purchase Agreement, this Agreement shall govern. Solitair Corp. ("Solitair") has assigned to Buyer all of Solitair's rights and obligations under the Purchase Agreement DCT-025/98 between Embraer and Solitair (as amended before the date of the Purchase Agreement, the "Original Purchase Agreement") and Letter Agreement GCT-026/98 dated as of June 17, 1998 between Embraer and Solitair (as amended before the date of this Agreement, the "Original Letter Agreement") with respect to the sale of certain unexercised option aircraft, and in connection with such assignment, Solitair has also assigned to Buyer its remaining rights with respect to the aircraft delivered and to be delivered under the Original Purchase Agreement. Buyer and Embraer now desire to amend and restate certain agreements relating to such Aircraft, as previously provided in the Original Letter Agreement. At the time this Agreement becomes effective, neither Buyer nor Embraer shall have any rights against or obligations to the other pursuant to the Original Letter Agreement. NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Embraer and Buyer agree as follows: [*] [*] [*] - ---------- * Confidential Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933. The omitted materials have been filed separately with the Securities and Exchange Commission. [*] [*] [*] [*] [*] [*] [*] [*] [*] - ---------- * Confidential [*] [*] [*] [*] [*] [*] [*] - ---------- * Confidential [*] [*] [*] [*] [*] [*] [*] - ---------- * Confidential [*] A. [*] B. [*] C. [*] D. [*] (i) [*] (ii) [*] (iii) [*] E. [*] - ---------- * Confidential [*] [*] [*] 7. [*] [*] {*] [*] [*] [*] [*] - ---------- * Confidential [*] A. [*] B. [*] - ---------- * Confidential A. [*] B. [*] C. [*] D. [*] [*] A. [*] B. [*] - ---------- * Confidential [*] - ---------- * Confidential [*] [The remainder of this page has been left blank intentionally.] - ---------- * Confidential [*] - ---------- * Confidential IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers and to be effective as of the day and year first above written. EMBRAER - Empresa Brasileira Republic Airways Holdings, Inc. de Aeronautica S.A. By: /s/ Frederico Fleury Curado By: /s/ Bryan Bedford --------------------------- --------------------------- Name: Frederico Fleury Curado Name: Bryan Bedford ------------------------- ------------------------- Title: E.V.P. Airline Market Title: President ------------------------ ------------------------ By: /s/ Flavio Rimoli --------------------------- Name: Flavio Rimoli ------------------------- Title: Director of Contracts ------------------------ Witness: /s/ Fernando Bueno Witness: /s/ Robert H. Cooper ---------------------- ---------------------- Name: Fernando Bueno Name: Robert H. Cooper ------------------------- ------------------------- - -------------------------------------------------------------------------------- SCHEDULE "1" - - -------------------------------------------------------------------------------- [*] 1. [*] 2. [*] 3. [*] 4. [*] 5. [*] 6. [*] - ---------- * Confidential [*] 7. [*] 8. [*] 9. [*] 10. [*] 11. [*] - ---------- * Confidential - -------------------------------------------------------------------------------- SCHEDULE "2" - - -------------------------------------------------------------------------------- [*] 1. [*] 2. [*] 3. [*] 4. [*] 5. [*] 6. [*] 7. [*] - ---------- * Confidential [*] 8. [*] 9. [*] 10. [*] 11. [*] - ---------- * Confidential - -------------------------------------------------------------------------------- SCHEDULE "3-A" - - -------------------------------------------------------------------------------- [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential - -------------------------------------------------------------------------------- SCHEDULE "3-B" - -------------------------------------------------------------------------------- [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential - -------------------------------------------------------------------------------- SCHEDULE "4" - - -------------------------------------------------------------------------------- [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential - -------------------------------------------------------------------------------- SCHEDULE "5" - - -------------------------------------------------------------------------------- [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential [*] - ---------- * Confidential SCHEDULE "6" [*] - ---------- * Confidential [*] - ---------- * Confidential EX-10.14A 13 a2082173zex-10_14a.txt AMEND#1 TO RE STDT LTR AGREE Exhibit 10.14(A) CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 AMENDMENT NUMBER 1 TO AMENDED AND RESTATED LETTER AGREEMENT GCT-026/98 This Amendment Number 1 to Amended and Restated Letter Agreement GCT-026/98, dated as of June 7, 2002 ("Amendment No. 1") relates to the Amended and Restated Letter Agreement GCT-026/98 (the "Letter Agreement") between Embraer - Empresa Brasileira de Aeronautica S.A. ("Embraer") and Republic Airways Holdings, Inc. ("Buyer") dated April 19, 2002, which concerns the Amended and Restated Purchase Agreement GCT-025/98 (the "Purchase Agreement"), as amended from time to time (collectively referred to herein as the "Agreement"). This Amendment No. 1 is between Embraer and Buyer, collectively referred to herein as the "Parties". This Amendment No. 1 sets forth further agreements between Embraer and Buyer relative to the incorporation of 22 firm aircraft and 30 option aircraft to the Purchase Agreement with certain specifics and exclusives conditions, as provided in Amendment No. 1 to the Purchase Agreement, dated as of the date hereof. This Amendment No. 1 constitutes an amendment and modification of the Letter Agreement. All terms defined in the Agreement and not defined herein shall have the meaning given in the Agreement when used herein, and in case of any conflict between this Amendment No. 1 and the Agreement, the terms of this Amendment No. 1 shall control. WHEREAS, in connection with the Parties' agreements as described above, the Parties have agreed to modify the Letter Agreement as provided below; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Embraer and Buyer do hereby agree as follows: 1. LETTER AGREEMENT APPLIES TO DELTA AIRCRAFT: The terms of the Letter Agreement shall apply to the Delta Aircraft except as otherwise provided in this Amendment No. 1 to the Letter Agreement. [*] 4. FINANCING: Article 4 of the Letter Agreement shall not apply to the Delta Aircraft. Embraer shall provide financing assistance for the Delta Aircraft pursuant to the Finance Term Sheet attached hereto as Schedule "7" to the Letter Agreement. 9. OTHER AGREEMENTS: Article 10 of the Letter Agreement is hereby deleted and replaced with the following: - -------------------------------------------------------------------------------- - ---------- * Confidential Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933. The omitted materials have been filed separately with the Securities and Exchange Commission. "Any breach, default or failure to perform by Chautauqua or Buyer under any other agreement between one or both of them and Embraer shall be a breach of the Purchase Agreement. Any breach, default or failure to perform by Buyer under the Purchase Agreement shall be a breach and event of default by Buyer and Chautauqua under all other agreements between one or both of them and Embraer. [*] 11. MISCELLANEOUS: All other provisions of the Agreement which have not been specifically amended or modified by this Amendment No. 1 shall remain valid in full force and effect without any change. IN WITNESS WHEREOF, Embraer and Buyer, by their duly authorized officers, have entered into and executed this Amendment No. 1 to be effective as of the date first written above. EMBRAER - Empresa Brasileira de Republic Airways Holdings, Inc. Aeronautica S.A. By /s/ Frederico Fleury Curado By /s/ Robert H. Cooper --------------------------- -------------------------- Name: Frederico Fleury Curado Name: Robert H. Cooper Title: EVP Aviation Market Title: EVP and CFO By /s/ Flavio Rimoli Date: June 14, 2002 --------------------------- Place: Indianapolis, IN Name: Flavio Rimoli Title: Director of Contracts Date: June 7, 2002 Place: SJ Campos, Brazil Witness: /s/ Fernando Bueno Witness: /s/ Beth A. Taylor ------------------------ ----------------------- Name: Fernando Bueno Name: Beth A. Taylor --------------------------- -------------------------- - -------------------------------------------------------------------------------- - ---------- * Confidential SCHEDULE "7" FINANCING TERM SHEET Pursuant to negotiations between Embraer - Empresa Brasileira de Aeronautica S.A. ("Embraer"), Republic Airways Holdings, Inc. ("Buyer") and Delta Air Lines, Inc. ("Delta"), Embraer is pleased to present this Financing Term Sheet which describes the general terms and conditions of the financing assistance to be offered [*]. (References to Buyer in this Financing Term Sheet shall be deemed to include Chautauqua). Embraer will use commercially reasonable efforts to obtain [*] financing for the Delta Aircraft based on the following basic terms and conditions: AIRCRAFT: The Delta Aircraft (i.e. 22 Firm Aircraft and 30 Option Aircraft). [*] CONDITIONS PRECEDENT: (1) Absence of any material adverse change in the business, operations or financial condition of Buyer as proposed by the Buyer business plan as reflected in its S1 filing. [*] (2) Absence of litigation by or against Buyer, Delta or any Buyer affiliate, which could be reasonably be expected to have a material adverse effect upon the operations of Buyer [*] (3) For the Option Aircraft, absence of any material adverse change in the financial/lease markets [*] (4) [*] (5) No changes or amendments to Section 1110 of the United States Bankruptcy Code as currently legislated and interpreted in a manner that would materially adversely affect the financing parties in a United States aircraft financing, and that has had a materially adverse effect on the aircraft financing market; [*] (6) Buyer shall cooperate with any financing party, or any other participant in the financing structure, and shall provide financial and other information reasonably requested by such participants. (7) There shall not be a monetary default by Buyer with respect to the pertinent financing parties at the time of financing. - -------------------------------------------------------------------------------- - ---------- * Confidential (8) Buyer shall waive trial by jury in respect of any claim based upon or arising out of financings and resulting transactions. (9) All payments to be made by the Buyer in favor of the financing parties shall be free and clear of any taxes, levies, duties or other deductions of whatever nature including standard gross up provisions. (10) [*] - -------------------------------------------------------------------------------- - ---------- * Confidential EX-10.15 14 a2082173zex-10_15.txt AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT Exhibit 10.15 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") made as of this 7 day of June, 2002 by and among REPUBLIC AIRWAYS HOLDINGS INC., a Delaware corporation (the "COMPANY"), IMPRIMIS INVESTORS, LLC, WEXFORD SPECTRUM FUND I, L.P., WEXFORD OFFSHORE SPECTRUM FUND, WEXFORD PARTNERS INVESTMENT CO. LLC, and WEXAIR LLC (collectively, the "WEXFORD INVESTORS"), and DELTA AIR LINES, INC. ("DELTA" and, together with the Wexford Investors, the "HOLDERS"). W I T N E S S E T H: WHEREAS, the Company and the Wexford Investors are party to a Registration Rights Agreement, dated as of May 15, 1998 (the "EXISTING AGREEMENT"); WHEREAS, on the date hereof Delta and Chautauqua Airlines, Inc., a subsidiary of the Company, are entering into a Delta Connection Agreement and certain other agreements pursuant to which certain rights to acquire shares of Common Stock (as defined below) of the Company will be granted to Delta; and WHEREAS, the parties hereto desire to enter into this Agreement, which amends and restates in its entirety the Existing Agreement, to promote the interests of the Company and the interests of the Holders by establishing herein certain terms and conditions upon which the Company will register the shares of Common Stock held by each Holder. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. As used herein, the following terms shall have the following respective meanings: "COMMON STOCK" shall mean the common stock, par value $.001 per share, of the Company. "COMMISSION" shall mean the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act of 1933, as amended (the "SECURITIES ACT"). "RESTRICTED SECURITIES" shall mean the securities of the Company required to bear or bearing the legend set forth in Section 2 hereof. "REGISTRABLE SECURITIES" shall mean (i) the Common Stock held by each Holder and (ii) Common Stock issued to the Holders upon any stock split, stock dividend, merger, consolidation, recapitalization or similar event, excluding all such shares which (x) have been registered under the Securities Act and disposed of in accordance with the registration statement covering them, (y) have been publicly sold pursuant to Rule 144 (or any successor rule) under the Securities Act or (z) are eligible for sale without restriction under Rule 144(k) (or any successor rule) under the Securities Act. The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in compliance with Sections 4.1, 4.2 and 4.3 hereof, including, without limitation, all registration, qualification and filing fees, exchange listing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and one counsel for the Holders, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel for the Holders. 2. RESTRICTIVE LEGEND. Each certificate representing the Common Stock or any other securities issued upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event shall (unless otherwise permitted or unless the securities evidenced by such certificate shall have been registered under the Securities Act) be stamped or otherwise imprinted with a legend in substantially the following form (in addition to any legend required under applicable state securities laws): THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. NO TRANSFER OF SAID SECURITIES SHALL BE PERMITTED IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS COVERING THE SHARES PROPOSED TO BE TRANSFERRED OR (II) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER WILL NOT REQUIRE COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE LAWS. Upon request of a holder of such a certificate, the Company shall remove the foregoing legend from the certificate or issue to such holder a new certificate therefor free of any transfer legend, if (x) with such request, the Company shall have received either an opinion referred to in Section 3 to the effect that any transfer by such holder of the securities evidenced by such certificate will not violate the Securities Act and applicable state securities laws, (y) in accordance with paragraph (k) of Rule 144, such holder is not and has not during the last three months been an affiliate of the Company and such holder has held the securities represented by such certificate for a period of at least two years. The Company will use its reasonable best 2 efforts to assist any holder in complying with the provisions of this Section 2 for removal of the legend set forth above. 3. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Agreement. Prior to any proposed transfer of any Restricted Securities (other than under circumstances described in Sections 4.1, 4.2 and 4.3), the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except in transactions in compliance with Rule 144) by a written opinion of legal counsel who shall be reasonably satisfactory to the Company, addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act and applicable state securities laws whereupon the holder of such Restricted Securities, shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear the appropriate restrictive legend set forth above unless the opinion of counsel referred to above is to the further effect that no such legend is required in order to establish compliance with any provisions of the Securities Act or applicable state securities laws. 4. REGISTRATION RIGHTS. 4.1. (a) REQUEST FOR REGISTRATION. If, at any time following the 180th day after any registration statement covering an initial public offering of the Common Stock of the Company shall have become effective, the Company shall receive from a Holder or Holders owning in excess of 5% of the Registrable Securities, including any securities convertible into Registrable Securities, a written request that the Company effect any registration with respect to all or a part of the Registrable Securities (each such request, a "DEMAND"), the Company will, as soon as practicable, but in any event no later than ninety (90) days after receipt of such request, use its reasonable best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws (except that the Company shall not be required to qualify the offering under the blue sky laws of any jurisdiction in which the Company would be required to execute a general consent to service of process unless the Company is already subject to service in such jurisdiction) and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request. The Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request. The registration statement filed pursuant to the Demand of such Holder may, subject to the provisions of Section 4.1(b) below, include other securities of the Company which are held by officers or directors of the Company or which are held by persons who, by virtue of 3 agreements with the Company now or hereinafter in effect are entitled to include their securities in any such registration (collectively, "OTHER STOCKHOLDERS") and may include securities of the Company being sold for the account of the Company. The Company shall promptly give notice of any registration proposed under this Section 4.1 to such Other Stockholders. Following receipt of any Demand under this Section 4.1, the Company shall immediately notify all Other Stockholders from whom notice has not been received and such Other Stockholders shall have 30 days from receipt of such notice from the Company to notify the Company of their desire to participate in the registration. The Company shall use its reasonable best efforts to register under the Securities Act, for public sale in accordance with the method of distribution specified in such notices from requesting Other Stockholders, the number of Registrable Securities specified in such notices. The number of Demands which may be made by each Holder shall be a limited to one (1) Demand PLUS a number determined as follows: For each five percent (5%) of the amount of the Company's outstanding Common Stock, including any securities convertible into Common Stock, (determined on a fully-diluted basis) held by the Holders on the date any registration statement covering the initial public offering of the Common Stock of the Company shall become effective (the "MEASUREMENT DATE"), the Holders will be entitled to one (1) Demand. Each five percent (5%) threshold is referred to as a "MARKER AMOUNT". For purposes of clarification, if the amount of the Company's outstanding Common Stock (determined on a fully-diluted basis) held by the Holders on the Measurement Date is equal to 13%, each Holder would be entitled to a total of three (3) Demands. The determination of the number of Demands to which the Holders are entitled shall be calculated only one (1) time as provided herein. (b) UNDERWRITING. If a Holder intends to distribute the Registrable Securities covered by its request by means of an underwriting, it shall so advise the Company as a part of its request made pursuant to Section 4.1(a) above and the Company shall include any information that it shall have received as to the nature of the underwriting in the written notice of the Company referred to in Section 4.1(a) above, including the name of the underwriter or representative thereof selected for such underwriting. A Holder may elect to include in such underwriting all or a part of the Registrable Securities held by it. Any underwriter selected by such Holder shall be subject to the Company's consent (which consent shall not be unreasonably withheld). If the Company wishes to include in any registration pursuant to Section 4.1 securities being sold for its own account, or if the Other Stockholders shall request inclusion in any registration pursuant to Section 4.1, the Company may offer to include the securities of the Company and such Other Stockholders in the underwriting and (in the case of Other Shareholders) may condition such offer on their acceptance of the further applicable provisions of this Agreement. The Company shall (together with the Holders and Other Stockholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or representative of the underwriters selected for such underwriting. Notwithstanding any other provision of this Section 4.1, if the representative of the underwriters advises the Company in writing that, in its opinion, marketing factors require a limitation on the number of shares to be underwritten, the Company shall so 4 advise the Holders and the number of shares of Registrable Securities and other securities that may be included in the registration and underwriting shall be allocated in the following manner: (i) first, the securities being sold for the account of the Company shall be excluded from such registration and underwriting to the extent required by such limitation (ii) second, if a limitation on the number of shares is still required, the securities held by the Other Stockholders of the Company shall be excluded from such registration and underwriting to the extent required by such limitation in proportion, as nearly practicable, to the respective amounts of securities requested to be registered by such Other Stockholders or otherwise as their rights may appear and (iii) third, if a limitation on the number of shares is still required, the securities held by the Holders of the Company shall be excluded from such registration and underwriting to the extent required by such limitation in proportion, as nearly practicable, to the respective amounts of securities requested to be registered by the Holders. If the Company or a Holder or any Other Stockholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company. The securities so withdrawn shall also be withdrawn from registration. If, pursuant to this paragraph, any of the securities being sold for the account of such Holder are to be excluded from such registration and underwriting, such Holder may withdraw its request for such registration or underwriting and such request will not be counted as the registration permitted under Section 4.1 of this Agreement, or such Holder may have such securities registered as a non-underwritten "shelf" registration pursuant to Rule 415. (c) The Company shall have the right to defer the request of a Holder to effect a registration for up to sixty (60) calendar days if, in the Company's judgment reasonably set forth in writing and delivered to the Holders, effecting a registration would not be in the Company's best interest. 4.2. COMPANY REGISTRATION. (a) If at any time following the 180th day after any registration statement covering an initial public offering of the Common Stock of the Company shall have become effective, the Company shall register any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights, other than a registration relating solely to employee benefit plans, a registration relating solely to a Commission Rule 145 transaction (covering mergers, acquisitions and corporate reorganizations) or a registration on any registration form which does not permit secondary sales, the Company will: (b) within ten (10) days of such determination give to the Holders and the Other Stockholders written notice thereof; and (c) include in such registration and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by a Holder or an Other Stockholder within twenty (20) days after receipt of the written notice from the Company described (b) above, except as set forth in Section 4.2(d) below. Such written request may specify all or a part of such Holder's or Other Stockholder's Registrable Securities. 5 (d) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders and the Other Stockholders by written notice. The Holders and the Other Stockholders shall (together with the Company, if distributing its securities for its own account through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected by the Company. Notwithstanding any other provision of this Section 4.2, if the representative of the underwriters advises the Company in writing that, in its opinion, marketing factors require a limitation on the number of shares to be underwritten, the Company shall so advise the Holders and the Other Stockholders, and the number of shares that may be included in the registration and underwriting shall be allocated first to the Company for securities being sold for its account and then in the following manner: (i) the securities requested to be registered by officers or directors of the Company shall be excluded from such registration and underwriting to the extent required by such limitation in proportion, as nearly as practicable, to the respective amounts of securities requested to be registered by such officers and directors and (ii) if a limitation on the number of shares is still required, the securities being sold for the accounts of the Holders and the Other Stockholders shall be excluded from such registration and underwriting to the extent required by such limitation in proportion, as nearly as practicable, to the respective amounts of Registrable Securities which the Holders and such Other Stockholders had requested to be included in such registration or otherwise as their rights may appear. If a Holder or any Other Stockholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company and the underwriter. 4.3. SUBSEQUENT DEMANDS AND REGISTRATION ON FORM S-3. (a) In addition to the rights contained in the foregoing provisions of this Section 4, upon the Company qualifying for the use of Form S-3 (or any comparable or successor form), the Holders or any of them shall have the right to request unlimited registrations on Form S-3 (or any comparable or successor form). Such requests shall be in writing, shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by the Holders. (b) The Company shall use its reasonable best efforts to qualify, and remain qualified, for registration on Form S-3 or any comparable or successor form. 4.4. EXPENSES OF REGISTRATION. The Company shall bear all Registration Expenses and each Holder shall bear its own Selling Expenses relating to the securities being included by such Holder in the registration incurred in connection with any registration, qualification or compliance pursuant to the provisions of Section 4.1 or 4.2. 6 4.5. REGISTRATION PROCEDURES. In the case of the registration effected by the Company pursuant to this Agreement, the Company will keep the Holders advised in writing as to the initiation of the registration and as to the completion thereof. At its expense, the Company will: (a) Keep such registration effective for a period of one hundred twenty (120) days or until the Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; PROVIDED, HOWEVER, that in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold; (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of securities covered by such registration statement; (c) Furnish one registration statement and such number of prospectuses and other documents incident thereto, including any term sheet or any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (d) Notify the Holders, at their addresses as set forth in the Company's books and records at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of a Holder, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchaser of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing; (e) Cause all such Registrable Securities to be listed on each, if any, securities exchange on which similar securities issued by the Company are then listed; (f) Provide a transfer agent and registrar for all Registrable Securities and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (g) Make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement, and any attorney or accountant retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the 7 Company, and cause the Company's officers and directors to supply all information reasonably requested by any such seller, underwriter, attorney or accountant in connection with such registration statement; PROVIDED, HOWEVER, that such seller, underwriter, attorney or accountant shall agree in writing to hold in confidence all information so provided; (h) Furnish to each Holder a signed counterpart, addressed to such Holder, of an opinion of counsel for the Company, dated the effective date of the registration statement, and in the case of any underwritten public offering obtain "comfort" letters signed by the Company's independent public accountants who have examined and reported on the Company's financial statements included in the registration statement, to the extent permitted by the standards of the AICPA or other relevant authorities. 5. INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers, directors and partners, and each person controlling the Holder, with respect to which registration, qualification or compliance has been effected pursuant to Section 4 hereof, and each underwriter, if any, and each person who controls any underwriter, against all claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus or other document (including any related registration statement) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any violation by the Company or its agents of any rule or regulation promulgated under the Securities Act applicable to the Company or its agents and relating to action or inaction required by the Company in connection with any registration hereunder, and (iii) any failure to register or qualify the Registrable Securities in any state where the Company or its agents have affirmatively undertaken or agreed that the Company (the undertaking of any underwriter chosen by the Company being attributed to the Company) will undertake such registration or qualification on such Holder's behalf and will reimburse the Holder, each of its officers, directors and partners, and each person controlling the Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses as they are reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action; PROVIDED that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by the Holder or such underwriter specifically for use therein or to the extent due to the failure of the Holder or such underwriter to provide an updated prospectus or other document to a purchaser at a time when the Company has informed the Holder or such underwriter of a material misstatement or omission in a prospectus or other document and has provided updated prospectuses 8 or other documents correcting such misstatement or omission or the Holder actually knew of such untrue statement or omission. (b) Each Holder will indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of the Securities Act and the rules and regulations thereunder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and its directors, officers, partners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; PROVIDED, HOWEVER, that the obligations of such Holder hereunder shall be limited to an amount equal to the proceeds to the Holder of securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 5 (the "INDEMNIFIED PARTY") shall give notice in writing to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, PROVIDED that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such Indemnified Party's expense. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 5 is unavailable to an Indemnified Party in respect of any losses, claims, damages or liabilities referred to therein, then 9 each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the stockholders offering securities in the offering (the "SELLING STOCKHOLDERS") on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and the Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Holder and the parties' relevant intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were based solely upon the number of entities from whom contribution was requested or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 5(d). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to above in this Section 5(d) shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim, subject to the provisions of Section 5(d) hereof. Notwithstanding the provisions of this Section 5(d), neither Holder shall be required to contribute any amount or make any other payments under this Agreement which in the aggregate exceed the net proceeds received by such Holder. No person guilty of fraudulent misrepresentation (within the meaning of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 6. INFORMATION BY HOLDER. Each Holder shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. 7. RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of the Restricted Securities to the public without registration, the Company agrees to: (a) use its reasonable best efforts to make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act at all times; (b) use its reasonable best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and 10 (c) so long as any Holder owns any Restricted Securities, furnish to such Holder or Holders forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as such Holder or Holders may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder or Holders to sell any such securities without registration. 8. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register the Registrable Securities held by the Holders under Section 4 may be transferred or assigned, PROVIDED that the Company is given written notice at the time of or within a reasonable time after said transfer or assignment, stating the name and address of said transferee or assignee and identifying the Registrable Securities with respect to which such registration rights are being transferred or assigned, and PROVIDED FURTHER that the transferee or assignee of such rights assumes the obligations of a Holder under this Agreement. 9. TERMINATION. The provisions of Sections 4.1, 4.2 and 4.3 of this Agreement shall terminate at the latest to occur of (i) the date on which the Registrable Securities total less than 5% of the outstanding Common Stock of the Company, (ii) such time as the Registrable Securities owned by such Holder are eligible for resale under Rule 144(k) (without regard to any volume limitations) and (iii) the seventh anniversary of the date of the closing of the Company's initial public offering on Form S-1. 10. AMENDMENT; WAIVER. No amendment, alteration or modification of this Agreement shall be valid unless in each instance such amendment, alteration or modification is expressed in a written instrument executed by each Holder (so long as a Holder is a holder of Registrable Securities) and the Company. No waiver of any provision of this Agreement shall be valid unless it is expressed in a written instrument duly executed by the party or parties making such waiver. The failure of any party to insist, in any one or more instances, on performance of any of the terms and conditions of this Agreement shall not be construed as a waiver or relinquishment of any rights granted hereunder or of the future performance of any such term, covenant or condition but the obligation of any party with respect thereto shall continue in full force and effect. 11. SPECIFIC PERFORMANCE. The parties hereby declare that it is impossible to measure in money the damages which will accrue to a party hereto by reason of a failure to perform any of the obligations under this Agreement. Therefore, all parties hereto shall have the right to specific performance of the obligations of the other parties under this Agreement, and if any party hereto shall institute an action or proceeding to enforce the provisions hereof, any person (including the Company) against whom such action or proceeding is brought hereby waives the claim or defense therein that such party has an adequate remedy at law, and such person shall not urge in any such action or proceeding the claim or defense that such remedy at law exists. 11 12. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or transmitted by facsimile or delivered by nationally recognized overnight courier, addressed: (a) if to a Wexford Investor, to the following address, Wexford Plaza 411 West Putnam Avenue Greenwich, CT 06830 Attention: Jay Maymudes Fax: (203) 862-7350 and (b) if to Delta, to the following address, Delta Air Lines, Inc. 1030 Delta Blvd. Atlanta, Georgia 30320 Attention: Sr. Vice President - Finance, Treasury and Corp. Dev. Phone: (404) 714-1724 Fax: (404) 677-1182 with a copy to, Delta Air Lines, Inc. 1030 Delta Blvd. Atlanta, Georgia, 30320 Attention: Sr. Vice President and General Counsel Phone: (404) 715-2191 Fax: (404) 715-2233 and (c) if to the Company, to the following address, or at such other address as the Company shall have furnished to the Holders, Republic Airways Holdings Inc. 2500 S. High School Road, Suite 160 Indianapolis, IN 46241 Attention: Bryan K. Bedford Phone: (317) 484-6000 Fax: (317) 484-4747 Alternatively, to such other address as a party hereto supplies to each other party in writing. 12 13. SUCCESSORS AND ASSIGNS. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective permitted transferees, successors and assigns of the parties hereto, whether so expressed or not. 14. GOVERNING LAW. This Agreement is to be governed by and interpreted under the laws of the State of Delaware without giving effect to the principles of conflicts of laws thereof. 15. TITLES AND SUBTITLES. The titles of the sections of this Agreement are for the convenience of reference only and are not to be considered in construing this Agreement. 16. SEVERABILITY. The invalidity or unenforceability of any provisions of this Agreement shall not be deemed to affect the validity or enforceability of any other provision of this Agreement. 17. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 18. AMENDMENT AND RESTATEMENT; ENTIRE AGREEMENT. This Agreement amends and restates in its entirety the Existing Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with respect to the subject matter hereof and supersedes all previous agreements, arrangements and understandings, whether written or oral, with respect to the subject matter hereof, including, without limitation, the Existing Agreement. 13 IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Registration Rights Agreement as of the date first above written. REPUBLIC AIRWAYS HOLDINGS INC. By: /s/ Robert H. Cooper ----------------------------------------- Name: Robert H. Cooper Title: EVP and CFO IMPRIMIS INVESTORS, LLC By: /s/ Arthur Amron ----------------------------------------- Name: Arthur Amron Title: Vice President and Assistant Secretary WEXFORD SPECTRUM FUND I, L.P. By: /s/ Arthur Amron ----------------------------------------- Name: Arthur Amron Title: Vice President and Assistant Secretary WEXFORD OFFSHORE SPECTRUM FUND By: /s/ Arthur Amron ----------------------------------------- Name: Arthur Amron Title: Vice President and Assistant Secretary WEXFORD PARTNERS INVESTMENT CO. LLC By: /s/ Arthur Amron ----------------------------------------- Name: Arthur Amron Title: Vice President and Assistant Secretary WEXAIR LLC By: /s/ Arthur Amron ----------------------------------------- Name: Arthur Amron Title: Vice President and Assistant Secretary 14 DELTA AIR LINES, INC. By: /s/ Frederick Buttrell ----------------------------------------- Name: Frederick Buttrell Title: President and CEO, Delta Connection, Inc. 15 EX-10.19 15 a2082173zex-10_19.txt PARTICIPATION AGREEMENT ================================================================================ Exhibit 10.19 PARTICIPATION AGREEMENT [N281SK] Dated as of February 23, 2001 among CHAUTAUQUA AIRLINES, INC., as Lessee GENERAL ELECTRIC CAPITAL CORPORATION, as Owner Participant, and FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity (except as otherwise expressly set forth herein) but solely as Owner Trustee ================================================================================ COVERING ONE EMBRAER MODEL EMB-145LR AIRCRAFT AIRCRAFT BEARING U.S. REGISTRATION NO. N281SK AND MANUFACTURER'S SERIAL NUMBER 145391 - ------------ Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933. The omitted materials have been filed separately with the Securities and Exchange Commission. PARTICIPATION AGREEMENT [N281SK] dated as of February 23, 2001 (this "Agreement") among CHAUTAUQUA AIRLINES, INC., a New York corporation (herein, together with its successors and permitted assigns, the "Lessee"), FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity, except as otherwise expressly stated herein, but solely as owner trustee under the Trust Agreement referred to below (in such capacity as trustee, together with its successors and permitted assigns, the "Owner Trustee"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (together with its successors and permitted assigns, the "Owner Participant"). W I T N E S S E T H: WHEREAS, capitalized terms used herein shall have the respective meanings set forth or referred to in Article 1 hereof; and WHEREAS, pursuant to the Embraer Purchase Agreement, the Manufacturer agreed to manufacture and sell to Seller and Seller agreed to purchase from the Manufacturer the Aircraft; and WHEREAS, concurrently with the execution and delivery of this Agreement, the Owner Participant and First Security Bank, National Association, are entering into the Trust Agreement whereby, among other things, First Security Bank, National Association, is appointed as Owner Trustee and has undertaken to acquire and hold the Trust Estate in trust for the benefit of the Owner Participant; and WHEREAS, pursuant to the Embraer Purchase Agreement the Manufacturer has delivered the Aircraft to the Seller and subject to the terms and conditions of this Agreement, the Owner Trustee is willing to purchase the Aircraft from the Seller pursuant to the Aircraft Purchase Agreement for immediate lease to the Lessee pursuant to the Lease; and WHEREAS, subject to the terms and conditions of this Agreement and the Trust Agreement, the Owner Participant is willing to make the equity investment provided for herein to fund such purchase by the Owner Trustee; and WHEREAS, Seller has agreed to assign the Assigned Warranties to the Owner Trustee and the Manufacturer has consented to such assignment, upon the terms and conditions contained in the Embraer Warranty Assignment and Consent; and WHEREAS, Seller has agreed to assign the Engine Warranties to the Owner Trustee and the Engine Manufacturer has consented to such assignment, upon the terms and conditions contained in the Engine Warranty Assignment and Consent; and WHEREAS, to induce the Owner Participant to make the equity investment provided for herein to fund the purchase of the Aircraft by the Owner Trustee from the Seller, the Manufacturer has agreed to enter into the Residual Value Guarantee Agreement (MSN145391/N281SK), dated as of February 23, 2001 (the "Residual Value Guarantee Agreement") with the Owner Participant and to undertake the obligations provided therein; and WHEREAS, to induce the Owner Trustee to purchase the Aircraft and to enter into the Lease, the Manufacturer has agreed to enter into the Guarantee Agreement (MSN145391/N281SK), dated February 23, 2001 (the "Guarantee Agreement") with the Owner Trustee and the Owner Participant and to undertake the obligations provided therein; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration and receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties do hereby agree as follows: ARTICLE 1. INTERPRETATION Section 1.01. DEFINITIONS. Capitalized terms used herein and defined in Appendix A shall, except as such definitions may be specifically modified in the body of this Agreement for the purposes of a particular section, paragraph or clause, have the meanings given such terms in Appendix A. Section 1.02. REFERENCES. References in this Agreement to sections, paragraphs, clauses, appendices, schedules and exhibits are to sections, paragraphs, clauses, appendices, schedules and exhibits in and to this Agreement unless otherwise specified. Section 1.03. HEADINGS. The headings of the various sections, paragraphs and clauses of this Agreement and the table of contents are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. Section 1.04. APPENDICES SCHEDULES AND EXHIBITS. The appendices, schedules and exhibits hereto are part of this Agreement. ARTICLE 2. SALE AND LEASING TRANSACTIONS Section 2.01. PARTICIPATION. Subject to all of the terms and conditions of this Agreement, the parties agree to participate in the sale and leasing transactions with respect to the Aircraft provided for in this Article 2. (a) SALE AND PURCHASE. The Owner Trustee agrees to purchase the Aircraft from the Seller on the Delivery Date for a purchase price equal to Lessor's Cost pursuant to the Aircraft Purchase Agreement. 2 (b) LEASING. The Owner Trustee agrees to lease to the Lessee, and the Lessee agrees to lease from the Owner Trustee, the Aircraft pursuant to the Lease, such leasing to take place concurrently with the purchase of the Aircraft by the Owner Trustee on the Delivery Date. (c) OWNER PARTICIPANT'S EQUITY INVESTMENT. The Owner Participant agrees to provide immediately available funds in an amount equal to the Lessor's Cost (the "Commitment") (i) by paying such amount to the Owner Trustee prior to the time of closing on the Delivery Date at the account specified by the Owner Trustee on or prior to the Delivery Date, such amount to be held and applied toward the Owner Trustee's payment of Lessor's Cost for the Aircraft on the Delivery Date (and if not so applied, to be promptly returned to the Owner Participant) or (ii) by paying such amount at the time of the closing on the Delivery Date directly to the Seller's account specified by the Seller prior to the closing to be applied toward the payment of Lessor's Cost. Such funds, once so applied, shall constitute an equity investment by the Owner Participant in the Trust Estate. (d) DELIVERY DATE. The "Delivery Date" shall be the date fixed by the Lessee in accordance with this Section 2.01(d) for the closing of the sale and leasing transactions with respect to the Aircraft contemplated hereby, except that following such closing the "Delivery Date" shall mean the date on which such transactions actually closed. The Lessee shall give at least two Business Days' notice to each other party hereto of the Delivery Date, which notice shall also specify the amount of the Commitment. The Lessee may postpone a scheduled Delivery Date from time to time, for any reason by notice given to the other parties hereto not later than 2:00 p.m. on the date last scheduled as the Delivery Date, such notice to specify a new Delivery Date. In the event that the Owner Participant shall have provided the amount of the Commitment to the Owner Trustee prior to such a postponement, the Owner Trustee shall return such amount to the Owner Participant by 2:00 p.m. on the scheduled Delivery Date unless the Owner Participant shall have agreed otherwise in writing. Absent such an agreement, in the event that the Commitment is not returned to the Owner Participant by 2:00 p.m. on a scheduled Delivery Date on which the closing does not occur, the Lessee shall pay interest to the Owner Participant at a rate equal to the rate per annum announced from time to time by Citibank, N.A. as its prime rate plus [*] for each day that such commitment is not returned to the Owner Participant by 2:00 p.m.. The making available by the Owner Participant of the Commitment at the closing shall be deemed a waiver of notice of the Delivery Date by the Owner Participant and the Owner Trustee. Section 2.02. CLOSING PROCEDURE. (a) TIME AND PLACE. The closing shall take place at 11:00 a.m. New York City local time on the Delivery Date at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York or at such other time and place as the parties may agree. The closing shall be preceded by a pre-closing at the same place, the time for which shall be fixed by the Lessee, at which the forms of the Operative Agreements to be executed, the certificates and other documents to be delivered and the forms of the legal opinions to be delivered at the closing by each party or its counsel pursuant to this Agreement shall be available for inspection by the parties and their respective counsel. - ---------- * Confidential 3 (b) ACTIONS OF THE OWNER TRUSTEE. Upon receipt in full by the Owner Trustee of the Commitment of the Owner Participant together with instructions (which may be oral) from the Owner Participant or its special counsel that the applicable conditions precedent set forth in Section 3.01 have been satisfied or waived by the Owner Participant, the Owner Trustee on the Delivery Date shall purchase the Aircraft from the Seller and lease the Aircraft to the Lessee. To accomplish such transactions, the Owner Trustee shall, concurrently with the actions of the Lessee pursuant to Section 2.02(c), take the following actions: (i) pay or cause to be paid an amount equal to Lessor's Cost to the Seller for the purchase of the Aircraft by transferring such amount in immediately available funds to the account specified by the Seller on or prior to the Delivery Date; (ii) authorize its representative or representatives, who shall be a person or persons designated by the Lessee and acceptable to the Owner Trustee, to accept delivery of the Aircraft pursuant to this Agreement; (iii) accept the Bills of Sale for the Aircraft; (iv) execute and deliver the Lease and the Lease Supplement; (v) deliver the Aircraft to the Lessee pursuant to the Lease; (vi) execute and deliver all other documents or certificates and take such other actions as may be required of the Owner Trustee on or before the Delivery Date pursuant to any Operative Agreement; and (vii) take such actions as may be requested by the Seller and Lessee to effect the due registration of the Aircraft with the FAA in the name of the Owner Trustee. (c) ACTIONS OF THE LESSEE. Upon satisfaction or waiver by the Lessee of the conditions precedent set forth in Section 3.02, the Lessee shall on the Delivery Date lease the Aircraft from the Owner Trustee pursuant to the Lease. To accomplish such transactions the Lessee shall, concurrently with the actions of the Owner Trustee pursuant to Section 2.02(b), take the following actions: (i) execute and deliver the Lease and the Lease Supplement; (ii) authorize its representative or representatives (who shall be the same person or persons designated by the Lessee for purposes of clause (ii) of Section 2.02(b)), to accept delivery of the Aircraft from the Owner Trustee pursuant to the Lease; and (iii) execute and deliver all other documents or certificates and take such other actions as may be required of the Lessee on or before the Delivery Date pursuant to any Operative Agreement. 4 ARTICLE 3. CONDITIONS PRECEDENT Section 3.01. CONDITIONS PRECEDENT TO OBLIGATIONS OF OWNER PARTICIPANT. The obligation of the Owner Participant to make the Commitment available for payment as directed by the Owner Trustee on the Delivery Date is subject to satisfaction or waiver by the Owner Participant, on or prior to the Delivery Date, of the conditions precedent set forth below in this Section 3.01; PROVIDED, that it shall not be a condition precedent to the obligation of the Owner Participant that any document be produced or action taken that is to be produced or taken by the Owner Participant or by a Person within the Owner Participant's control: (a) NOTICE. The Owner Participant shall have received the notice of the Delivery Date as provided in Section 2.01(d), or shall have waived such notice. (b) DELIVERY OF DOCUMENTS. The Owner Participant shall, except as noted below, have received executed counterparts of the following agreements, instruments, certificates or documents, and such counterparts (a) shall have been duly authorized, executed and delivered by the respective party or parties thereto, (b) shall be reasonably satisfactory in form and substance to the Owner Participant and (c) shall be in full force and effect: (i) the Lease; (ii) Lease Supplement No. 1; (iii) the Tax Indemnity Agreement; (iv) the Trust Agreement; (v) the Guarantee Agreement; (vi) the Residual Value Guarantee Agreement; (vii) the Aircraft Purchase Agreement; (viii) the Embraer Warranty Assignment and Consent; (ix) the Engine Warranty Assignment and Consent; (x) the Bills of Sale; (xi) the broker's report and insurance certificates required by Section 9 of the Lease; (xii) an appraisal or appraisals from Avitas, which appraisal or appraisals shall be satisfactory in form and substance to Owner Participant; (xiii) (A) a copy of the Certificate of Incorporation and By-Laws of Lessee and resolutions of the board of directors of Lessee, in each case certified as of the Delivery Date, by the Secretary or an Assistant Secretary of Lessee, duly authorizing the 5 execution, delivery and performance by Lessee of the Operative Agreements required to be executed and delivered by Lessee on or prior to the Delivery Date in accordance with the provisions hereof and thereof; (B) an incumbency certificate of Lessee and Trust Company as to the person or persons authorized to execute and deliver the relevant Operative Agreements on behalf of such party; and (C) a copy of the Certificate of Incorporation or Articles of Incorporation or Articles of Association and By-Laws and general authorizing resolutions of the boards of directors (or executive committees) or other satisfactory evidence of authorization of Trust Company, certified as of the Delivery Date by the Secretary or an Assistant Secretary of Trust Company, which authorize the execution, delivery and performance by Trust Company of each of the Operative Agreements to which it is a party, together with such other documents and evidence with respect to it as Owner Participant may reasonably request in order to establish the consummation of the transactions contemplated by this Agreement and the taking of all corporate proceedings in connection therewith; (xiv) an Officer's Certificate of Lessee, dated as of the Delivery Date, stating that its representations and warranties set forth in this Agreement are true and correct as of the Delivery Date (or, to the extent that any such representation and warranty expressly relates to an earlier date, true and correct as of such earlier date); (xv) an Officer's Certificate of Trust Company, dated as of the Delivery Date, stating that its representations and warranties, in its individual capacity and as Owner Trustee, set forth in this Agreement are true and correct as of the Delivery Date (or, to the extent that any such representation and warranty expressly relates to an earlier date, true and correct as of such earlier date); (xvi) the following opinions of counsel, in each case dated the Delivery Date: (A) Arthur Amron, Principal and General Counsel of the Lessee substantially in the form of Exhibit A-1 hereto and addressed to the Owner Participant and the Owner Trustee. (B) Fulbright & Jaworski, L.L.P. special counsel for the Lessee substantially in the form of Exhibit A-2 hereto addressed to the Owner Participant, the Owner Trustee and the Lessee; (C) Ray, Quinney & Nebeker, special counsel for the Owner Trustee substantially in the form of Exhibit A-3 hereto addressed to the Owner Participant and the Lessee; (D) Daugherty, Fowler, Peregrin & Haught, a Professional Corporation, special aviation counsel, substantially in the form of Exhibit A-4 hereto and addressed to the Owner Participant, the Owner Trustee and the Lessee; (E) special counsel for the Manufacturer, in a form reasonably acceptable to the Owner Participant and addressed to the Owner Participant, the Owner Trustee and the Lessee; 6 (F) in the case of the Owner Participant only, Holland & Knight LLP, tax counsel to the Owner Participant, addressed to the Owner Participant, with respect to tax matters; (G) Holland & Knight LLP, special counsel for the Owner Participant, substantially in the forms of Exhibits A-5, addressed to the Lessee and the Owner Trustee; (H) Ray Warman, Senior Vice President and Associate General Counsel to GE Capital Aviation Services, Inc., an Affiliate of the Owner Participant, substantially in the form of Exhibit A-6, addressed to the Lessee and the Owner Trustee; (I) Arthur Amron, General Counsel of Seller, in a form reasonably acceptable to the Owner Participant and addressed to the Owner Participant, the Owner Trustee and the Lessee; (J) Fulbright & Jaworski, L.L.P., relating to the Aircraft Purchase Agreement, in a form reasonably acceptable to the Owner Participant and addressed to the Owner Participant, the Owner Trustee and the Lessee; (xvii) the Guarantee Agreement shall be in full force and effect; and (xviii) the Residual Value Guarantee Agreement shall be in full force and effect. (c) AIRWORTHINESS. Owner Participant shall receive a copy of a current, valid Standard Certificate of Airworthiness for the Aircraft duly issued by the FAA. (d) VIOLATION OF LAW. No change shall have occurred after the date of this Agreement in any Applicable Law that makes it a violation of law for (a) Lessee, Owner Participant, or Owner Trustee to execute, deliver and perform the Operative Agreements to which any of them is a party or (b) Owner Participant to make the Commitment available. (e) NO EVENT OF DEFAULT. On the Delivery Date, no event shall have occurred and be continuing, or would result from the sale, mortgage or lease of the Aircraft, which constitutes a Default or Event of Default. (f) NO EVENT OF LOSS. No Event of Loss with respect to the Airframe or any Engine shall have occurred and no circumstance, condition, act or event that, with the giving of notice or lapse of time or both, would give rise to or constitute an Event of Loss with respect to the Airframe or any Engine shall have occurred. (g) TITLE. Owner Trustee shall have good title (subject to filing and recordation of the FAA Bill of Sale with the FAA) to the Aircraft, free and clear of Liens, except Permitted Liens. (h) CERTIFICATION. The Aircraft shall have been duly certificated by the FAA as to type and airworthiness as required by the terms of the Lease. 7 (i) SECTION 1110. Owner Trustee, as lessor under the Lease, shall be entitled to the benefits of Section 1110 (as currently in effect) with respect to the right to take possession of the Airframe and Engines as provided in the Lease in the event of a case under Chapter 11 of the Bankruptcy Code in which Lessee is a debtor. (j) FILINGS. On the Delivery Date (i) application for registration of the Aircraft in the name of the Owner Trustee shall have been duly made with the FAA in compliance with the provisions of the Transportation Code; and (ii) the Trust Agreement, the Lease, Lease Supplement No. 1 and the FAA Bill of Sale shall have been duly filed for recordation (or shall be in the process of being so duly filed for recordation) with the FAA in accordance with the Transportation Code. (k) PRECAUTIONARY FINANCING STATEMENTS. A Uniform Commercial Code "precautionary" financing statement or statements describing the Lease as a lease but covering any security interest in favor of the Owner Trustee which may be created thereby, shall have been executed and delivered by the Lessee and the Owner Trustee (naming the Owner Trustee as Lessor and secured party), and shall have been duly filed in all places necessary or desirable within the State of Indiana. (l) NO PROCEEDINGS. No action or proceeding shall have been instituted, nor shall any action be threatened in writing, before any governmental authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any governmental authority, to set aside, restrain, enjoin or prevent the completion and consummation of this Agreement or any other Operative Agreement or the transactions contemplated hereby or thereby. (m) GOVERNMENTAL ACTION. All appropriate action required to have been taken prior to the Delivery Date by the FAA, or any governmental or political agency, subdivision or instrumentality of the United States, in connection with the transactions contemplated by this Agreement shall have been taken, and all orders, permits, waivers, authorizations, exemptions and approvals of such entities required to be in effect on the Delivery Date in connection with the transactions contemplated by this Agreement shall have been issued. (n) REPRESENTATIONS AND WARRANTIES. The representations and warranties of each other party to this Agreement made, in each case, in this Agreement and in any other Operative Agreement to which it is party, shall be true and accurate in all material respects as of the Delivery Date (unless any such representation and warranty shall have been made with reference to a specified date, in which case such representation and warranty shall be true and accurate as of such specified date) and each other party to this Agreement shall have performed and observed, in all material respects, all of its covenants, obligations and agreements in this Agreement and in any other Operative Agreement to which it is a party to be observed or performed by it as of the Delivery Date. Section 3.02. CONDITIONS PRECEDENT TO OBLIGATIONS OF LESSEE. The obligation of Lessee to lease the Aircraft on the Delivery Date is subject to the satisfaction or waiver by Lessee, on or prior to the Delivery Date, of the conditions precedent set forth below in this Section 3.02. 8 (a) DOCUMENTS. Executed originals of the agreements, instruments, certificates, documents and opinions described in Section 3.01(b) shall have been received by Lessee, except as specifically provided therein, and shall be satisfactory to Lessee, unless the failure to receive any such agreement, instrument, certificate or document is the result of any action or inaction by Lessee. (b) CORPORATE DOCUMENTS. (A) An incumbency certificate of Owner Participant as to the person or persons authorized to execute and deliver the relevant Operative Agreements on behalf of Owner Participant; and (B) a copy of the Certificate of Incorporation or Articles of Incorporation or Articles of Association and By-Laws and general authorizing resolutions of the boards of directors (or executive committees) or other satisfactory evidence of authorization of Owner Participant, certified as of the Delivery Date by the Secretary or an Assistant Secretary of Owner Participant which authorize the execution, delivery and performance by Owner Participant of each of the Operative Agreements to which it is a party, together with such other documents and evidence with respect to it as Lessee may reasonably request in order to establish the consummation of the transactions contemplated by this Agreement and the taking of all corporate proceedings in connection therewith; (c) OFFICER'S CERTIFICATE. An Officer's Certificate of Owner Participant, dated as of the Delivery Date, stating that its representations and warranties set forth in this Agreement are true and correct as of the Delivery Date (or, to the extent that any such representation and warranty expressly relates to an earlier date, true and correct as of such earlier date); (d) OTHER CONDITIONS PRECEDENT. Each of the conditions set forth in Sections 3.01(c), (d), (f), (g), (h), (i), (j), (l) and (n) shall have been satisfied or waived by Lessee, unless the failure of any such condition to be satisfied is the result of any action or inaction by Lessee. Section 3.03. POST-REGISTRATION OPINION. Promptly upon the registration of the Aircraft and the recordation of the documents referenced in Section 3.01(j)(ii), Lessee will direct Daugherty, Fowler, Peregrin & Haught, a Professional Corporation, special counsel in Oklahoma City, Oklahoma, to deliver to Lessee, Owner Participant and Owner Trustee a favorable opinion or opinions addressed to each of them with respect to such registration and recordation. ARTICLE 4. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS Section 4.01. LESSEE'S REPRESENTATIONS AND WARRANTIES. The Lessee represents and warrants that, as of the Delivery Date (unless any such representation and warranty is specifically made as of an earlier date, in which case the Lessee represents and warrants as of such earlier date): (a) the Lessee is a corporation duly organized and validly existing and is in good standing under the laws of the State of New York, has its principal place of business and chief executive office (as such terms are used in Article 9 of the Uniform Commercial Code) in Indianapolis, Indiana at the address set forth in Section 12.01(a), and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the failure to 9 be so qualified or in good standing would have a materially adverse effect on its business or would impair its ability to perform its obligations under the Lessee Documents; (b) the Lessee has full power, authority and legal right to conduct its business and operations as currently conducted and to own or hold under lease its properties and to enter into and perform its obligations under the Lessee Documents; (c) the Lessee is a Certificated Air Carrier; (d) the Lessee possesses all necessary certificates, franchises, licenses, permits, rights and concessions and consents (collectively "permits") which are necessary to the operation of the routes flown by it and the conduct of its business and operations as currently conducted and each such permit is in full force and effect, except for any such permits the failure to have or maintain which would not have a material adverse effect on the Lessee or its ability to perform its obligations under the Lessee Documents; (e) the execution, delivery and performance of the Lessee Documents by the Lessee have been duly authorized by all necessary corporate action on the part of the Lessee and do not require any stockholder approval, or approval or consent of any trustee or holder of any indebtedness or obligations of the Lessee, and each such Lessee Documents has been duly executed and delivered and constitutes the legal, valid and binding obligations of the Lessee enforceable against it in accordance with the terms thereof except as such enforceability may be limited by bankruptcy, insolvency, or other similar laws or by general equitable principles; (f) no authorization, consent or approval of or other action by, and no notice to or filing with, any United States federal or state governmental authority or regulatory body is required for the execution, delivery or performance by the Lessee of the Lessee Documents except for such registrations, applications and recordings referred to in the opinion of Daugherty, Fowler, Peregrin & Haught, a Professional Corporation delivered pursuant to Section 3.01(b)(xvi)(D) and the filings referred to in Section 3.01(j)(ii); (g) neither the execution, delivery or performance by the Lessee of the Lessee Documents nor compliance with the terms and provisions hereof or thereof, conflicts or will conflict with or results or will result in a breach or violation of any of the terms, conditions or provisions of, or will require any consent (other than the Embraer Warranty Assignment and Consent and the Engine Warranty Assignment and Consent) or approval under, any Applicable Law or the charter documents, as amended, or bylaws, as amended, of the Lessee or any order, writ, injunction or decree of any court or governmental authority against the Lessee or by which it or any of its properties is bound or any indenture, mortgage or contract or other agreement or instrument to which the Lessee is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or results or will result in the imposition of any Lien upon the Aircraft or any of its properties (other than Permitted Liens), except for any such conflict, breach or default which would not have a material adverse effect on the Lessee or its ability to perform its obligations under the Lessee Documents; (h) except as disclosed in any of the financial statements referred to in Section 4.01(p) or as otherwise disclosed in writing to the Owner Participant, there are no pending or, to 10 the knowledge of the Lessee, threatened actions, suits, investigations or proceedings against or affecting the Lessee or any of its properties before or by any court, governmental agency, arbitration board, tribunal or other administrative agency which, (A) may reasonably be expected to have a materially adverse effect on the Lessee's consolidated financial condition, business, or operations, or (B) would materially adversely affect the ability of the Lessee to consummate the transactions contemplated by the Operative Agreements or perform its obligations under the Lessee Documents; (i) except for (A) the registration in the Owner Trustee's name of the Aircraft pursuant to the Transportation Code, (B) the filing with and, where appropriate, recordation by the FAA pursuant to the Transportation Code of the Lease (including Lease Supplement No. 1) and (C) the filing of the financing statement referred to in Section 3.01(k), no further action, including any filing or recording of any document, is necessary or advisable in order to establish the Owner Trustee's title to and interest in the Aircraft and the Lessor's Estate as against the Lessee and any third parties; (j) the Owner Trustee has received good and marketable title to the Aircraft, free and clear of all Liens, except Permitted Liens; (k) all premiums which have become due with respect to the insurance required to be provided by the Lessee on or prior to the Delivery Date under Section 9 of the Lease have been paid by the Lessee; (l) no Default or Event of Default exists and no Event of Loss, or event which with the passage of time would constitute an Event of Loss, exists; (m) the Aircraft is in such condition so as to enable the airworthiness certificate of such Aircraft to be in good standing under the Transportation Code; the Aircraft has been duly certificated by the FAA as to type and airworthiness; there is in effect with respect to the Aircraft a current and valid airworthiness certificate issued by the FAA pursuant to the Transportation Code; (n) neither the Lessee nor any subsidiary of the Lessee is an "investment company" or a company "controlled by an investment company" within the meaning of the Investment Company Act of 1940, as amended; (o) there are no broker's or underwriter's fees payable on behalf of the Lessee in connection with the transactions contemplated in the Operative Agreements, other than those of the Lessee Advisor (as defined in Section 8.01(a)) referred to in Article 8 hereof; (p) the audited consolidated balance sheet of Lessee as of December 31, 1999 and the related consolidated statements of operations and cash flows for the period then ended have been prepared in accordance with generally accepted accounting principles in the United States and fairly present in all material respects the financial condition of Lessee and its consolidated subsidiaries as of such date and the results of its operations and cash flows for such period, and since December 31, 1999, there has been no material adverse change in such financial condition or operations of Lessee, except for matters disclosed in (a) the financial 11 statements referred to above or (b) otherwise disclosed in writing by Lessee to the Owner Participant; (q) to the best of Lessee's knowledge, Lessee is not in default under, or in violation of, any Applicable Law, the violation of which would give rise to a Material Adverse Change to Lessee; (r) neither the Lessee nor any Person authorized by the Lessee to act on its behalf has directly or indirectly offered any beneficial interest in the ownership of the Aircraft or the Lease or any interest in the Trust Estate and Trust Agreement, or in any similar security relating to the Aircraft, the Lease, the Trust Estate or the Trust Agreement, for sale to, or solicited any offer to acquire any such interest or security from, or has sold any such interest or security to, any Person in violation of the Securities Act or any applicable state securities laws; and (s) Owner Trustee, as lessor under the Lease, is entitled to the benefits of Section 1110 (as currently in effect) with respect to the Aircraft. Section 4.02. CERTAIN COVENANTS OF LESSEE. The Lessee covenants and agrees as follows: (a) FILINGS AND RECORDINGS. The Lessee will cause to be done, executed, acknowledged and delivered at the Lessee's cost and expense all such further acts, conveyances and assurances as the Owner Trustee or the Owner Participant shall reasonably require for accomplishing the purposes of the Operative Agreements. Without limiting the generality of this Section 4.02(a), the Lessee will promptly take, or cause to be taken, at the Lessee's cost and expense, such action with respect to the recording, filing, re-recording and re-filing of the Lease (including each supplement thereto), and any financing statements or other instruments as may be reasonably requested by the Owner Trustee and appropriate, to maintain the Owner Trustee's title to and interest in the Aircraft and the Lessor's Estate, as against the Lessee and any third parties, or if the Lessee cannot itself take, or cause to be taken, such action, will furnish to the Owner Trustee timely notice of the necessity of such action, together with such instruments, in execution form, and such other information as may be required to enable either of them to take such action at the Lessee's cost and expense in a timely manner. (b) REGISTRATION. From and after the Delivery Date, the Lessee shall cause the Aircraft to be duly registered, and at all times to remain duly registered, in the name of the Owner Trustee (PROVIDED, that the Owner Trustee and the Owner Participant shall be and remain Citizens of the United States), under the Transportation Code, and shall furnish to the Owner Trustee such information as may be required to enable the Owner Trustee to make application for such registration; PROVIDED, HOWEVER, that the Lessee may, at any time cause the Aircraft to be appropriately re-registered under the laws of a country with which at the time of such registration the United States maintains normal diplomatic relations and is listed on Exhibit E to the Lease; PROVIDED that: (i) at the time of re-registration, no Specified Default exists or would occur as a result of such re-registration; 12 (ii) the Lessee shall pay all fees and expenses (including the reasonable fees and expenses of local counsel in such country) relating to such re-registration; (iii) the Lessee shall, at its cost, cause the interest of the Owner Trustee as owner of the Aircraft to be duly registered or recorded under the laws of such country and at all times thereafter to remain so duly registered or recorded unless and until the registration of the Aircraft is changed as provided herein, and shall, at its cost, cause to be done at all times all other acts including the filing, recording and delivery of any document or instrument and the payment of any sum necessary or, by reference to prudent industry practice in such country, advisable in order to create, preserve and protect such interest in the Aircraft as against the Lessee or any third parties in such jurisdiction, and the laws of such country would give effect to the Owner Trustee's title to and ownership interest in the Aircraft; (iv) the obligations of the Lessee (and of the Permitted Sublessee under a Sublease) and the rights and remedies of the Lessor and the Owner Participant under the Operative Agreements shall remain or be, as the case may be, legal, valid, binding and enforceable in such country; (v) the Lessee shall ensure that all insurance required by Section 9 of the Lease shall be in full force and effect prior to, at the time of, and after such change in registration and the Owner Participant and the Owner Trustee shall receive a certificate of Lessee's insurance broker to such effect; (vi) the country of such re-registration imposes aircraft maintenance standards approved by, or at least as stringent as those approved by, the FAA or the central civil aviation authority of the United Kingdom, France, Germany, Japan, the Netherlands or Canada; (vii) it shall not be necessary by reason of such re-registration or for purposes of enforcing remedies contained in the Lease or the related Sublease for the Owner Trustee or the Owner Participant to register or qualify to do business in such country; (viii) no Liens (except Permitted Liens) shall arise by reason of such re-registration; (ix) none of the Owner Trustee and the Owner Participant shall be subjected to any risk of adverse tax consequences as a result of such re-registration for which the Lessee does not then indemnify or cause to be indemnified such Person in a manner satisfactory in form and substance to such Person; (x) any export licenses and certificate of deregistration required in connection with any repossession or return of the Aircraft will be readily obtainable in the normal course without material delay or material burden on the Owner Trustee, it being agreed that the Lessee shall be responsible for the cost thereof; 13 (xi) there is no tort liability of the owner or lessor of an aircraft not in possession thereof under the laws of such jurisdiction more onerous than under the laws of the United States or any state thereof (it being agreed that, in the event such opinion cannot be given in a form satisfactory to the Owner Participant, such opinion shall be waived if insurance reasonably satisfactory to the Owner Participant is provided to cover such risk); (xii) unless Lessee shall have agreed to provide insurance reasonably satisfactory to the Owner Participant covering the risk of requisition of use of or title to the Aircraft by the government of such country (so long as the Aircraft is registered under the laws of such country), the laws of such country require fair compensation by the government of such country payable in currency freely convertible into Dollars and freely removable from such country (without license or permit, unless Lessee prior to such proposed reregistration has obtained such license or permit or such license or permit will be readily obtainable in the normal course without material delay or material burden on the Owner Participant) for the taking or requisition by such government of such use or title; (xiii) the courts of such proposed country of registry will respect the choice of New York law to govern the Lease; (xiv) such re-registration may not be effected until after the Recovery Period unless the Lessee prepays on a lump sum basis any liability due under the Tax Indemnity Agreement as a result of such re-registration; (xv) the Owner Participant and the Owner Trustee shall have received opinions in scope, form and substance reasonably satisfactory to them, of counsel, expert in the laws of such country, to the effect set forth in clauses (iii), (iv) (with respect to the obligations of the Lessee under the Lease), (vii), (ix), (x), (xi), (xii) and (xiii) of this Section 4.02(b); (xvi) such proposed change in registration is made in connection with a Sublease to a Permitted Air Carrier and such Permitted Sublessee is domiciled in such country; and (xvii) Lessee shall deliver such request to Lessor and Owner Participant in writing at least 20 days in advance of the date of any such proposed change in registration. Lessee agrees to pay on an After Tax Basis all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable counsel fees and disbursements) of the Owner Participant and the Owner Trustee in connection with any re-registration pursuant to this Section. (c) INFORMATION. The Lessee shall promptly furnish to the Owner Trustee and the Owner Participant such information as may be required to enable the Owner Trustee and the Owner Participant timely to file any reports required to be filed by the Owner Trustee as the Lessor and the Owner Participant under the Lease with any governmental authority as a result of the Owner Trustee's ownership interest in the Aircraft. 14 (d) CORPORATE EXISTENCE. The Lessee shall at all times maintain its corporate existence, except as permitted by Section 4.02(e) hereof, and all of its rights, privileges and franchises necessary in the normal conduct of its business, except for any corporate right, privilege or franchise that it determines is no longer necessary or desirable in the conduct of its business. (e) MERGER AND CONSOLIDATION. The Lessee shall not, during the Term, enter into any merger with or into or consolidation with, or sell, convey, transfer, lease or otherwise dispose of in one or a series of transactions all or substantially all of its assets as an entirety to any Person, unless the surviving corporation or Person which acquires by purchase, conveyance, transfer or lease all or substantially all of the assets of the Lessee as an entirety (i) is a domestic corporation organized and existing under the laws of the United States or any State of the United States, (ii) is a Citizen of the United States, (iii) is a Section 1110 Person, so long as such status is a condition to the availability of Section 1110, (iv) if not the Lessee, executes a duly authorized, legal, valid, binding, and enforceable agreement, reasonably satisfactory in form and substance to Owner Trustee and Owner Participant, containing an effective assumption of all of the Lessee's, as applicable, obligations hereunder and under the other Operative Agreements, and each other document contemplated hereby or thereby and delivers such instrument to the Owner Participant and the Owner Trustee, (v) provides an opinion from counsel (which counsel may be the Lessee's General Counsel) delivered to the Owner Trustee and the Owner Participant, which opinion shall be reasonably satisfactory to the Owner Participant, and an officer's certificate (which may rely, as to legal matters, on such legal opinion), each stating that such merger, consolidation, conveyance, transfer, lease or other disposition and the instrument noted in clause (iv) above comply with this Section 4.02(e), that such instrument is a legal, valid and binding obligation of, and is enforceable against, such survivor or Person, and that all conditions precedent herein provided for relating to such transaction have been complied with, and (vi) such survivor or Person makes such filings and recordings with the FAA as may be required pursuant to part A of subtitle VII of Title 49, United States Code to evidence such merger or consolidation; PROVIDED THAT, no such merger, consolidation or conveyance, transfer or lease shall be permitted if (1) immediately after giving effect to such consolidation, merger, purchase, conveyance, transfer, lease or other disposition, an Event of Default shall have occurred and be continuing or (2) the surviving Person in such transaction has a tangible net worth, as determined in accordance with generally accepted accounting principles immediately following such transaction, of less than seventy-five percent (75%) of Lessee, as measured immediately prior to such transaction. Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of the Lessee and the satisfaction of the conditions specified in this Section 4.02(e), the successor corporation formed by such consolidation or into which the Lessee is merged or the Person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Lessee under this Agreement and the Lease and each other Operative Agreement and any other document contemplated hereby and thereby to which the Lessee is a party with the same effect as if such successor corporation had been named as the Lessee herein and therein. No such consolidation or merger, or sale, conveyance, transfer or lease of all or substantially all of the assets of the Lessee as an entirety shall have the effect of releasing the Lessee or any successor corporation which shall theretofore have become the Lessee hereunder in the manner prescribed in this Section 4.02(e) from its 15 liability hereunder or under the other Operative Agreements. Nothing contained herein shall permit any lease, sublease, or other arrangement for the use, operation or possession of the Aircraft except in compliance with the applicable provisions of the Lease. (f) CHANGE OF LOCATION. The Lessee agrees to give prompt written notice (but in any event within 30 days prior to the expiration of the period of time specified under Applicable Law to prevent lapse of perfection) to the Owner Participant and the Owner Trustee of any change in the address of its chief executive office (as such term is used in Article 9 of the Uniform Commercial Code) or of any change in its corporate name. (g) FINANCIAL STATEMENTS. The Lessee agrees to furnish to the Owner Participant during the Term: (i) within 60 days after the end of each of the first three fiscal quarters in each fiscal year of the Lessee, unaudited consolidated balance sheets of the Lessee and its subsidiaries (if any) as of the end of such quarter and related consolidated statements of income, shareholder's equity and cash flows of the Lessee and its subsidiaries (if any) for the period commencing at the end of the previous fiscal year and ending with the end of such quarter; (ii) within 120 days after the end of each fiscal year of the Lessee, a copy of the annual report for such year for the Lessee or the affiliated group of which the Lessee is a member (on a consolidated basis, if applicable) and a balance sheet of the Lessee and its subsidiaries (if any) as of the end of such fiscal year and related statements of income, shareholder's equity and cash flows of the Lessee for such fiscal year, in comparative form with the preceding fiscal year, in each case certified by independent certified public accountants of national standing as having been prepared in accordance with generally accepted accounting principles in the United States; (iii) within 120 days after the end of each fiscal year of the Lessee, an Officer's Certificate of the Lessee, to the effect that the signer is familiar with or has reviewed the relevant terms of the Lease and has made, or caused to be made under his supervision, a review of the transactions and conditions of the Lessee during the preceding fiscal year and that such review has not disclosed the existence during such period, nor does the signer have knowledge of the existence as of the date of such certificate, of any condition or event which constituted or constitutes a Default or Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Lessee has taken or is taking or proposes to take with respect thereof; and (iv) from time to time, such other non-confidential financial information as the Lessor or the Owner Participant may reasonably request. (h) FILING OF DOCUMENTS. Lessee, at its sole cost and expense, will cause the documents filed with the FAA pursuant to Section 3.01(j), the financing statements required pursuant to Section 3.01(k) and all continuation statements (and any amendments necessitated by any combination, consolidation or merger pursuant to Section 4.02(e), or any relocation of its 16 chief executive office) in respect of such financing statements to be prepared and, subject only to the execution and delivery thereof by Owner Trustee, duly and timely filed and recorded, or filed for recordation, to the extent permitted under the Transportation Code (with respect to such documents filed with the FAA) or the Uniform Commercial Code or similar law of any other applicable jurisdiction (with respect to such other documents). (i) ANNUAL FOREIGN OPINION. If the Aircraft has been registered in a country other than the United States pursuant to Section 4.02(b), Lessee will furnish to Owner Trustee and Owner Participant annually after such registration is effected, an opinion of special counsel reasonably satisfactory to Owner Participant stating that, in the opinion of such counsel, either that (i) such action has been taken with respect to the recording, filing, rerecording and refiling of the Operative Agreements and any supplements and amendments thereof as is necessary to establish, perfect and protect Owner Trustee's right, title and interest in and to the Aircraft and the Operative Agreements, reciting the details of such actions, or (ii) no such action is necessary to maintain the perfection of such right, title and interest. Section 4.03. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Lessee provided in Section 4.01 and in any other Operative Agreement shall survive the delivery of the Aircraft and the expiration or other termination of this Agreement and the other Operative Agreements. ARTICLE 5. OTHER PARTIES' REPRESENTATIONS, WARRANTIES AND COVENANTS Section 5.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF OWNER PARTICIPANT. (a) REPRESENTATIONS AND WARRANTIES. The Owner Participant represents and warrants that, as of the Delivery Date (unless any such representation and warranty is specifically made as of an earlier date, in which case the Owner Participant represents and warrants as of such earlier date): (i) it is a corporation duly incorporated and validly existing in good standing under the laws of State of New York and it has full corporate power, authority and legal right to carry on its present business and operations, to own or lease its properties and to enter into and to carry out the transactions contemplated by this Agreement and the other Operative Agreements to which it is party; (ii) the execution, delivery and performance by it of this Agreement and the other Operative Agreements to which it is party have been duly authorized by all necessary corporate action on its part; (iii) neither the execution, delivery or performance by the Owner Participant of the Operative Agreements to which it is party, nor compliance with the terms and provisions hereof or thereof, conflicts or will conflict with or results or will result in a breach or violation of any of the terms, conditions or provisions of, under any law, governmental rule or regulation applicable to the Owner Participant or the charter documents, as amended, or bylaws, as amended, of the Owner Participant or any order, 17 writ, injunction or decree of any court or governmental authority against the Owner Participant or by which it or any of its properties is bound or any indenture, mortgage or contract or other agreement or instrument to which the Owner Participant is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or results or will result in the imposition of any Lien upon any of its properties, except for any such conflict, breach or default which would not have a material adverse effect on the Owner Participant or its ability to perform its obligations under the Operative Agreements; (iv) the Operative Agreements to which it is party have been duly executed and delivered by the Owner Participant and constitute the legal, valid and binding obligations of the Owner Participant enforceable against it in accordance with their terms except as such enforceability may be limited by bankruptcy, insolvency, or other similar laws or general equitable principles; (v) there are no pending or, to the knowledge of the Owner Participant, threatened actions, suits, investigations or proceedings against the Owner Participant before any court, administrative agency or tribunal which are expected to materially adversely affect the ability of the Owner Participant to perform its obligations under this Agreement and the other Operative Agreements to which it is or is to be a party and the Owner Participant knows of no pending or threatened actions or proceedings before any court, administrative agency or tribunal involving it in connection with the transactions contemplated by the Operative Agreements; (vi) neither the execution and delivery by it of this Agreement or the other Operative Agreements to which it is a party nor the performance of obligations hereunder or thereunder requires the consent or approval of or the giving of notice to, the registration with, or the taking of any other action in respect of, any governmental authority or agency that would be required to be obtained or taken by the Owner Participant except for filings contemplated by this Agreement; (vii) the funds to be used by the Owner Participant to acquire its interests under this Agreement do not constitute assets (within the meaning of ERISA and any applicable rules and regulations) of an ERISA Plan; (viii) the Owner Participant is a bank, trust company, insurance company, financial institution or corporation with a combined capital and surplus or net worth of at least $50,000,000; (ix) the Owner Participant acknowledges that the Residual Value Guarantee Agreement and the Guarantee Agreement have not been disclosed to or reviewed by the Lessee; (x) the Owner Participant has not granted any right to the Manufacturer under the Residual Value Guarantee Agreement or the Guarantee Agreement which is inconsistent with the rights of the Lessee under the Operative Agreements; and 18 (xi) the amount guaranteed by the Manufacturer under the Residual Value Guarantee Agreement is the Guaranteed Amount. Notwithstanding the foregoing or anything else contained in this Agreement, the Owner Participant makes no representation or warranty in this Agreement with respect to laws, rules or regulations relating to aviation or to the nature or use of the equipment owned by the Owner Trustee, including, without limitation, the airworthiness, value, condition, workmanship, design, patent or trademark infringement, operation, merchantability or fitness for use of the Aircraft, other than such laws, rules or regulations relating to the citizenship requirements of the Owner Participant under applicable aviation law. (b) LESSOR'S LIENS. The Owner Participant represents, warrants and covenants that on the Delivery Date there are no Lessor's Liens attributable to it (or an Affiliate thereof). The Owner Participant agrees with and for the benefit of the Lessee and the Owner Trustee that the Owner Participant will, at its own cost and expense, take such action as may be necessary to duly discharge and satisfy in full, promptly after the same first becomes known to the Owner Participant, any Lessor's Lien attributable to the Owner Participant (or an Affiliate thereof), PROVIDED, HOWEVER, that the Owner Participant shall not be required to discharge or satisfy such Lessor's Lien which is being contested by the Owner Participant in good faith and by appropriate proceedings so long as such proceedings do not involve any material risk of the sale, forfeiture or loss of the Aircraft or the Lessor's Estate or any interest in any thereof. (c) ASSIGNMENT OF INTERESTS OF OWNER PARTICIPANT. At any time after the Delivery Date and subject to satisfaction of the conditions set forth in this Section 5.01(c), the Owner Participant may assign, convey or otherwise transfer to a single Person all (but not less than all) of the Beneficial Interest, PROVIDED that (i) the Owner Participant gives the Lessee at least 10 days' notice of such assignment, conveyance or other transfer, (ii) the Owner Participant and any Owner Participant Guarantor shall remain liable for all obligations of the Owner Participant under the Trust Agreement and the other Operative Agreements to which the Owner Participant is a party to the extent (but only to the extent) relating to the period on or before the date of such transfer, (iii) the transferee agrees by a written instrument substantially in the form attached hereto as Exhibit B-1 (or otherwise in form and substance reasonably satisfactory to Lessee) to assume liability for, and undertake performance of, all obligations of the Owner Participant under the Trust Agreement and the other Operative Agreements to which such Owner Participant is a party relating to the period after the date of transfer, (iv) the transferee shall make a representation to the effect that the funds to be used by the transferee to acquire the Beneficial Interest do not constitute the assets of an ERISA Plan, (v) at or prior to the time of such transfer, the transferee shall furnish an opinion of counsel substantially in the form attached hereto as Exhibit B-3 (or otherwise in form and substance reasonably satisfactory to Lessee) (which counsel may be in-house counsel) to the effect that such transferee and any guarantor of the payment and performance obligations of such transferee, as the case may be, shall have requisite power and authority and legal right to enter into and carry out the transactions contemplated hereby; and that such agreement and any guaranty of the transferee's obligations has been duly authorized, executed and delivered by the transferee or the guarantor of the payment and performance obligations of such transferee, as the case may be, and is a valid and binding agreement of the transferee or the guarantor of the payment and performance obligations of such transferee enforceable in accordance with its terms, subject to customary exceptions for such 19 opinions and that the transfer does not violate the Applicable Law of the jurisdiction in which such counsel is located, and (vi) the Lessee shall have received an opinion from counsel selected by Owner Participant and reasonably acceptable to Lessee that no withholding tax will be imposed by the U.S. on Basic Rent, assuming that the Lessee is a U.S. Person. Any such transferee shall (a) be (i) a bank, savings institution, finance company, leasing company or trust company, national banking association acting for its own account or in a fiduciary capacity as trustee or agent under any pension, retirement, profit sharing or similar trust or fund, insurance company, financial institution, fraternal benefit society or a corporation acting for its own account having a combined capital and surplus (or, if applicable, consolidated net worth or its equivalent) of not less than $50,000,000, (ii) a subsidiary of any Person described in clause (i) where such Person provides (A) support for the obligations assumed by such transferee subsidiary reasonably satisfactory to the Lessee and the Owner Trustee or (B) a guaranty of such transferee subsidiary's obligations substantially in the form attached hereto as Exhibit B-2 (or otherwise in form and substance reasonably satisfactory to Lessee and Owner Trustee), or (iii) an Affiliate of the transferring Owner Participant, so long as such Affiliate has a combined capital and surplus (or, if applicable, consolidated net worth or its equivalent) of not less than $50,000,000 (unless the Owner Participant remains liable for the obligations of such Affiliate under the Operative Agreements, in which case there shall be no such net worth requirement), (b) be legally capable of binding itself to the obligations of the Owner Participant and shall expressly agree to assume all obligations of the Owner Participant under the Trust Agreement and this Agreement and (c) provide representations, warranties, and covenants substantially similar to those contained in clauses (a) and (c) of this Section 5.01; PROVIDED that, without the prior written consent of the Lessee, such transferee shall not be an airline or other aircraft operator or competitor of the Lessee in the business of air transportation or an Affiliate of any thereof unless such Affiliate is (i) General Electric Company, International Lease Finance Corporation, GPA, GATX Corporation or Bouillon Aviation, (ii) any wholly-owned subsidiary of an entity listed in the foregoing clause (i) that is (X) a special purpose corporation limited to holding Owner Participant's interest in the transactions or (Y) primarily engaged in the business of owning and leasing assets to third-party lessees and which is not engaged in the business of an airline, other commercial aircraft operation or freight forwarder or (iii) an entity from which Lessee has leased an aircraft directly (or through a trust) and not as a result of the transfer to such entity of any aircraft subject to an existing lease with Lessee; PROVIDED that Lessee's consent shall not be required if an Event of Default shall have occurred and be continuing at the time of such transfer; and PROVIDED FURTHER that neither such transferee nor any Affiliate thereof shall (x) be a party to any material litigation or arbitration (whether as plaintiff or defendant) with the Lessee or any Affiliate of the Lessee or (y) be attempting a hostile takeover of the Lessee or any Affiliate of the Lessee. A transferee hereunder shall be a Citizen of the United States or has established a voting trust, voting powers or other arrangement reasonably satisfactory to the Owner Trustee and the Lessee to permit the Owner Trustee to be the registered owner of the Aircraft under the Transportation Code, without in any way restricting the Lessee's use and operation of the Aircraft. The Owner Trustee shall not be on notice of or otherwise bound by any such assignment, conveyance or transfer unless and until it shall have received an executed counterpart of the instrument of such assignment, conveyance or transfer. Upon any such disposition by the Owner Participant to a transferee as above provided, the transferee shall be deemed the "Owner Participant" for all purposes of the Operative Agreements, and shall be deemed to have acquired the same interest in the Lessor's Estate as theretofore held by its 20 transferor; and each reference therein to the "Owner Participant" shall thereafter be deemed a reference to such transferee and the transferring Owner Participant shall be released from all of its obligations under the Operative Agreements to the extent such obligations are assumed by such transferee. All reasonable fees and expenses incurred by Lessee, Owner Participant or Owner Trustee in connection with any transfer by the Owner Participant permitted by this Section 5.01(c) will be reimbursed by the Owner Participant, unless an Event of Default has occurred and is continuing, in which case any fees and expenses incurred by Lessee shall not be so reimbursed; PROVIDED, HOWEVER, that in each case bills shall be submitted to the Owner Participant prior to payment. Each of the parties hereto agree, to the extent so requested by the Owner Participant, to use reasonable efforts to cooperate with the Owner Participant in effecting any assignment, conveyance or other transfer permitted pursuant to this Section 5.01(c), including providing its written consent and acknowledgement to any such assignment, conveyance or other transfer and, in the case of the Lessee, providing new insurance certificates that reflect the interest of the transferee. After the expiration or termination of the Term of the Lease, the Owner Participant may freely assign, convey or otherwise transfer all or any part of the Beneficial Interest without compliance with this Section 5.01(c), provided that no such transfer shall release the Owner Participant from its obligations under the Operative Agreements accrued prior to the end of the Term. (d) ACTIONS WITH RESPECT TO LESSOR'S ESTATE, ETC. The Owner Participant agrees that it will not take any action to subject the Lessor's Estate or the trust established by the Trust Agreement, as debtor, to the reorganization or liquidation provisions of the Bankruptcy Code or any other applicable bankruptcy or insolvency statute. (e) CITIZENSHIP. The Owner Participant agrees, solely for the benefit of the Lessee and the Owner Trustee, that if at any time on or after the Delivery Date when the Aircraft is registered or the Lessee proposes to register the Aircraft in the United States (i) either the Owner Participant shall cease to be, or an event which has been publicly disclosed has occurred of which the Owner Participant has knowledge and which will cause the Owner Participant to cease to be, a Citizen of the United States, and (ii) the Aircraft shall or would therefore become ineligible for registration in the name of the Owner Trustee under the Transportation Code and regulations then applicable thereunder (such eligibility to be determined without regard to any provision of law that permits the U.S. registration of the Aircraft by restricting where it is based or used), then the Owner Participant shall give notice thereof to the Lessee and the Owner Trustee and shall (at its own expense and without any reimbursement or indemnification from the Lessee) immediately (and in any event within a period of 20 days) promptly (x) effect a voting trust or other similar arrangement, (y) transfer in accordance with the terms of this Agreement and the Trust Agreement all its rights, title and interest in and to such Trust Agreement, the Lessor's Estate and this Agreement, or (z) take any other alternative action that would prevent any deregistration, or maintain or permit the United States registration, of the Aircraft (determined without regard to any provision of law that permits the U.S. registration of the Aircraft by restricting where it is based or used). Each party hereto agrees, upon the request and at the sole expense of the Owner Participant, to cooperate with the Owner Participant in complying with its obligations under the provisions of the first sentence of this Section 5.01(e), but without any obligation on the part of such other party to take any action believed by it in good faith to be unreasonably burdensome to such party or materially adverse to its business interests. 21 (f) GUARANTEES. The Owner Participant agrees for the benefit of the Lessee that it shall not make or consent to any changes to the Residual Value Guarantee Agreement or the Guarantee Agreement that would make the representation in Section 5.01(a)(x) incorrect at the time of such change or that would increase the Guaranteed Amount and the Owner Participant agrees to provide notice to the Lessee of any decrease in the Guaranteed Amount and the amount of such decrease. Section 5.02. CITIZENSHIP. (a) GENERALLY. The Owner Trustee, in its individual capacity, represents and warrants that it is and on the Delivery Date will be a Citizen of the United States. If the Owner Trustee in its individual capacity does not comply with the requirements of this Section 5.02, the Owner Trustee and the Lessee hereby agree that no Default shall be deemed to exist due to non-compliance by the Lessee with the registration requirements in the Lease or in Section 4.02(b) hereof occasioned solely by such noncompliance of the Owner Trustee. (b) OWNER TRUSTEE. The Owner Trustee, in its individual capacity, covenants that if at any time on or after the Delivery Date any of its Responsible Officers shall have actual knowledge that it has ceased to be a Citizen of the United States, it will resign immediately as the Owner Trustee if such citizenship is necessary for registration of the Aircraft in the Owner Trustee's name under the Transportation Code as in effect at such time (such necessity to be determined without regard to any provision of law that permits the U.S. registration of the Aircraft by restricting where it is based or used) or, if it is not necessary for such registration, if the Owner Trustee is informed in writing by the Lessee or the Owner Participant that such lack of United States citizenship would have any adverse effect on the Lessee or the Owner Participant. The Owner Trustee, in its individual capacity, further covenants that if at any time it appears reasonably probable that it will cease to be a Citizen of the United States based on information that is (i) known to a Responsible Officer of the Owner Trustee or (ii) generally known to the public, it will promptly so notify, to the extent permitted by law, all parties to this Agreement. Section 5.03. REPRESENTATIONS, WARRANTIES AND COVENANTS OF TRUST COMPANY AND THE OWNER TRUSTEE. (a) REPRESENTATIONS AND WARRANTIES. In addition to and without limiting its other representations and warranties provided for in this Article 5, Trust Company represents and warrants, in its individual capacity with respect to items (i), (ii), (iii)(A), (iv), (v), (vi), (vii), (viii), (ix) and (x) below, and as the Owner Trustee with respect to items (iii)(B) and (iv), on the Delivery Date that: (i) it is a national banking association duly organized and validly existing in good standing under the laws of the United States with its principal place of business and chief executive office (as such terms are used in Article 9 of the Uniform Commercial Code) in the State of Utah at the address set forth in Section 12.01(b), and has full corporate power and authority, in its individual capacity or (assuming the Trust Agreement has been duly authorized, executed and delivered by the Owner Participant) as the Owner Trustee, as the case may be, to carry on its business as now conducted, and 22 to execute, deliver and perform this Agreement and the Operative Agreements to which it is or is to be a party; (ii) the execution, delivery and performance by Trust Company, either in its individual capacity or as the Owner Trustee, as the case may be, of this Agreement and the Operative Agreements to which it is or is to be party have been duly authorized by all necessary corporate action on its part, and do not contravene its articles of association or by-laws or other constitutional documents; each of this Agreement and the other Operative Agreements to which it is or is to be a party has been duly authorized, and has been duly executed and delivered by Trust Company, either in its individual capacity or as the Owner Trustee, as the case may be, and neither the execution and delivery thereof nor Trust Company performance of or compliance with any of the terms and provisions thereof will violate any federal or Utah law or regulation governing Trust Company's banking or trust powers; (iii) (A) assuming due authorization, execution and delivery by each other party thereto, each of the Operative Agreements to which it is or is to be party when duly executed and delivered will, to the extent each such document is entered into by Trust Company in its individual capacity, constitute the legal, valid and binding obligation of Trust Company in its individual capacity enforceable against it in such capacity in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws or equitable principles of general application to or affecting the enforcement of creditors' rights (regardless of whether enforceability is considered in a proceeding in equity or at law), and the performance by Trust Company in its individual capacity of any of its obligations thereunder does not contravene any lease, regulation or contractual restriction binding on Trust Company in its individual capacity; (B) assuming due authorization, execution and delivery by each other party thereto, each of the Operative Agreements to which it is or is to be party when duly executed and delivered will, to the extent each such document is entered into by the Owner Trustee in its trust capacity, constitute the legal, valid and binding obligation of the Owner Trustee enforceable against it in such capacity in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws or general equitable principles, and the performance by the Owner Trustee of any of its obligations thereunder does not contravene any lease, regulation or contractual restriction binding on the Owner Trustee; (iv) there are no pending or, to its knowledge, threatened actions or proceedings against Trust Company before any court or administrative agency which would materially adversely affect the ability of Trust Company, either in its individual capacity or as the Owner Trustee, as the case may be, to perform its obligations under the Operative Agreements to which it is or is to be party; (v) its chief executive office (as such term is defined in Article 9 of the Uniform Commercial Code) is 79 South Main Street, Salt Lake City, Utah 84111 and it 23 shall give the Lessee and the Owner Participant at least 30 days' prior written notice in the event of any change in its chief executive office or name; (vi) neither the execution and delivery by it, either in its individual capacity or as the Owner Trustee, as the case may be, of any of the Operative Agreements to which it is or is to be a party, requires on the part of Trust Company in its individual capacity or any of its Affiliates the consent or approval of or the giving of notice to, the registration with, or the taking of any other action in respect of, any federal or governmental authority or agency governing its banking or trust powers; (vii) the Owner Trustee holds whatever title to the Aircraft as was conveyed to it by the Seller and the Aircraft is free of Lessor's Liens attributable to Trust Company in its individual capacity; (viii) Trust Company is a Citizen of the United States; (ix) Trust Company has made a filing with the New York State Banking Department under Section 131(3) of the New York State Banking Law with respect to the trust formed by the Trust Agreement; and (x) there are no Expenses or Taxes that may be imposed on or asserted against the Trust, the Trust Estate or any part thereof or any interest therein, Lessee, Owner Participant or Owner Trustee (except, as to Owner Trustee, Taxes imposed on the fees payable to Owner Trustee) under the laws of the State of Utah in connection with the execution, delivery or performance of any Operative Agreement by Owner Trustee, which Expenses or Taxes would not have been imposed if Owner Trustee had not (x) had its principal place of business in, (y) performed (in its individual capacity or as Owner Trustee) any or all of its duties under the Operative Agreements in or (z) engaged in any activities unrelated to the transactions contemplated by the Operative Agreements in, the State of Utah. (b) LESSOR'S LIENS. Trust Company, in its individual capacity, further represents, warrants and covenants that there are no Lessor's Liens attributable to it in its individual capacity on the Delivery Date. The Owner Trustee, in its trust capacity, and at the cost and expense of the Lessee, covenants that it will in its trust capacity promptly, and in any event within 30 days after the same shall first become known to it, take such action as may be necessary to discharge duly any Lessor's Liens (other than a Permitted Security Interest) attributable to it in its trust capacity. Trust Company, in its individual capacity, covenants and agrees that it will at its own expense take such action as may be necessary to duly discharge and satisfy in full, promptly, and in any event within 30 days after the same shall first become known to it, any Lessor's Liens attributable to it in its individual capacity which may arise at any time after the date of this Agreement. (c) INDEMNITY FOR LESSOR'S LIENS. Trust Company, in its individual capacity, agrees to indemnify and hold harmless the Lessee, the Owner Participant and the Owner Trustee from and against any loss, cost, expense or damage which may be suffered by the Lessee, the Owner Participant or the Owner Trustee as a result of the failure of Trust Company to discharge 24 and satisfy any Lessor's Liens attributable to it in its individual capacity, as described in Section 5.03(b) hereof. (d) SECURITIES ACT. None of Trust Company, the Owner Trustee or any Person authorized by either of them to act on its behalf has directly or indirectly offered any interest in the Lessor's Estate, or in any similar security relating to the Lessor's Estate, for sale to, or solicited any offer to acquire any such interest or security from, or has sold any such interest or security to, any Person in violation of the Securities Act or any applicable state securities laws. (e) ACTIONS WITH RESPECT TO LESSOR'S ESTATE, ETC. Neither Trust Company, in its individual capacity, nor the Owner Trustee will take any action to subject the Lessor's Estate or the trust established by the Trust Agreement, as debtor, to the reorganization or liquidation provisions of the Bankruptcy Code or any other applicable bankruptcy or insolvency statute. (f) OTHER BUSINESS. Owner Trustee will not enter into any business or other activity except as contemplated by the Operative Agreements. (g) PERFORMANCE OF AGREEMENTS. Owner Trustee shall perform its obligations under the Operative Agreements to which it is a party in accordance with the terms thereof. Section 5.04. THE LESSEE'S RIGHT OF QUIET ENJOYMENT. Notwithstanding any other provision of any of the Operative Agreements, each other party to this Agreement agrees, severally and as to its own actions only, that it will not, so long as no Event of Default shall have occurred and be continuing, take or cause to be taken any action contrary to the Lessee's rights under the Lease, including, without limitation, its rights to possession, use and quiet enjoyment of the Aircraft during the Term, PROVIDED that nothing contained herein shall affect any of the rights of the Owner Participant or the Owner Trustee expressly granted to such Person under any Operative Agreement. Section 5.05. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Representations, warranties and covenants of the Owner Participant and the Owner Trustee (in its individual or trust capacity) provided for in this Article 5, and their respective obligations under any and all of them, shall survive the delivery of the Aircraft and the expiration or other termination of this Agreement and the other Operative Agreements. Section 5.06. COMPLIANCE WITH TRUST AGREEMENT, ETC. Each of the Owner Participant, Trust Company, and the Owner Trustee agrees with the Lessee that so long as the Lease shall be in effect it will (i) comply with all of the terms of the Trust Agreement applicable to it in its respective capacity, the noncompliance with which would materially adversely affect any such party and (ii) not take any action, or cause any action to be taken, to amend, modify or supplement any other provision of the Trust Agreement in a manner that would materially adversely affect any such party without the prior written consent of such party. The Owner Trustee confirms for the benefit of the Lessee that it will comply with the provisions of Article 2 of the Trust Agreement. Notwithstanding anything else to the contrary in the Trust Agreement, so long as the Lease remains in effect, the Owner Participant agrees not to terminate or revoke the trust created by the Trust Agreement without the consent of the Lessee. 25 ARTICLE 6. TAXES Section 6.01. LESSEE'S OBLIGATION TO PAY TAXES. (a) GENERALLY. The Lessee agrees promptly to pay when due, and to indemnify on an After Tax Basis and hold each Tax Indemnitee harmless from all license, recording, documentary, registration and other fees and all taxes (including, without limitation, income, gross receipts, sales, rental, use, value added, property (tangible and intangible), AD VALOREM, excise and stamp taxes), fees, levies, imposts, recording duties, duties, charges, assessments or withholdings of any nature whatsoever, together with any assessments, penalties, fines, additions to tax or interest thereon (individually, a "Tax," and collectively called "Taxes"), however imposed or asserted (whether imposed upon any Tax Indemnitee, the Lessee, all or any part of the Aircraft, Airframe, any Engine or any Part or the Lessor's Estate, Rent, or otherwise upon or with respect to any Operative Agreement or any transactions contemplated thereunder or any payments thereunder or otherwise in connection therewith), by any Federal, state or local government or taxing authority in the United States, or by any government or taxing authority of a foreign country or of any political subdivision or taxing authority thereof or by a territory or possession of the United States or an international taxing authority, in any such case as relating to or measured by: (i) the construction, purchase, charter, rental, assignment, presence, overhaul, control, acceptance, rejection, delivery, nondelivery, transport, location, ownership, registration, reregistration, deregistration, insuring, assembly, possession, repossession, operation, use, non-use, condition, maintenance, repair, improvement, conversion, sale, return, abandonment, preparation, installation, storage, redelivery, replacement, manufacture, leasing, subleasing, sub-subleasing, modification, alteration, rebuilding, importation, transfer of title, transfer of registration, exportation or other application or disposition of, or the imposition of any Lien (or the incurrence of any liability to refund or pay over any amount as a result of any Lien) on, the Aircraft, the Airframe, any Engine or any Part or any interest therein; (ii) amounts payable under the Operative Agreements; (iii) the Aircraft, or the income or other proceeds (x) received with respect to the Aircraft attributable to the transactions contemplated by the Operative Agreements or (y) held by the Owner Trustee under the Trust Agreement or after an Event of Default under the Lease; (iv) with respect to any Operative Agreement, any interest therein or by reason of the transactions described in or contemplated by the Operative Agreements; (v) the Aircraft, the Airframe, any Engine or any Part; (vi) the rentals (including Basic Rent and Supplemental Rent), receipts, earnings, principal, interest, fees, proceeds and any other income or amounts payable, whether actual or deemed, arising upon, under or in connection with any of the Operative Agreements; 26 (vii) in the case of the Owner Participant, any "prohibited transaction," within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Code, arising out of or in connection with the acquisition or holding of the Owner Participant's interest in the Trust Estate. (b) EXCEPTIONS. The indemnity provided for in Section 6.01(a) shall not extend to any of the following: (i) With respect to a Tax Indemnitee, Taxes, whether imposed by withholding or otherwise, based upon, measured by or with respect to the net or gross income, items of tax preference or minimum tax or excess profits, alternative minimum taxes, receipts, capital, franchise, net worth (whether, denominated income, excise, capital stock, or doing business taxes) or other similarly-based taxes (other than taxes that are in the nature of, sales, use, transfer, ad valorem, stamp, property, or similar taxes) ("Income Taxes") imposed by the United States or by any state, local or foreign jurisdiction, PROVIDED, HOWEVER, that this clause shall not exclude from the indemnity described in Section 6.01(a) above any such Income Taxes to be imposed by any such jurisdiction (other than the United States or any state or local taxing authority in any state in the United States) as a result of (I) the operation, registration, location, presence, or use of the Aircraft, Airframe, any Engine or any Part thereof, by the Lessee or any Affiliate thereof or any Sublessee within the jurisdiction of the taxing authority imposing such Tax, (II) the presence or activities of the Lessee or any Affiliate thereof or any Sublessee within the jurisdiction of the taxing authority imposing such Tax, (III) the status of the Lessee or any Affiliate thereof or any Sublessee as a foreign entity or as an entity owned in whole or in part by foreign persons, or (IV) the Lessee or any Affiliate thereof or any Sublessee having made (or having been deemed to have made) payments to such Tax Indemnitee from the jurisdiction of the taxing authority imposing such Tax,; (ii) Taxes imposed with respect to any period beginning after the earlier of (A) the discharge in full of the Lessee's obligation, if any, to pay Termination Value under and in accordance with the Lease, (B) the expiration of the Term of the Lease or (C) the termination of the Lease in accordance with the applicable provisions of the Lease thereof; (iii) As to the Owner Trustee, Taxes imposed against the Owner Trustee upon or with respect to any fees for services rendered in its capacity as Owner Trustee under the Trust Agreement; (iv) With respect to any Tax Indemnitee, Taxes resulting from the willful misconduct or gross negligence of such Tax Indemnitee or a Related Tax Indemnitee; (v) Taxes imposed on the Owner Trustee or the Owner Participant or any successor, assign or Affiliate thereof which became payable by reason of any mortgage, pledge, financing, voluntary transfer or disposition by such Tax Indemnitee subsequent to the Delivery Date, including revocation of the Trust, of any interest in some or all of the Aircraft, Airframe, Engines or Parts thereof or its interest in the 27 Lessor's Estate or a transfer or disposition of shares or other interests in the Owner Trustee or the Owner Participant or a disposition in connection with a bankruptcy or similar proceedings involving either the Lessor or the Owner Participant or a transfer or disposition of shares or other interests in the Owner Trustee or the Owner Participant in each case other than (A) transfers resulting from a loss, substitution or modification of the Aircraft, Engines or any Part, (B) transfers pursuant to the Lessor's exercise of remedies in accordance with Section 17 of the Lease, (C) termination of the Lease upon the Lessee's exercise of Lessee's options pursuant to Section 14 of the Lease, or (D) a transfer to Lessee pursuant to Section 13(b) of the Lease; the parties agree to cooperate to minimize any such Taxes covered by this provision; (vi) Taxes subject to indemnification by the Lessee pursuant to the Tax Indemnity Agreement; (vii) Taxes imposed on a successor, assign or other transferee of any interest of a Tax Indemnitee in the Aircraft, any Engine or any Part or any Operative Agreement or any proceeds thereunder to the extent that the aggregate amount of such Taxes exceeds the aggregate amount of Taxes that would have been imposed on the transferor (determined at the time of the transfer) and that would have been indemnifiable pursuant to Section 6.01(a) hereof, provided that the exclusion in this clause (vii) shall not apply in the case of any such sale, assignment, transfer or disposition that occurs in connection with an Event of Default or in connection with a bankruptcy, insolvency or other proceeding for the relief of debtors in which the Lessee is a debtor; (viii) Any Taxes which have been properly included in the Purchase Price; (ix) Any Taxes imposed on the Owner Trustee or Owner Participant which would not have been imposed but for a Lessor's Lien; (x) In the case of the Owner Participant, any Taxes relating to, resulting from, arising out of or in connection with a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Code resulting from the direct or indirect use of assets of any ERISA Plan to acquire or hold Owner Participant's interest in the Trust Estate or in the case of any transferee of the Owner Participant referred to in Section 5.01(c), to purchase the Beneficial Interest pursuant to Section 5.01(c); (xi) Taxes that are being contested in accordance with the provisions hereof; (xii) United States withholding Taxes imposed on the Owner Participant as a result of the Owner Participant not being a U.S. Person; or (xiii) interest, penalties, fines or additions to tax to the extent they relate to Taxes for which no indemnity would be payable by Lessee pursuant to this Section 6.01(b). 28 Section 6.02. AFTER TAX BASIS. The amount which the Lessee shall be required to pay with respect to any Tax indemnified against under Section 6.01 (an "Indemnifiable Tax") shall be an amount sufficient to restore the Tax Indemnitee, on an After Tax Basis, to the same position such party would have been in had such Tax not been incurred, taking into account any tax benefits recognized by such Tax Indemnitee as a result of the Indemnifiable Tax. If any Tax Indemnitee actually realizes a tax benefit (whether by credit, deduction or otherwise), or would have realized such a benefit as to which it has been given notice if properly claimed, and with respect to Owner Participant, the Owner Participant has not determined in good faith that claiming such benefit would have a material adverse impact on the Owner Participant or an Affiliate thereof, by reason of the payment of any Tax paid or indemnified against by the Lessee, provided that an Event of Default has not occurred and is not continuing, such Tax Indemnitee shall promptly pay to the Lessee, to the extent such tax benefit was not previously taken into account in computing such payment or indemnity, but not before the Lessee shall have made all payments then due to such Tax Indemnitee under this Agreement, the Tax Indemnity Agreement and any other Operative Agreement, an amount equal to the lesser of (x) the sum of such tax benefit plus any other tax benefit realized by such Tax Indemnitee that would not have been realized but for any payment made by such Tax Indemnitee pursuant to this sentence and not already paid to the Lessee, or (y) the amount of the payment made under Section 6.01 hereof and this Section 6.02 by the Lessee to such Tax Indemnitee plus the amount of any other payments by the Lessee to such Tax Indemnitee theretofore required to be made under this Section 6.02 and Sections 6.01 and 6.05 hereof (and the excess, if any, of the tax benefit over the applicable amount described in clause (x) over the amount described in clause (y) above shall be carried forward and applied to reduce PRO TANTO any subsequent obligations of the Lessee to make payments to such Tax Indemnitee pursuant to Section 6.01 hereof). If an amount payable by any Tax Indemnitee to the Lessee pursuant to this Section 6.02 is not paid when due because of the occurrence and continuation of any Event of Default, such amount shall be payable by any Tax Indemnitee to the Lessee upon the Lessee's curing all Events of Default. The Lessee shall reimburse on an After Tax Basis such Tax Indemnitee (subject to Section 6.01(b), but only insofar as subsections (iv), (vi), (vii), (ix), (x), (xi), (xii) and (xiii) thereof would apply) for any payment of a tax benefit pursuant to the preceding sentence (or a tax benefit otherwise taken into account in calculating the Lessee's indemnity obligation hereunder) to the extent that such tax benefit is subsequently disallowed or reduced. In determining the order in which any Tax Indemnitee utilizes withholding or other foreign taxes as a credit against such Tax Indemnitee's United States income taxes, such Tax Indemnitee shall be deemed to utilize (i) first, all foreign taxes other than those described in clause (ii) below; and (ii) then, on a pro rata basis, all foreign taxes with respect to which such Tax Indemnitee is entitled to obtain indemnification pursuant to an indemnification provision contained in any lease, loan agreement, or other financing document (including this Agreement) that is similar to the indemnification provision in this Article 6. Section 6.03. TIME OF PAYMENT. Any amount payable to a Tax Indemnitee pursuant to this Article 6 shall be paid promptly, but in any event within 30 days after receipt of a written demand therefor from such Tax 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 in the case of amounts which are being contested by the Lessee in good faith or by the Tax Indemnitee in either case pursuant to Section 6.04 hereof, or subject to 29 verification proceedings pursuant to Section 6.11 hereof, such amount shall be payable within 30 days after the time such contest or verification proceeding, as the case may be, is finally resolved. In no event shall any amount be payable under Section 6.01 until two Business Day prior to the due date for Tax in issue. Section 6.04. CONTESTS. (a) NOTICE OF CLAIM. If a written claim is made against any Tax Indemnitee for Taxes with respect to which the Lessee is liable for a payment or indemnity hereunder, such Tax Indemnitee shall promptly (but in any event within 30 days of receipt thereof) give the Lessee notice in writing of such claim and shall furnish the Lessee with copies of any written requests for information sent to such Tax Indemnitee from any taxing authority to the extent relating to such Taxes with respect to which the Lessee may be required to indemnify hereunder; PROVIDED, HOWEVER, that the failure of a Tax Indemnitee to give such notice or furnish such copy shall not terminate any of the rights of such Tax Indemnitee under this Article 6, except (A) to the extent that the Lessee's contest rights have been materially and adversely impaired by the failure to provide such notice or copy or (B) to the extent that such failure results in the imposition of, or an increase in the amount of, any penalties, interest or additions to Tax related to the Tax which is the subject of such claim or proceeding. (b) REQUEST FOR CONTEST. If a written claim shall be made against any Tax Indemnitee for any Tax, other than an Income Tax, for which the Lessee may be obligated to indemnify pursuant to Section 6.01 hereunder, and under applicable law of the taxing jurisdiction the Lessee is allowed to contest directly such Tax and the Tax to be contested is not reflected in a report or return with other Taxes of any Tax Indemnitee (as confirmed in writing by such Tax Indemnitee) and if the Tax Indemnitee determines in good faith that it will not suffer any adverse consequences as a result and that no tax return of the Tax Indemnitee will be kept open as a result of such contest beyond the applicable statute of limitations period (as confirmed in writing by such Tax Indemnitee), then the Lessee shall be permitted, at its expense and in its own name, or, if consented to in writing by the Tax Indemnitee, in the name of such Tax Indemnitee, to contest the imposition of such Tax (a " Lessee Controlled Contest"); PROVIDED, HOWEVER, that the Lessee shall not be permitted or entitled to contest any Tax unless (A) such contest will not result in the risk of an imposition of criminal penalties or a more than de minimis risk of a sale, forfeiture or loss of the Aircraft, the Airframe, the Engines or any part thereof or the creation of any Lien other than Liens for Taxes of the Lessee (x) either not yet due or being contested in good faith by appropriate proceedings so long as such proceedings do not involve the risk of an imposition of criminal penalties or a more than de minimis risk of any sale, forfeiture or loss of the Aircraft (unless the Lessee has provided a bond or other sufficient protection against any such risk reasonably satisfactory to the Tax Indemnitee), and (y) for the payment of which such reserves, if any, as required to be provided under generally accepted accounting principles have been provided and, to the extent permitted by law, the Lessee shall be entitled to withhold payment during pendency of such contest, (B) if an Event of Default shall have occurred and be continuing, the Lessee shall have provided security for its obligations hereunder reasonably satisfactory to the Owner Participant by placing in escrow funds to cover any such obligations, (C) the Lessee shall have agreed to pay such Tax Indemnitee on demand and on an After Tax Basis all costs and expenses that such Tax Indemnitee actually incurs in connection with contesting such claim (including, without limitation, all costs, expenses, losses, reasonable legal 30 and accounting fees, disbursements, or penalties, interest and addition to tax), (D) if such contest shall be conducted in a manner requiring the payment of the claim in advance, the Lessee shall have advanced sufficient funds, on an interest free basis, to make the payment required (or the Lessee shall have paid the amount required directly to the appropriate taxing authority), and agreed to indemnify the Tax Indemnitee against any additional net adverse tax consequences on an After Tax Basis to such Tax Indemnitee of such advance, and (E) if requested by the Owner Participant, independent tax counsel selected by Owner Participant and reasonably acceptable to the Lessee has rendered an opinion within 30 days of the Owner Participant providing notice of the claim to the Lessee that a Reasonable Basis exists for contesting such claim. If the Lessee shall so request within 30 days after receipt of such notice from a Tax Indemnitee under this Section 6.04 hereof and with respect to a Tax for which the Lessee may be obligated to indemnify pursuant to Section 6.01 and which does not satisfy the requirements to constitute a Lessee Controlled Contest, such Tax Indemnitee shall in good faith at the Lessee's after-tax expense contest the imposition of such Tax; PROVIDED, HOWEVER, that such Tax Indemnitee, after considering in good faith any advice of the Lessee and the Lessee's counsel concerning the forum in which the adjustment is most likely to be favorably resolved, may in its sole discretion select the manner and forum for such contest and determine whether any such contest shall be made by (a) resisting payment thereof if lawful and practicable or not paying the same except under protest if protest is necessary and proper in each case so long as non-payment will not result in a more than de minimis risk of the sale, forfeiture or loss of, or the creation of a Lien other than a Permitted Lien on the Aircraft, Airframe or any Engine or any risk of criminal liability; or (b) if the payment be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and/or judicial proceedings; PROVIDED FURTHER, HOWEVER, that at such Tax Indemnitee's option, such contest shall be conducted by the Lessee in the name of such Tax Indemnitee if such Tax Indemnitee so requests in writing and that in no event shall such Tax Indemnitee be required or the Lessee permitted to contest under this paragraph the imposition of any Tax for which the Lessee may be obligated pursuant to this Section 6.01 unless: (i) in the case of an Income Tax, the Lessee shall have furnished at the Lessee's expense an opinion of counsel selected by the Lessee and reasonably satisfactory to such Tax Indemnitee to the effect that a Reasonable Basis exists for pursuing such contest; (ii) the Lessee shall have agreed to pay such Tax Indemnitee on demand and on an After Tax Basis all reasonable costs and expenses that such Tax Indemnitee may incur in connection with contesting such claim (including, without limitation, all costs expenses, losses, reasonable legal and accounting fees, disbursements, penalties, interest and additions to tax); (iii) such Tax Indemnitee shall have determined that the action to be taken will not result in any more than de minimis danger of sale, forfeiture or loss of, or the creation of any Lien other the Liens for Taxes of the Lessee (or any Sublessee) either not yet due or being contested in good faith by appropriate proceedings so long as such proceedings do not involve any more than de minimis risk of the sale, forfeiture or loss of the Aircraft, the Airframe or any Engine or any interest therein (unless the Lessee has 31 provided a bond or other sufficient protection against any such risk reasonably satisfactory to the Tax Indemnitee) and for the payment of which such reserves, if any, as are required to be provided under generally accepted accounting principles have been provided; (iv) if an Event of Default shall have occurred and be continuing, the Lessee shall have provided security for its obligations hereunder reasonably satisfactory to the Owner Participant by placing in escrow sufficient funds to cover any such obligations; (v) Lessee shall have acknowledged its liability for such claims; (vi) such contest and related contests involving other equipment involve potential payments and/or indemnities by the Lessee (whether or not such indemnity is pursuant to this Agreement) of at least $25,000 in the aggregate; and (vii) if such contest shall be conducted in a manner requiring the payment of the claim in advance, the Lessee shall have advanced sufficient funds, on an interest free basis, to make the payment required, and agreed to indemnify the Tax Indemnitee against any additional net adverse tax consequences on an After Tax Basis to such Tax Indemnitee of such advance. In the case of a contest which is not a Lessee Controlled Contest, if requested by the Lessee, the Tax Indemnitee shall appeal any adverse administrative or judicial decision, except that the Tax Indemnitee shall not be required to appeal any adverse decision to the United States Supreme Court provided that with respect to an appeal of an adverse judicial decision a substantial basis in law and fact must exist that such appeal will be successful. If the Lessee is permitted under applicable law to contest a Tax asserted against the Lessee and the same or similar Tax is also asserted against the Tax Indemnitee, subject to the conditions herein, each of the Lessee and such Tax Indemnitee shall conduct its contest in its own name and the Lessee and such Tax Indemnitee will cooperate in a reasonable manner with respect to the respective contests of such Tax. (c) DECLINING TO CONTEST; SETTLEMENT. (i) If, after the Lessee has properly requested a contest in accordance with this Section 6.04 and Lessee is then complying with the terms of this Section 6.04, any Tax Indemnitee shall at any time decline to take any action required under Section 6.04 with respect to such contest, then, if such failure shall cause the contest to be determined adversely or shall preclude such contest as a matter of law, the Lessee shall not be obligated to indemnify such Tax Indemnitee for such Tax and such Tax Indemnitee shall reimburse the Lessee for all amounts previously advanced by the Lessee in connection with such contest (other than costs and expenses of such contest). (ii) No Tax Indemnitee shall settle a contest of any indemnified Tax without requesting the Lessee's written consent (which consent will not be unreasonably withheld, as determined in the Lessee's good faith judgment). If any Tax Indemnitee shall settle a contest for any Tax without receiving the Lessee's written consent, then the 32 Lessee shall not be obligated to indemnify such Tax Indemnitee for such Tax and the Tax Indemnitee shall reimburse the Lessee for all amounts previously advanced with respect to such contest (other than costs and expenses of such contest). Notwithstanding the preceding two sentences, no Tax Indemnitee shall be required to take or continue any action unless the Lessee shall have agreed to pay the Tax Indemnitee on a current and After Tax Basis all reasonable fees and expenses (including reasonable attorney's and accountant's fees) which such Tax Indemnitee may incur as a result of contesting such Taxes. (d) CONTINUING CLAIMS. Notwithstanding anything contained in this Section 6.04 to the contrary, no Tax Indemnitee shall be required to contest any claim if the subject matter thereof shall be of a continuing nature and shall have previously been adversely decided pursuant to the contest provisions of this Section 6.04 unless there shall have been a change in the law (including, without limitation, amendments to statutes or regulations, administrative rulings and court decisions) or the Lessee shall have provided new facts after such claim shall have been so previously decided, and such Tax Indemnitee shall have received an opinion of independent tax counsel selected by it and reasonably approved by the Lessee and furnished at the Lessee's sole expense to the effect that, as a result of such change or new facts, it is more likely than not that the position which such Tax Indemnitee or the Lessee, as the case may be, had asserted in such previous contest, would prevail. (e) CLAIMS BARRED. If (A) any Tax Indemnitee fails to give the Lessee written notice pursuant to this Section 6.04 of any claim by any government or taxing authority for any Tax for which the Lessee is obligated pursuant to this Section 6.01, (B) as a direct result of such failure the contest of such claim has been materially and adversely impaired and (C) the Lessee furnishes, at the Lessee's expense, an opinion of counsel selected by the Lessee and reasonably satisfactory to such Tax Indemnitee to the effect that, had the contest of such claim not been materially and adversely impaired, a Reasonable Basis would have existed for pursuing such contest, such Tax Indemnitee shall be deemed to have waived its right to any payment by the Lessee that would otherwise be payable by the Lessee pursuant to this Section 6.01 in respect of such claim. Section 6.05. REFUNDS. When a Tax Indemnitee becomes entitled to receive a refund or credit against Tax of all or any part of any Taxes which the Lessee shall have paid for such Tax Indemnitee or for which the Lessee shall have reimbursed or indemnified such Tax Indemnitee, such Tax Indemnitee shall pay, provided an Event of Default has not occurred and is not continuing, to the Lessee an amount equal to the amount of such refund or credit, together with any interest attributable thereto, less (x) all payments then due to such Tax Indemnitee under this Article 6, and (y) Taxes imposed with respect to the accrual or receipt thereof, including interest received attributable thereto, plus any tax benefit realized by such Tax Indemnitee as a result of any payment by such Tax Indemnitee made pursuant to this sentence; PROVIDED, HOWEVER, that such amount shall not be payable (a) before such time as the Lessee shall have made all payments or indemnities then due and payable to such Tax Indemnitee under this Article 6 and (b) to the extent that the amount of such payment (without regard to any interest component thereof) would exceed (i) the amount of all prior payments by the Lessee to such Tax Indemnitee pursuant to this Article 6 less (ii) the amount of all prior payments by such Tax Indemnitee to the Lessee pursuant to this Article 6 (any such excess shall be carried forward to 33 reduce PRO TANTO any subsequent obligations of the Lessee to make payments to such Tax Indemnitee pursuant to Section 6.01 hereof). If an amount payable by any Tax Indemnitee to the Lessee pursuant to this Section 6.02 is not paid when due because of the occurrence and continuation of an Event of Default, such amount shall be payable by any Tax Indemnitee to the Lessee upon the Lessee's curing all Events of Default. Any subsequent loss of such refund or tax benefit shall be treated as a Tax subject to indemnification under the provisions of this Article 6 (in the case of any such tax benefit, subject to Section 6.01(b) but only insofar as subsections (iv), (vi), (vii), (ix),(x), (xi), (xii) and (xiii) thereof would apply). Section 6.06. REPORTS. In case any report or return is required to be made with respect to any Taxes (other than Income Taxes) against which the Lessee is or may be obligated to indemnify the Indemnitees under this Article 6, the Lessee shall, to the extent it has knowledge thereof, make such report or return, except for any such report or return that the Tax Indemnitee has notified the Lessee that it intends to file, in such manner as will show the ownership of the Aircraft in the Owner Trustee (unless the ownership of the Aircraft is not shown on such report or return) and, upon request, shall send a copy of the applicable portions of such report or return to the Tax Indemnitee and the Owner Trustee or will notify the Tax Indemnitee of such requirement and make such report or return in such manner as shall be satisfactory to such Tax Indemnitee and the Owner Trustee. The Lessee will provide such information within the possession or control of the Lessee as the Tax Indemnitee may reasonably request in writing from the Lessee to enable the Tax Indemnitee to fulfill its tax filing requirements with respect to the transactions contemplated by the Operative Agreements (without duplication of any comparable requirements of the Tax Indemnity Agreement) and any audit information request arising from any such filing. The Tax Indemnitee will provide such information within its possession or control as the Lessee may reasonably require from such Tax Indemnitee to enable the Lessee to fulfill its tax filing requirements with respect to the transactions contemplated by the Operative Agreements and any audit information request arising from such filing; PROVIDED that in no event shall any Tax Indemnitee be required to provide copies of any of its tax returns. Section 6.07. SURVIVAL OF OBLIGATIONS. The representations, warranties, indemnities and agreements of the Lessee provided for in this Article 6 and the Lessee's obligations under any and all of them, in each case, with respect to events or periods prior to the expiration or termination of the Lease shall survive the expiration or other termination of the Operative Agreements. Section 6.08. PAYMENT OF TAXES. With respect to any Tax otherwise indemnifiable hereunder by the Lessee and applicable to the Aircraft, Airframe, any Engine or Parts, to the extent permitted by the applicable federal, state, local or foreign law, the Lessee shall pay such tax directly to the relevant Taxing authority and file any returns or reports required with respect thereto to the extent legally entitled to do so in its own name; PROVIDED, HOWEVER, that the Lessee shall not make any statements or take any action which would indicate that the Lessee or any Person other than the Owner Trustee or Owner Participant is the owner of the Aircraft, the Airframe, any Engine or any Part or which would otherwise be inconsistent with 34 the terms of the Lease or the Tax Indemnity Agreement and the position thereunder of the Owner Trustee and the Owner Participant. Section 6.09. REIMBURSEMENTS BY INDEMNITEES GENERALLY. To the extent the Lessee is required to pay or withhold any Tax imposed on or with respect to a Tax Indemnitee in respect of the transactions contemplated by the Operative Agreements, which Tax is not otherwise the responsibility of the Lessee under the Operative Agreements, or any other written agreements between the Lessee and such Tax Indemnitee, then such Tax Indemnitee shall pay to the Lessee within 30 days of the Lessee's demand therefor an amount which equals the amount actually paid by the Lessee with respect to such Taxes. Section 6.10. FORMS. Each Tax Indemnitee agrees to furnish from time to time to Lessee or to such other person as Lessee may designate, at Lessee's request, such duly executed and properly completed forms as may be necessary or appropriate in order to claim any reduction of or exemption from any withholding or other Tax imposed by any taxing authority, if (x) such reduction or exemption is available to such Tax Indemnitee, (y) Lessee has provided such Tax Indemnitee with any information necessary to complete such form not otherwise reasonably available to such Tax Indemnitee, and (z) with respect to Owner Participant, the Owner Participant has determined in good faith that furnishing such form could not have a material adverse impact on the Owner Participant or an Affiliate thereof. Section 6.11. VERIFICATION. At the Lessee's request, the accuracy of any calculation of amount(s) payable pursuant to this Article 6 shall be verified by independent public accountants selected by the applicable Tax Indemnitee and reasonably satisfactory to the Lessee, and such verification shall bind the applicable Tax Indemnitee and the Lessee. In order, and to the extent necessary, to enable such independent accountants to verify such amounts, such Tax Indemnitee shall provide to such independent accountants (for their confidential use and not to be disclosed to the Lessee or any other person) all information reasonably necessary for such verification. Verification shall be at the expense of the Lessee, unless such verification results in an adjustment in the Lessee's favor of $10,000 or more of the amount of the payment as computed by such Tax Indemnitee, in which case the verification shall be at the expense of the Tax Indemnitee. Section 6.12. NON-PARTIES. If a Tax Indemnitee is not a party to this Agreement, Lessee may require the Tax Indemnitee to agree in writing, in a form reasonably acceptable to Lessee, to the terms of this Article 6 prior to making any payment to such Tax Indemnitee hereunder. ARTICLE 7. GENERAL INDEMNITY Section 7.01. GENERALLY. (a) INDEMNITY. The Lessee agrees to indemnify each Indemnitee against and agrees to protect, defend, save and keep harmless each Indemnitee from and against and in respect of, and will pay on an After Tax Basis, any and all liabilities, obligations, losses, damages, settlements, penalties, claims, actions, suits, costs, disbursements and expenses, 35 demands or judgments (including reasonable legal fees and expenses) of every kind and nature, whether or not any of the transactions contemplated by this Agreement are consummated and whether arising before, on or after the Delivery Date (individually, an "Expense," collectively, "Expenses"), which may be imposed on, incurred or suffered by or asserted against any Indemnitee, in any way relating to, arising out of or in connection with, any one or more of the following: (i) any Operative Agreement, Sublease or any transaction contemplated thereby; (ii) the operation, possession, use, non-use, maintenance, storage, overhaul, delivery, non-delivery, control, condition, alteration, modification, addition, improvement, airworthiness, replacement, substitution, return, abandonment, redelivery or other disposition, repair or testing of the Aircraft, Airframe, or any Engine or any engine used in connection with the Airframe, or any Part thereof by the Lessee, any sublessee or any other Person whatsoever, whether or not such operation, possession, use, non-use, maintenance, storage, overhaul, delivery, non-delivery, control, condition, alteration, modification, addition, improvement, airworthiness, replacement, substitution, return, abandonment, redelivery or other disposition, repair or testing is in compliance with the terms of the Lease, including, without limitation, claims for death, personal injury or property damage or other loss or harm to any Person whatsoever, including, without limitation, any passengers, shippers or other Persons wherever located, claims or penalty relating to any laws, rules or regulations, including, without limitation, environmental control, noise and pollution laws, rules or regulation and any Liens in respect of the Aircraft, any Engine or any Part; (iii) the manufacture, design, sale, return, purchase, acceptance, nonacceptance, rejection, delivery, non-delivery, condition, repair, modification, servicing, rebuilding, airworthiness, registration, reregistration, deregistration, ownership, financing, import, export, performance, non-performance, lease, sublease, transfer, merchantability, fitness for use, alteration, substitution or replacement of any Airframe, Engine, or Part or other transfer of use or possession, or other disposition of the Aircraft, the Airframe, any Engine or any Part including, without limitation, latent and other defects, whether or not discoverable, tort liability, whether or not arising out of the negligence of any Indemnitee (whether active, passive or imputed and including strict liability without fault), and any claims for patent, trademark or copyright infringement; (iv) any breach of or failure to perform or observe, or any other non-compliance with, any condition, covenant or agreement to be performed, or other obligations of the Lessee under any of the Operative Agreements, or the falsity or inaccuracy of any representation or warranty of the Lessee in any of the Operative Agreements (other than representations and warranties in the Tax Indemnity Agreement) or the occurrence of any Default or Event of Default; (v) the enforcement of the terms of the Operative Agreements (including this Section 7.01(a)); 36 (vi) any interest in the Lessor's Estate or the Trust Agreement or any similar interest; and (vii) in the case of the Owner Participant, any "prohibited transaction," within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Code, arising out of or in connection with the acquisition or holding of the Owner Participant's interest in the Trust Estate. (b) EXCEPTIONS. The indemnity provided for in Section 7.01(a) shall not extend to any Expense of any Indemnitee to the extent it: (i) is attributable to the willful misconduct or gross negligence of such Indemnitee (other than gross negligence or willful misconduct imputed to such person by reason of its interest in the Aircraft or any transaction documents); (ii) except to the extent fairly attributable to acts or events occurring prior thereto, is attributable to acts or events (other than the performance by Lessee of its obligations pursuant to the terms of the Operative Agreements) which occur after the Aircraft is no longer part of the Lessor's Estate or, if the Aircraft remains a part of the Lessor's Estate, after the expiration of the Term (unless the Aircraft is being returned at such time, in which case after return of physical possession; PROVIDED that if the Lease has been terminated pursuant to Section 17 thereof, the indemnity provided in Section 7.01(a) hereof shall survive for so long as Lessor shall be exercising remedies under such Section 17), or to acts or events which occur after return of possession of the Aircraft by the Lessee in accordance with the provisions of the Lease (subject to the foregoing proviso if the Lessor has terminated the Lease pursuant to Section 17 of the Lease); PROVIDED that nothing in this clause (ii) shall be deemed to exclude or limit any claim that any Indemnitee may have under Applicable Law by reason of an Event of Default or for damages from Lessee for breach of Lessee's covenants contained in the Lessee Documents or to release Lessee from any of its obligations under the Lessee Documents that expressly provide for performance after termination of the Term; (iii) other than as expressly provided herein or in the other Operative Agreements, is a Tax or loss of a Tax benefit, whether or not the Lessee is required to indemnify therefor pursuant to Article 6 hereof or pursuant to the Tax Indemnity Agreement; (iv) is a cost or expense expressly required to be paid by such Indemnitee or its permitted transferees (and not by the Lessee) pursuant to this Agreement or any other Operative Agreement and for which the Lessee is not otherwise obligated to reimburse such Indemnitee, directly or indirectly pursuant to the terms of this Agreement or such other Operative Agreement; (v) is attributable to the incorrectness or breach by such Indemnitee of its representations or warranties, under any of the Operative Agreements except to the extent such incorrectness or breach was caused by a breach by Lessee of any 37 representation or warranty or by any failure of Lessee to perform any obligation under an Operative Agreement; (vi) is attributable to the failure by such Indemnitee to perform any of its obligations under any of the Operative Agreements except to the extent such failure was caused by a breach by Lessee of any representation or warranty or by any failure of Lessee to perform any obligation under an Operative Agreement; (vii) is, in the case of the Owner Participant, Lessor's Liens attributable to the Owner Participant; in the case of the Owner Trustee, Lessor's Liens to the extent attributable to the Owner Trustee; in the case of Trust Company, Lessor's Liens to the extent attributable to Trust Company; (viii) is, in the case of the Owner Participant or the Owner Trustee, attributable to the offer or sale by such Indemnitee of any interest in the Aircraft, the Lessor's Estate or the Trust Agreement or any similar interest (including an offer or sale resulting from bankruptcy or other proceedings for the relief of debtors in which such Indemnitee is the debtor), unless in each case such offer or sale shall occur pursuant to the exercise of remedies under Section 17 of the Lease; (ix) in the case of the Owner Participant, is an Expense relating to, resulting from, arising out of or in connection with a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Code resulting from the direct or indirect use of assets of any ERISA Plan to acquire or hold Owner Participant's interest in the Trust Estate or in the case of any transferee of the Owner Participant referred to in Section 5.01(c), to purchase the Beneficial Interest pursuant to Section 5.01(c); (x) except during the continuation of an Event of Default, is attributable to any amendment to any of the Operative Agreements which is not requested, or consented to, by the Lessee or is not required or made pursuant to the terms of any of the Operative Agreements; (xi) is attributable to the exercise by any Indemnitee of any right to inspect the Aircraft except with respect to any such inspection conducted while an Event of Default is continuing; and (xii) constitutes the loss of future profits of such Indemnitee or losses attributable to such Indemnitee's overhead. Section 7.02. NOTICE AND PAYMENT. Each Indemnitee shall give prompt written notice to the Lessee of any liability as to which an officer of such Indemnitee has actual knowledge, for which the Lessee is, or may be, liable under this Article 7; PROVIDED, HOWEVER, that failure to give such notice shall not terminate any of the rights of an Indemnitee under this Article 7 and shall not release Lessee from any of its obligations to indemnify such Indemnitee hereunder, except to the extent that such failure adversely affects any applicable defense or counterclaim, otherwise increases the amount the Lessee would have been liable for in the 38 absence of such failure to provide such notice or adversely affects the ability of Lessee's insurers to defend such claim. Section 7.03. DEFENSE OF CLAIMS. The Lessee or its insurers shall have the right (in each such case at the Lessee's sole expense) to investigate, defend (and control the defense of) any such claim for which indemnification is sought pursuant to this Article 7 (so long as Lessee has agreed in writing reasonably acceptable to the relevant Indemnitee that Lessee is liable to such Indemnitee for any Expenses relating to or arising out of the claim for which indemnification is sought, provided that Lessee will not be so liable to the extent that it is reasonably determined that one or more of the exclusions contained in Section 7.01(b) would be applicable to such claim) and each Indemnitee shall cooperate with the Lessee or its insurers with respect thereto, PROVIDED THAT, without limiting the right of the Lessee's insurers to assume and control the defense of or to compromise, any such claim, the Lessee shall not be entitled to assume and control the defense of or compromise any such claim (A) during the continuance of any Event of Default arising under Sections 16(a), (b), (f), (g) or (h) of the Lease, (B) if an actual or potential material conflict of interest exists making it advisable in the good faith opinion of such Indemnitee (on the basis of prevailing standards of professional responsibility) for such Indemnitee to be represented by separate counsel or if such proceeding involves the potential imposition of criminal liability on such Indemnitee or (C) if such proceeding will involve any non-de minimis risk of the sale, forfeiture or loss of, or the creation of any Lien (other than Permitted Liens) on the Aircraft or the Trust Estate (unless the Lessee posts a bond or other security reasonably acceptable in form and substance to such Indemnitee) or involve any risk of criminal liability to such Indemnitee. Subject to the immediately foregoing sentence, where the Lessee or the insurers under a policy of insurance maintained by the Lessee undertake the defense of an Indemnitee with respect to such a claim, no additional legal fees or expenses of such Indemnitee in connection with the defense of such claim shall be indemnified hereunder unless the fees or expenses were incurred at the written request of the Lessee or such insurers. Subject to the requirement of any policy of insurance applicable to a claim, an Indemnitee may participate at its own expense at any judicial proceeding controlled by the Lessee or its insurers pursuant to the preceding provisions, to the extent that such party's participation does not, in the reasonable opinion of the independent counsel appointed by the Lessee or its insurers to conduct such proceedings, interfere with the defense of such claim (it being agreed that the making of copies, giving notice of proceedings and the like shall not be considered interference); and such participation shall not constitute a waiver of the indemnification provided in this Section 7.03. No Indemnitee shall enter into any settlement or other compromise with respect to any claim described in this Section 7.03 (other than any claim involving potential criminal liability) without the prior written consent of the Lessee, unless such Indemnitee waives its right to be indemnified under this Article 7 with respect to such claim or unless an Event of Default under Section 16(a), 16(f), 16(g) or 16(h) of the Lease is continuing. The Lessee shall not enter into any settlement or compromise with respect to which the Lessee has not agreed to indemnify such Indemnitee to such Indemnitee's satisfaction or which admits any criminal violation, gross negligence or willful misconduct on the part of any Indemnitee without the prior written consent of such Indemnitee. Section 7.04. INSURED CLAIMS. Notwithstanding any other provision of this Article 7 to the contrary, in the case of any claim indemnified by the Lessee hereunder which is covered by a policy of insurance maintained by the Lessee pursuant to Section 9 of the Lease or 39 otherwise, it shall be a condition of such indemnity with respect to any particular Indemnitee that such Indemnitee shall cooperate with the insurers in the exercise of their rights to investigate, defend or compromise such claim as may be required to retain the benefits of such insurance with respect to such claim. Section 7.05. SUBROGATION. To the extent that an Expense indemnified by the Lessee under this Article 7 is in fact paid in full by the Lessee and/or an insurer under a policy of insurance maintained by the Lessee, the Lessee and/or such insurer as the case may be shall be subrogated to the extent of such payment to the rights and remedies of the Indemnitee on whose behalf such Expense was paid with respect to the transaction or event giving rise to such Expense (other than the rights and remedies in respect of insurance policies maintained by such Indemnitee and other than the rights of the Trust Company or the Owner Trustee and remedies against the Owner Participant under the Trust Agreement). Should an Indemnitee receive any refund, in whole or in part, with respect to any Expense paid in full by the Lessee hereunder, it shall promptly pay over the amount refunded (but not an amount in excess of the amount Lessee and/or such insurer has paid to such Indemnitee in respect of such Expense) to the Lessee unless a Specified Default or an Event of Default shall have occurred and be continuing (or would have occurred and be continuing if the Owner Participant had given the notice specified in Section 16(a) of the Lease), in which case, provided that Lessee shall have paid such Indemnitee all amounts required under this Article 7 or under any other Operative Agreement, such amounts shall be paid over to Owner Trustee to hold as security for Lessee's obligations under the Lessee Documents or, if requested by Lessee, applied to satisfy such obligations. Section 7.06. INFORMATION. Subject to Section 7.04, Lessee will provide the relevant Indemnitee with such information, not within the control of such Indemnitee, as is in Lessee's control or is reasonably available to Lessee, which such Indemnitee may reasonably request, and will otherwise cooperate with such Indemnitee, so as to enable such Indemnitee to fulfill its obligations under Section 7.03 and to control or participate in any proceeding to the extent permitted by Section 7.03. The Indemnitee shall supply Lessee with such information, not within the control of Lessee, as is in such Indemnitee's control or is reasonably available to such Indemnitee, which Lessee may reasonably request to control or participate in any proceeding to the extent permitted by Section 7.03. Section 7.07. SURVIVAL OF OBLIGATIONS. The indemnities and agreements of the Lessee provided for in this Article 7 shall survive the expiration or other termination of this Agreement. Section 7.08. EFFECT OF OTHER INDEMNITIES. The Lessee's obligations under this Article 7 shall be those of a primary obligor whether or not the Person indemnified shall also be indemnified with respect to the same matter under the terms of this Agreement, or any other document or instrument, and the Person seeking indemnification from the Lessee pursuant to any provision of this Agreement may proceed directly against the Lessee without first seeking to enforce any other right of indemnification. Section 7.09. WAIVER OF CERTAIN CLAIMS. The Lessee hereby waives and releases any Expense now or hereafter existing against any Indemnitee arising out of death or personal injury to personnel of the Lessee, loss or damage to property of the Lessee, or the loss of use of 40 any property of the Lessee, which results from or arises out of the condition, use or operation of the Aircraft during the Term, including, without limitation, any latent or patent defect whether or not discoverable. Section 7.10. CERTAIN LIMITATIONS. The Lessee does not guarantee and nothing in the general indemnification provisions of this Article 7 shall be construed as a guarantee (or an indemnification) by the Lessee with respect to the residual value of the Aircraft or any part thereof. ARTICLE 8. TRANSACTION COSTS Section 8.01. TRANSACTION COSTS AND OTHER COSTS. (a) TRANSACTION COSTS. If the transactions contemplated by this Agreement to occur on the Delivery Date are consummated, the Owner Participant shall pay (or reimburse the Lessee if the Lessee shall have previously made such payment) all fees and expenses of the following persons relating to the transactions contemplated hereby up to an aggregate maximum amount of [*] following receipt by the Owner Participant of appropriate invoices with respect thereto: (i) the reasonable fees and expenses of counsel for Owner Participant; (ii) the reasonable fees and expenses of the respective counsel for the Lessee, the Owner Trustee, the Manufacturer, the Engine Manufacturer and the Seller; (iii) the reasonable fees and expenses of special aviation counsel; (iv) the initial fees and expenses of the Owner Trustee; (v) the fees and expenses of Seabury Securities, LLC (the "Lessee Advisor"); (vi) any amounts paid in connection with any appraisal report prepared for the Owner Participant; and (vii) any other amounts approved by the Lessee and the Owner Participant. The fees and expenses described in clauses (ii) through (v) of this paragraph shall be allocable to the Owner Participant under this Agreement in such manner as is agreed to by the Owner Participant and the Lessee. (b) CONTINUING EXPENSES. The Lessee agrees to pay, as Supplemental Rent, the continuing fees, expenses and disbursements (including reasonable counsel fees and expenses) of Trust Company and the Owner Trustee, with respect to the administration of the Lease and the Lessor's Estate. (c) AMENDMENTS AND SUPPLEMENTS. Without limitation of the foregoing, the Lessee agrees to pay, as Supplemental Rent, to the Owner Trustee and the Owner Participant all costs and expenses (including reasonable legal fees and expenses) incurred by any of them in connection with any amendment, supplement, waiver or consent (whether or not entered into) under this Agreement or any other Operative Agreement or document or instrument delivered pursuant to any of them, which amendment, supplement, waiver or consent is required by any provision of any Operative Agreement (including any adjustment pursuant to Section 3(d) of the Lease) or is requested by the Lessee or necessitated by the action or inaction of the Lessee; PROVIDED, HOWEVER, that the Lessee shall not be responsible for fees or expenses incurred in connection with the offer, sale or other transfer (whether pursuant to Section 5.01(c) hereof or otherwise) by the Owner Participant or the Owner Trustee of any interest in the Aircraft, the Lessor's Estate, the Beneficial Interest or the Trust Agreement or any similar interest (and the - ----------- * Confidential 41 offeror, seller, or transferor shall be responsible for all such fees and expenses), unless such offer, sale or transfer shall occur (A) pursuant to the exercise of remedies under Section 17 of the Lease, or (B) in connection with the termination of the Lease or action or direction of the Lessee pursuant to Section 8, 13 or 14 of the Lease. ARTICLE 9. SUCCESSOR OWNER TRUSTEE Section 9.01. APPOINTMENT OF SUCCESSOR OWNER TRUSTEE. (a) RESIGNATION AND REMOVAL. The Owner Trustee or any successor Owner Trustee may resign or may be removed (with the consent of the Lessee) by the Owner Participant, and a successor Owner Trustee may be appointed and a Person may become Owner Trustee under the Trust Agreement only in accordance with the provisions of Section 8.01 of the Trust Agreement and the provisions of paragraphs (b) and (c) of this Section 9.01. (b) CONDITIONS TO APPOINTMENT. The appointment in any manner of a successor Owner Trustee pursuant to Section 8.01 of the Trust Agreement shall be subject to the following conditions: (i) such successor Owner Trustee shall be a Citizen of the United States; (ii) such successor Owner Trustee shall be a bank or a trust company having combined capital, surplus and undivided profits of at least $100,000,000 or a bank or trust company fully guaranteed by a direct or indirect parent thereof having a combined capital, surplus and undivided profits of at least $100,000,000; (iii) such appointment shall not violate any provisions of the Transportation Code or any applicable rule or regulation of the applicable regulatory agency or body of any other jurisdiction in which the Aircraft may then be registered or create a relationship which would be in violation of the Transportation Code or any applicable rule or regulation of the applicable regulatory agency or body of any other jurisdiction in which the Aircraft may then be registered; (iv) such successor Owner Trustee shall enter into an agreement or agreements, in form and substance reasonably satisfactory to the Lessee and the Owner Participant whereby such successor Owner Trustee confirms that it shall be deemed a party to this Agreement and each other Operative Agreement to which the Owner Trustee is a party and agrees to be bound by all the terms of such documents applicable to the Owner Trustee and makes the representations and warranties contained in Section 5.03 hereof (except that it may be duly incorporated, validly existing and in good standing under the laws of the United States of America or any State thereof); and (v) all filings of Uniform Commercial Code financing and continuation statements, filings in accordance with the Transportation Code and amendments thereto shall be made and all further actions taken in connection with such 42 appointment as may be necessary in connection with maintaining the valid and continued registration of the Aircraft in accordance with the Transportation Code. ARTICLE 10. LIABILITIES OF THE OWNER PARTICIPANT Section 10.01. LIABILITIES OF THE OWNER PARTICIPANT. The Owner Participant shall not have any obligation or duty to the Lessee with respect to the transactions contemplated by this Agreement, except those obligations or duties expressly set forth in this Agreement or (to the Lessee only) the Tax Indemnity Agreement or in any other Operative Agreement to which the Owner Participant is a party and the Owner Participant shall not be liable for the performance by any other party hereto of such other party's obligations or duties hereunder. ARTICLE 11. OTHER DOCUMENTS Section 11.01. CONSENT OF LESSEE TO OTHER DOCUMENTS. The Lessee hereby consents in all respects to the execution and delivery of the Trust Agreement. Section 11.02. CONSENT OF OWNER PARTICIPANT TO OTHER DOCUMENTS. The Owner Participant hereby consents in all respects to the execution and delivery of the Lease and hereby agrees to follow the terms of the Lease which are applicable to it. ARTICLE 12. NOTICES Section 12.01. NOTICES. Except as otherwise specifically provided herein, all notices, requests, approvals or consents required or permitted by the terms hereof shall be in writing (it being understood that the specification of a writing in certain instances and not in others does not imply an intention that a writing is not required as to the latter). Any notice shall be effective when received. Any notice shall either be sent by overnight courier service or overnight delivery service or by hand, or sent in the form of a telecopy, PROVIDED that there is receipt of such notice the next Business Day from an overnight courier service, or by overnight delivery service or delivered by hand. Any notice shall be directed to the Lessee, the Lessor, the Owner Participant or any other party hereto to the respective addresses set forth below or to such other address or telecopy number as any such party may designate pursuant to this Section 12.01: (a) if to the Lessee, to its office at 2500 S. High School Road, Indianapolis, Indiana 46241, Attention: President; telephone (317) 484-6047, facsimile (317) 484-6060, with a copy to c/o Wexford Management, LLC, 411 West Putnam Avenue, Greenwich, Connecticut 06830, Attention: Jay Maymudes and Arthur Amron, telephone (203) 862-7050 (Jay Maymudes) and (203) 862-7012 (Arthur Amron), facsimile (203) 862-7350 (Jay Maymudes) and (203) 862-7312 (Arthur Amron); or to such other address as the Lessee shall from time to time designate in writing to the Lessor and any Owner Participant; 43 (b) if to the Lessor or the Owner Trustee, to its office at 79 South Main Street, Salt Lake City, Utah 84111, Attention: Corporate Trust Department, telephone (801) 246-5630, facsimile (801) 246-5053; or to such other address as the Lessor shall from time to time designate in writing to the Lessee, with a copy to the Owner Participant; (c) if to the Owner Participant to its office at 201 High Ridge Road, Stamford, Connecticut 06927-4900, Attention: Contracts Manager, telephone (203) 357-3773 facsimile (203) 357-3201; or to such other address as the Owner Participant shall from time to time designate in writing to the Lessee and the Owner Trustee; ARTICLE 13. MISCELLANEOUS Section 13.01. COUNTERPARTS. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Section 13.02. NO ORAL MODIFICATIONS. Neither this Agreement nor any of its terms may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification is sought. No such written termination, amendment, supplement, waiver or modification shall be effective unless a signed copy shall have been delivered to and executed by the Owner Trustee. A copy of each such termination, amendment, supplement, waiver or modification shall also be delivered to each other party to this Agreement. Section 13.03. CAPTIONS. The table of contents preceding this Agreement and the headings of the various Articles and Sections of this Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions of this Agreement. Section 13.04. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the Lessee and its successors and permitted assigns, the Owner Participant and its successors and permitted assigns, the Owner Trustee and its successors as Owner Trustee (and any additional owner trustee appointed) under the Trust Agreement. Section 13.05. CONCERNING THE OWNER TRUSTEE. Trust Company is entering into this Agreement solely in its capacities (except to the extent otherwise expressly indicated), not in its individual capacity but solely as Owner Trustee under the Trust Agreement, and except as otherwise expressly provided in this Agreement or in the Lease or the Trust Agreement, Trust Company shall not be personally liable for or on account of its statements, representations, warranties, covenants or obligations under this Agreement; PROVIDED, HOWEVER, that Trust Company accepts the benefits running to it under this Agreement, and agrees that (except as otherwise expressly provided in this Agreement or any other Operative Agreement to which it is a party) it shall be liable in its individual capacity for (a) its own gross negligence or willful 44 misconduct (whether in its capacity as trustee or in its individual capacity), (b) any breach of representations and warranties or any breach of covenants made in its individual capacity pursuant to or in connection with this Agreement or the other Operative Agreements to which it is a party, (c) the failure to use ordinary care in receiving, handling and disbursing funds, (d) Lessor's Liens attributable to it in its individual capacity, and (e) taxes, fees or other charges on, or based on, or measured by, any fees, commissions or compensation received by it in connection with the transactions contemplated by the Operative Agreements. Section 13.06. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 13.07. GOVERNING LAW. (a) THIS AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS. (b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF NEW YORK AND OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN CONNECTION WITH ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTER RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. (c) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET FORTH PURSUANT TO SECTION 12.01. EACH PARTY HERETO AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS SECTION 13.07(c), SHALL CONSTITUTE VALID AND EFFECTIVE PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO HEREBY AGREES THAT THE FAILURE OF ANY OF ITS AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH PARTY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH PARTY OR ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON. (d) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR 45 PROCEEDING BROUGHT HEREUNDER IN ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS. (e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING TO THIS AGREEMENT. Section 13.08. SECTION 1110 COMPLIANCE. The parties hereto agree that the transactions contemplated by the Operative Agreements are expressly intended to be, shall be, and should be construed so as to be entitled to the benefits and protection of Section 1110. Section 13.09. ASSIGNMENT. (a) The Owner Trustee may make a security assignment of or grant a security interest in some or all of the Lessor's Estate ("Permitted Security Interest"), as security for the Owner Trustee's obligations in connection with any financing by the Owner Trustee pursuant to documents reasonably acceptable to Lessee and otherwise in compliance with this Section 13.09, to a lender ("Lessor's Lender") which (x) shall be a bank, savings institution, finance company, leasing company, or trust company or national banking association or other financial institution acting for its own account or in a fiduciary capacity as trustee or agent for other financial institutions or funds, (y) shall not be an airline or other aircraft operator or competitor of the Lessee in the business of air transportation or an Affiliate of any thereof; and (z) shall not be a party to any material current or overtly threatened litigation or arbitration (whether as plaintiff or defendant) with the Lessee or any Affiliate of the Lessee. The Owner Trustee will give Lessee at least ten (10) days prior written notice of a Permitted Security Interest and Lessee agrees to execute and deliver in connection with any Permitted Security Interest such documents and assurances (including an acknowledgment of the Permitted Security Interest and a certificate as to the absence of any Default under the Lease) and to take such further action as the Owner Trustee may reasonably request in connection with the Permitted Security Interest. A Lessor's Lender shall be entitled to be an Indemnitee and an Additional Insured. (b) In connection with a Permitted Security Interest of the Lessor's Estate by the Owner Trustee: (i) as a condition precedent to such Permitted Security Interest becoming effective, the Owner Trustee will procure that the Lessor's Lender shall execute and deliver to Lessee a letter of quiet enjoyment reasonably acceptable to Lessee in respect of Lessee's use and possession of the Aircraft; (ii) the Owner Trustee shall reimburse to Lessee its reasonable out-of-pocket expenses (including reasonable legal fees and expenses) actually incurred in connection with any such Permitted Security Interest referred to in this Section 13.09, 46 provided that such expenses are substantiated to the Owner Trustee's reasonable satisfaction; and (iii) no such Permitted Security Interest shall impair the rights and benefits, or increase the burdens or obligations, of Lessee hereunder or under the Lease, including, without limitation, obligations with respect to the payment of Rent or under Section 6.01 or 7.01 hereof. [The remainder of this page is intentionally left blank.] 47 IN WITNESS WHEREOF, the parties have caused this Participation Agreement to be executed by their respective, duly authorized officers as of the day and year first written above. CHAUTAUQUA AIRLINES, INC., as Lessee By: /s/ Robert H. Cooper -------------------------------------- Name: Robert H. Cooper Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION, as Owner Participation By: /s/ Norman Liu -------------------------------------- Name: Norman Liu Title: Vice President FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, except as otherwise expressly provided herein but solely as Owner Trustee By: /s/ Greg A. Hawley -------------------------------------- Name: Greg A. Hawley Title: Vice President 48 APPENDIX A DEFINITIONS [N281SK] GENERAL PROVISIONS The following terms shall have the following meanings for all purposes of the Operative Agreements (as defined below), unless otherwise defined in an Operative Agreement or the context thereof shall otherwise require. In the case of any conflict between the provisions of this Appendix and the provisions of any Operative Agreement, the provisions of such Operative Agreement shall control the construction of such Operative Agreement. Unless the context otherwise requires, (i) references to agreements shall be deemed to mean such agreements as amended and supplemented from time to time, and any agreement, instrument or document entered into in substitution or replacement therefor, and (ii) references to parties to agreements shall be deemed to include the successors and permitted assigns of such parties. "ADDITIONAL INSUREDS" means the Owner Trustee (in its individual and trust capacities) and the Owner Participant. "AERONAUTICAL AUTHORITY" means as of any time of determination, the FAA or other governmental airworthiness authority having jurisdiction over the Aircraft or the Airframe and Engines or engines attached thereto under the laws of the country in which the Airframe is then registered. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling 50% or more of any class of voting securities of such Person or otherwise controlling, controlled by or under common control with such Person. For the purposes of this definition, "control" (including "controlled by" and "under common control with") shall mean the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether through the ownership of voting securities or by contract or otherwise. "AFTER TAX BASIS" means a basis such that any payment to be received or deemed to be received by a Person shall be supplemented by a payment to such Person so that the sum of such payments, after deduction of all Taxes (taking into account any related credits or deductions) resulting from the actual or constructive receipt or accrual of such payments, shall be equal to the payment to be received. "AIRCRAFT" means the Airframe together with the Engines, whether or not any of the Engines may at the time of determination be installed on the Airframe or installed on any other airframe or on any other aircraft. "AIRCRAFT PURCHASE AGREEMENT" means the Aircraft Purchase Agreement [N281SK] dated as of February 23, 2001, among the Seller, the Owner Trustee and GECC, as amended and supplemented from time to time. "AIRFRAME" means (i) the Embraer model EMB-145LR aircraft (excluding the Engines and any other engines which may from time to time be installed thereon, but including any and all Parts which may from time to time be incorporated in, installed on or attached to such aircraft, and including any and all such Parts removed therefrom so long as title to such removed Parts remains vested in the Lessor under the terms of Section 7 of the Lease) originally delivered and leased under the Lease, identified by national registration number and manufacturer's serial number in the Lease Supplement executed and delivered on the Delivery Date, so long as a Replacement Airframe shall not have been substituted therefor pursuant to Section 8 of the Lease, and (ii) a Replacement Airframe, so long as another Replacement Airframe shall not have been substituted therefor pursuant to Section 8 of the Lease. "APPRAISAL PROCEDURE" has the meaning specified in Exhibit F-2 to the Lease. "APPLICABLE LAW" means all applicable laws, treaties, judgments, decrees, injunctions, writs and orders of any court, governmental agency or authority and rules, regulations, orders, directives, licenses and permits of any governmental body, instrumentality, agency or authority. "APPLICABLE RATE" has the meaning specified in Exhibit B to the Lease. "ASSIGNED WARRANTIES" has the meaning specified in the Embraer Warranty Assignment and Consent. "BANKRUPTCY CODE" means Title 11 of the United States Code, as amended, and any successor thereto. "BASIC RENT" means the rent payable on Basic Rent Payment Dates throughout the Basic Term for the Aircraft pursuant to Section 3(b) of the Lease and rent payable during any Renewal Term pursuant to Section 13(a) of the Lease. "BASIC RENT PAYMENT DATE" means each date listed under the heading "Basic Rent Payment Date" in Exhibit C to the Lease. "BASIC TERM" means the period commencing at the beginning of the day on the Delivery Date and ending at end of the day on the Expiration Date, or such earlier date on which the Lease shall be terminated as provided therein. "BENEFICIAL INTEREST" means the interest of the Owner Participant under the Trust Agreement. "BILLS OF SALE" means the FAA Bill of Sale and the Warranty Bill of Sale. "BUSINESS DAY" means any day other than a Saturday or Sunday or other day on which commercial banks are authorized or required by law to close in New York City, New York, Indianapolis, Indiana and Salt Lake City, Utah. 2 "CERTIFICATED AIR CARRIER" means an "air carrier" within the meaning of the Transportation Code and a "citizen of the United States" within the meaning of Section 40102(a)(15) (or any successor provision) of the Transportation Code holding an "air carrier operating certificate" issued under Chapter 447 (or any successor provision) of the Transportation Code for aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, with each such certificate in full force and effect. "CITIZEN OF THE UNITED STATES" means a citizen of the United States as defined in Section 40102(a)(15) of the Transportation Code, or any analogous part of any successor or substituted legislation or regulation at the time in effect. "CODE" means the United States Federal Internal Revenue Code of 1986, as amended from time to time, or any similar legislation of the United States enacted to supersede, amend, or supplement such Code (and any reference to a provision of the Code shall refer to any successor provision(s), however designated). "COMMITMENT" shall have the meaning given such term in Section 2.01(c) of the Participation Agreement. "CRAF PROGRAM" has the meaning specified in Section 5(b)(vii) of the Lease. "DEFAULT" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default. "DELIVERY DATE" means the date on which the Aircraft is delivered and sold to the Lessor and leased by the Lessor to the Lessee under the Lease, which date shall be the date of the initial Lease Supplement. "DOLLARS", "DOLLAR" and "$" means dollars in lawful currency of the United States. "DOT" means the United States Department of Transportation or any successor thereto. "EBO DATE" has the meaning given to such term in Exhibit B to the Lease. "EBO AMOUNT" has the meaning given to such term in Exhibit B to the Lease. "EMBRAER PURCHASE AGREEMENT" means the EMB-145 Purchase Agreement Number GCT-025/98 dated June 17, 1998, between the Manufacturer and Seller, as amended and supplemented from time to time. "EMBRAER WARRANTY ASSIGNMENT AND CONSENT" means the Warranty Assignment Agreement and Consent [N281SK], dated as of February 23, 2001, between Seller and Owner Trustee and consented to by the Manufacturer. "ENGINE" means (A) each of the two Allison model AE3007A1P engines originally delivered and leased under the Lease, identified by manufacturer's serial number in the Lease Supplement executed and delivered on the Delivery Date, so long as a Replacement Engine shall not have been substituted therefor pursuant to Section 7(e) of the Lease, and (B) a Replacement 3 Engine, so long as another Replacement Engine shall not have been substituted therefor pursuant to Section 7(e) of the Lease, whether or not such engine or Replacement Engine, as the case may be, is from time to time installed on the Airframe or installed on any other aircraft, and including in each case all Parts incorporated or installed in or attached thereto and any and all Parts removed therefrom so long as title to such Parts remains vested in the Lessor under the terms of Section 7 of the Lease. The term "ENGINES" means, as of any date of determination, the two engines each of which is an Engine on that date. "ENGINE MANUFACTURER" means Allison Engine Company, Inc. a subsidiary of the Rolls-Royce Corporation, and its successors and permitted assigns. "ENGINE WARRANTIES" has the meaning specified in the Engine Warranty Assignment and Consent. "ENGINE WARRANTY AGREEMENT" means the Rolls-Royce AE3007A Series Engine Warranty Agreement made effective as of April 30, 1999, among the Engine Manufacturer, Seller and the Lessee, as amended and supplemented from time to time. "ENGINE WARRANTY ASSIGNMENT AND CONSENT" means the Engine Warranty Assignment Agreement and Consent [N281SK], dated as of February 23, 2001, between Seller and Owner Trustee and consented to by the Engine Manufacturer. "ERISA" means the Employee Retirement Income Security Act of 1974 and any regulations and rulings issued thereunder all as amended and in effect from time to time. "ERISA PLAN" means, individually or collectively, an employee benefit plan, as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA or any applicable regulation thereunder or a plan or individual retirement account which is subject to Section 4975(c) of the Code; "EVENT OF DEFAULT" has the meaning given to such term in Section 16 of the Lease. "EVENT OF LOSS" means any of the following events with respect to the Aircraft, the Airframe or any Engine: (i) any theft, hijacking or disappearance of such property for a period of 60 consecutive days or more or, if earlier for a period that extends until the end of the Term; (ii) destruction, damage beyond economic repair or rendition of such property permanently unfit for normal use for any reason whatsoever; (iii) any event which results in an insurance settlement with respect to such property on the basis of an actual, constructive or compromised total loss; (iv) condemnation, confiscation or seizure of, or requisition of title to or use of such property by any foreign government or purported government (or in the case of any such requisition of title, by the Government) or any agency or instrumentality thereof, for a period in excess of (A) in the case of any requisition of use, 180 consecutive days (for 4 countries listed in Exhibit E to the Lease) or 30 consecutive days (for any other country) or (B) in the case of any condemnation, confiscation or seizure of, or requisition of title, 10 consecutive days, or, in any of the cases in this clause (iv), such shorter period ending on the expiration of the Term; (v) condemnation, confiscation or seizure of, or requisition of use of such property by the Government for a period extending beyond the Term; (vi) as a result of any law, rule, regulation, order or other action by the Aeronautical Authority, the use of the Aircraft or Airframe in the normal course of air transportation shall have been prohibited by virtue of a condition affecting all Embraer model EMB-145LR aircraft equipped with engines of the same make and model as the Engines for a period of 180 consecutive days (or beyond the end of the Term), unless the Lessee, prior to the expiration of such 180-day period, shall be diligently carrying forward all necessary and desirable steps to permit normal use of the Aircraft and shall within 12 months have conformed at least one Embraer model EMB-145LR aircraft (but not necessarily the Aircraft) to the requirements of any such law, rule, regulation, order or action, and shall be diligently pursuing conformance of the Aircraft in a non-discriminatory manner provided that, notwithstanding the foregoing, if such normal use of such property subject to the Lease shall be prohibited at the end of the Term, or if such normal use of such property shall be prohibited for a period of eighteen (18) consecutive months, an Event of Loss shall be deemed to have occurred; and (vii) with respect to an Engine only, the requisition or taking of use thereof by any government, and any divestiture of title or ownership deemed to be an Event of Loss with respect to an Engine under Section 5(b)(iii) or 5(b)(vi) of the Lease. The date of such Event of Loss shall be (aa) the 31st day following loss of such property or its use due to theft or disappearance or the 91st day following such loss if such period shall have been extended (or the end of the Term if earlier); (bb) the date of any destruction, damage beyond economic repair or rendition of such property permanently unfit for normal use; (cc) the date of any insurance settlement on the basis of an actual, constructive or compromised total loss; (dd) the 181st day (for countries listed in Exhibit E to the Lease) or 31st day (for any other country) following condemnation, confiscation, seizure or requisition of title to such property by a foreign government referred to in clause (iv) above (or the 11th day in the case of appropriation of title), or the end of the Term if earlier than such 181st, 31st or 11th day; (ee) the last day of the Term in the case of requisition of title to or use of such property by the Government; and (ff) the last day of the applicable period referred to in clause (vi) above (or if earlier, the end of the Term without the Lessee's having conformed at least one Embraer model EMB-145LR aircraft to the applicable requirements). An Event of Loss with respect to the Aircraft shall be deemed to have occurred if any Event of Loss occurs with respect to the Airframe. "EXPENSES" has the meaning given to such term in Section 7.01(a) of the Participation Agreement. "EXPIRATION DATE" means the date specified as such in the Lease Supplement executed and delivered on the Delivery Date. 5 "FAA BILL OF SALE" means (A) the bill of sale for the Airframe on AC Form 8050-2, or such other form as may be approved by the Aeronautical Authority, executed by the Seller in favor of the Owner Trustee and to be dated the Delivery Date, and (B) a bill of sale for a Replacement Airframe on AC Form 8050-2, or such other form as may be approved by the Aeronautical Authority, executed by the seller thereof in favor of the Owner Trustee. "FAIR MARKET RENTAL VALUE" or "FAIR MARKET SALES VALUE" of the Airframe or any Engine shall mean the value that would be obtained in an arms'-length transaction between an informed and willing lessee-user or buyer-user (other than a lessee currently in possession or a used equipment dealer) under no compulsion to lease or buy, as the case may be, and an informed and willing lessor or seller, as the case may be, under no compulsion to lease or sell, as the same shall be specified by agreement between the Lessor and the Lessee or, if not agreed to by the Lessor and the Lessee within a period of 15 days after either party requests a determination, then as specified in an appraisal prepared and delivered in New York City mutually agreed to by two recognized independent aircraft appraisers, one of which shall be appointed by the Lessor and the other of which shall be appointed by the Lessee, or, if such appraisers cannot agree on such appraisal, an appraisal arrived at by a third independent recognized appraiser chosen by the mutual consent of the two aircraft appraisers. If either party should fail to appoint an appraiser within 15 days of receiving notice of the appointment of an appraiser by the other party, then such appraisal shall be made by the appraiser appointed by the first party. If the two appraisers cannot agree on such appraisal and fail to appoint a third independent recognized aircraft appraiser within 15 days after the appointment of the second appraiser, then either party may apply to the American Arbitration Association to make such appointment. The appraisal shall be completed within 30 days of the appointment of the last appraiser appointed. In determining Fair Market Rental Value or Fair Market Sales Value by appraisal or otherwise, it will be assumed that the Aircraft, Airframe or Engine is in the condition, location and overhaul status in which it is required to be returned to the Lessor pursuant to Section 12 of the Lease and that the Lessee has removed all Parts which it is entitled to remove pursuant to Section 7 of the Lease and that the Aircraft is not encumbered by the Lease. Except as otherwise expressly provided in the Lease, all appraisal costs will be shared equally by the Lessor and the Lessee; PROVIDED that if the Lessee elects not to renew the Lease or purchase the Aircraft following the conclusion of such appraisal, the Lessee shall pay all appraisal costs. Notwithstanding the foregoing, for purposes of Section 17 of the Lease, the "Fair Market Rental Value" or "Fair Market Sales Value" of the Aircraft, the Airframe or any Engine, shall be determined on an "as is, where is" basis and shall take into account customary brokerage and other out-of-pocket fees and expenses which typically would be incurred in connection with a re-lease or sale of the Aircraft, the Airframe or any Engine. Any such determination pursuant to Section 17 of the Lease shall be made by a recognized independent aircraft appraiser selected by Lessor and the costs and expenses associated therewith shall be borne by Lessee, unless Lessor does not obtain possession of the Aircraft, Airframe and Engines pursuant to Section 17 of the Lease, in which case an appraiser shall not be appointed and Fair Market Rental Value and Fair Market Sales Value for purposes of Section 17 of the Lease shall be zero. If the Owner Participant provides a Residual Notice pursuant to Section 13(b)(iii) of the Lease, Fair Market Sales Value will be determined as provided in the definition of Appraisal Procedure. "FAIR MARKET VALUE RENEWAL TERM" has the meaning given to such term in Section 13(a) of the Lease. 6 "FEDERAL AVIATION ADMINISTRATION" or "FAA" means the United States Federal Aviation Administration and any successor agency or agencies thereto. "FIXED RENEWAL TERM" has the meaning given to such term in Section 13(a) of the Lease. "GECC" means General Electric Capital Corporation, a New York corporation. "GOVERNMENT" means the United States of America or an agency or instrumentality thereof the obligations of which bear the full faith and credit of the United States of America. "GUARANTEE AGREEMENT" has the meaning given to such term in the recitals of the Participation Agreement. "GUARANTEED AMOUNT" has the meaning specified in Exhibit B to the Lease. "INDEMNITEE" means each of Trust Company, in its individual capacity and as Owner Trustee, the Owner Participant, and each Affiliate, officer, director, employee, agent, servant, successor and permitted assigns of any of the foregoing Persons. "LEASE" means the Lease Agreement [N281SK], dated as of February 23, 2001 between the Owner Trustee and the Lessee. "LEASE SUPPLEMENT" means any Lease Supplement, substantially in the form of Exhibit A to the Lease, entered into between the Lessor and the Lessee for the purpose of leasing the Aircraft under and pursuant to the terms of the Lease, including any amendment thereto entered into subsequent to the Delivery Date. "LESSEE" means Chautauqua Airlines, Inc., a New York corporation, and its successors and permitted assigns. "LESSEE DOCUMENTS" means the Operative Agreements to which the Lessee is a party. "LESSOR" means First Security Bank, National Association, a national banking association, not in its individual capacity but solely as Owner Trustee under the Trust Agreement, and its successors and permitted assigns. "LESSOR'S COST" has the meaning given to such term in Exhibit B of the Lease. "LESSOR'S ESTATE" means all estate, right, title and interest of the Owner Trustee in and to the Aircraft, and Engines and the Operative Agreements (other than the Tax Indemnity Agreement) including, without limitation, all amounts of Rent, insurance proceeds and requisition, indemnity or other payments of any kind. "LESSOR'S LENDER" has the meaning given to such term in Section 13.09 of the Participation Agreement. "LESSOR'S LIENS" means Liens against, on or with respect to the Aircraft, any Engine, the Lessor's Estate or any part thereof, title thereto or any interest therein arising as a result of (i) 7 claims against or affecting the Lessor, in its individual capacity or as Owner Trustee, or the Owner Participant, in each case not related to the Operative Agreements or the transactions contemplated thereby, (ii) acts or omissions of the Lessor in its individual capacity or as Owner Trustee, or of the Owner Participant not contemplated or permitted under the terms of the Operative Agreements, (iii) Taxes or Expenses imposed against the Lessor, in its individual capacity or as Owner Trustee, Owner Participant, Lessor's Estate or the trust created by the Trust Agreement which are not required to be indemnified against by the Lessee pursuant to Articles 6 or 7 of the Participation Agreement and which are not required to be indemnified against by the Lessee pursuant to the Tax Indemnity Agreement, or (iv) claims against the Lessor, in its individual capacity or as Owner Trustee, or the Owner Participant arising from the transfer by the Lessor or the Owner Participant of its interests in the Aircraft or any Engine other than a transfer of the Aircraft or any other portion of the Lessor's Estate pursuant to Section 5(b), 7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b), 14(a) or 17 of the Lease and other than a transfer pursuant to the exercise of the remedies set forth in Section 17 of the Lease; PROVIDED that any Lien that is attributable solely to Owner Participant or Lessor, in its individual capacity or as Owner Trustee, and would otherwise be included as part of Lessor's Liens hereunder shall not constitute part of Lessor's Liens hereunder, so long as (A) the existence of such Lien poses no material risk of the sale, forfeiture or loss of the Aircraft, Airframe, any Engine, the Lessor's Estate or any interest of Lessee or any other Person therein or interference with any of Lessee's rights under any Operative Agreement, (B) the existence of such Lien does not constitute a default by Owner Participant or Lessor, in its individual capacity or as Owner Trustee, of its respective obligations under the Lease, and (C) Owner Participant or Lessor, in its individual capacity or as Owner Trustee, is diligently contesting such Lien by appropriate proceedings. "LIEN" means any mortgage, pledge, lien, charge, encumbrance, lease, security interest, claim, or other similar interest of any nature whatsoever. "MANUFACTURER" means EMBRAER - Empresa Brasileira de Aeronautica S.A., a Brazilian corporation, and its successors and permitted assigns. "MATERIAL ADVERSE CHANGE" means, with respect to any Person, any event, condition or circumstance that materially and adversely affects such Person's business or consolidated financial condition. "MINIMUM LIABILITY AMOUNT" has the meaning given to such term in Exhibit B to the Lease. "NET ECONOMIC RETURN" means the Owner Participant's nominal after-tax book yield (utilizing the multiple investment sinking fund method of analysis), computed through the EBO Date and the Expiration Date on the basis of the same methodology, constraints and assumptions as were utilized by the initial Owner Participant in determining Basic Rent percentages and Termination Value percentages as of the Delivery Date; PROVIDED, that, if the initial Owner Participant shall have transferred its interest, Net Economic Return shall be calculated as if the initial Owner Participant had retained its interest. "NON-U.S. PERSON" means any Person other than a U.S. Person. 8 "OFFICER'S CERTIFICATE" means as to any company a certificate signed by a Responsible Officer of such company. "OPERATIVE AGREEMENTS" means the Participation Agreement, the Trust Agreement, the FAA Bill of Sale, the Warranty Bill of Sale, the Embraer Warranty Assignment and Consent, the Engine Warranty Assignment and Consent, the Lease, each Lease Supplement, any Owner Participant Guaranty and the Tax Indemnity Agreement. "OWNER PARTICIPANT" means General Electric Capital Corporation, a New York corporation and its successors and permitted transferees and assigns. "OWNER PARTICIPANT GUARANTOR" means the provider of an Owner Participant Guaranty. "OWNER PARTICIPANT GUARANTY" means any guaranty delivered or to be delivered to support the obligations of the Owner Participant under the Operative Agreements in connection with the transfer by the Owner Participant of the Beneficial Interest. "OWNER TRUSTEE" means the Trust Company, not in its individual capacity except as otherwise expressly stated, but solely as trustee under the Trust Agreement, and its successors and permitted assigns. "PARTICIPATION AGREEMENT" means the Participation Agreement [N281SK], dated as of February 23, 2001, among the Lessee, the Owner Trustee not in its individual capacity except as otherwise expressly provided therein, but solely as owner trustee and the Owner Participant. "PARTS" means any and all appliances, parts, instruments, components, appurtenances, accessories, furnishings, seats, and other equipment of whatever nature (other than complete Engines or engines and temporary replacement parts as provided in Section 8 of the Lease and cargo containers) which may from time to time be incorporated or installed in or attached to any Airframe or any Engine, exclusive of any items leased by the Lessee from third parties and not required in the navigation of the Aircraft. "PAST DUE RATE" means a rate per annum identified in Exhibit B to the Lease. "PERMITTED AIR CARRIER" means (a) any Section 1110 Person and (b) any foreign air carrier that is principally based in any foreign country listed on Exhibit E to the Lease, except those that do not maintain normal diplomatic relations with the United States. "PERMITTED INVESTMENTS" means (a) direct obligations of the United States of America or any agency or instrumentality thereof, (b) obligations fully guaranteed by the United States of America or any agency or instrumentality thereof, (c) any mutual fund the portfolio of which is limited to obligations of the type described in clauses (a) and (b), (d) certificates of deposit issued by, or bankers' acceptances of, or time deposits or a deposit account with, any bank, trust company, or national banking association incorporated or doing business under the laws of the United States of America or one of the states thereof, having a combined capital and surplus of at least $100,000,000 and having a rating of "A" or better from the Keefe Bank Watch Service, (e) commercial paper issued by companies in the United States which directly issue their own commercial paper and which are doing business under the laws of the United States of America 9 or one of the states thereof and in each case having a rating assigned to such commercial paper by a nationally recognized rating organization in the United States of America equal to the highest rating assigned by such organization, or (f) obligations of the type described in clauses (a), (b), (d), or (e) above, purchased from any bank, trust company, or banking association referred to in clause (d) above pursuant to repurchase agreements obligating such bank, trust company, or banking association to repurchase any such obligation not later than 30 days after the purchase of any such obligation. Unless otherwise specified in writing by the Owner Trustee, all such Permitted Investments shall mature not later than 30 days from the date of purchase. "PERMITTED LIEN" has the meaning given to such term in Section 10 of the Lease. "PERMITTED SECURITY INTEREST" has the meaning given to such term in Section 13.09 of the Participation Agreement. "PERMITTED SUBLESSEE" means (a) any Permitted Air Carrier, (b) any airframe or engine manufacturer, or Affiliate of such a manufacturer, who is domiciled in the United States of America or a country listed on Exhibit E to the Lease or (c) the United States of America or any instrumentality or agency thereof. "PERSON" means any individual, sole proprietorship, partnership, joint venture, joint stock company, trust, unincorporated organization, association, corporation, institution, limited liability company or government (federal, state, local, foreign or any agency, instrumentality, division or body thereof) or other entity of whatever nature. "PURCHASE PRICE" means an amount equal to Lessor's Cost. "REASONABLE BASIS" means that a realistic possibility of success, within the meaning of ABA Formal Opinion No. 85-352, exists for pursuing such contest. "RECOVERY PERIOD" means "Tax Attribute Period" as defined in the Tax Indemnity Agreement. "RELATED LEASE" means the fifteen aircraft lease agreements of Embraer model EMB-145LR aircraft that have been or shall be entered into in years 2000 and 2001 between the Trust Company as trustee of a trust the beneficiary of which is GECC or an Affiliate of GECC, as lessor, and the Lessee, as lessee, in substantially the form of the Lease, each when executed and delivered by such parties. "RELATED TAX INDEMNITEE" means any Affiliate of any Tax Indemnitee. "RENEWAL TERM" has the meaning given to such term in Section 13(a) of the Lease. "RENT" means Basic Rent and Supplemental Rent, collectively. "REPLACEMENT AIRCRAFT" means any Aircraft of which a Replacement Airframe is part. 10 "REPLACEMENT AIRFRAME" means an Embraer model EMB-145LR aircraft or a comparable or improved model of such aircraft of the Manufacturer (except Engines or engines from time to time installed thereon) which shall have become subject to the Lease pursuant to Section 8 thereof. "REPLACEMENT CLOSING DATE" has the meaning given such term in Section 8(d) of the Lease. "REPLACEMENT ENGINE" means an Allison model AE3007A1P engine (or engine of the same manufacturer of a comparable or an improved model and suitable for installation and use on the Airframe), which has a value, utility and remaining useful life at least equal to, and which is in good operating condition as, the Engine to be replaced thereby (assuming that such Engine being replaced was in the condition required to be maintained in accordance with the Lease), and which shall have become subject to the Lease pursuant to Section 7(e) thereof. "RESIDUAL VALUE GUARANTEE AGREEMENT" has the meaning given to such term in the recitals of the Participation Agreement. "RESPONSIBLE OFFICER" means, with respect to the Owner Trustee, any officer in its Corporate Trust Administration, as the case may be, designated by such Person to perform obligations under the Operative Agreements, and with respect to any other party, any corporate officer of a party who, in the normal performance of his or her operational responsibilities, with respect to the subject matter of any covenant, agreement or obligation of such party pursuant to any Operative Agreement, would have responsibility for and knowledge of such matter and the requirements of any Operative Agreement with respect thereto. "SEC" means the Securities and Exchange Commission of the United States and any successor agencies or authorities. "SECTION 1110" means 11 U.S.C. Section 1110 or any successor or analogous section of the federal bankruptcy law in effect from time to time. "SECTION 1110 PERSON" means a Citizen of the United States who is an air carrier holding a valid air carrier operating certificate issued pursuant to 49 U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" means Solitair Corp., a Delaware corporation, and its successors and permitted assigns. "SPECIFIED DEFAULT" means (a) an event or condition described in Section 16(a), (f), (g) or (h) of the Lease that, after the giving of notice or lapse of time, or both, would become an Event of Default, or (b) any Event of Default. "SUBLEASE" means any sublease agreement between the Lessee and a Permitted Sublessee as permitted by Section 5(b) of the Lease. 11 "SUPPLEMENTAL RENT" means all amounts, liabilities, indemnities and obligations which the Lessee assumes or agrees to perform or pay under the Lease or under the Participation Agreement or Tax Indemnity Agreement or any other Operative Agreement to the Lessor, the Owner Participant, or others, including payments of Termination Value, EBO Amount, and amounts calculated by reference to Termination Value, all other amounts payable under Section 3(c) of the Lease, and all amounts required to be paid by Lessee under the agreements, covenants, and indemnities contained in the Lease or in the Participation Agreement or the Tax Indemnity Agreement or any other Operative Agreement, but excluding Basic Rent. "TAX" or "TAXES" has the meaning set forth in Section 6.01(a) of the Participation Agreement. "TAX INDEMNITEE" means each of Trust Company, individually and as Owner Trustee, the Owner Participant and any Affiliate thereof. "TAX INDEMNITY AGREEMENT" means the Tax Indemnity Agreement [N281SK], dated as of February 23, 2001 between the Lessee and the Owner Participant. "TERM" has the meaning given to such term in Section 3(a) of the Lease. "TERMINATION DATE" means each date listed in the column entitled "Termination Date" in Exhibit D to the Lease or, during a Renewal Term or otherwise during any period following the last day of the Term, the second day of each month. "TERMINATION VALUE" means (a) as of any Termination Date during the Basic Term, the amount determined as set forth in Exhibit D to the Lease for that Termination Date, and (b) during any Renewal Term, the amount for the date involved, determined in accordance with Section 13(a) of the Lease, in either case adjusted as required by Section 3(d) of the Lease. "TRANSACTION COSTS" means those costs and expenses set forth in Section 8.01(a) of the Participation Agreement. "TRANSPORTATION CODE" means Title 49 of the United States Code, subtitle VII, as amended and in effect on the date of the Lease or as subsequently amended, or any successor or substituted legislation at the time in effect and applicable, and the regulations promulgated pursuant thereto. "TRUST AGREEMENT" means the Trust Agreement [N281SK], dated as of February 23, 2001, between the Owner Participant and the Trust Company. "TRUST COMPANY" means First Security Bank, National Association, a national banking association, and its successors and permitted assigns. "TRUST ESTATE" means the Lessor's Estate. "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as in effect from time to time in any relevant jurisdiction. 12 "UNITED STATES", "U.S." or "US" means the United States of America. "U.S. PERSON" means a Person described in Section 7701(a)(30) of the Code. "WARRANTY BILL OF SALE" means (A) the full warranty bill of sale covering the Aircraft (and specifically referring to each Engine) executed by the Seller in favor of the Owner Trustee and to be dated the Delivery Date, and (B) a full warranty bill of sale covering a Replacement Aircraft (and specifically referring to each Engine) executed by the seller thereof in favor of the Owner Trustee. 13 EXHIBIT A-1 TO THE PARTICIPATION AGREEMENT [Form of Opinion of General Counsel of Lessee] _______________, 2000 Aircraft Services Corporation 201 High Ridge Road Stamford, Connecticut 06927-4900 First Security Bank, National Association 79 South Main Street, Suite 300 Salt Lake City, Utah 84111 Re: CHAUTAUQUA AIRLINES, INC. Ladies and Gentlemen: I have acted as counsel for Chautauqua Airlines, Inc., a New York Corporation (the "Corporation"), in connection with the execution and delivery by the Corporation of (i) the Participation Agreement [N2__SK] dated as of __________, 2000 among the Corporation, as Lessee, First Security Bank, National Association, not in its individual capacity but solely as Owner Trustee (the "Owner Trustee") and Aircraft Services Corporation, as Owner Participant (the "Owner Participant"); (ii) the Lease Agreement [N2__SK] dated as of __________, 2000 (the "Lease") between the Owner Trustee, as Lessor ("Lessor") and the Corporation, as Lessee; (iii) the Lease Supplement No. 1 [N2__SK] dated __________, 2000 between the Lessor and the Corporation; (iv) the Tax Indemnity Agreement [N2__SK] dated as of __________, 2000 between the Corporation and the Owner Participant; (v) the Warranty Assignment Agreement and Consent (N2__SK) dated as of __________, 2000 among Solitair Corp., the Owner Trustee and the Corporation and consented to by Rolls-Royce Corporation; and (vi) the Lease Termination Agreement [N2__SK] dated as of __________, 2000 between Solitair Corp. and the Corporation (collectively, the "Lessee Documents"). Unless otherwise defined herein, capitalized terms used herein have the meanings assigned to them in Appendix A to the Lease. In rendering this opinion, I have examined originals or copies, certified or otherwise identified to my satisfaction, of the Lessee Documents, and have investigated such questions of law, and have examined such other corporate records of the Corporation and other documents, and have obtained and relied (without independent investigation) upon such certificates and assurances from public officials, as I have deemed necessary as a basis for the purpose of rendering this opinion. For the purpose of rendering this opinion, I have assumed, without any independent investigation, the capacity of all natural persons, the authenticity of all documents and instruments submitted to me as originals, and the conformity to authentic original documents and EXHIBIT A-1 PAGE 1 instruments of all documents and instruments submitted to me as certified, conformed photostatic or facsimile copies. Based upon and subject to the foregoing, and subject to the qualifications set forth below, I am of the opinion that: 1. The Corporation is duly incorporated, validly existing, and in good standing under the laws of the State of New York, and has the corporate power and authority to carry on its business as presently conducted and to perform its obligations under the Lessee Documents. 2. Each of the Lessee Documents has been duly authorized, executed and delivered by the Corporation. 3. The execution and delivery of the Lessee Documents, the consummation by the Corporation of the transactions contemplated thereby and compliance by the Corporation with the terms and provisions thereof (i) do not require stockholder approval, and (ii) do not require any consent or approval, do not contravene, and will not result in any breach of or constitute any default under, or result in the creation of any lien, charge or encumbrance upon any property of the Corporation, under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan, credit agreement, corporate charter, by-law or other agreement or instrument to which the Corporation is a party or by which the Corporation or its properties or assets may be bound. 4. The Corporation provides interstate transportation of passengers or property by aircraft as a common carrier for compensation. The Corporation is the holder of an air carrier operating certificate issued by the Federal Aviation Administration under Part 121 of the Federal Aviation Regulations and 49 U.S. Code Section 44705 for aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo. The Corporation is an air carrier that conducts air taxi operations under an exemption issued by the Department of Transportation under authority of Part 298 of the Federal Aviation Regulations. The Corporation holds all licenses, certificates and permits from applicable governmental authorities necessary for the conduct of its business as an air carrier and the performance of its obligations under the Lessee Documents. 5. There are no suits or proceedings, pending or threatened, against the Corporation before any executive, legislative, judicial, administrative or regulatory body which, if adversely determined, might, individually or in the aggregate, have a material adverse effect on the financial condition or business of the Corporation or its ability to perform its obligations under the Lessee Documents. 6. Neither the Corporation nor any of its properties or assets has the right of immunity from suit or execution on the grounds of sovereignty. 7. The Corporation is organized under the laws of the State of New York. The president and at least two-thirds of the board of directors and other managing officers of the Corporation are individuals who are citizens of the United States. At least 75% of the voting EXHIBIT A-1 PAGE 2 interest in the Corporation is owned or controlled, directly or indirectly, by individuals who are citizens of the United States. The opinions expressed herein are qualified in their entirety as follows: (a) no opinion is expressed with respect to laws other than the federal laws of the United States and the State of New York; and (b) to the extent that any one or more of the foregoing opinions relates to the enforceability of any agreement or instrument: (1) the opinions are subject to the effect of applicable laws or judicial decisions regarding bankruptcy, reorganization, insolvency, fraudulent transfers, moratorium and other laws affecting creditors' rights and debtors' relief generally; (2) the enforceability of the provisions of any such agreement or instrument is subject to the application of principles of equity, whether in a proceeding at law or in equity, including the exercise of discretionary powers of any tribunal before which equitable remedies may be sought (including, without limitation, specific performance and injunctive relief); and (3) the enforceability of the provisions of any such agreement or instrument in accordance with its respective terms may be limited by laws affecting the remedies which it is provides, including, but not limited to, laws and judicial decisions limiting such enforceability. This opinion is rendered solely to you for your use in connection with the transactions contemplated by the Lessee Documents, and may not be relied upon by you for any other purpose, and may not be furnished to or relied upon by any other person for any purpose, or otherwise used, circulated or quoted, without my prior written consent. This opinion is rendered as of the date hereof, and I disclaim any undertaking to advise of any changes that may hereafter be brought to my attention. Very truly yours, Arthur H. Amron General Counsel EXHIBIT A-1 PAGE 3 EXHIBIT A-2 TO THE PARTICIPATION AGREEMENT [Form of Opinion of Fulbright & Jaworski L.L.P.] __________, 2000 To Each of the Parties Listed on the Attached Schedule Re: LEASE FINANCING OF ONE EMBRAER MODEL EMB-145LR AIRCRAFT BEARING UNITED STATES REGISTRATION NUMBER N2__SK Ladies and Gentlemen: We have acted as special New York counsel for Chautauqua Airlines, Inc., a New York corporation (the "Lessee"), in connection with the Participation Agreement [N2__SK] dated as of __________, 2000, among the Lessee; Aircraft Services Corporation, as Owner Participant; and First Security Bank, National Association ("FSB"), as Owner Trustee. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth or referred to in the Participation Agreement. For purposes hereof, "Documents" shall be a collective reference to the Participation Agreement, the Lease, the Lease Supplement No. 1 and the Tax Indemnity Agreement. This opinion is furnished to you pursuant to Section 3.01(b)(xvi)(B) of the Participation Agreement. In rendering this opinion, we have examined the Documents and such other Operative Agreements as are necessary in order to give the opinions expressed herein. We have further examined and relied upon the accuracy of original, certified, conformed, photographic or telecopied copies of such records, agreements, certificates, certificates of public officials and such other documents, and have made an investigation of such laws, as we have deemed necessary and appropriate for the purpose of rendering this opinion. As to certain questions of fact material to our opinions, we have relied solely upon the accuracy of the statements, representations and warranties made in the Documents and such other Operative Agreements and we have made no independent investigation or inquiry with respect to such factual matters. Based on the foregoing and upon an examination of such questions of law as we have considered necessary or appropriate, and subject to the assumptions, exceptions, qualifications and limitations set forth below, we advise you that in our opinion: EXHIBIT A-2 PAGE 1 1. Each of the Documents constitutes a legal, valid and binding obligation of the Lessee, enforceable against the Lessee in accordance with its terms. 2. The execution and delivery by the Lessee of the Documents, the consummation by the Lessee of the transactions contemplated thereby and the compliance by the Lessee with any of the terms and provisions thereof do not contravene any applicable federal law of the United States or any applicable law of New York. 3. Except for the filings with the FAA referred to in paragraph 4 below, the execution and delivery by the Lessee of the Documents and the consummation by the Lessee of the transactions contemplated thereby do not require the consent or approval of, or the giving of notice to, or the registration, recording or filing of any document with, or the taking of any other action with respect to any authority or agency of the federal government of the United States of America or the State of New York. 4. The Lease as supplemented by Lease Supplement No. 1 thereto are in due form for filing in accordance with Subtitle VII of Title 49 of the United States Code (the "Act"). Except for the filings with the FAA referred to in the opinion dated today and addressed to you of Daugherty, Fowler, Peregrin & Haught and the filing of the Uniform Commercial Code financing statement referenced in Section 3.01(k) of the Participation Agreement, which filing we assume has been duly effected and is adequate for its intended purpose (and subject to the timely filings in the future of continuation statements with respect to such financing statement), no recording or filing in the United States of America of any of the Documents, nor any other action, is necessary or advisable in order to establish and perfect in the United States of America, the Owner Trustee's rights and interest in the Aircraft as against the Lessee or any third party. 5. The Participation Agreement, the Lease and Lease Supplement No. 1 (the "Owner Trustee Instruments") constitute legal, valid and binding obligations of FSB, to the extent any of such Owner Trustee Instruments were entered into by FSB in its individual capacity, and the Owner Trustee, or both, as the case may be, enforceable against FSB or the Owner Trustee, or both, as the case may be, in accordance with the terms of such agreements. 6. So long as at the time of entering into the Lease the Lessee is a "citizen of the United States," as defined in Section 40102 of Title 49 of the United States Code, holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to Chapter 447 of Title 49 of the United States Code for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo, the Owner Trustee, as lessor under the Lease, would be entitled to the benefits of Section 1110 of the Bankruptcy Code ("Section 1110") with respect to the Aircraft. The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations: EXHIBIT A-2 PAGE 2 A. The foregoing opinions are expressly limited to matters under and governed by the internal laws of the State of New York and applicable federal laws of the United States of America, except that we express no opinion as to the securities law of any state, including the State of New York. Our opinion in paragraph 2 above as to the contravention of certain laws, rules and regulations is based upon such examination of laws and regulations as in our judgment was necessary and appropriate for the purpose of such opinion. B. The foregoing opinions regarding the enforceability of the Documents against any of the parties thereto are subject to the following: (i) The enforceability of any of the Operative Agreements may be limited or affected by (a) bankruptcy, insolvency, reorganization, moratorium, liquidation, rearrangement, probate, conservatorship, fraudulent transfer, fraudulent conveyance and other similar laws (including court decisions) now or hereafter in effect and affecting the rights and remedies of creditors generally or providing for the relief of debtors, (b) the refusal of a particular court to grant (1) equitable remedies, including, without limiting the generality of the foregoing, specific performance and injunctive relief or (2) a particular remedy sought by the Owner Trustee under the Lease as opposed to another remedy provided for therein or another remedy available at law or in equity, but which does not in our opinion make such remedies inadequate for the practical realization of the benefits intended to be provided thereby, (c) general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and (d) the refusal of a federal court to grant jurisdiction in connection with any suit commenced relating to the Operative Agreements. (ii) In rendering the foregoing opinions, we express no opinion as to the enforceability of provisions of any of the Operative Agreements (a) purporting to waive or affect rights, claims, defenses or other benefits bestowed by law, including without limitation the right to receive notices, to the extent that any of the same cannot be waived or affected or (b) relating to indemnities to the extent prohibited by public policy or limited by federal or state securities laws or which might require indemnification for losses or expenses caused by gross negligence, willful misconduct, fraud or illegality of an indemnified party, the rights of third parties, or the exercise of rights and remedies with respect to the Aircraft other than in a commercially reasonable manner or as otherwise provided in the Uniform Commercial Code or other applicable law. EXHIBIT A-2 PAGE 3 (iii) We note that the enforceability of specific provisions of the Operative Agreements may be subject to standards of reasonableness, care and diligence and "good faith" limitations and obligations such as those provided in Sections 1-102(3) and I-203, of the Uniform Commercial Code and similar applicable principles of common law and judicial decisions. (iv) We express no opinion with respect to compliance with the anti-fraud provisions of applicable federal rules or regulations. C. We have assumed the due authorization, execution and delivery of the Operative Agreements by each of the parties thereto (including the Lessee) and that each of such parties has the full power, authority and legal right to execute, deliver and perform such documents. D. Except to the extent expressly set forth in paragraphs 1 and 5, we have assumed that each of the Operative Agreements is enforceable against each of the parties thereto. E. With respect to the opinion given in paragraph 5, our opinion is subject to limitations of Utah law applicable to FSB and the Owner Trustee, as to which we express no opinion. F. We have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies, which facts we have not verified independently. G. We express no opinion as to whether the Lease constitutes a "true lease." H. We have assumed that the Operative Agreements and the transactions contemplated thereby are not within the prohibitions of Section 406 of the Employee Retirement Income Security Act of 1974. I. With respect to the opinion given in paragraph 6, we express no opinion as to the availability of the benefits of Section 1110 of the Bankruptcy Code to any Replacement Aircraft or Replacement Engine. J. In giving the foregoing opinion, we have relied upon the opinions delivered to you today of Daugherty, Fowler, Peregrin & Haught with respect to the matters set forth therein. Our opinion is suitable to all applicable qualifications and exceptions set forth in such opinion. The opinions expressed herein are solely for the benefit of, and may only be relied upon by, the named addressees in connection with the transactions contemplated by the Participation Agreement. This opinion may not be furnished or relied upon by any other person without the prior written consent of this Firm. We make no undertaking to amend or supplement such opinions as EXHIBIT A-2 PAGE 4 facts and circumstances come to our attention or changes in the law occur which could affect such opinions. Very truly yours, EXHIBIT A-2 PAGE 5 SCHEDULE OF ADDRESSEES Aircraft Services Corporation First Security Bank, National Association, individually and as Owner Trustee EXHIBIT A-2 PAGE 6 EXHIBIT A-3 TO THE PARTICIPATION AGREEMENT [Form of Opinion of Ray, Quinney & Nebeker] February __, 2001 TO EACH OF THE PARTIES SET FORTH IN SCHEDULE A HERETO: Re: Trust Agreement [N281SK] dated as of February __, 2001 Dear Sir or Madam: We have acted as special counsel for First Security Bank, National Association, a national banking association, in its individual capacity ("First Security") and in its capacity as trustee (the "Owner Trustee") under Trust Agreement [N281SK] dated as of February__, 2001 (the "Trust Agreement") between it and General Electric Capital Corporation, a New York corporation, as owner participant (the "Owner Participant"), in connection with the execution and delivery by First Security of the Trust Agreement and by the Owner Trustee of the Operative Agreements to which it is a party. Except as otherwise defined herein, the terms used herein shall have the meanings set forth in Appendix A to the Participation Agreement dated as of February __, 2001 (the "Participation Agreement") between the Owner Trustee, the Owner Participant and Chautauqua Airlines, Inc., as Lessee. We have examined originals or copies, certified or otherwise Identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion. Based upon the foregoing, we are of the opinion that: 1. First Security is a national banking association duly organized, validly existing and in good standing under the laws of the United States, is a "citizen of the United States" within the meaning of Section 40102(a)(15) of Title 49 of the United States Code and has under the laws of the state of Utah and federal banking law the power and authority to enter into and perform its obligations under the Trust Agreement and, acting as Owner Trustee thereunder, the Operative Agreements to which it is a party. 2. The Trust Agreement has been duly authorized, executed and delivered by one of the officers of first Security and, assuming due authorization, execution and delivery by the Owner Participant, is the legal, valid and blinding of First Security, enforceable against First Security in accordance with its terms. 3. The Operative Agreements to which the Owner Trustee is a party have been duly authorized, executed and delivered by the Owner Trustee, acting pursuant to the Trust Agreement, and assuming due authorization, execution and delivery by the other parties thereto, are legal, valid and binding obligations of the Owner Trustee enforceable against the Owner Trustee in accordance with their respective terms. 4. The execution and delivery by First Security of the Trust Agreement and by the Owner Trustee of the Operative Agreements to which it is a party are not, and the performance by First Security or the Owner Trustee, as the case be, of its obligations under each will not be, inconsistent with the articles of association or by-laws of First Security, do not and will not contravene any Utah or federal banking law, governmental rule of regulation or any judgment or order of which we have knowledge and which is applicable to First security or the Owner Trustee, as the case may be, and do not and will not contravene any provision of, or constitute a default under, or result in the creation of any Lien upon the property of Owner Trustee pursuant to its charter documents or by-laws or any indenture, mortgage, contract or other instrument to which First Security or the Owner Trustee, as the case may be, is a party or by which either is bound or require the consent or approval of or the giving of notice to, or the registration with, or the taking of any action in respect of, or under, any federal banking law or the laws of the State of Utah or any subdivision or agency thereof governing its banking or trust powers, other than any such consent, approval, notice, registration or action as has been duly obtained, given or taken and is in full force and effect. 5. There are no applicable taxes, fees or other charges, except taxes imposed on fees payable to the Owner Trustee, required to be paid under the laws of Salt Lake City or the State of Utah in connection with the execution, delivery or performance of the Trust Agreement and the Operative Agreements to which the Owner Trustee or First Security is a party solely because the Owner Trustee or First Security, as the case may be, has its principle place of business in the State of Utah and performs certain of its obligations under the Trust Agreement and the Operative Agreements to which it is a party in Salt Lake City or the State of Utah. Neither the Owner Trustee nor the trust created under the Trust Agreement will be subject to any tax, fee, or other charges under the laws of the State of Utah or any political subdivisions thereof on, based on or measured by, directly or indirectly, the gross receipts, net income or value of the Trust Estate. 6. To our knowledge, there are no proceedings pending or threatened against or affecting First Security or the Owner Trustee, as the case may be, in any court or before any governmental authority, agency or arbitration board or tribunal which, if adversely determined, individually or in the aggregate, would materially and adversely affect the right, power and authority of First Security or the Owner Trustee to enter into or perform its obligations under the Operative Agreements to which it is a party. The foregoing opinions are subject to the following assumptions, exceptions and qualifications: A. The foregoing opinions are limited to the laws of the State of Utah and the federal laws of the United States of America governing the banking and trust powers of First Security. In addition, without limiting the foregoing, we express no opinion with respect to (i) federal securities laws, including the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Trust Indenture Act of 1939, as amended, (ii) Title 49 of the United States Code Annotated, previously known as the Federal Aviation Act of 1958, as amended [except with respect to the opinion set forth in paragraph 1 above concerning the citizenship of First Security], (iii) the Federal Communications Act of 1934, as amended, or (iv) state securities or blue sky laws. Insofar as the foregoing opinions relate to the legality, validity, binding effect and enforceability of the documents involved in these transactions, which by their terms are governed by the laws of a state other than Utah, we have assumed that such documents constitute legal, valid, binding and enforceable agreements under the laws of such other state, as to which we express no opinion. B. The foregoing opinions regarding enforceability of any document or instrument are subject to (i) applicable bankruptcy, insolvency, moratorium, reorganization, receivership and similar laws affecting the rights and remedies of creditors generally, and (ii) general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. C. The opinion set forth in paragraph 1 above concerning the citizenship of First Security is based upon the facts contained in an affidavit of First Security, made by its authorized officer, which facts we have not independently verified. D. We have assumed that all signatures, other than those of the Owner Trustee or First Security, on documents and instruments involved in these transactions are genuine, that all documents and instruments submitted to us as originals are authentic, and that all documents and instruments submitted to us as copies conform with the originals, which facts we have not independently verified. E. Other than the opinion set forth in paragraph 1 above concerning the citizenship of First Security, we do not purport to be experts in respect of, or express any opinion concerning laws, rules or regulations applicable to the particular nature of the equipment involved in these transactions. F. We have made no investigation of, and we express no opinion concerning, the nature of the title to any part of the equipment involved in these transactions or the priority of any mortgage or security interest. G. In addition to any other limitation by operation of law upon the scope, meaning, or purpose of this opinion, this opinion speaks only as of the date hereof. We have no obligation to advise the recipients of this opinion (or any third party) of changes of law or fact that may occur after the date hereof, even though the change may affect the legal analysis, a legal conclusion or an information confirmation herein. H. The opinions expressed in this letter are solely for the use of the parties to which it is addressed (and their permitted successors and assigns) in matters directly related to the Operative Agreements and the transactions contemplated thereunder and these opinions may not be rolled on by any other persons or for any other purpose without our prior written approval. The opinions expressed in this letter are limited to the matter set forth in this letter, and no other opinions should be inferred beyond the matters expressly stated. Very truly yours, RAY, QUINNEY & NEBEKER SCHEDULE A First Security Bank, National Association General Electric Capital Corporation Chautauqua Airlines, Inc. EXHIBIT A-4 TO THE PARTICIPATION AGREEMENT [Form of Opinion of Daugherty, Fowler, Peregrin & Haught, a Professional Corporation] February 23, 2001 To the Parties Named on Schedule A attached hereto Ladies and Gentlemen: We acted as special counsel in connection with the transactions contemplated by the hereinafter described instruments and this opinion is furnished to you with respect to that portion of Subtitle VII of Title 49 of the United States Code relative to the recordation of instruments and the registration of aircraft thereunder. Capitalized terms not otherwise defined herein shall have the meanings given them in Annex I attached hereto. We have examined and filed on this date with the Federal Aviation Administration (the "FAA") the following described instruments at the respective times listed below: (a) AC Form 8050-2 Aircraft Bill of Sale dated February 23, 2001 (the "FAA Bill of Sale") from Solitair Corp., as seller, conveying title to the Airframe to First Security Bank, National Association, as owner trustee under the Trust Agreement (the "Owner Trustee"), which FAA Bill of Sale was filed at 11:28 a.m., C.S.T., (b) AC Form 8050-1 Aircraft Registration Application dated February 23, 2001 (the "Aircraft Registration Application") by the Owner Trustee as applicant, To the Parties Named on Schedule A attached hereto February 23, 2001 Page 2 with respect to the Airframe, which Aircraft Registration Application was filed at 11:28 a.m., C.S.T.; (c) Affidavit or Citizenship dated February 23, 2001 (the "Owner Trustee Affidavit") by the Owner Trustee pursuant to Section 47.7(c)(2)(ii) of the Federal Aviation Regulations with Affidavit of Citizenship dated February 16, 2001 (the "Owner ,Participant Affidavit") by General Electric Capital Corporation, as owner participant (the "Owner Participant"), attached thereto, which Owner Trustee Affidavit with the Owner Participant Affidavit attached was filed at 11:28 a.m., C.S.T.; (d) Trust Agreement [N281SK] dated as of February 23, 2001 (the "Trust Agreement") between the Owner Participant and the Owner Trustee, which Trust Agreement was filed at 11:28 a.m., C.S.T., and, (e) Lease Agreement [N281SK] dated as of February 23, 2001 (the "Lease") between the Owner Trustee, as lessor, and Chautauqua Airlines, Inc., as lessee (the "Lessee"), with Lease Supplement No.1 [N281SK] dated February 23, 2001 (the "Lease Supplement") by the Owner Trustee, as lessor, and the Lessee, with respect to the Aircraft, attached thereto, which Lease with the Lease Supplement attached was filed at 11:29 a.m., C.S.T. The Confidential Omissions were intentionally omitted from the FAA filing counterpart of the Lease, as supplemented by the Lease Supplement, as containing confidential financial information. Based upon our examination of the above described instruments and of such records of the FAA as we deemed necessary to render this opinion, it is our opinion that: 1. the FAA Bill of Sale, the Lease and the Lease Supplement are in due form for recordation by and have been duly filed for recordation with the FAA pursuant to and in accordance with the provisions of 49 U.S.C. Section 44107; To the Parties Named on Schedule A attached hereto February 23, 2001 Page 3 2. the Aircraft Registration Application, the Owner Trustee Affidavit with the Owner Participant Affidavit attached and the Trust Agreement are in due form for filing and have been duly filed with the FAA pursuant to and in accordance with the provisions of 49 U.S.C. Section 44103(a) and Section 47.7(c) of the Federal Aviation Regulations; 3. the Airframe is eligible for registration under 49 U.S.C. Section 44102 in the name of the Owner Trustee and the filing with the FAA of the FAA Bill of Sale, the Aircraft Registration Application, the Owner Trustee Affidavit with the Owner Participant Affidavit attached and the Trust Agreement will cause the FAA to register the Airframe, in due course, in the name of the Owner Trustee and to issue to the Owner Trustee an AC Form 8050-3 Certificate of Aircraft Registration for the Airframe pursuant to and in accordance with the provisions of 49 U.S.C. Section 44103(a); 4. the Owner Trustee holds legal title to the Airframe and the Aircraft is free and clear of liens and encumbrances of record except as created by the Lease, as supplemented by the Lease Supplement; 5. the rights of the Owner Trustee, as lessor, and the Lessee under the Lease, as supplemented by the Lease Supplement, with respect to the Aircraft, are perfected; and, 6. no authorization, approval, consent, license or order of, or registration with, or the giving of notice to, the FAA is required for the valid authorization, delivery and performance of the Lease, as supplemented by the Lease Supplement, or the Trust Agreement, except for such filings as are referred to above. No opinion is expressed as to the Airframe during any period or periods of time during which it has not been subject to United States registration. No opinion is expressed as to laws other than Federal laws of the United States. To the Parties Named on Schedule A attached hereto February 23, 2001 Page 4 In rendering this opinion, we were subject to the accuracy of the FAA, its employees and agents, in the filing, indexing and recording of instruments filed with the FAA and in the search for encumbrance cross-reference index cards for the Engines. Further, in rendering this opinion we are assuming the validity and enforceability of the above described instruments under local law. Since our examination was limited to records maintained by the FAA, our opinion does not cover liens which are perfected without the filing of notice thereof with the FAA, such as federal tax liens, liens arising under 29 U.S.C. Section 1368(a), possessory artisan's liens, or matters of which the parties have actual notice. In rendering this opinion we are assuming that there are no documents with respect to the Aircraft which have been filed for recording under the recording system of the FAA but have not yet been listed in the available records of such system as having been so filed. In rendering this opinion we have relied upon the opinion of the Aeronautical Center Counsel dated February 21, 2001, a copy of which is attached hereto. In rendering this opinion with respect to the eligibility of the Lease, as supplemented by the Lease Supplement, for recordation with the Confidential Omissions, we have relied upon the opinion of John A. Cassady, Deputy Chief Counsel of the FAA issued September 16, 1994 (Federal Register/Volume 59, Number 182/September 21, 1994). Very truly yours, [ILLEGIBLE] Annex I CERTAIN DEFINITIONS AIRFRAME, ENGINES AND AIRCRAFT One (1) Embraer EMB-145LR aircraft bearing manufacturer's serial number 145391 and U.S. Registration No. N281SK (the "Airframe") and two (2) Allison AE3007A1P aircraft engines bearing manufacturer's serial numbers CAE311697 and CAE311698 (the "Engines") (the Airframe and the Engines are referred to collectively as the "Aircraft"). CONFIDENTIAL OMISSIONS The Lease, as supplemented by the Lease Supplement, was filed with the Federal Aviation Administration with (i) Exhibit B (Certain Economic Information); (ii) Exhibit C-1 (Basic Rent Payment Schedule); (iii) Exhibit C-2 (Basic Rent Allocation Schedule); (iv) Exhibit D (Termination Values); (v) Exhibit F-1 (Return Conditions); and, (vi) Exhibit F-2 (Return Conditions) Intentionally omitted from FAA filing counterpart thereof as containing confidential financial information. SCHEDULE A First Security Bank, National Association, as Owner Trustee General Electric Capital Corporation Chautauqua Airlines, Inc. [LETTERHEAD OF U.S. DEPARTMENT OF TRANSPORTATION] February 21, 2001 Susan H. Haught, Esq. Daugherty, Fowler, Peregrin & Haught 204 North Robinson 900 City Place Oklahoma City, OK 73102 Dear Ms. Haught, Re: Aircraft N280SK & N281SK As requested in your letter of February 16, 2001, this office has reviewed the forms of the Trust Agreement and Affidavits submitted to support registration of the above referenced Aircraft in the name of the Owner Trustee pursuant to 14 C.F.R. Section 47.7(c). You have requested our opinion as to whether: 1) The referenced Aircraft are eligible for registration under 49 U.S.C. 44102 in the name of the Owner Trustee upon the filing of the above described instruments, along with appropriate evidence of ownership and an Aircraft Registration Application form, 2) The form of the Trust Agreement satisfies the requirements of Section 47.7(c)(2)(i) of the Federal Aviation Regulations (FAR) (14 C.F.R. 47.7(c)(2)(i)), and 3) The form of the Affidavit of Citizenship of the Owner Trustee, as supported by the form of the Affidavit of Citizenship of the Owner Participant, satisfies the requirements of Section 47.7(c)(2)(ii) of the FAR (14 C.F.R. 47.7(c)(2)(ii). Based on our review of the documents described above it is our opinion that: 1) The referenced Aircraft are eligible for registration in the name of First Security Bank, National Association, as Owner Trustee, provided there is sufficient evidence of ownership, 2) The form of the Trust Agreement meets the requirements of Section 47.7(c)(2)(i) of the FAR, and 3) The form of the Affidavit of Citizenship of the Owner Trustee, as supported by the form of the Affidavit of the Owner Participant, meets the requirements of Section 47.7(c)(2)(ii) of the FAR. As reflected in the Trust Agreement, the Owner Participant, Aircraft Services Corporation, a Nevada Corporation, empowers the Owner Trustee, First Security Bank, N.A., to hold the Trust Estate for the use and benefit of the Owner Participant, and to make application for registration. (Reference Sections 2.02 and 3.01(v) of the Trust Agreement) Based on our review, it appears that the form of the Trust Agreement meets the requirements of 14 C.F.R. 47.7(c)(2)(i) and the form of the Owner Trustee's Affidavit of Citizenship, as supported by the form of the Affidavit of Citizenship of the Owner Participant, meets the requirements of 14 C.F.R. 47.7(c)(2)(ii), and we so determine. Your submission of these documents, in duly executed versions, will support registration in the name of First Security Bank, N.A., as Owner Trustee, provided there is suitable evidence of ownership. Sincerely, Joseph R. Standell Aeronautical Center Counsel By: /s/ James M. Webster James M. Webster General Attorney EXHIBIT A-5 TO THE PARTICIPATION AGREEMENT [FORM OF OPINION OF HOLLAND & KNIGHT] February __, 2001 To Each of the Addressees Listed in Schedule A Attached Hereto Re: CHAUTAUQUA AIRLINES, INC./ GENERAL ELECTRIC CAPITAL CORPORATION - PARTICIPATION AGREEMENT [N281SK] Ladies and Gentleman: We have acted as special counsel to General Electric Capital Corporation, a New York corporation ("GECC"), in connection with the transactions contemplated by the Participation Agreement [N281SK], dated as of February __, 2001 (the "PARTICIPATION AGREEMENT"), among (a) Chautauqua Airlines, Inc., (b) GECC, and (c) First Security Bank, National Association, not in its individual capacity but solely as Owner Trustee. This opinion letter is delivered to you pursuant to Section 3.01(b)(xvi)(G) of the Participation Agreement. All capitalized terms used but not defined herein shall have the respective meanings given to such terms in the Participation Agreement. In rendering the opinions expressed below, we have examined the agreements and other documents set forth in EXHIBIT A hereto. The documents described in EXHIBIT A are hereinafter referred to herein as the "OPINION DOCUMENTS." In our examination, we have assumed, with your permission and without independent investigation: (i) the genuineness of all signatures; (ii) the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies and the authenticity of the originals of such copies; (iii) the due organization, valid existence and good standing of each party to the Opinion Documents and the due authorization, execution and delivery of each Opinion Document by each party thereto; (iv) the full power, authority and legal right of each party to the Opinion Documents to enter into the same; (v) that each Opinion Document is the legal, valid and binding obligation of each party thereto (except To Each of the Addressees Listed in Schedule A Attached Hereto Page 2 GECC), enforceable against each such party in accordance with its terms; (vi) that the parties have obtained and will obtain all necessary permits and other approvals for conducting their respective businesses and operations; (vii) the absence of evidence extrinsic to the provisions of the written agreements between the parties that the parties intended a meaning contrary to that expressed by those provisions; however, none of the attorneys in this firm who has rendered legal services in connection with the representation described in the first paragraph of this opinion letter has any current actual knowledge of any such evidence; and (viii) the identity and capacity of all individuals acting or purporting to act as public officials or corporate officers. We have without independent investigation relied upon and assumed the truth and accuracy of each of the representations and warranties in the Opinion Documents as to factual matters contained in or made pursuant to the Opinion Documents and certificates delivered thereunder. We have not undertaken any independent investigation to determine the accuracy of any factual statement therein, and no inference that we have any knowledge of any matters pertaining to any such statement should be drawn from our representation of GECC. In rendering the following opinions, we have relied, without making any independent investigation with respect thereto, upon the opinion of Ray Warman, acting as counsel for General Electric Capital Corporation, delivered to you on the date hereof, as to the matters addressed therein. Based upon and subject to the foregoing and subject also to the comments, assumptions, qualifications and exceptions set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that: Each of the Opinion Documents constitutes the legal, valid and binding obligation of GECC, enforceable against GECC in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights and remedies of creditors generally and public policy considerations (in the case of the indemnity provisions contained therein), and subject to general principles of equity (regardless of whether considered in a proceeding in equity or at law). We are qualified to practice law in the State of New York and we express no opinion on the laws of any jurisdiction other than the federal laws of the United States and the laws of the State of New York. We express no opinion as to (i) any state or federal securities laws, (ii) any state of federal tax laws, (iii) matters governed by Title 49 of the United States Code or by any other aviation law or law, statute, rule or regulation of the United States of America relating to the acquisition, ownership, leasing, registration, use, operation, maintenance, repair, replacement, sale of or the particular nature of the Aircraft, (iv) the applicability of the laws of any jurisdiction that may limit the maximum rate or amount of interest that may be To Each of the Addressees Listed in Schedule A Attached Hereto Page 3 charged, taken, collected or received with respect to the obligations under the Participation Agreement or any other Opinion Document, or as to the effect of such laws if applicable, (v) any waiver of inconvenient forum provision in any Opinion Document, (vi) the creation, perfection or priority of any lien or security interest contemplated by the Opinion Documents or (vii) any choice of law provisions in any Opinion Document. This opinion speaks only as of the date hereof and we do not undertake any obligation to advise you of any changes in law or fact that occur after the date hereof. This opinion is limited to the matters expressly stated herein and no opinion or other statement may be inferred or implied beyond the matters expressly stated herein. At the request of our client, this opinion letter is provided to you solely for your benefit by us in our capacity as special counsel to GECC in connection with the transactions contemplated under the Participation Agreement. This opinion letter may not be relied upon by you for any other purpose or relied upon, quoted or referred to, nor may copies be delivered to, any other Person without, in each instance, or prior written consent. Very truly yours, HOLLAND & KNIGHT LLP SCHEDULE A LIST OF ADDRESSEES Chautauqua Airlines, Inc., as Lessee 2500 S. High School Road Indianapolis, Indiana 46241 First Security Bank, National Association, as Owner Trustee 79 South Main Street Salt Lake City, Utah 84111 Solitair Corp. 411 West Putnam Avenue Greenwich, Connecticut 06830 A-1 EXHIBIT A LIST OF OPINION DOCUMENTS 1. Aircraft Purchase Agreement [N281SK]; 2. Participation Agreement [N281SK]; 3. Trust Agreement [N281SK]; 4. Tax Indemnity Agreement [N281SK]. A-1 EXHIBIT A-6 TO THE PARTICIPATION AGREEMENT [Form of Opinion of General Counsel to the Owner Participant] February ___, 2000 To Each of the Addressees Listed in Schedule A Attached Hereto Re: CHAUTAUQUA AIRLINES, INC./ GENERAL ELECTRIC CAPITAL CORPORATION - PARTICIPATION AGREEMENT [N281SK] Ladies and Gentleman: I am Senior Vice President and Associate General Counsel of GE Capital Aviation Services, Inc., a wholly-owned subsidiary of General Electric Capital Corporation, a New York corporation ("GECC"), and have acted as internal counsel to GECC in connection with the transactions contemplated by that certain Participation Agreement [N281SK], dated as of February ___, 2000 (the "PARTICIPATION AGREEMENT"), among Chautauqua Airlines, Inc. ("CA"). GECC and First Security Bank, National Association, not in its individual capacity, but solely as Owner Trustee. All capitalized terms used but not defined herein shall have the respective meanings given to such terms in the Participation Agreement. This opinion is being delivered pursuant to Section 3.01(b)(xvi)(H) of the Participation Agreement. In connection with my opinion herein, I have examined the Aircraft Purchase Agreement, the Participation Agreement [N281SK], the Trust Agreement [N281SK] and the Tax Indemnity Agreement [N281SK] ("OPINION DOCUMENTS"). I have also examined originals, or copies certified to my satisfaction, of such other agreements, documents, certificates and statements of government officials and corporate officers as I have deemed necessary or advisable as a basis for such opinion. In such examination I have assumed the genuineness of all signatures (other than those of GECC), the authenticity of all documents submitted to me as originals and the conformity with the originals of all documents submitted to me as copies. I have, when relevant facts were not independently established by me, relied, to the extent I deemed such reliance proper, upon certificates of public officials and certificates and other written or telephone statements of officers of the parties referred to herein. I also have examined and relied as to certain factual matters upon the representations and warranties contained in or made pursuant to the Opinion Documents. Based upon and subject to the foregoing, it is my opinion that: 1. The Owner Participant is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York, and has the To Each of the Addressees Listed in Schedule A Attached Hereto corporate power and authority to execute and deliver and to perform its obligations under the Opinion Documents. 2. Each of the Opinion Documents has been duly authorized, executed and delivered by the Owner Participant. 3. Neither the execution and delivery by the Owner Participant of the Opinion Documents nor the performance by the Owner Participant of its obligations under the Opinion Documents, (i) requires for its validity the consent or approval of, the giving notice to, the registration with, or the taking of any other action with respect to, any governmental authority or agency of the United States of America or the State of New York; (ii) contravenes any law or governmental rule or regulation of the United States of America or the State of New York, or, to the best of my knowledge, any judgment or other applicable to or binding on the Owner Participant; or (iii) contravenes, results in any breach of or constitutes any default under, any provision of the Owner Participant's certificate of incorporation or its amended and restated by-laws. 4. To my knowledge, there are no pending or overtly threatening actions or proceedings against the Owner Participant before any court or administrative agency or arbitrator which, if adversely determined, would materially and adversely affect the Owner Participant's ability to perform its obligations under any of the Opinion Documents. I am qualified to practice law in the State of New York and do not purport to be expert in, or to render any opinion herein concerning, the laws of any jurisdiction other than the laws of the State of New York and the federal laws of the United States of America. My opinion is rendered only with respect to the laws, and the rules, regulations and orders thereunder, that are currently in effect. No opinion is expressed herein as to matters governed by (i) any federal or state securities laws, (ii) ERISA or any federal or state tax laws, (iii) any federal or state antitrust laws or the effect thereof or (iv) any laws, statutes, rules or regulations relating to the acquisition, ownership, title, registration, leasing, use or sale of aircraft. This opinion is furnished by me at the request of GECC for your sole benefit, and I agree that you may rely on the opinion expressed herein. No other Person shall be entitled to rely on this opinion without my express written consent. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. This opinion speaks of its date only. I hereby disclaim any and all undertakings and obligations of any kind whatsoever to advise you of any changes that hereafter may be brought to my attention. This opinion letter is provided subject to the following conditions: (1) nothing contained herein shall create any obligation of or right to look to me individually for any claim, liability, damage, loss or expense whatsoever whether arising in contract, in tort (including 2 To Each of the Addressees Listed in Schedule A Attached Hereto negligence and strict liability), or otherwise in connection with this opinion letter or with the Agreements or otherwise in connection with the transactions contemplated hereby or thereby and 2) no judgment, order or execution entered in any suit, action or proceeding, whether legal or equitable, with respect to any such matters shall be taken against me. Very truly yours, 3 SCHEDULE A LIST OF ADDRESSEES Chautauqua Airlines, Inc., as Lessee 2500 S. High School Road Indianapolis, Indiana 46241 First Security Bank, as Owner Trustee 79 South Main Street Salt Lake City, Utah 84111 Solitair Corp. 411 West Putnam Avenue Greenwich, Connecticut 06830 A-1 EXHIBIT B-1 TO THE PARTICIPATION AGREEMENT [Form of Assignment and Assumption Agreement] THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of _______, _______ between [____________] (the "TRANSFEREE") and __________________________ (the "TRANSFEROR"). W I T N E S S E T H: WHEREAS, the Transferor is a party to a Participation Agreement [N2__SK], dated as of June _____, 2000 among Chautauqua Airlines Incorporated, as Lessee, First Security Bank, National Association, not in its individual capacity (except as otherwise expressly provided therein) but solely as Owner Trustee and the Transferor, as Owner Participant (as the same may be from time to time amended, the "PARTICIPATION AGREEMENT") and certain other Transaction Documents (as defined herein); WHEREAS, the Transferor desires to sell and assign to the Transferee all of its right, title and interest in, to and under the Trust Agreement (as defined in the Participation Agreement) (except as reserved below), and the Transferee desires to (i) purchase and accept from the Transferor the assignment of all of the Transferor's right, title and interest in, to and under the Trust Agreement (except as reserved below) and (ii) assume the Assumed Obligations (as defined herein); and WHEREAS, capitalized terms used herein without definition and which are defined in the Participation Agreement are used herein with the respective meanings given such terms in the Participation Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties agree as follows: 1. ASSIGNMENT. Effective as of the date hereof (the "TRANSFER DATE"), the Transferor hereby irrevocably sells, assigns, transfers, conveys and sets over to the Transferee all its right, title and interest in, to and under the Trust Estate, the Participation Agreement, the Trust Agreement, the Tax Indemnity Agreement and all other Operative Agreements (as defined in the Participation Agreement), agreements, contracts, documents and instruments executed and delivered at any time prior to the execution and delivery of this Agreement in connection with any of the foregoing (the "TRANSACTION DOCUMENTS"), and any proceeds therefrom, except such rights of the Transferor as have arisen or accrued prior to the Transfer Date (such excepted rights to include, EXHIBIT B-1 - PAGE 1 without limitation, the right to receive any amounts due or accrued to the Transferor under any Transaction Document as of a date prior to the Transfer Date and the right to enforce any terms under the Participation Agreement or the Tax Indemnity Agreement with respect to acts or events occurring prior to the Transfer Date). 2. ASSUMPTION. The Transferee hereby assumes all of the obligations, liabilities and duties of the Transferor arising from and after the Transfer Date under each Transaction Document (the "ASSUMED OBLIGATIONS") and confirms that from and after the Transfer Date it shall be deemed a party to each Transaction Document to which the Transferor is a party and shall be bound by all the terms thereof (including the agreements and obligations of the Transferor set forth therein) as if it were named as the Transferor therein. 3. FURTHER ASSURANCES. Each party hereto shall, at any time and from time to time, upon the request of the other party hereto, promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the other party may reasonably request to obtain the full benefits of this Agreement and of the rights and powers herein granted. 4. REPRESENTATIONS AND WARRANTIES. The Transferee hereby represents and warrants to the other parties hereto that: (a) ORGANIZATION AUTHORITY. The Transferee (i) is a ______ duly organized, validly existing and in good standing under the laws of _____________ and (ii) has the full [corporate] power and authority to conduct its business as presently conducted, to own or hold under lease its properties and to execute, deliver and perform this Agreement and to perform the Assumed Obligations. (b) DUE AUTHORIZATION. The execution, delivery and performance of this Agreement and performance of the Assumed Obligations have been duly authorized by all necessary corporate action on the part of the Transferee. (c) CONFLICT. The execution, delivery and performance by the Transferee of this Agreement and the performance of the Assumed Obligations and the consummation or performance by the Transferee of the transactions contemplated thereby will not conflict with or result in any violation of, constitute a default under, or result in the creation of any Lien upon any property of the Transferee under, any term of the Certificate of Incorporation or By-laws of the Transferee or any agreement, mortgage, contract, indenture, lease or other instrument, or any Applicable Law, by which the Transferee or its properties or assets are bound, except for any such violation, conflict or default which would not have a material adverse effect on the Transferee or its ability to perform the Assumed obligations. EXHIBIT B-1 - PAGE 2 2 (d) GOVERNMENT CONSENTS. Neither the execution or delivery of this Agreement and the performance of the Assumed Obligations nor the consummation of any of the transactions contemplated hereby or thereby by the Transferee requires the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of any United States federal, state or other governmental authority or agency, including any judicial body, that would be required to be taken or obtained by the Transferee. (e) LEGAL, VALID AND BINDING OBLIGATIONS. The Assumed Obligations and this Agreement constitute the legal, valid and binding obligations of the Transferee enforceable against the Transferee in accordance with their respective terms except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the rights of creditors generally and by general principles of equity, regardless of whether enforcement is pursuant to a proceeding in equity or at law. (f) LITIGATION. There are no pending or, to the knowledge of the Transferee, threatened actions or proceedings against the Transferee by or before any court or administrative agency or arbitrator that, either individually or in the aggregate, are reasonably likely to materially adversely affect the ability of the Transferee to perform its obligations under this Assumption Agreement or the Assumed Obligations. (g) SECURITIES REPRESENTATION. The Transferee is acquiring its interest in the Trust Estate for investment and not with a view to any resale or distribution thereof, but subject, nevertheless, to any requirement of law that the disposition of its property remain within its control at all times, and that neither it nor anyone authorized by it to act on its behalf has directly or indirectly offered any interest in the Trust Estate, or any similar security for sale to, or solicited any offer to acquire any of the same from, anyone. (h) LESSOR'S LIENS. Upon the execution of this Assumption Agreement, there will be no Lessor's Lien attributable to the Transferee on the Trust Estate. (i) ERISA. No part of the funds to be used by the Transferee to acquire the interests to be acquired by it hereunder constitutes assets (within the meaning of ERISA and any rules and regulations thereunder) of any ERISA plan. (j) PERMITTED TRANSFEREE. The Transferee is a bank, savings institution, finance company, leasing company or trust company, national banking association acting for its own account or in a fiduciary capacity as trustee or agent under any pension, retirement, profit sharing or similar trust or fund, insurance company, financial institution, fraternal benefit society or a corporation acting for its own account having [a combined capital and surplus] [consolidated net worth or its EXHIBIT B-1 - PAGE 3 3 equivalent] of not less than $50,000,000].(1) [The Transferee is a Citizen of the United States.](2) [The Transferee is not an airline or other aircraft operator or competitor of Lessee in the business of air transportation or an Affiliate of any thereof.](3) Notwithstanding the foregoing or anything else contained in this Agreement, the Transferee makes no representation or warranty in this Agreement with respect to laws, rules or regulations relating to aviation or to the nature or use of the equipment owned by the Owner Trustee, including, without limitation, the airworthiness, value, condition, workmanship, design, patent or trademark infringement, operation, merchantability or fitness for use of the Aircraft[, other than as set forth in the second sentence of Section 4(j) hereof](4). 5. RELIANCE. The representations, warranties, covenants and agreements of the Transferee are made for the benefit of, and may be relied upon by, the Owner Trustee, Lessee and Transferor (collectively, the "BENEFICIARIES"), and each of the Beneficiaries shall be deemed to be an express third party beneficiary with respect thereto, entitled to enforce directly and in its own name any rights or claims it may have against such Transferee as such beneficiary. 6. PAYMENTS. Transferor hereby covenants and agrees to pay over to Transferee, if and when received on or following the Transfer Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Transferor that, under Section 2 hereof, belong to Transferee, and Transferee hereby covenants and agrees to pay over to Transferor, if and when received on or following the Transfer Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Transferee that, under Section 2 hereof, belong to Transferor. 7. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts (or upon separate signature pages), all of which together shall constitute but one and the same instrument. - ---------- (1) If a guaranty is being provided pursuant to Section 5.01(c) of the Participation Agreement, replace "The Transferee" at the beginning of this sentence with the name of the guarantor. (2) Include if required pursuant to Section 5.01(c) of the Participation Agreement. (3) Include unless consented to by Lessee as contemplated in the first proviso in the second sentence of Section 5.01(c) of the Participation Agreement or unless the Transferee satisfies clause (i), (ii) or (iii) of such first proviso. (4) Include if a citizenship representation is required pursuant to Section 5.01(c) of the Participation Agreement. EXHIBIT B-1 - PAGE 4 4 8. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered on the date first above written. [ ] ------------------------------ Transferee By: ----------------------------- Name: Title: [ ] ------------------------------ Transferor By: ----------------------------- Name: Title: EXHIBIT B-1 - PAGE 5 5 EXHIBIT B-2 TO THE PARTICIPATION AGREEMENT FORM OF GUARANTY AGREEMENT [DATE] Re: CHAUTAUQUA AIRLINES INCORPORATED - ONE EMBRAER MODEL ERJ-145LR AIRCRAFT BEARING REGISTRATION NO. [N2____SK]. Ladies and Gentlemen: Reference is made to that certain Assignment and Assumption Agreement dated as of ______________ (the "ASSIGNMENT AGREEMENT") by and between _______________ ("ASSIGNOR") and _____________ ("ASSIGNEE"). Assignee is a direct or indirect subsidiary of the undersigned, _____________, a ________ ("GUARANTOR"). Except as otherwise noted herein, all capitalized terms used herein shall have the respective defined meanings set forth in that certain Participation Agreement [N2___SK] (the "PARTICIPATION AGREEMENT"), dated as of June __, 2000 among (a) Chautauqua Airlines Incorporated, a _________ corporation ("LESSEE"); (b) the Assignor ("OWNER PARTICIPANT"); (c) First Security Bank, National Association, a national banking association, not in its individual capacity, except as expressly provided therein, but solely as Owner Trustee ("OWNER TRUSTEE"); (each of the Lessee and the Owner Trustee, together with its successors and permitted assigns, a "GUARANTEED PARTY"). In connection with the transactions contemplated by the Assignment Agreement, Guarantor represents and warrants to, and covenants with, each Guaranteed Party, as follows: 1. OWNERSHIP OF ASSIGNEE. Assignee is a direct or indirect subsidiary of Guarantor. 2. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants that Guarantor is duly organized and validly existing in good standing under the laws of _____________. The execution, delivery and performance of this Guaranty Agreement are within Guarantor's power and authority, have been duly authorized by all necessary corporate action on the part of the Guarantor and do not contravene the charter or the by-laws of Guarantor or any indenture, mortgage, credit agreement, note, long-term lease or other material agreement to which Guarantor is a party or by which Guarantor is bound, and this Guaranty Agreement constitutes a legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. 3. SUBMISSION TO JURISDICTION, ETC. Guarantor hereby agrees to be bound, to the same extent Owner Participant is bound, by the provisions of Section 13.07 of the Participation Agreement, which are incorporated herein by reference as if fully set forth herein. EXHIBIT B-2 - PAGE 1 4. UNDERTAKINGS. (a) Guarantor hereby unconditionally and irrevocably guaranties not merely as surety but as primary obligor, the due and punctual: (i) performance by Assignee of all of the obligations of the "Owner Participant" under the Operative Agreements assumed by Assignee under the Assignment Agreement; (ii) payment of any and all sums which are payable by the Owner Participant pursuant to any of the Operative Agreements which payment obligations were assumed by Assignee under the Assignment Agreement; and (iii) performance of, observance of and compliance with all other obligations, covenants and undertakings and representations and warranties of, or made by, Assignee in the Assignment Agreement or the Owner Participant contained in or arising under the Operative Agreements and assumed by Assignee under the Assignment Agreement (such payments and other obligations referred to in this Section 4(a) hereinafter referred to as the "OBLIGATIONS"). Guarantor agrees that it will not use the assets of any ERISA Plan to fund its payment obligations hereunder. (b) Guarantor agrees that this Guaranty Agreement is an unconditional and absolute guaranty of payment and performance (not merely collectability), that its undertakings hereunder are not contingent upon any Guaranteed Party bringing any action against Assignee or resorting to any security and hereby expressly waives any claim that its undertakings hereunder are so contingent. (c) Guarantor irrevocably waives promptness, diligence, demand, and all notices whatsoever as to the Obligations guaranteed hereby, and any other circumstances which might otherwise constitute a defense available to it, or a discharge of it (other than the defense of payment or performance), and agrees that it shall not be required to consent to or receive any notice of any amendment or modification of, or waiver, consent or extension with respect to, the Participation Agreement or the other Operative Agreements to which Assignee is a party that may be made or given as provided herein or otherwise. (d) Guarantor further agrees to pay all expenses (including, without limitation, all fees and disbursements of counsel) that may be paid or incurred by any Guaranteed Party in enforcing any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, the Guarantor under this Guaranty Agreement. (e) Guarantor understands and agrees that its obligations hereunder shall be construed as continuing, absolute and unconditional without regard to (i) the validity, regularity or enforceability of any Operative Agreement, any of the Obligations or any collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by any Guaranteed Party, (ii) any defense, set-off or counterclaim (other than a defense of payment or performance) that may at any time be available to or be asserted by the Assignee against any Guaranteed Party, or (iii) any other instances whatsoever (with or without notice to or knowledge of the Assignee or the Guarantor) that constitutes, or might be construed to constitute, an equitable or legal discharge of Assignee for the Obligations, or of Guarantor under this Guaranty Agreement, in bankruptcy or in any other instance. 5. NO DISCHARGE. The obligation of Guarantor hereunder will not be discharged by: (a) any EXHIBIT B-2 - PAGE 2 extension or renewal with respect to any obligation of Assignee, as Owner Participant, under the Operative Agreements, (b) any modification of, or amendment or supplement to, any such agreement; (c) any furnishing or acceptance of additional security or any release of any security; (d) any waiver, consent or other action or inaction or any exercise or non-exercise of any right, remedy or power with respect to Assignee, or any change in the structure of Assignee; (e) any insolvency, bankruptcy, reorganization, arrangement, composition, liquidation, dissolution or similar proceedings with respect to Assignee; (f) except as provided in Section 6 any change in ownership of the shares of capital stock of Guarantor or Assignee; or (g) any other occurrence whatsoever, except payment in full of all amounts payable by Assignee, as Owner Participant, under the Operative Agreements and performance in full of all Obligations of Assignee, as Owner Participant, in accordance with the terms and conditions of the Operative Agreements. 6. TRANSFERS. The Guarantor may assign, convey or otherwise transfer its obligations hereunder to any other Person (hereinafter referred to as the "TRANSFEREE GUARANTOR"), provided that (a) the Transferee Guarantor enters into an agreement substantially in the form of this Guaranty Agreement and (b) the Transferee Guarantor meets the requirements of Section 5.01(c) of the Participation Agreement relating to a "guarantor". If pursuant to Section 5.01(c) of the Participation Agreement or the preceding sentence, a new guaranty shall be delivered or the obligations of the Guarantor shall be transferred, the Transferee Guarantor shall deliver an opinion or opinions of counsel substantively similar to the form of opinion attached to the Participation Agreement as Exhibit B-3 to the effect that the obligations incurred by the Transferee Guarantor pursuant hereto constitute the legal, valid, binding and enforceable obligations of such Transferee Guarantor. Upon the satisfaction by the Guarantor of the conditions set forth in this Section 6, the Guarantor shall be released and discharged of any and all further obligations under this Guaranty Agreement. 7. REINSTATEMENT. Guarantor agrees that this Guaranty Agreement shall be automatically reinstated with respect to any payment made prior to the termination of this Guaranty Agreement by or on behalf of Assignee pursuant to the Participation Agreement or the other Operative Agreements to which Assignee is a party if and to the extent that such payment is rescinded or must be otherwise restored, whether as a result of any proceedings in bankruptcy or reorganization or otherwise. 8. NO SUBROGATION. Notwithstanding any payment or payments made by Guarantor hereunder or any set-off or application of funds of Guarantor by any Guaranteed Party, Guarantor shall not be entitled to be subrogated to any of the rights of Guaranteed Party against Assignee or any collateral, security or guarantee or right of set-off held by any Guaranteed Party for the payment of the Obligations, nor shall Guarantor seek or be entitled to seek any reimbursement from the Assignee in respect of payments made by Guarantor hereunder, until all amounts and performance owing to the Guaranteed Parties by Assignee on account of the Obligations are paid and performed in full. 9. SEVERABILITY. Any provision of this Guaranty Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. EXHIBIT B-2 - PAGE 3 10. MISCELLANEOUS. This Guaranty Agreement shall: (a) be binding upon Guarantor, its successors and assigns; (b) inure to the benefit of, and be enforceable by, the Guaranteed Parties but shall not, and is not intended to, create rights in any other third parties; (c) not be waived, amended or modified without the written consent of each of the Guaranteed Parties; (d) be governed by and construed in accordance with, the internal laws of the State of New York, and (e) remain in full force and effect until the earlier of (i) payment in full of all sums payable by Assignee, as Owner Participant, under the Assignment Agreement and the Operative Agreements and by Guarantor hereunder, and performance in full of all other Obligations of Assignee, as Owner Participant, under the Assignment Agreement and the Operative Agreements and (ii) the compliance by Guarantor with Section 6. All notices to, requests of, demands on and other communications with Guarantor shall be made in writing and shall be personally delivered, sent by facsimile or telecommunication transmission (which in either case provides written confirmation to the sender of its delivery) or sent by registered or certified mail, postage prepaid, or by prepaid courier service to Guarantor at: ____________________________________________, Attention: __________________________ telephone (____) ___________] fascimile [(_____) __________]. IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly executed this _________ day of ______________________. [GUARANTOR] By: ----------------------------------- Name: Title: EXHIBIT B-2 - PAGE 4 EXHIBIT B-3 TO THE PARTICIPATION AGREEMENT FORM OF OPINION [Date] TO EACH OF THE PERSONS NAMED ON THE ATTACHED SCHEDULE I: Re: CHAUTAUQUA AIRLINES INCORPORATED - ONE EMBRAER MODEL ERJ-145LR AIRCRAFT BEARING REGISTRATION NO. [N2___SK] Ladies and Gentlemen: As counsel to ________________ a ____________________ ("Assignee"), I advise you as follows in connection with the Assignment and Assumption Agreement dated as of ________________, _____ (the "Assignment Agreement") between Assignee and _________________, a ____________ ("Assignor"), and the transactions contemplated thereby. Capitalized terms used herein and not defined herein shall have the respective meanings attributed thereto in the Assignment Agreement. This opinion is being furnished to you pursuant to the request of Assignee and Section 5.01(c)(v) of the Participation Agreement. I have, or an attorney under my supervision has, examined the Assignment Agreement. I have, or an attorney under my supervision has, also examined the originals, or certified, conformed, photocopied or telecopied copies of such corporate records, certificates, instruments and other documents as I have deemed necessary or appropriate to enable me to render the opinions expressed herein. In all such examinations, I have assumed the genuineness of signatures on original documents (other than those of Assignee) and the conformity to such original documents of all copies submitted to me as certified, conformed, photocopied or telecopied copies, and as to certificates and telegraphic and telephonic confirmations given by public officials, I have assumed the same to have been properly given and to be accurate. As to all matters of fact material to my opinions, I have, when relevant facts were not independently established, relied upon statements, representations and warranties contained in the Assignment Agreement and upon the statements and certificates furnished to me. In addition, in rendering the opinions expressed herein I have assumed that (i) the Assignment Agreement has been duly authorized, executed, authenticated and delivered by Assignor and constitutes the legal, valid and binding obligation of Assignor, enforceable against Assignor in accordance with its terms, (ii) Assignor has the requisite power, authority and legal right to enter into and perform its respective obligations under the Assignment Agreement and (iii) the transactions provided for in the Assignment Agreement are not within the prohibitions of Section 406 of the Employee Retirement Income Security Act of 1974, as amended or Section 4975 of the Internal Revenue Code of 1986, as amended. EXHIBIT B-3 - PAGE 1 A. Based upon the foregoing and subject to the limitations expressed in paragraph B below, I am of the opinion that: 1. Assignee is a ______________ duly organized, validly existing and in good standing under the laws of [ ] and has full corporate power and authority to execute, deliver and perform the Assignment Agreement. 2. The Assignment Agreement has been duly authorized, executed and delivered by Assignee. 3. Neither the execution and delivery of the Assignment Agreement by Assignee, nor the consummation by Assignee of the transactions contemplated thereby and by the Operative Agreements, conflicts with, results in a breach of or violates any of the terms, conditions or provisions of (i) the [Certificate][Articles] of Incorporation or By-laws of the Assignee, (ii) to the best of my knowledge, any order, writ, injunction or decree of any court or governmental authority against the Assignee or by which the Assignee or any of its properties is bound or (iii) to the best of my knowledge, any indenture, mortgage or contract or other material agreement or instrument to which Assignee is a party or by which it or any of its properties is bound or constitutes a default thereunder. 4. To the best of my knowledge, there are no actions, suits or proceedings pending or threatened before any court of administrative agency or arbitrator which would materially adversely affect the ability of Assignee to perform its obligations under the Assignment Agreement and the Operative Agreements. 5. The Assignment Agreement constitutes a legal, valid and binding obligation of Assignee enforceable against Assignee in accordance with the terms thereof, except as the enforceability thereof may be limited by (a) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), (b) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and (c) public policy considerations (in the case of any indemnity provisions contained therein). 6. Except for filings with the Federal Aviation Administration, neither the execution and delivery by Assignee of the Assignment Agreement, nor the consummation by Assignee of any of the transactions contemplated thereby or by the Operative Agreements, (a) requires the consent or approval of, the giving of notice to, or the registration or filing with, or the taking of any action with respect to, any governmental authority or agency of the United States or (b) violates any law, governmental rule or regulation of the United States or the State of [ ]. B. I am qualified to practice law in the State of [ ] and I express no opinion as to any laws other than the laws of the State of [ ], the General Corporation Law EXHIBIT B-3 - PAGE 2 of the State of [ ] and the federal laws of the United States of America. I express no opinion herein as to (i) any federal or state securities laws, (ii) any tax laws or (iii) any aviation law or other laws, statutes, rules or regulations applicable due to the particular nature of the equipment subject to the Lease. In addition, no opinion is expressed as to matters governed by Title 49 of the United States Code, as amended, or by any other law, statute, rule or regulation or the United States relating to the acquisition, ownership, registration, use, operation, maintenance, repair, replacement or sale of or the nature of aircraft. Further, no opinion is expressed as to title to any part of the Trust Estate. In addition, I express no opinion as to the perfection or priority of any security interests or as to the right, title or interest in or to the Trust Estate on the part of any Person. This opinion is furnished by me for your sole benefit, and no other person or entity is entitled to rely on this opinion without my express written consent. This opinion may not be published or reproduced in any manner or distributed or circulated to any person or entity without my express written consent. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. Very truly yours, EXHIBIT B-3 - PAGE 3 SCHEDULE I [Insert names and addresses of Lessee, Owner Trustee and Assignor] EXHIBIT B-3 - PAGE 4 TABLE OF CONTENTS
PAGE ARTICLE 1. INTERPRETATION....................................................................2 Section 1.01. Definitions...............................................................2 Section 1.02. References................................................................2 Section 1.03. Headings..................................................................2 Section 1.04. Appendices Schedules and Exhibits.........................................2 ARTICLE 2. SALE AND LEASING TRANSACTIONS.....................................................2 Section 2.01. Participation.............................................................2 (a) Sale and Purchase..............................................................2 (b) Leasing........................................................................3 (c) Owner Participant's Equity Investment..........................................3 (d) Delivery Date..................................................................3 Section 2.02. Closing Procedure.........................................................3 (a) Time and Place.................................................................3 (b) Actions of the Owner Trustee...................................................4 (c) Actions of the Lessee..........................................................4 ARTICLE 3. CONDITIONS PRECEDENT..............................................................5 Section 3.01. Conditions Precedent to Obligations of Owner Participant..................5 (a) Notice.........................................................................5 (b) Delivery of Documents..........................................................5 (c) Airworthiness..................................................................7 (d) Violation of Law...............................................................7 (e) No Event of Default............................................................7 (f) No Event of Loss...............................................................7 (g) Title..........................................................................7 (h) Certification..................................................................7 (i) Section 1110...................................................................8 (j) Filings........................................................................8 (k) Precautionary Financing Statements.............................................8 (l) No Proceedings.................................................................8 (m) Governmental Action............................................................8 (n) Representations and Warranties.................................................8 Section 3.02. Conditions Precedent to Obligations of Lessee.............................8 (a) Documents......................................................................9 (b) Corporate Documents............................................................9 (c) Officer's Certificate..........................................................9 (d) Other Conditions Precedent.....................................................9 Section 3.03. Post-Registration Opinion.................................................9
i ARTICLE 4. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS................................9 Section 4.01. Lessee's Representations and Warranties...................................9 Section 4.02. Certain Covenants of Lessee..............................................12 (a) Filings and Recordings........................................................12 (b) Registration..................................................................12 (c) Information...................................................................14 (d) Corporate Existence...........................................................15 (e) Merger and Consolidation......................................................15 (f) Change of Location............................................................16 (g) Financial Statements..........................................................16 (h) Filing of Documents...........................................................16 (i) Annual Foreign Opinion........................................................17 Section 4.03. Survival of Representations and Warranties...............................17 ARTICLE 5. OTHER PARTIES' REPRESENTATIONS, WARRANTIES AND COVENANTS........................................................................17 Section 5.01. Representations, Warranties and Covenants of Owner Participant...........17 (a) Representations and Warranties................................................17 (b) Lessor's Liens................................................................19 (c) Assignment of Interests of Owner Participant..................................19 (d) Actions with Respect to Lessor's Estate, Etc..................................21 (e) Citizenship...................................................................21 (f) Guarantees....................................................................22 Section 5.02. Citizenship..............................................................22 (a) Generally.....................................................................22 (b) Owner Trustee.................................................................22 Section 5.03. Representations, Warranties and Covenants of Trust Company and the Owner Trustee........................................................22 (a) Representations and Warranties................................................22 (b) Lessor's Liens................................................................24 (c) Indemnity for Lessor's Liens..................................................24 (d) Securities Act................................................................25 (e) Actions With Respect to Lessor's Estate, Etc..................................25 (f) Other Business................................................................25 (g) Performance of Agreements.....................................................25 Section 5.04. The Lessee's Right of Quiet Enjoyment....................................25 Section 5.05. Survival of Representations, Warranties and Covenants....................25 Section 5.06. Compliance with Trust Agreement, Etc.....................................25 ARTICLE 6. TAXES............................................................................26 Section 6.01. Lessee's Obligation to Pay Taxes.........................................26 (a) Generally.....................................................................26 (b) Exceptions....................................................................27 Section 6.02. After Tax Basis..........................................................29 Section 6.03. Time of Payment..........................................................29 Section 6.04. Contests.................................................................30 (a) Notice of Claim...............................................................30

ii (b) Request for Contest...........................................................30 (c) Declining to Contest; Settlement..............................................32 (d) Continuing Claims.............................................................33 (e) Claims Barred.................................................................33 Section 6.05. Refunds..................................................................33 Section 6.06. Reports..................................................................34 Section 6.07. Survival of Obligations..................................................34 Section 6.08. Payment of Taxes.........................................................34 Section 6.09. Reimbursements by Indemnitees Generally..................................35 Section 6.10. Forms....................................................................35 Section 6.11. Verification.............................................................35 Section 6.12. Non-Parties..............................................................35 ARTICLE 7. GENERAL INDEMNITY................................................................35 Section 7.01. Generally................................................................35 (a) Indemnity.....................................................................35 (b) Exceptions....................................................................37 Section 7.02. Notice and Payment.......................................................38 Section 7.03. Defense of Claims........................................................39 Section 7.04. Insured Claims...........................................................39 Section 7.05. Subrogation..............................................................40 Section 7.06. Information..............................................................40 Section 7.07. Survival of Obligations..................................................40 Section 7.08. Effect of Other Indemnities..............................................40 Section 7.09. Waiver of Certain Claims.................................................40 Section 7.10. Certain Limitations......................................................41 ARTICLE 8. TRANSACTION COSTS................................................................41 Section 8.01. Transaction Costs and Other Costs........................................41 (a) Transaction Costs.............................................................41 (b) Continuing Expenses...........................................................41 (c) Amendments and Supplements....................................................41 ARTICLE 9. SUCCESSOR OWNER TRUSTEE..........................................................42 Section 9.01. Appointment of Successor Owner Trustee...................................42 (a) Resignation and Removal.......................................................42 (b) Conditions to Appointment.....................................................42 ARTICLE 10. LIABILITIES OF THE OWNER PARTICIPANT............................................43 Section 10.01. Liabilities of the Owner Participant....................................43 ARTICLE 11. OTHER DOCUMENTS.................................................................43 Section 11.01. Consent of Lessee to Other Documents....................................43 Section 11.02. Consent of Owner Participant to Other Documents.........................43 ARTICLE 12. NOTICES.........................................................................43 Section 12.01. Notices.................................................................43

iii ARTICLE 13. MISCELLANEOUS...................................................................44 Section 13.01. Counterparts............................................................44 Section 13.02. No Oral Modifications...................................................44 Section 13.03. Captions................................................................44 Section 13.04. Successors and Assigns..................................................44 Section 13.05. Concerning the Owner Trustee............................................44 Section 13.06. Severability............................................................45 Section 13.07. GOVERNING LAW...........................................................45 Section 13.08. Section 1110 Compliance.................................................46 Section 13.09. Assignment..............................................................46

Definitions Exhibit A-1 Form of Opinion of General Counsel of Lessee Exhibit A-2 Form of Opinion of Fulbright & Jaworski L.L.P. Exhibit A-3 Form of Opinion of Ray, Quinney & Nebeker, as special counsel to the Owner Trustee Exhibit A-4 Form of Opinion of Daugherty, Fowler, Peregrin & Haught, a Professional Corporation Exhibit A-5 Form of Opinion of Holland & Knight LLP, special counsel for the Owner Participant Exhibit A-6 Form of Opinion of General Counsel to the Owner Participant Exhibit B-1 Form of Assignment and Assumption Agreement Exhibit B-2 Form of Owner Participant Guaranty Exhibit B-3 Form of Opinion of counsel to the Owner Participant in respect of the Assignment and Assumption Agreement iv NOTE TO EXHIBIT 10.19 The 15 additional Participation Agreements are substantially identical in all material respects to the filed Participation Agreement except as follows:
- ------------------------------------- ----------------------------------- ------------------------------------ TAIL NUMBER CLOSING DATE OWNER-PARTICIPANT - ------------------------------------- ----------------------------------- ------------------------------------ N265SK June, 2000 General Electric Capital Corporation - ------------------------------------- ----------------------------------- ------------------------------------ N267SK June, 2000 General Electric Capital Corporation - ------------------------------------- ----------------------------------- ------------------------------------ N268SK June, 2000 General Electric Capital Corporation - ------------------------------------- ----------------------------------- ------------------------------------ N269SK August, 2000 General Electric Capital Corporation - ------------------------------------- ----------------------------------- ------------------------------------ N270SK August, 2000 General Electric Capital Corporation - ------------------------------------- ----------------------------------- ------------------------------------ N271SK September, 2000 General Electric Capital Corporation - ------------------------------------- ----------------------------------- ------------------------------------ N272SK September, 2000 General Electric Capital Corporation - ------------------------------------- ----------------------------------- ------------------------------------ N273SK November, 2000 Aircraft Services Corp. - ------------------------------------- ----------------------------------- ------------------------------------ N274SK December, 2000 Aircraft Services Corp. - ------------------------------------- ----------------------------------- ------------------------------------ N275SK December, 2000 Aircraft Services Corp. - ------------------------------------- ----------------------------------- ------------------------------------ N276SK December, 2000 Aircraft Services Corp. - ------------------------------------- ----------------------------------- ------------------------------------ N277SK December, 2000 Aircraft Services Corp. - ------------------------------------- ----------------------------------- ------------------------------------ N278SK February, 2001 Aircraft Services Corp. - ------------------------------------- ----------------------------------- ------------------------------------ N279SK January, 2001 Aircraft Services Corp. - ------------------------------------- ----------------------------------- ------------------------------------ N280SK February, 2001 Aircraft Services Corp. - ------------------------------------- ----------------------------------- ------------------------------------ - ------------------------------------- ----------------------------------- ------------------------------------ - ------------------------------------- ----------------------------------- ------------------------------------
EX-10.32 16 a2082173zex-10_32.txt EXHIBIT 10.32 AIRCRAFT PURCHASE AGREEMENT Exhibit 10.32 EXECUTION COPY ================================================================================ AIRCRAFT PURCHASE AGREEMENT [N288SK] among SOLITAIR CORP. as Seller CHAUTAUQUA AIRLINES, INC. as Lessee MITSUI & CO. (U.S.A.), INC. as Beneficiary and WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Owner Trustee as Owner Trustee dated as of June 5, 2001 One (1) EMB-145LR aircraft manufacturer's serial number 145461 United States registration mark N288SK ================================================================================ - ------------ Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933. The omitted materials have been filed separately with the Securities and Exchange Commission. TABLE OF CONTENTS
PAGE Section 1 SUBJECT MATTER...............................................2 Section 2 PRICE; TAXES; DELIVERY LOCATION..............................2 Section 3 TERMS OF PAYMENT................................. .... ......2 Section 4 RISK OF LOSS.................................................2 Section 5 DELIVERY OF AIRCRAFT.........................................3 Section 6 TERMS OF SALE................................................3 Section 7 DELIVERY DATE................................................3 Section 8 CONDITIONS PRECEDENT.........................................4 Section 9 Representations and Warranties...............................6 Section 10 FURTHER COVENANTS............................................9 Section 11 CONCERNING OWNER TRUSTEE....................................12 Section 12 MISCELLANEOUS...............................................12
This AIRCRAFT PURCHASE AGREEMENT [N288SK] ("AGREEMENT"), made as of June 5, 2001, by and among SOLITAIR CORP., a New York corporation ("SELLER"), MITSUI & CO. (U.S.A.), INC., a New York corporation ("BENEFICIARY"), CHAUTAUQUA AIRLINES, INC., a New York corporation ("LESSEE"), and WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement dated as of June 5, 2001, between itself and Beneficiary (such entity, in its individual capacity being herein referred to as "WFB" and, in its capacity as Owner Trustee under such Trust Agreement, as "OWNER TRUSTEE"); W I T N E S S E T H: WHEREAS, Seller is party to the EMB-145 Purchase Agreement Number GCT-025/98, dated June 17, 1998 (the "MANUFACTURER PURCHASE AGREEMENT"), between the Seller and EMBRAER - Empresa Brasileira de Aeronautica S.A., a Brazilian company (the "MANUFACTURER"); WHEREAS, Seller desires to assign its right, title and interest in and to the Manufacturer Purchase Agreement, to the extent that the same relates to the Aircraft (as hereinafter defined) and the purchase thereof, to Aero Ltd., a Cayman Islands corporation ("AERO"), pursuant to and in accordance with the terms and conditions of Purchase Agreement Assignment No. 1 [N288SK], dated the date hereof ("ASSIGNMENT NO. 1"), between Seller and Aero and consented to by the Manufacturer, in the form attached as Exhibit C-1; WHEREAS, Beneficiary desires that Owner Trustee purchase and acquire title to, and Seller is willing to cause Aero to sell and transfer title to Owner Trustee, in accordance with the terms and conditions hereinafter set forth, the Aircraft; WHEREAS, as a condition to Seller's assignment of its rights in the Manufacturer Purchase Agreement pursuant to Assignment No. 1, Aero will assign its right, title and interest in and to [certain rights of Aero under] the Manufacturer Purchase Agreement, as assigned by Assignment No. 1, to Owner Trustee, pursuant to and in accordance with the terms of Purchase Agreement Assignment No. 2 [N288SK], dated the date hereof ("ASSIGNMENT NO. 2"), among Aero, Owner Trustee and Lessee and consented to by the Manufacturer, in the form attached as Exhibit C-2; WHEREAS, Beneficiary desires that Owner Trustee be provided the benefit of, and Seller is willing to cause Aero to transfer to Owner Trustee, the warranties relating to the Airframe specified in the Assignment No. 2 and the warranties relating to the Engines specified in the Engine Warranty Assignment and Consent, the form of which is attached hereto as Exhibit D; and WHEREAS, simultaneously with the sale of the Aircraft to Owner Trustee, Beneficiary shall cause Owner Trustee to, and Owner Trustee shall, lease the Aircraft to Chautauqua Airlines, Inc., a New York corporation (the "LESSEE"), pursuant to Aircraft Lease Agreement [N288SK] dated as of the date hereof between Owner Trustee and Lessee (the "LEASE"); and WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Lease and shall be interpreted in accordance with the rules of construction set forth in Section 1.03 of the Lease; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto (individually a "PARTY" and collectively the "PARTIES") agree as follows: Section 1 SUBJECT MATTER. In accordance with and subject to the terms and conditions hereinafter set forth, on the Delivery Date (as defined in Section 4), Seller hereby agrees to cause Aero to sell and transfer title to Owner Trustee, as designee of Beneficiary, and Beneficiary hereby agrees to cause Owner Trustee to purchase and acquire title from Aero to, one (1) Embraer EMB-145LR aircraft bearing manufacturer's serial number 145461, together with the Engines and appurtenances installed thereon and therein and delivered new from the Manufacturer, as more particularly described and defined in the form of Bill of Sale attached hereto as EXHIBIT A (the "AIRCRAFT"), in accordance with the terms and conditions of this Agreement, and (b) Owner Trustee hereby agrees, at the direction of Beneficiary, to purchase and acquire title to the Aircraft from Aero in accordance with the terms and conditions hereof and to lease the Aircraft to Lessee in accordance with the terms and conditions of the Lease. Section 2 PRICE; TAXES; DELIVERY LOCATION. (a) PRICE. The purchase price of the Aircraft shall be equal to the amount payable by Seller for the Aircraft under Article 03 of the Manufacturer Purchase Agreement, as evidenced by an invoice for the Aircraft issued by Aero, DECREASED by any rebate payable by the Manufacturer and Aero in respect of the Aircraft that is credited to the Beneficiary on or before the Delivery Date and INCREASED by the amount of $500,000 payable directly to Solitair, and the Seller and the Beneficiary agree that such amount as so decreased and increased is equal to [*], which shall be the purchase price of the Aircraft (the "AIRCRAFT PRICE") payable by the Beneficiary to Seller as consideration for the sale and transfer of the Aircraft to the Owner Trustee, as designee of the Beneficiary. (b) TAXES. Seller, Beneficiary and Owner Trustee shall cooperate and take such reasonable measures as may be requested by Lessee to ensure that the sale of the Aircraft is arranged in such a manner as to minimize or avoid Taxes thereon, which shall be indemnified by Lessee pursuant to the Lease. (c) DELIVERY LOCATION. Seller shall cause Aero to deliver the Aircraft to Owner Trustee on the Delivery Date, in accordance with the terms hereof, in Sao Jose dos Campos, Sao Paulo, Brazil or in such other location and jurisdiction designated by Seller and Lessee which they determine to be acceptable for taxation purposes and that is reasonably acceptable to Beneficiary and Owner Trustee. Section 3 TERMS OF PAYMENT. (a) TIME OF PAYMENT. Subject to the satisfaction or waiver of the conditions set forth in Section 8(a), Beneficiary shall pay, or cause to be paid, the Aircraft Price to Seller on the Delivery Date. (b) U.S. DOLLARS; TRANSFER. All payments due to Seller hereunder shall be effected in United States dollars in immediately available funds without any set-off, counterclaim or deduction of whatsoever nature by wire transfer to an account designated by the Seller. Payments will be deemed to have been made when such amounts have been credited and confirmed as immediately available funds to such designated account. Section 4 RISK OF LOSS. 2 - ------- * Confidential Delivery of the Bills of Sale to Owner Trustee and of the Acceptance Certificate to Seller and Aero pursuant to Section 5 shall conclusively evidence the sale of the Aircraft to Owner Trustee by Aero and of Owner Trustee's acceptance of the Aircraft, and risk of loss of or damage to the Aircraft shall pass from Seller and Aero to Owner Trustee at the time stated in the Acceptance Certificate as being the time at which the transfer took place (the "DELIVERY TIME"). The date on which the Delivery Time occurs is herein referred to as the "DELIVERY DATE." Section 5 DELIVERY OF AIRCRAFT. Immediately upon receipt by Seller of the Aircraft Price, and subject to the satisfaction or waiver of the conditions set forth in Section 8(b), Seller shall cause Aero to deliver to Owner Trustee a duly executed original bill of sale covering the Aircraft dated as of the Delivery Date, substantially in the form of EXHIBIT A (the "WARRANTY BILL OF SALE") and a duly executed bill of sale covering the Aircraft dated as of the Delivery Date on FAA AC Form 8050-2 (the "FAA BILL OF SALE," and together with the Warranty Bill of Sale,, the "BILLS OF SALE"), and immediately upon receipt by it of the Bills of Sale, Beneficiary shall cause Owner Trustee to, and Owner Trustee shall, execute and deliver to Aero and Seller an acceptance certificate substantially in the form of EXHIBIT B (the "ACCEPTANCE CERTIFICATE"), covering the Aircraft and dated the Delivery Date. Seller shall ensure that the FAA Bill of Sale is physically at the offices of Lytle Soule & Curlee ("LSC") in Oklahoma City and by providing one or more attorneys at LSC with such authorization as may be necessary in order to permit such firm to present the FAA Bill of Sale at the Delivery Time to the FAA for immediate recordation together with the other documents and instruments referred to in Section 8(a)(v). Section 6 TERMS OF SALE. Seller hereby warrants and undertakes to Beneficiary that Seller shall cause Aero to transfer to Owner Trustee all of its right, title and interest in and to the Aircraft, free and clear of any and all Liens. EXCEPT FOR THE WARRANTY OF TITLE PROVIDED BY AERO IN THE WARRANTY BILL OF SALE, THE AIRCRAFT IS BEING SOLD AND DELIVERED TO OWNER TRUSTEE AND PURCHASED AND ACCEPTED BY OWNER TRUSTEE "AS IS" AND "WHERE IS." SELLER MAKES NO, AND EXPRESSLY AND SPECIFICALLY DISCLAIMS (AND OWNER TRUSTEE AND BENEFICIARY EACH EXPRESSLY AND SPECIFICALLY WAIVES AND DISCLAIMS) ANY, REPRESENTATION, GUARANTEE, COVENANT, CONDITION OR WARRANTY OF ANY KIND RELATING TO THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO THE AIRWORTHINESS AND/OR CONDITION OF THE AIRCRAFT, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, ARISING BY LAW OR OTHERWISE, IN CONTRACT OR IN TORT, INCLUDING WITHOUT LIMITATION, WARRANTIES WITH RESPECT TO THE AIRCRAFT'S AIRWORTHINESS, MERCHANTABILITY, QUALITY, FITNESS FOR ANY PARTICULAR USE, PURPOSE, DESIGN, CONDITION, VALUE, QUALITY, DURABILITY, OR AS TO THE ABSENCE OF LATENT, INHERENT OR OTHER DEFECTS (WHETHER OR NOT DISCOVERABLE) OR AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, DESIGN, COPYRIGHT OR OTHER PROPRIETARY RIGHT OR THOSE ARISING BY STATUTE OR OTHERWISE IN LAW FROM THE COURSE OF DEALING OR USAGE OF TRADE. Section 7 DELIVERY DATE. The Delivery Date for the Aircraft is, as of the date hereof, scheduled to occur on or about June 29, 2001 (the "SCHEDULED DELIVERY DATE"). The exact Delivery Date will be designated by Seller, and Seller will give notice thereof to Beneficiary, at least three (3) Business Days in advance thereof, PROVIDED that if Seller fails to give to Beneficiary notice required by this sentence at least three (3) Business Days prior to August 31, 2001, Beneficiary may, at its option, by written notice to Seller, 3 terminate its commitment hereunder to purchase and lease the Aircraft with no liability whatsoever to Seller or Lessee or any other Person. Section 8 CONDITIONS PRECEDENT. (a) BENEFICIARY CONDITIONS. The obligation of Beneficiary and Owner Trustee to purchase the Aircraft from Aero at the Delivery Time is subject to the fulfillment to the reasonable satisfaction of Beneficiary and Owner Trustee, or waiver by Beneficiary and Owner Trustee, of the following conditions precedent on or prior to the Delivery Time: (i) all of the conditions precedent to obligations of Owner Trustee as lessor under the Lease shall have been fulfilled or waived in accordance with the terms thereof; (ii) the Owner Trustee shall have received (1) Assignment No. 1 duly executed and delivered by Seller and Aero and the Consent and Agreement thereto duly executed and delivered by Manufacturer; (2) Assignment No. 2 duly executed and delivered by Aero and the Consent and Agreement thereto duly executed and delivered by Manufacturer; and (3) the Engine Warranty Assignment and Consent duly executed and delivered by Seller, Lessee and the Engine Manufacturer; (iii) all representations and warranties of Seller set forth herein or in any of the documents delivered hereunder are true and accurate on and as of the Delivery Date as though made on and as of the Delivery Date (unless any such representation and warranty shall have been made with reference to a specified date, in which case such representation and warranty shall be true and accurate as of such specified date); (iv) the Aircraft shall be free and clear of Liens and Beneficiary and Owner Trustee shall have received a memorandum of Daugherty, Fowler, Peregrin & Haught ("SPECIAL FAA COUNSEL"), stating that there are no Liens of record noted in the records of the United States Federal Aviation Administration; (v) Manufacturer shall have executed and delivered the Residual Value Guarantee and the Deficiency Guarantee and there shall exist no condition precedent to any such agreement becoming effective pursuant to the terms thereof other than Delivery of the Aircraft; (vi) Seller shall have caused Aero to have delivered an original executed FAA Bill of Sale to LSC to be held in escrow pending receipt by the Seller of the Aircraft Price; (vii) Lessee shall have delivered the Lease and Lease Supplement No. 1 thereto, each duly executed and delivered by Lessee, to Special FAA Counsel to be held in escrow pending release thereof by Lessee and Owner Trustee at the Delivery Time in accordance with the terms of the Lease; (viii) no change shall have occurred subsequent to the execution of this Agreement and prior to the Delivery Date in any applicable Law or in the interpretation thereof that, in Beneficiary's reasonable opinion, would make it illegal for Beneficiary or Owner Trustee, or both, to perform any of their respective obligations under any of the Operative Documents; (ix) the Beneficiary shall have received a purchase agreement and lease in substantially the same form as this Agreement and the Lease for each of two other Embraer EMB 4 145LR aircraft (the "OTHER PURCHASE AGREEMENTS AND OTHER LEASES") duly executed and delivered by Seller and Lessee; (x) the Lessee shall have paid to the Owner Trustee the initial payment of Base Rent due under the Lease on the Delivery Date; and (xi) no Default or Event of Default shall have occurred and be continuing under (and as defined in) any Other Lease. (b) SELLER CONDITIONS. The obligation of Seller to sell the Aircraft to Owner Trustee at the Delivery Time is subject to the fulfillment to the reasonable satisfaction of Seller, or waiver by Seller, of the following conditions precedent: (i) the Seller shall have received the Aircraft Price; (ii) the Seller shall have received Assignment No. 1 duly executed and delivered by Aero and the Consent and Agreement thereto duly executed and delivered by Manufacturer; (iii) all of the conditions precedent to obligations of Lessee under the Lease shall have been fulfilled or waived in accordance with the terms thereof; (iv) all representations and warranties of Beneficiary, WFB and Owner Trustee set forth herein or in any of the documents delivered hereunder or under the Lease are true and accurate on and as of the Delivery Date as though made on and as of the Delivery Date (unless any such representation and warranty shall have been made with reference to a specified date, in which case such representation and warranty shall be true and accurate as of such specified date); (v) the Seller and Aero shall have received the Acceptance Certificate duly executed and delivered by Owner Trustee; (vi) Owner Trustee shall have executed and delivered an original application for registration of the Aircraft on FAA AC Form 8050-1 to Special FAA Counsel, with pink copy thereof delivered to the Lessee to be placed on board the Aircraft at the Delivery Time, each to be held in escrow pending a direction by Seller to LSC to release the Bills of Sale from escrow; (vii) Owner Trustee shall have delivered the Lease and the Trust Agreement, duly executed and delivered by Owner Trustee, to Special FAA Counsel to be held in escrow pending release thereof by Lessee and Owner Trustee at the Delivery Time in accordance with the terms of the Lease or the Trust Agreement, as the case may be; (viii) no change shall have occurred subsequent to the execution of this Agreement and prior to the Delivery Date in any applicable Law or in the interpretation thereof that, in Seller's reasonable opinion, would make it illegal for Seller to perform any of its obligations under any of the Operative Documents to which it is a party; (ix) Beneficiary shall have caused (1) an application for registration of the Aircraft on FAA Form 8050-1 with the original signature of Owner Trustee attached thereto and (2) a copy of the Lease and the Lease Supplement No. 1 thereto and the Trust Agreement with the original signature of Owner Trustee attached thereto to be delivered to Special FAA Counsel to be held in escrow pending a direction by Seller to Special FAA Counsel to release the Bills of Sale from escrow; and 5 (x) the Lessee shall have received the Other Purchase Agreements and Other Leases, duly executed and delivered by Beneficiary and Owner Trustee. Section 9 Representations and Warranties. (a) SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby represents and warrants to the other Parties hereto, as of its execution of this Agreement and as of the Delivery Date, that: (i) Seller is a corporation duly organized and validly existing under the laws of the State of Delaware and has corporate power and authority to carry on its business as presently conducted, to own its properties and to execute and deliver, and to perform all of its obligations under this Agreement, Assignment No. 1 and the Engine Warranty Assignment and Consent (collectively, the "SELLER DOCUMENTS"); (ii) The execution, delivery and performance by Seller of the Seller Documents have been duly authorized by all necessary corporate action, do not require any stockholder approval or approval of any trustee or holder of any indebtedness or obligations of Seller, and do not and will not contravene the certificate of incorporation, by-laws or other charter documents of Seller or any law, governmental rule, regulation, judgment or order binding on Seller or contravene or result in a breach of, or constitute a default under any indenture, mortgage, contract or other agreement to which Seller is a party or by which Seller or its properties may be bound or affected, except for any such conflicts, breaches or defaults which would not, individually or in the aggregate, have a material adverse effect on the ability of Seller to perform its obligations under the Seller Documents; (iii) Neither the execution and delivery by Seller of, nor the performance by Seller of its obligations under, any of the Seller Documents requires the consent or approval of, or the giving of notice to, or the registration with, or the taking of any other action in respect of any governmental entity having jurisdiction over Seller or any of its affiliates or properties, except for the filing with the FAA of the FAA Bill of Sale and such other registrations, applications and recordings referred to in the opinion of Special FAA Counsel to be rendered by Special FAA Counsel on the Delivery Date; (iv) Each of the Seller Documents has been duly executed and delivered by Seller and each of the Seller Documents constitutes the legal, valid and binding obligations of Seller, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and 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; (v) There are no pending or, to the best of Seller's knowledge, threatened actions or proceedings before any court, arbitrator or administrative agency that, if adversely determined, would have a material adverse effect on Seller's ability to perform its obligations under the Seller Documents; (vi) Seller is not in default in any material respect under the Manufacturer Purchase Agreement with respect to the Aircraft or the aircraft subject to the Other Purchase Agreements and Other Leases; and 6 (vii) as of the Delivery Date, the Aircraft shall not have been delivered by the Manufacturer to Aero more than fourteen (14) days prior to the Delivery Date. (b) BENEFICIARY'S REPRESENTATIONS AND WARRANTIES. Beneficiary hereby represents and warrants to the other Parties hereto, as of its execution of this Agreement and as of the Delivery Date, that: (i) Beneficiary is a corporation duly organized and validly existing under the laws of the State of New York and has corporate power and authority to carry on its business as presently conducted, to own its properties and to execute and deliver, and to perform all of its obligations under this Agreement and the other Operative Documents to which it is a party (collectively, the "BENEFICIARY DOCUMENTS"); (ii) The execution, delivery and performance by Beneficiary of the Beneficiary Documents have been duly authorized by all necessary corporate action, do not require any stockholder approval or approval of any trustee or holder of any indebtedness or obligations of Beneficiary, and do not and will not contravene the articles of incorporation or by-laws of Beneficiary or any current law, governmental rule, regulation, judgment or order binding on Beneficiary or contravene or result in a breach of, or constitute a default under any indenture, mortgage, contract or other agreement to which Beneficiary is a party or by which Beneficiary or its properties may be bound or affected, except for any such conflicts, breaches or defaults which would not, individually or in the aggregate, have a material adverse effect on the ability of Beneficiary to perform its obligations under the Beneficiary Documents; (iii) Neither the execution and delivery by Beneficiary of, nor the performance by Beneficiary of its obligations under, the Beneficiary Documents requires the consent or approval of, or the giving of notice to, or the registration with, or the taking of any other action in respect of, any governmental entity having jurisdiction over Beneficiary or any of its affiliates or properties, except for the filing with the FAA of the Trust Agreement and such other registrations, applications and recordings referred to in the opinion of Special FAA Counsel to be rendered by Special FAA Counsel on the Delivery Date; (iv) Each of the Beneficiary Documents has been duly executed and delivered by Beneficiary and each of the Beneficiary Documents constitutes the legal, valid and binding obligations of Beneficiary, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and 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; (v) There are no pending, to the best of Beneficiary's knowledge, or threatened actions or proceedings before any court, arbitrator or administrative agency that, if adversely determined, would have a material adverse effect on Beneficiary's ability to perform its obligations under the Beneficiary Documents; (vi) The funds to be used by the Beneficiary to acquire its interest under this Agreement and the other Operative Documents do not constitute assets (within the meaning of ERISA and any applicable rules and regulations) of an ERISA Plan; (vii) The Beneficiary acknowledges that the Residual Value Guarantee and the Deficiency Guarantee (collectively, the "GUARANTEES") contain confidentiality provisions that 7 prohibit the Beneficiary and Manufacturer from disclosing the Guarantees and the terms thereof to the Lessee, Seller and Owner Trustee without the consent of the other party, that the Beneficiary has made no such disclosure other than in clauses (vii), (viii) and (ix) of this Section 9(b) (which disclosure the Manufacturer has consented to), that the Manufacturer has not sought the consent of the Beneficiary to disclose any terms of the Guarantees to the Lessee, Seller and Owner Trustee and, to the knowledge of the Beneficiary, the Manufacturer has not made any such disclosure; (viii) The Beneficiary has not granted any right to the Manufacturer under the Guarantees which is inconsistent with the rights of the Lessee under the Operative Documents; and (ix) The amount guaranteed by the Manufacturer under the Residual Value Guarantee is the Guaranteed Amount. (x) The Beneficiary has not entered into any agreements with the Manufacturer or any Person with respect to the transactions contemplated by this Agreement and the Operative Documents other than the Beneficiary Documents and the Guarantees. (c) OWNER TRUSTEE'S REPRESENTATIONS AND WARRANTIES. WFB, in its individual capacity, and Owner Trustee, each as to itself only, hereby represents and warrants to each of the other Parties hereto that: (i) WFB is a national banking association duly organized and existing under the laws of the United States of America and has the power and authority to carry on its business as presently conducted and to perform its respective obligations as lessor under this Agreement, the Trust Agreement, the Lease, Assignment No. 2, the Engine Warranty Assignment and Consent, the Acceptance Certificate and the application for registration of the Aircraft on FAA AC Form 8050-1 and the other Operative Documents to which it is a party (collectively, the "OWNER TRUSTEE DOCUMENTS"), whether in its individual capacity or as Owner Trustee; (ii) The execution, delivery and performance by Owner Trustee of the Owner Trustee Documents have been duly authorized by all necessary trust action on the part of WFB, do not require any approval of the shareholders of WFB (or if such approval is required, such approval has been obtained) or approval of any trustee or holder of any indebtedness or obligations of WFB or Owner Trustee, and do not and will not contravene the charter or by-laws of WFB or any current law, governmental rule, regulation, judgment or order binding on WFB or Owner Trustee or contravene or result in a breach of, or constitute a default under any indenture, mortgage, contract or other agreement to which WFB or Owner Trustee is a party or by which WFB or Owner Trustee or the property of either of them may be bound or affected; (iii) Neither the execution and delivery by Owner Trustee of, nor the performance by WFB or Owner Trustee of their respective obligations under, the Owner Trustee Documents requires the consent or approval of, or the giving of notice to, or the registration with, or the taking of any other action in respect of, any governmental entity having jurisdiction over WFB, Owner Trustee or any of their respective affiliates or properties, except for the filing with the FAA of the Trust Agreement, the application for registration of the Aircraft on FAA AC Form 8050-1 and such other registrations, applications and recordings referred to in the opinion of Special FAA Counsel to be rendered by Special FAA Counsel on the Delivery Date; (iv) Each of the Owner Trustee Documents has been duly executed and delivered by Owner Trustee and each of the Owner Trustee Documents constitutes the legal, valid and binding 8 obligations of Owner Trustee, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and 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; (v) There are no pending, to the best knowledge of WFB or Owner Trustee, or threatened actions or proceedings before any court, arbitrator or administrative agency that, if adversely determined, would have a material adverse effect on Owner Trustee's ability to perform its obligations under the Owner Trustee Documents. (d) LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee hereby represents and warrants to each of the other Parties hereto that that each of its warranties and representations contained in Section 5.01 of the Lease are true and accurate as of its execution of this Agreement and as of the Delivery Date (unless any such representation and warranty shall have been made with reference to a specified date, in which case such representation and warranty shall be true and accurate as of such specified date). (e) SURVIVAL. The representations and warranties of the Parties provided for in this Section 9 and in any other Operative Documents shall survive the Delivery of the Aircraft and the expiration or other termination of this Agreement and the other Operative Documents. Section 10 FURTHER COVENANTS. (a) FURTHER ASSURANCES. Each Party will promptly and duly execute and deliver, or cause to be executed or delivered, to any other Party hereto (at Seller's sole cost and expense except as may be otherwise expressly provided herein) all and every document, agreements, certificates, instruments and any other documents as the requesting Party or its counsel may reasonably request in order to effect, perfect or confirm the consummation of the transactions contemplated by this Agreement, the other Operative Documents, the agreements, instruments and documents delivered or to be delivered hereunder or thereunder, the taking of all necessary proceedings in connection herewith or therewith and compliance with the conditions here or therein set forth. (b) BENEFICIARY COVENANTS. (i) QUIET ENJOYMENT. Beneficiary covenants that so long as no Event of Default shall have occurred and be continuing, it will not, and it will not permit any mortgagee or any other Person acting by or through Beneficiary or Lessor (including any Financing Party) to take or cause or permit to be taken any action contrary to Lessee's right to the quiet use and enjoyment of the Aircraft during the Term, in accordance with the terms of the Lease. (ii) LESSOR'S LIENS. The Beneficiary agrees with and for the benefit of the Lessee and the Owner Trustee that the Beneficiary will, at its own cost and expense, take such action as may be necessary to duly discharge and satisfy in full, promptly after the same first becomes known to the Beneficiary, any Lessor's Lien (other than any Lien arising pursuant to a Financing) attributable to the Beneficiary (or an Affiliate thereof), PROVIDED, HOWEVER, that the Beneficiary shall not be required to discharge or satisfy such Lessor's Lien which is being contested by the Beneficiary in good faith and by appropriate proceedings so long as such proceedings do not involve any material risk of the sale, forfeiture or loss of the Aircraft or the Trust Estate or any interest in any thereof. 9 (iii) AIRCRAFT REGISTRATION. Beneficiary agrees that if at any time on or after the Delivery Date the Aircraft shall or would become ineligible for registration in the name of the Owner Trustee at the FAA (such eligibility to be determined without regard to any provision of law that permits the U.S. registration of the Aircraft by restricting where it is based or used), then the Beneficiary shall give notice thereof to the Lessee and the Owner Trustee and shall (at its own expense and without any reimbursement or indemnification from the Lessee) within a reasonable period after its obtaining actual knowledge that the Aircraft is ineligible for its then-current U.S. registration (and in any event within a period of 10 days thereafter) (x) effect a voting trust or similar arrangement reasonably acceptable to Lessee that permits the continued registration of the Aircraft in the name of the Owner Trustee at the FAA or (y) transfer in accordance with the terms of the Agreement, the Lease and the Trust Agreement all its rights, title and interest in and to the Trust Agreement and the other Operative Documents. Each Party hereto agrees, upon the request and at the sole expense of the Beneficiary, to cooperate with the Beneficiary in complying with its obligations under the provisions of this Section 10(b)(i), but without any obligation on the part of such other Party to take any action believed by it in good faith to be unreasonably burdensome to such Party or materially adverse to its business interests. (iv) COMPLIANCE WITH TRUST AGREEMENT. Beneficiary further agrees with the Lessee that so long as the Lease and the Trust Agreement are in effect it will (I) comply with all of the terms of the Trust Agreement applicable to it noncompliance with which would materially adversely affect the Lessee and (II) not take any action, or cause any action to be taken, to amend, modify or supplement any other provision of the Trust Agreement in a manner that would materially adversely affect the Seller without the prior written consent of the Lessee. Notwithstanding anything else to the contrary in the Trust Agreement, so long as the Lease remains in effect, the Beneficiary agrees not to terminate or revoke the trust created by the Trust Agreement without the consent of the Lessee. (v) ASSIGNMENT OF INTERESTS IN TRUST ESTATE. Beneficiary may assign all of, or an undivided interest in, its rights and obligations hereunder, under the other Operative Documents, and in the Trust Estate, to any Permitted Transferee (PROVIDED that there shall be no more than two holders of the interests in the Trust Estate at any time), upon (A) the execution and delivery by such Permitted Transferee of an agreement substantially in the form of Exhibit E-1 hereto or in such other form that is reasonably satisfactory in form and substance to Lessee and that includes the covenants, representations and warranties of the Permitted Transferee that are in the form of agreement attached as Exhibit E-1 and in which the Permitted Transferee unconditionally and irrevocably assumes the duties and obligations of the transferring Beneficiary under the Operative Documents with respect to the interest being transferred; (B) if and to the extent required by the definition of Permitted Transferee, the execution and delivery to Lessee and Owner Trustee of a Beneficiary Guaranty; and (C) delivery to the Lessee of an opinion of counsel (reasonably satisfactory to Lessee, which may be in-house counsel), in form and substance reasonably satisfactory to Lessee with respect to the due authorization, execution, delivery and enforceability of such agreement (and the Beneficiary Guaranty, if any) and the absence of any conflicts with or violations of any applicable Law (including any securities laws in respect of such transfer). Upon (but only upon) any such transfer in accordance with the foregoing, the duties and obligations of the Beneficiary arising from and after the date of such transfer hereunder and under the other Operative 10 Documents shall terminate to the extent of the interest being transferred to and assumed by the Permitted Transferee, who shall become a Beneficiary hereunder to such extent. No such assignment shall increase the expenses or indemnity obligations of Lessee hereunder or under any Operative Document (including, without limitation, under Article XIV or Article XV of the Lease or under the Tax Indemnity Agreement) or shall impair the registration of the Aircraft with the FAA or the eligibility of the Owner Trustee to qualify as registered owner of the Aircraft with the FAA, and the transferring Beneficiary shall provide such information as Lessee may reasonably request to determine whether the requirements of this sentence are satisfied. No transfer by a Beneficiary under this Section 10(b)(v) shall release such Beneficiary from any obligations to other Parties hereto theretofore accrued or in respect of acts or omissions theretofore occurring or with respect to any interest not being transferred. The transferring Beneficiary shall be responsible for all costs and expenses of any transfer pursuant to this Section 10(b)(v) (including, but not limited to, reasonable fees and expenses of counsel for Lessee and Owner Trustee). A "Permitted Transferee" (1) shall be (x) a bank, savings institution, finance company, leasing company or trust company, national banking association acting for its own account or in a fiduciary capacity as trustee or agent under any pension, retirement, profit sharing or similar trust or fund, insurance company, financial institution, fraternal benefit society or a corporation acting for its own account having a combined capital and surplus (or, if applicable, consolidated net worth or its equivalent) of not less than $25,000,000, (y) a subsidiary of any Person described in clause (x) where such Person provides a guaranty of the obligations of such subsidiary substantially in the form attached as Exhibit E-2 or in such other form that is reasonably satisfactory in form and substance to Lessee and Owner Trustee (a "BENEFICIARY GUARANTY"), or (z) an Affiliate of the transferring Beneficiary, so long as such Affiliate has a combined capital and surplus (or, if applicable, consolidated net worth or its equivalent) of not less than $25,000,000 (unless the Beneficiary remains liable for the obligations of such Affiliate under the Operative Documents, in which case there shall be no such net worth requirement), (2) shall be reasonably experienced in equipment leasing and financing transactions; and (3) shall not be (x) an airline or other Person engaged in air transportation or a competitor of Lessee in the business of air transportation or any Affiliate thereof, (y) a party adverse to the Lessee or any Affiliate of the Lessee in any pending litigation or arbitration (whether as plaintiff or defendant) or (z) a Person that has overtly threatened to initiate any such litigation or arbitration against Lessee or any Affiliate of Lessee. (vi) ASSIGNMENT OF RIGHTS BY BENEFICIARY AND OWNER TRUSTEE. Notwithstanding anything to the contrary contained herein or in any other Operative Document, on or prior to the Delivery Date, upon notice to the Seller, each of the Owner Trustee's and Beneficiary's rights (but not any of their respective obligations other than the obligation to pay Aircraft Price) under this Agreement to acquire the Aircraft shall be freely assignable in connection with a like-kind exchange under Section 1031 of the Code, PROVIDED that on or prior to the Delivery Date the Owner Trustee and the Beneficiary shall have reacquired all such rights which have been so assigned. (vii) ACTIONS WITH RESPECT TO TRUST ESTATE, ETC. The Beneficiary agrees that it will not take any action to subject the Trust Estate or the trust established by the Trust Agreement, as debtor, to the reorganization or liquidation provisions of the Bankruptcy Code or any other applicable bankruptcy or insolvency statute. (viii) CONSENT TO OTHER OPERATIVE DOCUMENTS. The Beneficiary hereby consents in all respects to the execution and delivery of the Lease and the other Operative Documents and hereby agrees to follow the provisions thereof which by their terms are applicable to it. (ix) GUARANTEES. The Beneficiary agrees for the benefit of the Lessee that it will not make or consent to any change to the Guarantees that would make the representation in Section 9(b)(viii) incorrect at the time of such change or that would increase the Guaranteed Amount and the Beneficiary agrees to provide notice to the Lessee of any decrease in the Guaranteed Amount and the amount of such decrease. 11 (e) SURVIVAL. The obligations of the Parties under this Section 10 shall survive the Delivery of the Aircraft. Section 11 CONCERNING OWNER TRUSTEE. It is understood and agreed that, except as otherwise expressly provided herein or in the Trust Agreement or any other Operative Document, WFB is entering into this Agreement solely in its capacity as trustee as provided in the Trust Agreement and not in its individual capacity and in no case whatsoever will WFB be liable or accountable in its individual capacity for any of the statements, representations, warranties, agreements or obligations of Lessor hereunder, or for any loss in respect thereof, as to all of which all interested parties agree to look solely to the Trust Estate; provided that nothing in this Section 11 shall be deemed to limit in scope or substance the personal liability of WFB (a) to Beneficiary as expressly set forth in the Trust Agreement, (b) in respect of the representations, warranties and agreements of WFB expressly made in its individual capacity herein or in any other Operative Document to which it is a party, (c) for the consequences of its own gross negligence, willful misconduct and, in receiving, handling or remitting of funds only, its willful misconduct or simple negligence as a trustee, (d) in respect of Lessor's Liens attributable to it in its individual capacity, and (e) taxes, fees or other charges on, or based on, or measured by, any fees, commissions or compensation received by it in connection with the transactions contemplated by the Operative Documents. Section 12 MISCELLANEOUS. (a) NOTICES AND REQUESTS. Any report, notice, request, demand or other communication to or upon the Parties hereto under this Agreement shall (i) be in the English language and in writing; (ii) be deemed to have been duly delivered to a party if it is (1) left at the address of that party specified below or at such other address as that party may notify to the other party from time to time, (2) sent by courier to that party at that address, or (3) sent by facsimile to the facsimile number of that party specified below or to such other number as that party may notify the other party from time to time; (iii) signed on behalf of the party giving, serving or making the same by any attorney, director, officer, secretary, partner, agent or other duly authorized representative of such party; and (iv) be effective (a) in the case of a letter or delivery by courier, when left at the address referred to above; or (b) in the case of a facsimile transmission, when receipt is confirmed by return facsimile or by telephone or on actual receipt if not so confirmed. For the purposes of this Agreement, all reports, notices, requests, demands or other communications shall be given or made by being addressed as follows: If to the Seller: Solitair Corp. c/o Wexford Capital LLC 411 West Putnam Avenue Greenwich, Connecticut 06830 Attention: President Telephone: 203-862-7000 Facsimile: 203-862-7490 If to Beneficiary: 12 Mitsui & Co. (U.S.A.), Inc. 200 Park Avenue New York, NY 10166 Tel: (212) 878-4314 Fax: (212) 878-0979 Attn: General Manager, Aerospace, Marine and Motor Vehicles If to WFB or Owner Trustee: Wells Fargo Bank Northwest, National Association 79 South Main Street, Suite 300 Salt Lake City, Utah 84111 Attention: Corporate Trust Department Telephone: 801-246-5826 Facsimile: 801-246-5053 If to Lessee: Chautauqua Airlines, Inc. 2500 S. High School Road Indianapolis, Indiana 46241 Tel: (317) 484-6047 Fax: (317) 484-6060 Attn: President with a copy to: Wexford Capital LLC 411 West Putnam Avenue Greenwich, Connecticut 06830 Tel: (203) 862-7000 Fax: (203) 862-7490 Attn: President PROVIDED, that any report, notice, request, demand or other communication delivered to Lessee in accordance with this Section 12(a) shall be effective as to Lessee without regard to whether such report, notice, request, demand or other communication has been delivered to Wexford Capital LLC (b) GOVERNING LAW; JURISDICTION. (i) THIS AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. (ii) The Parties hereto each hereby irrevocably consents that any legal action or proceeding against it or any of its assets arising out of or relating to this Agreement or any other Operative Document may be brought in any jurisdiction where it or any of its assets may be found, in the courts of the State of New York located in the County of New York, New York, and in the Federal courts sitting in the Southern District of New York, as the Party bringing such 13 action or proceeding may elect, and by execution and delivery of this Agreement each of the Parties hereto hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its assets, generally and unconditionally, the jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any judgment rendered thereby. Nothing herein shall prevent any Party from bringing any legal action or proceeding or obtaining execution of judgment in any other appropriate jurisdiction. The Parties hereto further agree that a final judgment in any action or proceeding arising out of or relating to this Agreement or any other Operative Document shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of the indebtedness or liability therein described, or in any other manner provided by law. Each of the Parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Operative Document brought in any court in or of New York, New York, and hereby further irrevocably waives any claim that any such suit, action or proceeding in New York, New York has been brought in an inconvenient forum. (iii) Each Party hereto hereby irrevocably consents to the service by certified mail at its address set forth in Section 12(a) of any summons and complaint and any other process which may be served in any action or proceeding arising out of or relating to this Agreement or any other Operative Document. Notwithstanding the foregoing, nothing herein shall affect the rights of either Party to serve process in any other manner permitted by law. (iv) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT. Each Party hereto (a) certifies that no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other Parties hereto have been induced to enter into this Agreement and the other transaction documents, as applicable, by, among other things, the mutual waivers and certifications in this section. (c) [RESERVED.] (d) ASSIGNMENTS. Except as otherwise expressly provided herein or in any other Operative Document, this Agreement shall not be assignable by any Party without the consent of the other Parties; PROVIDED, HOWEVER, that the Beneficiary may assign its rights and obligations in and under this Agreement without the consent of the Seller or Lessee in connection with the sale of all or a portion of the Beneficiary's interests in the Trust Estate, the Aircraft and Lease as provided in Section 10(b)(v) hereof and may assign its rights, but not its obligations as provided in Section 10(b)(vi) hereof. This Agreement, and the rights and obligations of the Parties hereunder, shall be binding upon and inure to the benefit of each of the Parties, their respective successors and permitted assigns. (e) TRANSACTION COSTS. Beneficiary shall be responsible for and shall pay and reimburse the Parties for all reasonable out of pocket costs and expenses of the Parties (other than costs and expenses relating to the Owner Trustee specified in the next succeeding sentence), including the costs and expenses of counsel, LSC, Special FAA counsel (other than costs and expenses of Special FAA Counsel referred in the next succeeding sentence) and Pinheiro Neto, special Brazilian counsel, and the fee of Lessee's advisor (not to exceed 0.5% of the Aircraft Price), in each case incurred in connection with the preparation, negotiation and delivery of this Agreement and any other documents, agreements or 14 instruments delivered in connection herewith up to a maximum amount in the aggregate of [*], and Lessee shall be responsible for and shall pay or reimburse Beneficiary for all such costs and expenses in excess of the aggregate amount of [*]. Lessee also shall be responsible for and shall pay or reimburse all costs and expenses relating to the Owner Trustee, including the annual fees and expenses of the Owner Trustee and the costs and expenses of Special FAA Counsel in qualifying the Trust Agreement with the FAA. All such costs and expenses of the parties to the transaction other than the Parties shall be evidenced by appropriate original bills or invoices, which shall be reasonably satisfactory in form and amount to the Beneficiary and, with respect to any amounts payable by Lessee, the Lessee. (f) NO WAIVER. The failure of any Party to enforce at any time any of the provisions of this Agreement or any document, agreement or instrument delivered hereunder, or to require at any time the performance by the other Party of any of the provisions hereof or thereof, shall in no way be construed to be a waiver of such provisions, nor in any way affect the validity of this Agreement or such document, agreement or instrument or any part thereof, or the right of such Party thereafter to enforce each and every such provision. The express waiver by any Party of any provision, condition or requirement of this Agreement or any document, agreement or instrument delivered hereunder shall not constitute a waiver of any future obligation to comply with such provision, condition or requirement. (g) SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provisions in any other jurisdiction. To the extent permitted by law, each of the Parties hereto hereby waives any provisions of law which renders any provisions hereof prohibited or unenforceable in any respect. (h) 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. (i) ENTIRE AGREEMENT; MODIFICATION OR REVISION. This Agreement and the other Operative Documents are, collectively, intended to be a complete and exclusive statement of the terms of the agreement of the Parties and this Agreement and the other Operative Documents supersede any prior or contemporaneous agreements, whether oral or in writing in relation to the transactions contemplated herein. None of this Agreement, any other Operative Document or any term hereof or thereof may be modified or waived except by an agreement in writing signed by the Parties. (j) HEADINGS. The headings of the Sections in this Agreement are inserted for convenience of reference only, and are not deemed to be part of this Agreement shall not in any way affect the interpretation thereof. (k) NO BROKER. (i) Seller hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, to any Person, other than Seabury Securities LLC, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement. (ii) Beneficiary and Owner Trustee each hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, to any Person, other than Tombo Aviation Inc., any commission, percentage, contingent fee, - ---------- * Confidential 15 brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement. (l) CONFIDENTIALITY. The Parties agree to keep the following information confidential: the Aircraft Price, Assignment No.1, Assignment No. 2 and the terms of the warranties relating to the Airframe, the Engine Warranty Assignment and Consent and the terms of the warranties relating to the Engines and such other information as any Party shall identify in writing to the other Parties as confidential information. This confidentiality obligation shall survive the termination of the Lease for a period of one year following such termination, except that if the Lease shall have been terminated following an Event of Default, Lessor and Beneficiary shall have the right to disclose such information as may be necessary in order to remarket the Aircraft and/or to enforce any remedy that may be available to it. Notwithstanding the foregoing, this Agreement, the other Operative Documents and all information supplied by either of the Parties hereunder or thereunder may be disclosed by any of the other Parties (1) as may be required by Law or by any court or administrative order, (2) to the extent that the substance hereof or thereof becomes public knowledge through no fault or negligence of such other party, (3) to such Party's professional advisers and to the Manufacturer and Engine Manufacturer, and (4) to any subsequent potential transferees of the Aircraft, the Trust Estate or an interest therein or the Beneficial Interest or to a Financing Party; PROVIDED that any such Person agrees to be bound by this Section 12(l). [signature page immediately follows] 16 IN WITNESS WHEREOF, the Parties hereto have duly executed this Aircraft Purchase Agreement [N288SK] as of the day and year first above written. SOLITAIR CORP. By: /s/ Doug Lambert ------------------------------------- Name: Doug Lambert Title: Vice President CHAUTAUQUA AIRLINES, INC. By: /s/ Robert H. Cooper ------------------------------------- Name: Robert H. Cooper Title: Vice President MITSUI & CO. (U.S.A.), INC. By: /s/ Kazuki Okamura ------------------------------------- Name: Kazuki Okamura Title: General Manager WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Owner Trustee By: /s/ Brett R. King ------------------------------------- Name: Brett R. King Title: Vice President EXHIBIT A TO PURCHASE AGREEMENT FORM OF BILL OF SALE KNOW ALL MEN BY THESE PRESENT THAT AERO LTD., a Cayman Islands corporation ("AERO"), whose address is [____________________], is the owner of good and marketable title to that certain EMB-145 LR Aircraft bearing Manufacturer's Serial No. [____], with two Rolls Royce Allison AE3007A1P engines bearing manufacturer's serial numbers CAE [_____] and CAE [____], with all appliances, parts, instruments, appurtenances, accessories, furnishings and/or other equipment or property incorporated in or installed on or attached to said aircraft, not including the galley equipment, serving equipment or emergency medical equipment (hereinafter collectively referred to as the "AIRCRAFT") purchased by WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity, but solely as trustee under a Trust Agreement dated as of June 5, 2001 between itself and MITSUI & CO. (U.S.A.), INC., a corporation organized and existing under the laws of the State of New York, with its principal place of business at 200 Park Avenue, New York, New York 10166 (the "PURCHASER"), under the Aircraft Purchase Agreement [N288SK], dated as of June 5, 2001, including Attachments, Exhibits, Letters, Amendments and Agreements by and between AERO and PURCHASER. THAT for and in consideration of the sum of US$10.00) and other valuable consideration, receipt of which is hereby acknowledged, AERO does this ___ day of _____, 2001, grant, convey, transfer bargain and sell, deliver and set over to PURCHASER and unto its successors and assigns forever, all of AERO's right, title and interest in and to the Aircraft. THAT AERO hereby represents and warrants to PURCHASER, its successors and assigns: (i) that AERO has good and marketable title to the Aircraft and the good and lawful right to the Aircraft and the good and lawful right to sell the same; and (ii) that good and marketable title to the Aircraft is hereby duly vested in PURCHASER free and clear of all claims, liens, encumbrances and rights of others of any nature. AERO hereby covenants and agrees to defend such title forever against all claims and demands whatsoever. This Full Warranty Bill of Sale is governed by the laws of the state of New York, United States of America. IN WITNESS WHEREOF, AERO has caused this instrument to be executed and delivered by its duly authorized officer and attorney in fact. Date as of __________, __, 2001. AERO LTD. By: ----------------------------- Name: Title: By: ----------------------------- Name: Title: EXHIBIT B TO PURCHASE AGREEMENT FORM OF ACCEPTANCE CERTIFICATE This undersigned WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity, but solely as trustee under a Trust Agreement, dated as of June 5, 2001 (the "TRUST AGREEMENT"), between MITSUI & CO. (U.S.A.), INC. and itself (the "PURCHASER"), hereby indicates and confirms to SOLITAIR CORP. (the "SELLER") and AERO LTD. ("AERO") and their respective successors and assigns that PURCHASER has at _____________a.m./p.m. (New York time) on this ______ day of June, 2001 (the "DELIVERY TIME"), and at the city of Sao Jose dos Campos, Sao Paulo, Brazil, accepted the following Aircraft, "as is, where is" in accordance with the provisions of the Aircraft Purchase Agreement, dated as of June 5, 2001, among PURCHASER, SELLER and Mitsui & Co. (U.S.A.), Inc., and does hereby consider it duly transferred to the ownership of PURCHASER, which from the Delivery Time on assumes the full responsibility for any and all damages and risks that may arise out of its ownership and operation: One EMB-145 LR Aircraft bearing Manufacturer's Serial No. 145461, with two Rolls Royce Allison AE3007A1P engines bearing manufacturer's serial numbers CAE 311866 and CAE 311867, with all appliances, parts, instruments, appurtenances, accessories, furnishings and/or other equipment or property incorporated in or installed on or attached to said aircraft (not including the galley equipment, serving equipment or emergency medical equipment), IN WITNESS WHEREOF, PURCHASER has caused this Acceptance Certificate to be executed in its name, by its duly authorized officers) or representative(s), pursuant to due corporate authority, this ___________ day of June. 2001. WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity, but solely as trustee under the Trust Agreement By: ------------------------------------- Name: Title: EXHIBIT A-2 Section 1. GENERAL CONDITIONS. "APPRAISAL PROCEDURE" means, if (x) the Beneficiary does not provide a Residual Notice to the Lessee as provided in Section 3(e) by the one hundred eightieth (180th) day prior to the Expiration Date (it being agreed that, if such Residual Notice is so given, the RVG Appraisal Procedure in Exhibit D-2 shall be used to determine Fair Market Sales Value, except as set forth in the last proviso to this sentence), and (y) the Lessor and the Lessee shall not have agreed on the Fair Market Sale Value of the Aircraft within thirty (30) days after Lessee gives notice pursuant to Section 3(c) that it is exercising its FMV Option, then Fair Market Sale Value shall be as specified in an appraisal prepared and delivered in New York City and mutually agreed to by two recognized independent aircraft appraisers, one of which shall be appointed by the Lessor and the other of which shall be appointed by the Lessee, in each case promptly after such one hundred eightieth (180th) day, or, if such appraisers cannot agree on such appraisal, an appraisal arrived at by a third independent recognized appraiser chosen by the mutual consent of the two aircraft appraisers, PROVIDED that if either party should fail to appoint an appraiser within fifteen (15) days of receiving notice of the appointment of an appraiser by the other party, then such appraisal shall be made by the appraiser appointed by the first party, and PROVIDED FURTHER, that if the two appraisers cannot agree on such appraisal and fail to appoint a third independent recognized aircraft appraiser within fifteen (15) days after the appointment of the second appraiser, then either party may apply to the American Arbitration Association to make such appointment, and PROVIDED FURTHER that the appraisal shall be completed within thirty (30) days of the appointment of the last appraiser so appointed, and PROVIDED FURTHER that, for purposes of Section 17.02 of the Lease, any determination of Fair Market Sales Value or Fair Market Rental Value pursuant to Section 17.02 of the Lease shall be made by a single recognized independent aircraft appraiser selected by Lessor and the costs and expenses associated therewith shall be borne by Lessee.. Each appraiser appointed pursuant to any of the foregoing procedures must be associated with a professional organization of aircraft appraisers and the appraised fair market sales values shall be determined by the appraisers pursuant to ISTAT 1994 appraisal methods, definitions and assumptions (or any successor thereto). Each of the Lessor and Lessee agrees to promptly provide the other Party with copies of any reports received by it from any appraiser hired by it in connection with the appraisal procedures described above. Except as otherwise expressly provided in the Lease and in the last proviso of the first paragraph of this definition of Appraisal Procedure, all appraisal costs will be shared equally by the Lessor and the Lessee; provided that if the Lessee elects not to renew the Lease or purchase the Aircraft following the conclusion of such appraisal, the Lessee shall pay all such appraisal costs. "ASSUMED TRANSACTION COSTS" means [*] "BASIC RENT" means the amount payable on each Rent Payment Date as set forth in Schedule BR1, as adjusted pursuant to Section 4.01) of the Lease, PROVIDED that each such amount shall be allocated among the Rental Periods as set forth in Schedule BR2, as adjusted pursuant to Section 4.01 of the Lease. "EARLY PURCHASE OPTION" means the purchase option exercisable by Lessee on the Early Purchase Date. - ------- * Confidential "DEFICIENCY GUARANTEE" means the Deficiency Guarantee Agreement, dated June 5, 2001, between the Manufacturer and Beneficiary. "FAIR MARKET RENTAL VALUE" means in respect of the Aircraft at any time, the aggregate base rentals (which shall in no event be less than zero) which would be payable in an arm's-length transaction for cash under a lease of the Aircraft on an "as is", "where is" basis and otherwise on terms substantially identical (except for Basic Rent and Term) to the terms of this Lease for such period of time as such Fair Market Rental Value is to be determined between a willing lessor and a willing lessee both with full knowledge of the relevant facts, including the actual condition and maintenance status of the Aircraft at such time, and neither under any compulsion to enter into the transaction. "FAIR MARKET SALE VALUE" means in respect of the Aircraft, if the Beneficiary does not provide a Residual Notice to the Lessee as provided in Section 3(e), an amount equal to the fair market sales value (which shall in no event be less than zero) which would be obtained in an arms' length retail transaction for a sale of the Aircraft, between an informed and willing buyer (other than a lessee currently in possession or a used equipment dealer) and an informed and willing seller, neither under any compulsion to buy or sell. In determining Fair Market Sale Value by appraisal or otherwise, it will be assumed that the Aircraft is in the condition, location and overhaul status in which it is required to be returned to the Lessor pursuant to Article XVIII of the Lease (without any allowance which may otherwise be permitted by Section 6 of EXHIBIT D-1), that the Lessee has removed all Parts which it is entitled to remove pursuant to Article IX of the Lease and that the Aircraft is not encumbered by the Lease, PROVIDED that if an Event of Default has occurred, then for purposes of Section 17.02 of the Lease, the Fair Market Sales Value of the Aircraft, the Airframe or any Engine shall be determined on an "as is, where is" basis and shall take into account customary brokerage and other out-of-pocket fees and expenses which typically would be incurred in connection with a sale of the Aircraft, the Airframe or any Engine. If the Beneficiary provides a Residual Notice as provided in Section 3(e), the definition of Fair Market Sale Value will be determined as provided in the definition of RVG Appraisal Procedure. "FMV OPTION" means the purchase option exercisable by the Lessee on the Expiry Date. "GUARANTEED AMOUNT" means [*]. "MAINTENANCE PROGRAM" means the Lessee's maintenance program, as such program may be from time to time amended and supplemented by Lessee and which (i) shall have been approved by the FAA ) and be in compliance with Part 121 of the Federal Aviation Regulations (as set forth in Title 14 of the U.S. Code of Federal Regulations), (ii) shall fully comply with the requirements of the FAA for the EMB-145 and Rolls-Royce Allison AE3007-A1P aero engines (or an improved model, as the case may be) installed thereon, and (iii) shall incorporate the requirements of the EMB-145 Scheduled Maintenance Requirements Document Part 1 ("SMRD"), the Aircraft Maintenance Manual ("AMM"), the Structural Repair Manual ("SRM"), the Corrosion Prevention and Correction Program ("CPCP") and the Original Equipment Manufacturers' ("OEMS") maintenance manuals, (all of the foregoing as from time to time amended or supplemented), the Service Newsletters and the service bulletins issued by the Manufacturer and all OEMs, provided, however, that when the Aircraft is subject to a Sublease, "Maintenance Program" shall mean any maintenance program approved by the relevant Aeronautical Authority for the Aircraft, Airframe and engines, as applicable, but only to the extent provided in the Sublease. . "MINIMUM LIABILITY AMOUNT" means [*]. "NET ECONOMIC RETURN" means the Beneficiary's nominal after-tax book yield (utilizing the multiple investment sinking fund method of analysis), computed through the Early Purchase Date and the Expiry Date on the basis of the same methodology, constraints and assumptions as were utilized by the - -------- * Confidential initial Beneficiary in determining Basic Rent and Stipulated Loss Values as of the Delivery Date; provided that, if the initial Beneficiary shall have transferred all or any portion of its interest, Net Economic Return shall be calculated as if the initial Beneficiary had retained its interest . "LEASE [N287SK]" means Aircraft Lease Agreement [N287SK], dated as of June 5, 2001 between an Other Lessor and Lessee. "LEASE [N288SK]"means Aircraft Lease Agreement [N288SK], dated as of June 5, 2001 between an Other Lessor and Lessee. "PBH AGREEMENT" has the meaning assigned in Exhibit D-1 or Exhibit D-2, as applicable. "PURCHASE PRICE" means, in the case of the Early Purchase Option, the higher of [*] and Stipulated Loss Value as listed in the column headed "Stipulated Loss Value" in Schedule SLV on the Early Purchase Date, and in the case of the FMV Purchase Option, the Fair Market Sale Value of the Aircraft as of the Expiry Date. "RESIDUAL VALUE GUARANTEE" means the Residual Value Guarantee Agreement, dated as of June 5, 2001, between the Beneficiary and the Manufacturer. "RVG APPRAISAL PROCEDURE" has the meaning specified in Section 9 of Exhibit D-2. "SCHEDULED DELIVERY DATE" means June 5, 2001, or such other date as may be notified to Lessee by the Manufacturer and agreed to by Lessor, but not later than August 31, 2001. "STIPULATED LOSS VALUE" means, with respect to any given date, the amount set forth in the column headed "Stipulated Loss Value" in Schedule SLV opposite such date or the next succeeding date in such column, in each case as adjusted pursuant to Section 4.01 of the Lease. Section 2. [RESERVED] Section 3. PURCHASE OPTION. (a) The Lessee may, at its option and upon written notice to Lessor as hereinafter provided, (i) so long as no Specified Default (other than an Event of Default described in Section 17.01(m) of the Lease) shall have occurred and be continuing, purchase the Aircraft at the Purchase Price on the date that is the fourteenth anniversary of the Delivery Date (the "EARLY PURCHASE DATE") (such purchase option, the "EARLY PURCHASE Option"), or (ii) so long as no Event of Default described in Section 17.02 (g), (h) and (i) shall have occurred and be continuing, on the Expiration Date (the "EXPIRY DATE") (such purchase option, the "FMV OPTION," and the Early Purchase Option and FMV Option each being herein referred to as a "LESSEE PURCHASE OPTION"). (b) In the event Lessee intends to exercise the Early Purchase Option on the Early Purchase Date, Lessee shall give irrevocable written notice to Lessor stating that it intends to so exercise the Early Purchase Option, which notice shall be delivered to Lessor not less than one hundred twenty (120) days nor more than three hundred sixty-five (365) days prior to the Early Purchase Date and shall set forth a reasonably detailed calculation of the amounts that will be due on the Early Purchase Date, PROVIDED that if Lessee fails to to deliver such notice not less than one hundred twenty (120) days prior to the Early Purchase Date, Lessee shall be deemed to have waived its right to exercise the Early Purchase Option. (c) In the event Lessee intends to exercise the FMV Option , Lessee shall give written notice to Lessor of its intent to exercise its FMV Option on the Expiry Date, which notice shall be delivered to Lessor not less than two hundred ten (210) days prior to the Expiry Date, PROVIDED that if Lessee fails to - ------- * Confidential deliver such notice not less than two hundred ten (210) days prior to the Expiry Date, Lessee shall be deemed to have waived its right to exercise the FMV Option. (d) After providing notice of its exercise of a Lessee Purchase Option, whether or not any purchase is consummated pursuant to a Purchase Option, Lessee shall pay all the out-of-pocket expenses of Lessor (including, but not limited to, reasonable legal fees) relating thereto or incurred in connection therewith, PROVIDED that, if Lessee revokes the exercise of its FMV Option as provided in Section 3(f) or such exercise is revoked as provided in Section 3(e), such costs shall be limited to appraisal costs and shall be paid as provided in the definition of the Appraisal Procedure or the RVG Appraisal Procedure, as applicable. (e) If (i) the Lessee has timely given the notice described in Section 3(c) that it is exercising the FMV Purchase Option, and (ii), the Beneficiary delivers notice to Lessee (such notice, a "RESIDUAL NOTICE") not less than one hundred eighty (180) days prior to the Expiry Date that Beneficiary has notified or is notifying the Manufacturer that it is demanding payment under the Residual Value Guarantee, the Fair Market Sales Value of the Aircraft shall be determined pursuant to the RVG Appraisal Procedure in Exhibit D-2. If (i) the Lessee has timely given the notice described in Section 3(c) that it is exercising the FMV Purchase Option and (ii) the Beneficiary does not so deliver a Residual Notice, the Fair Market Sales Value of the Aircraft shall be determined in accordance with the Appraisal Procedure in this Exhibit A-2. The Manufacturer shall have the right to notify Lessee and Beneficiary within 30 days after the determination of Fair Market Sales Value in accordance with the RVG Appraisal Procedure whether it will exercise its purchase option under the Residual Value Guarantee, in which case Lessee's exercise of the FMV Purchase Option shall be revoked and cancelled. (f) Unless the Lessee's purchase option is revoked under the preceding clause (e) by the Manufacturer's exercise of its purchase option under the Residual Value Guarantee, Lessee shall have the option of revoking its exercise of the FMV Purchase Option within forty-five (45) days after the determination of Fair Market Sales Value pursuant to the Appraisal Procedure or within fifteen (15) days following the determination of Fair Market Sales Value pursuant to the RVG Appraisal Procedure, but in either case not later than 105 days prior to the end of the Basic Term. (g) Upon the date specified by Lessee in the notice referred to in paragraph (b) or (c) of this Section 3, as applicable (and subject to revocation of the FMV Purchase Option as provided in Section 3(e) or Section 3(f)), Lessee shall pay the applicable Purchase Price for the Aircraft at the Payment Location and in the manner set forth in Section 4.02 of the Lease, together with (i) the amount of Basic Rent, if any, then due and unpaid on such date PLUS (ii) the amount of deferred Basic Rent, if any, as of such date as set forth in the column headed "Deferred Basic Rent" in Schedule SLV, MINUS (iii) the amount of prepaid Basic Rent, if any, as of such date as set forth in the column headed "Prepaid Basic Rent" in Schedule SLV, PLUS (iv) any Supplemental Rent unpaid as of such date. Upon receipt by Lessor of the amounts described in the preceding sentence, Lessor will transfer the Aircraft to Lessee on an "as is, where is" basis and without any representation or warranty except that it is transferring to Lessee title, free of Lessor's Liens, but subject to Liens arising by or through Lessee, and will, at Lessee's sole cost and expense, execute and deliver a bill of sale evidencing the same and such other instruments as Lessee may reasonably request to evidence such transfer and the release of the Aircraft from the terms of this Lease. (h) Upon delivery by the Lessor of the Aircraft and payment by the Lessee of all amounts payable by the Lessee under paragraph (g) above, the obligations of the Lessee to pay Rent (except for Supplemental Rent obligations surviving pursuant to Articles XIV and XV of the Lease or the Tax Indemnity Agreement or which have otherwise accrued but not been paid as of the Early Purchase Date or the Expiry Date) shall cease and the Term shall end. Section 4. ADDITIONAL CONDITIONS PRECEDENT. Lessor shall have received a copy of the Residual Value Guaranty and the Deficiency Guarantee, each duly executed and delivered by the Manufacturer. Section 5. RE-REGISTRATION. Lessor agrees that in connection with a Sublease to a Permitted Sublessee that is not a Section 1110 Person and that is not domiciled in the United States, Lessee may register the Aircraft in any country listed on EXHIBIT F hereto; subject to satisfaction of the requirements for such a Sublease in Section 8.01(c) of the Lease (including, without limitation, the requirements that no Specified Default shall have occurred and be continuing, such Permitted Sublessee has provided evidence satisfactory to Lessor of insurance coverage required by the XI with respect to the operation of the Aircraft by such Permitted Sublessee, and the Lessee has made the lump sum payment required by Section 8.01(c)(i) of the Lease, if any) and to the following conditions: (i) the Lessee shall pay all reasonable fees and expenses (including the reasonable fees and expenses of local counsel in such country) relating to such re-registration; (ii) the Lessee shall, at its cost, cause the interest of the Owner Trustee as owner of the Aircraft to be duly registered or recorded under the laws of such country and at all times thereafter to remain so duly registered or recorded unless and until the registration of the Aircraft is changed as provided herein, and shall, at its cost, cause to be done at all times all other acts including the filing, recording and delivery of any document or instrument and the payment of any sum necessary or, by reference to prudent industry practice in such country, advisable in order to create, preserve and protect such interest in the Aircraft as against the Lessee or any third parties in such jurisdiction, and the laws of such country would give effect to the Owner Trustee's title to and ownership interest in the Aircraft; (iii) the obligations of the Lessee (and of the Permitted Sublessee under a Sublease) and the rights and remedies of the Lessor shall remain or be, as the case may be, legal, valid, binding and enforceable in such country, and the courts of such country will respect the choice of New York law to govern the Lease; (iv) the Aeronautical Authority in the country of such re-registration imposes aircraft maintenance standards approved by, or at least as stringent as those approved by, the FAA the JAA or the central civil aviation authority of the United Kingdom, France, Germany, Japan, the Netherlands or Canada; (v) it shall not be necessary by reason of such re-registration or for purposes of enforcing remedies contained in the Lease or the related Sublease for the Owner Trustee or the Beneficiary to register or qualify to do business in such country; (vi) no Liens (except Permitted Liens) shall arise by reason of such re-registration; (vii) none of the Owner Trustee and the Beneficiary shall be subjected to any risk of adverse tax consequences in the jurisdiction in which the Aircraft is to be re-registered as a result of such re-registration for which the Lessee does not then indemnify or cause to be indemnified such Person in a manner satisfactory in form and substance to such Person; (viii) any export licenses and certificate of deregistration required in connection with any repossession or return of the Aircraft will be readily obtainable in the normal course without material delay or material burden on the Owner Trustee, it being agreed that the Lessee shall be responsible for the cost thereof; (ix) there is no tort liability of the owner or lessor of an aircraft not in possession thereof under the laws of such jurisdiction more onerous than under the laws of the United States or any state thereof (it being agreed that, in the event such opinion cannot be given in a form satisfactory to the Beneficiary, such opinion shall be waived if insurance reasonably satisfactory to the Beneficiary is provided to cover such risk); (x) unless Lessee shall have agreed to provide insurance reasonably satisfactory to the Beneficiary covering the risk of requisition of use of or title to the Aircraft by the government of such country (so long as the Aircraft is registered under the laws of such country), the laws of such country require fair compensation by the government of such country payable in currency freely convertible into Dollars and freely removable from such country (without license or permit, unless Lessee prior to such proposed re-registration has obtained such license or permit or such license or permit will be readily obtainable in the normal course without material delay or material burden on the Beneficiary) for the taking or requisition by such government of such use or title; (xi) the Beneficiary and the Owner Trustee shall have received opinions in scope, form and substance reasonably satisfactory to them, of counsel, expert in the laws of such country, to the effect set forth in clauses (ii), (iii) (with respect to the obligations of the Lessee under the Lease), (v), (vii), (viii), (ix) and (x) of this Section 5; (xii) such proposed change in registration is made in connection with a Sublease to a Permitted Sublessee domiciled in such country; and (xiii) Lessee shall deliver such request to Lessor and Beneficiary in writing at least 20 days in advance of the date of any such proposed change in registration. Section 6. RENEWAL TERM. Lessor agrees to enter into good faith discussions with Lessee regarding the potential renewal of this Lease at the end of the Basic Term for such period or periods (any such period, a "RENEWAL Term"), and at such amount or amounts of basic rent, as may be agreed upon by Lessor and Lessee at the time of such discussions; PROVIDED that nothing in this Section 7 of Exhibit A-2 shall be construed as an obligation on the part of Lessor to agree to any such Renewal Term. Lessee agrees that, notwithstanding anything to the contrary contained herein, Lessor shall be entitled to refuse to enter into any Renewal Term in the event that (i) the Residual Value Guarantee, or (ii) a substitute residual value guaranty that is substantially identical to the Residual Value Guarantee (as determined in the reasonable discretion of the Beneficiary) and is otherwise in form and substance satisfactory to the Beneficiary (with the obligor thereunder having a tangible net worth at least equal to the net worth of the Manufacturer immediately prior to the first day of such Renewal Term), shall not be available to Beneficiary during such Renewal Term. Lessee acknowledges that, as of the date hereof, Manufacturer has indicated that it does not intend to make the Residual Value Guarantee available to Beneficiary during any such Renewal Term. Section 7. ADJUSTMENTS TO BASIC RENT AND STIPULATED LOSS VALUES. The installments of Basic Rent in SCHEDULE BR1 attached hereto are based on the Assumed Aircraft Price being equal to [*] and on the Assumed Transaction Costs being equal to [*]. The amount of Basic Rent payable on each Rent Payment Date other than the first four (4) Rent Payment Date shall be increased or decreased by [*] for every increase or decrease of [*] of the Aircraft Price above or below the Assumed Aircraft Price. The amount of Basic Rent payable on each Rent Payment Date other than the first four (4) Rent Payment Date shall be decreased by [*] (or a proportionate part thereof) for every - -------- * Confidential decrease of [*] (or proportionate part thereof) of the Transaction Costs below the Assumed Transaction Costs. Section 8. [Reserved] Section 9. SELF-INSURANCE. Lessor and Lessee agree to engage in good faith discussions on the right of Lessee to self-insure in such amounts as may be agreed to by Lessor and Lessee at the time of such discussions. Nothing in this Section 5 shall be construed as an obligation on the part of Lessor or Beneficiary to agree to any such self-insurance provisions. Section 10. VOLUNTARY TERMINATION. (A) TERMINATION BY SALE OF AIRCRAFT. So long as no Specified Default shall have occurred and be continuing, the Lessee shall have the right at its option at any time after March 31, 2009 on at least 180 days', but not more than 365 days, prior written notice (which notice shall be irrevocable, except as provided below) to the Lessor, specifying a proposed date of termination which shall be a Termination Date, to terminate this Lease if the chief financial officer of the Lessee shall have certified in writing to the Lessor that the Aircraft shall have become obsolete or shall be surplus to the Lessee's equipment requirements. Subject to the Lessor's preemptive election under Section 10(c), during the period following the giving of such notice of termination until the Termination Date, the Lessee, as agent for the Lessor, shall endeavor to sell the Aircraft "as is", without any warranty by the Lessor or the Lessee except as to the Lessor's title, on behalf of the Lessor. If Lessee receives any bid, it shall at least 10 Business Days prior to the proposed day of sale, certify to Lessor in writing the amount and terms of such bid, such proposed date of sale and the name and address of the potential buyer (which shall not be Lessee or any Affiliate or any Person with whom Lessee or any Affiliate has any arrangement or understanding for the future purchase, lease, operation or use of the Aircraft). Lessor may also solicit bids directly or through agents other than Lessee. So long as the Lessor has not exercised its preemptive election under Section 10(c), the Lessee may, by notice to the Lessor, withdraw its notice of termination at any time on or before the date 10 days prior to the proposed Termination Date (unless such withdrawal is due to the cancellation of the proposed purchase of the Aircraft by the potential buyer in which event such notice may be given at any time on or prior to the proposed Termination Date), and thereupon this Lease shall continue in full force and effect. Withdrawal of notice of termination shall not exhaust the Lessee's right to give a further notice of termination as provided herein; provided that Lessee shall not be entitled to give more than two such notices (excluding one notice of termination which has been withdrawn due to the cancellation of the proposed purchase of the Aircraft by the potential buyer). Unless the Lessee shall withdraw its notice of termination as stated above or the Lessor shall have made a preemptive election to take possession of the Aircraft in accordance with Section 10(c), on the Termination Date, or such other date of sale as shall be consented to in writing by the Lessor and the Lessee, which date shall thereafter be deemed the Termination Date, the Lessee shall, upon payment in full of the amounts described in Section 10(b), deliver the Airframe and Engines or engines installed thereon to the party which shall have prior to such date submitted the highest bona fide cash bid to close such sale and purchase of the same, in the same manner as if delivery were being made to the Lessor pursuant to Article XVIII of the Lease, and shall duly transfer to such party title to any engines which are not Engines delivered with the Airframe in accordance with the terms of Article XVIII of the Lease. The Lessor shall, in "as-is, where-is" condition, without recourse or warranty (except a warranty as to the absence of Lessor's Liens), simultaneously therewith sell and convey title to the Airframe and the Engines or engines conveyed to the Lessor as provided in Article XVIII of the Lease for cash to such party. Upon the sale of the Airframe and the Engines or engines conveyed to the Lessor as provided in Article XVIII of the Lease pursuant to this Section 10 and receipt by the Lessor of all amounts referred to in Section 10(b), the Lessor will transfer to the Lessee, in "as-is, where-is" condition, without recourse or warranty (except a warranty as to the absence of Lessor's Liens), all right, title and interest of the Lessor in and to any Engines constituting part - -------- * Confidential of the Aircraft but which were not delivered to the purchaser with the Airframe. The Lessee shall pay all out of pocket expenses of the Lessor and Beneficiary in connection with any termination or proposed termination of this Lease except that Lessee shall not be responsible for such expenses of the Lessor or the Beneficiary in the event the Lessor exercises its preemptive election under Section 10(c) and thereafter fails to perform its obligations under such Section. (b) PAYMENTS DUE UPON SALE OF AIRCRAFT. The total selling price realized at any sale of the Airframe and Engines or engines installed thereon in accordance with this Section 10 shall be retained by the Lessor and, in addition, on the Termination Date, the Lessee shall pay to the Lessor or, in the case of Supplemental Rent, to the Persons entitled thereto, in immediately available funds, an amount equal to the sum of (A) the excess, if any, of (x) the Stipulated Loss Value as of the Termination Date, over (y) the net proceeds of the sale of the Aircraft, plus (B) the amount of unpaid Basic Rent, if any, payable as of such Termination Date, PLUS (C) the amount of deferred Basic Rent, if any, as of such Termination Date as set forth in the column headed "Deferred Basic Rent" in Schedule SLV, MINUS (D) the amount of prepaid Basic Rent, if any, as of such Termination Date as set forth in the column headed "Prepaid Basic Rent" in Schedule SLV, PLUS (E) all unpaid Supplemental Rent due on or before the Termination Date, PLUS (F) the reasonable fees and expenses of the Beneficiary and Lessor in connection therewith, PLUS (G) any sales, transfer or similar Taxes incurred on such sale. (c) PREEMPTIVE ELECTION BY LESSOR. Notwithstanding the foregoing provisions of this Section 10, the Lessor may, not later than 90 days prior to the proposed Termination Date, notify the Lessee of its preemptive election to take possession of the Aircraft and following delivery of such notice, the Lessee shall have no obligation to pay Stipulated Loss Value or any amount with respect to Stipulated Loss Value under this Section 10. On the Termination Date, if the Lessor shall have exercised its preemptive election to retain the Aircraft in accordance with the terms of this Section 10(c), the Lessee shall deliver the Airframe and Engines or engines installed thereon to the Lessor in accordance with Article XVIII of the Lease and shall pay all unpaid Basic Rent, if any, payable before the Termination Date, together with all Basic Rent (if payable in arrears) due on such Termination Date, all unpaid Supplemental Rent due on or before or after the Termination Date, and the Lessor shall transfer to the Lessee title to any Engines constituting part of the Airframes but which were not then installed on the Aircraft as provided in Section 18.03. (d) TERMINATION OF LEASE. Upon delivery by the Lessee of the Airframe and Engines or engines installed thereon and payment by the Lessee of all amounts payable by the Lessee under either Section 10(b) or 10(c), as the case may be, the obligations of the Lessee to pay Rent (except for Supplemental Rent obligations surviving pursuant to Articles XIV and XV of the Lease or the Tax Indemnity Agreement or which have otherwise accrued but not paid as of the Termination Date) shall cease and the Term shall end. (e) EFFECT OF NO SALE OR PREEMPTIVE DELIVERY TO LESSOR. If on the Termination Date no sale of the Aircraft shall have occurred and the Lessee has not delivered the Aircraft to the Lessor pursuant to Section 10(c), the Lessee's notice given pursuant to Section 10(a) shall be deemed to be withdrawn as of such date and this Lease shall continue in full force and effect. (f) NO DUTY ON PART OF LESSOR. Lessor shall be under no duty to solicit bids, to inquire into the efforts of Lessee to obtain bids or otherwise to take any action in connection with any such sale other than to cooperate with such efforts as Lessee may reasonably request and to make the transfers described in Section 10(a). EXHIBIT B PRINCIPAL AIRCRAFT DOCUMENTS A. MANUALS. OPERATIONAL 1. Airplane Flight Manual (AFM) 2. Weight & Balance Manual (WB) 3. Operations Manual (OM) 4. Quick Reference Handbook (QRH) 5. Dispatch Deviation Procedures Manual (DDPM) 6. Supplementary Performance Manual (SPM) 7. Operational Bulletins Set (OB) 8. Master Minimum Equipment List (MMEL) MAINTENANCE - BASIC SET 9. Aircraft Maintenance Manual (AMM) 10. Illustrated Parts Catalog (IPC) 11. Fault Isolation Manual (FIM) 12. Non Destructive Manual (NDI) 13. Scheduled Maintenance Requirements Document (SMRD) 14. Wiring Manual (WM) 15. Structural Repair Manual (SRM) 16. Service & Information Bulletins Set (SB/IB) 17. Service Newsletters (SNL) MAINTENANCE SUPPLEMENTARY SET 18. System Schematic Manual (SSM) 19. Instructions for Ground Fire Extinguishing and Rescue (IGFER) 20. Airport Planning (AP) 21. Illustrated tool & Equipment Manual (ITEM) 22. Task Card Manual (TCM) 23. Powerplant Build-up Manual (PPBM) 24. Auxiliary Power Unit Build up Manual (APUBM) 25. Corrosion Control Manual (CCM) 26. Vendor Service Publications Set The documents set forth in Clauses (B), (C), (D) and (E) of this Exhibit B shall only be required to be maintained by the Lessee (or any Permitted Sublessee) to the extent required by the FAA or the Maintenance Program. B. AIRWORTHINESS DIRECTIVES DOCUMENTATION 1. A single, complete and current AD status list of each airframe, appliances, Engine and APU AD and mandatory FAA regulation applicable to each Aircraft, appliances, Engine and APU including: a. AD number and revision number. b. AD title. c. Aircraft serial number, Engine serial number, APU serial number, appliance serial number. d. Engineering documentation reference. e. Manufacturer's Service Bulletin references and cross-references where appropriate. f. Specify terminated or repetitive status. g. Date of initial accomplishment, h. Date of last maintenance accomplishment, if repetitive. i. Name and serial number of the internal maintenance form used to document accomplishment, if applicable. j. State means by which compliance was accomplished (e.g. modified, repaired, inspected). The list shall be typed, certified and signed by authorized quality assurance representative of previous operator. 2. Legible copies of the completion documents that accomplish each A.D. If the A.D. is a repetitive inspection, documentation of the last accomplishment, signature of a certified mechanic and / or inspector, and the mechanic's / inspector's certificate number or repair station number of the mechanic accomplishing the work. The document must reference the A.D. number and company authorization, which covered the AD. 3. Exemptions or deviations granted by the FAA (or equivalent) to Lessor on AD compliance, including copy of exemption request. 4. Items 2 and 3 will be provided in individual document packages for each AD Each package will contain all documents relative to that AD / Aircraft combination. C. ENGINEERING DOCUMENTATION 1. A single, current list of Airframe, appliance, Engine and APU Service Bulletins, Engineering Orders, major repairs and Supplemental Type Certificates ("STC") accomplished on Aircraft, Engine and APU, including method and date of accomplishment, reference to engineering documentation, including related drawing and original signed documents where applicable shall be provided with information similar to that described in item B. 1. 2. A current copy of all Engineering documentation related to Aircraft alterations, repairs and configuration changes. This shall include documentation for work done by the manufacturer or any vendor. A current copy of all repairs that require follow-up action. 3. Data package covering all non-manufacturer / non-FAA-approved repairs or alterations, including the submittal to the FAA for an STC or Form 337, If applicable. 4. All open engineering deviations or Material Review Board ("MRB") records applicable to the Airframe, Engines and APU, components and piece parts. 5. Mapping of all exterior repairs and damage to the exterior of the Aircraft and Engines. Supporting data for each repair and damage shall be provided with information similar to items C-1 and C-2. D. ADDITIONAL DOCUMENTATION 2. Master Minimum Equipment List. 4. Monthly Reliability reports for one (1) year. 5. Accurate summary of the Maintenance Program. 6. Location map of emergency equipment with description. 7. Weight and balance current status. 8. Shop repair maintenance program specification for Engines and APU's. 9. JAA Form 1 or FAA Form 8130 certification for all components, as reasonably requested by Lessee. 10. Aircraft major equipment listing. 11. Passenger/cargo equipment list (seats, galleys. lavs, entertainment, etc.). 12. Avionics equipment list (includes P/N, model number and manufacturer and quantity). 13. Electronic logbook data, CD ROM or computer printouts, to the extent accepted by the FAA, but otherwise, historical flight log showing cumulative times for major inspection accomplishments, engine changes, APU, etc. 14. Complete paperwork for last "C" check. 15. Compass card and F.D.R. calibration documentation. 16. Copies of Aircraft registration and certificate of airworthiness. 17. List of previous owner / operators including dates, locations and aircraft times. E. INDIVIDUAL AIRCRAFT AND ENGINE RECORDS. 1. Incident report, if any. 2. Major structural damage reports, if any. 3. FAA Form 337 or equivalent JAA form or manufacturer's approval for major repair and alteration, if any, 4. Engines last shop visit report. 5. Documentation and records concerning the last Aircraft overhaul. 6. Copies of logbook entries for the last twelve (12) months of operation. 7. Declaration of Aircraft accident and major repairs, if any, 8. Provide historical data for all life limited parts and hard time components for the Airframe, Engines, and APU, if reasonably requested by Lessee. 9. Listing of Aircraft and Engine components status by P/N - S/N description position TBO-TSI-TSO-TSN (with respect to TSO or TSN, if available), total time, next Due Time, including, interpretation keys, if reasonably requested by Lessee. 10. APU- Same documentation as Items E. 8 and E. 9 above. 11. Certified letter with serial no.- total time/ total cycles- times to the next inspection and the time to the next inspection or removal of Engines and hard time component status list. 12. All Engine and APU records, up to and including the last major overhaul or heavy maintenance and shop visits (all modules) including life limited part history to birth. 13. Electrical load analysis documents and data. 14. The last power plant test cell run documents for Engines and APU 15. Borescope inspection documents for current installation for Engines. 17. Corrosion prevention control program. 18. Aircraft readiness log (manufacturer's) 19. Approvals (DAR/DER 8110-3s) for all modifications alterations not covered by Manufacturer's Service Bulletins or JAA equivalent (including appliances), 20. Fire blocking status for all seats, interior fabrics/materials, including burn test documentation and certification where applicable. 21. Aircraft detail specification. 22. Daily time and cycle log for Aircraft and Engines. Exhibit D-1 RETURN CONDITIONS This Exhibit D-1 shall be applicable unless Exhibit D-2 applies in accordance with its terms, in which case Exhibit D-2 shall supercede this Exhibit D-1 and shall be applicable. Section 1. General Conditions. At the time of return, the Aircraft shall (i) have been continuously and currently maintained in accordance with the Maintenance Program, (ii) comply with the Maintenance Program as authorized by the FAA, in each case as if the Aircraft were to be kept in further commercial passenger service by Lessee, and (iii) meet the following requirements: (a) Operating Condition - The Aircraft shall be in good operating condition, ordinary wear and tear excepted, with all of the Aircraft equipment, components, and systems functioning in accordance with their intended use irrespective of variations or deviations authorized by the Minimum Equipment List or Configuration Deviation List. All replacement equipment, parts, components or items installed on the Aircraft shall be manufactured by the original manufacturer approved by the Manufacturer or a manufacturer holding requisite authority of the FAA, and in case of used, rotable parts, have an FAA-approved serviceable tag. (b) Configuration - The Aircraft shall be in the same passenger configuration with all equipment installed therein as the Aircraft was when delivered under the Manufacturer Purchase Agreement, ordinary wear and tear excepted, including replacements and substitute parts and equipment. The Aircraft shall not suffer any modification or alteration (hereinafter "Modifications") after the Delivery Date provided however that Lessee may make Modifications to the Aircraft as long as they are included as factory-installed features in EMB-145 aircraft delivered to the Lessee subsequent to the delivery of the Aircraft. The term Modifications shall be deemed to include, but not be limited to (i) changes to the Aircraft structure, performance, weight and balance, (ii) changes which materially adversely affect the Aircraft's flight qualities, operational characteristics, operational safety, ease or cost of maintenance, spare parts interchangeability or replaceability, and (iii) substitution of different types of equipment or accessories which are not equivalent in cost value and/or operation capability to the equipment or accessories being replaced, and shall exclude (x) changes pursuant to service bulletins issued by the Manufacturer or the OEMs, and (y) mandatory changes required to be accomplished by Lessee hereunder. All permitted Modifications made to the Aircraft shall be in accordance with FAA-approved data, and Lessee shall provide complete data and documentation to substantiate their certification, approval, and methods of compliance (including, without limitation, a copy of the Aircraft Illustrated Parts Catalog and a copy of the Aircraft Interior Configuration document). A complete listing of all modifications and repairs performed shall be supplied together with the Aircraft. Modifications, other than permitted ones, shall be removed and the appropriate repairs to the Aircraft made prior to the day of return of the Aircraft. Page 1 (c) Certification - The Aircraft shall have, a valid and effective Certificate of Airworthiness of the type "Transport, Category (Passengers)" issued by the FAA, and shall be in full compliance with, and capable of registration under, the provisions of Part 121 of the U.S. Federal Aviation Regulations (or any successor legislation) and other US regulations applicable to the Aircraft's operation and continued airworthiness, without any restrictions, corrections, repairs, limitations, modifications or alterations or overhauls having to be performed to meet such standards. (d) General Appearance - The Aircraft shall be clean by commercial passenger airline standards, cosmetically acceptable, interior complete, and prepared to be placed into scheduled revenue airline operations. Interior items which may be broken shall be repaired or replaced. All decals, signs and placards shall be clean, secure and legible in the English language. The Aircraft shall meet the following minimum requirements: (i) Fuselage, Wings and Empennage - The fuselage shall be within Maintenance Program approved limits regarding dents and abrasions and loose or pulled rivets; all leading edges shall be within Maintenance Program approved limits regarding damage occurring since delivery; the airframe, Engines and wings shall be free of fuel, oil and hydraulic leaks so as to allow unrestricted operation; all leading edges and fuselage areas which are aerodynamically critical shall be free of any scab patches other than those required by the Manufacturer and shall be repaired with repairs which are permanent in nature in accordance with the SRM, or are made in accordance with the Manufacturer's approval or FAA approved data. (ii) Interior - Ceilings, sidewalls, bulkhead panels shall be clean, free of cracks and within Maintenance Program approved limits regarding dents; all carpets and seat covers shall be in good condition and clean and meet FAR fire resistance regulations; all seats shall be serviceable and in good condition. All safety equipment shall be installed at the correct stations, a loose equipment check list and location drawings shall accompany the Aircraft and a loose equipment inventory shall be drawn up on the Delivery Date and checked on the day of return of the Aircraft. (iii) Cockpit - All fairing panels shall be free of cracks and shall be clean; all floor coverings shall be clean and effectively sealed and secured, all seat covers and cushions shall be in good condition and clean and shall, as applicable, conform to FAA fire resistance regulations. All seats shall be fully serviceable and in good condition. All instruments and light panels shall be clean, secure and legible, function in accordance with their intended purpose and have all lighting operating properly. (iv) Landing, Gear and Wheel Wells - The landing gear and all wheel wells shall be clean, free of leaks, and repaired as necessary. The main and nose landing gear components and their associated actuators and parts shall be in a good operating condition. Page 2 (v) Cargo Compartment, Galleys and Toilets - All cargo compartment panels shall be installed and be in good condition so as to comply with extended range operations requirements. The cargo compartments, galleys and toilet of the Aircraft shall be in a clean and presentable condition and all cargo securing system components shall be serviceable; all galley inserts (to the extent delivered with the Aircraft) shall be redelivered with the Aircraft. (vi) Windows - Any delamination, and crazing of the windshields and cabin windows of the Aircraft shall be within approved limits of the Maintenance Program and shall be properly sealed. (vii) Doors - All the doors of the Aircraft shall be free moving, correctly rigged and properly sealed and all door assist mechanisms shall be charged in accordance with the AMM. (e) Airworthiness Directives and Service Bulletins - All FAA Airworthiness Directives and amendments or changes to Aviation Regulations issued by the FAA and applicable to the Aircraft which require compliance within a period of six (6) months following the day of return of the Aircraft (or the equivalent hours or cycles, based on the Lessee's EMB-145 last four (4) years of operation average monthly utilization) shall have been accomplished on a Terminating Action basis and in compliance with the issuing agency's and the manufacturer's associated service bulletins, regardless of any operator-specific waiver, deferral, or deviation from such directive or regulation. The Aircraft shall have installed on it all Manufacturer and OEM service bulletin kits requested by Lessee and actually received by Lessee in respect of the Aircraft, and if not installed, Lessee shall deliver them together with the Aircraft at no charge. (f) Deferred Maintenance - The Aircraft shall be free of all deferred or carried over maintenance items, including without limitation, any pilot log book reports, maintenance reports, and the Aircraft's Central Maintenance Computer reports. Any such deferred or carried over maintenance shall be promptly accomplished in a terminating manner prior to the return of the Aircraft at the end of the term of the Lease. (g) Corrosion - The Maintenance Program shall include a corrosion control program based on the corrosion prevention, treatment and correction criteria recommended by the Manufacturer in the CPCP. The Aircraft shall be free from corrosion or shall have been adequately treated in compliance with the Maintenance Program. Complete details of the corrosion control program, as well as a summary of specific corrosion correction, of the Aircraft in accordance with the Maintenance Program shall be available for delivery together with the Aircraft. This summary shall include Lessee's identifying the Manufacturer's task identifier and cross referencing, Lessee's identifier indicating status of accomplishment and findings and incorporation status relative to all recommended corrective and preventative actions. The hydraulic system and fuel tanks shall be free from contamination as demonstrated by a laboratory Page 3 report to be performed after the Aircraft is removed from service and delivered together with the Aircraft. (h) Leased Components - The Aircraft shall be free and clear of all Liens other than any Lessor's Liens and at return shall not have installed thereon any equipment, components and/or parts which are leased or loaned or otherwise owned by a third party. (i) Records - The Aircraft shall be accompanied by all Aircraft Documents. The Aircraft Documents shall be provided in English, and be in good condition, readable and capable of being reproduced. (i) All Parts, components and assemblies identified with safe-life, hard time or condition monitored limits (to the extent that such condition monitored items are to be tracked in accordance with the approved Maintenance Program) shall be provided with part number, serial number, their service histories, accumulated cycles and flight hours, safe-life, hard time or condition monitored limits and remaining service lives on a separate listing and where practicable, be physically verified as installed and have hard copy documentation (i.e., appropriate overhaul or serviceable vendor tags and work orders) to verify their service histories. (ii) All components and assemblies, which are, identified on the maintenance records by part numbers and/or serial numbers other than the Manufacturer's or other manufacturer's shall be provided with two-way cross-reference listing necessary to establish complete traceability. (iii) All documentation, flight records, and maintenance records as specified herein and as specified by Federal Aviation Regulations Sections 121.380, and, as applicable, Section 91.417 and 91.419 (or FAR's as amended), and which normally accompany the transfer of an aircraft or engine shall be delivered together with the Aircraft. In the event of missing or incomplete records, the tasks necessary to produce such complete records shall be accomplished in accordance with the Maintenance Program prior to return of the Aircraft. (iv) All documentation and records shall be in English and shall be made available for inspection in the location they are normally kept which location shall permit direct access to the Aircraft, at least 14 Business Days before the day of return of the Aircraft. (v) Any and all documentation, data, drawings, records and manuals as required to be maintained by the FAA and SMRD, shall be provided, regardless of whether such information is considered proprietary. (vi) Hard Landing inspection reports, Lightning Strike inspection reports or High Intensity Radiated Field (HIRF) check reports as may be required should Aircraft records show evidence of any occurrence indicating such inspections or checks to be necessary. Page 4 (vii) Corrosion Prevention & Control Program (CPCP) inspection findings and correction reports, as required by the Maintenance Program. The head of Lessee's quality control department shall sign a statement certifying that the data and information contained in the documentation and records are true and correct. (j) Exterior Markings - At time of return of the Aircraft, Lessee shall, at its cost remove from the exterior and interior of the Aircraft Lessee's operator specific exterior and interior markings. The area where such markings were removed or painted over shall be refurbished by Lessee as necessary to blend in with the surrounding surface in a good and workmanlike manner. (k) Overhaul and Repair - All components, rotables, and assemblies (including the Engines, APU, and landing gears) shall be documented with work orders, vendor serviceable tags, 8130 tags, form 337, etc. to have been repaired or overhauled by FAA-certified repair stations in such manner so that such components, rotables, assemblies, Engines, APU, and landing gears are approved by the FAA for use on United States-registered and certified aircraft. All overhaul and repair procedures shall have met all FAA requirements necessary to transfer to a new operator under Part 121 of the U.S. Federal Aviation Regulations. (l) Structural Repairs - All repairs that were performed since the Delivery Date and that then exist on the Aircraft shall conform to the SRM and the AMM and shall have FAA approval if required, including without limitation repairs related to impact damage to the Aircraft caused by ground handling equipment or foreign objects. All repairs not covered by the SRM or the AMM shall have been made in accordance with the Manufacturer's approval if required, which approval shall not be unreasonably be withheld and shall be provided with complete data and documentation to verify and substantiate their certification and methods of compliance. A complete listing of all repairs performed shall be supplied together with the Aircraft. Section 2. Condition of Airframe. On the day of return, the Aircraft shall be as follows: (a) C Check Inspection - The Airframe shall have completed, within 100 flight hours of return, the next sequential C check or any multiple thereof. If the Aircraft has logged more than 100 flight hours since the last C check or any multiple thereof, then Lessee shall perform the next scheduled C check or any multiple thereof, as applicable. All observed defects observed during such C check shall be rectified at Lessee's expense, in accordance with the Maintenance Program; (b) Structural and other scheduled Inspections - The Airframe shall have at least twelve (12) months, or two thousand (2,000) flight hours or cycles, whichever is applicable or most limiting, remaining before any scheduled structural tasks or maintenance inspections which are not included in (a) above. In the event that a structural task or maintenance inspection interval is less than the above, Lessee shall, at its expense, perform all such tasks immediately prior to return of the Aircraft; Page 5 (c) Landing Gear Life - The main Landing Gear and the nose Landing Gear shall have at least fifty percent (50%) of the cycles remaining prior to removal for overhaul in accordance with the Maintenance Program, and the landing gear total cycles since new ("TCSN") shall be no more than ten percent (10%) greater than the airframe TCSN; (d) Brakes - The brakes shall have no less than the C check brake wear limits with the brakes set at normal parking break pressure. The tires shall have a remaining useful life of at least fifty percent (50%). Section 3. Condition of Controlled Components. Aircraft and Engine hour or cycle controlled components or parts, at time of return to Lessor, shall have remaining, as a minimum, one half life and/or fifty percent (50%) of the Lessee's approved hour or cycle limit, whichever is applicable or most limiting, before any scheduled removals for overhaul, test, disassembly or replacement. All components or parts controlled on a calendar basis shall have at least twelve (12) months or fifty percent (50%) of its total approved life in hours or cycles, if greater, remaining before scheduled removal for testing, overhaul or replacement. However, if a component or part has a life, overhaul or check interval limit that is less than the above, Lessee shall, at its expense, perform all such tasks immediately prior to return. All such hour/cycle or calendar controlled components or parts are defined as those components or parts controlled under the Maintenance Program. Section 4. Condition of Installed Engines and APU. At time of return, each Engine shall be capable of certificated, full rated performance and its life limited parts ("LLP") will have at least fifty percent (50%) of cycles between installation and replacement under the Maintenance Program. (a) Time remaining - Each Engine shall have completed no more than 2,500 flight hours since new or since its last full performance restoration shop visit at which it was subject to a full engine management program rework, based on the reliability goals set out in the Rolls-Royce Alison workscope guide, which currently state that the workscope is designed to give 30 degrees centigrade of exhaust gas temperature margin and 5,000 flight hours of on-wing life. To the extent that the shop workscope guide is amended in the future to include different reliability goals then the engine shall have at least fifty percent (50%) of the on-wing hours remaining in accordance with such amended shop workscope guide. (b) Borescope Inspection - On each installed Engine an external visual inspection, accessory inventory check and video-taped borescope inspection in accordance with the requirements of the Maintenance Program shall be performed by Lessee or a designated representative as mutually agreed between Lessor and Lessee during the ground inspection per Section 7(a) of this Exhibit accompanied by a written report on the findings of such inspection herein and satisfactory evidence shall be provided to Lessor reflecting the correction of any discrepancies found during such inspection, which are in excess of the Engine Manufacturer's Maintenance Manual Airworthiness Limitations. Page 6 (c) Adverse Trend Data - Complete engine records, including but not limited to (i) Group A (Lifed) components (as listed in Engine Manufacturer's Time Limits Manual) as approved by the FAA and (ii) in flight performance data and (iii) shop visit reports from all shop visits, shall be made available to Lessor for review and evaluation. If the Aircraft and/or engine historical and maintenance records and/or trend monitoring indicate a rate of acceleration in performance deterioration or oil consumption on any installed engine beyond the limits of the Maintenance Program, the causes of such conditions shall have been corrected prior to the return date. (d) Oil spectrum analysis - an oil spectrum analysis shall be made on the installed Engines after the Aircraft is removed from service and a written report shall be made available together with the Aircraft. Any discrepancies found in the engine's lubrication system -which are in excess of the Engine Manufacturer's Maintenance Manual Airworthiness limitations shall have been corrected prior to the return date. (e) APU Life - The installed APU shall have remaining at least fifty percent (50%) of the expected mean time before removal as evidenced by the Lessee's demonstrated on-wing last two years average for APU hours, before scheduled removal for overhaul, heavy maintenance, or replacement of hour limited or LCF parts at the time of return. The APU shall have a video taped borescope inspection and magnetic plug inspection during the ground inspection per Section 7(a) of this Exhibit D-1. Section 5. Provision for "Power-By-The Hour Agreements". If the Engines, APU, or any other hour or cycle controlled components on the day of return are maintained under valid PBH Agreements (as defined below) (and either have been maintained throughout the Term under PBH Agreements, or Lessee has made payments to the maintenance provider to cover the period in which such components where not under such PBH Agreements), under which the Lessee is current on all payments and otherwise in good standing, then, in lieu of the relevant requirements in Sections 2(c), 2(d), 3, 4(a) or 4(e) of this Exhibit D-1, the Lessee shall return each such component in such condition as shall make it eligible for continued maintenance under PBH Agreements, without additional costs, start-up charges, or overhaul requirements. For the purposes hereof, a "PBH Agreement" shall mean a "power-by-the-hour" maintenance program, provided by the Engines, APU or component manufacturer or its successor or designee, providing full maintenance (other than routine day-to-day maintenance; provided, that foreign-object damage and abuse may be excluded or separately charged) for the Engines, APU or such components at no cost other than standard per-cycle rates (i.e., excluding charges based on the current maintenance status of such component), all benefits of which program, including but not limited to the payments made by Lessee under such PBH Agreements while operating the Aircraft, shall be assignable or otherwise transferable to any other carrier. Notwithstanding the foregoing, each such Engine, APU and other hour or cycle controlled component shall have not less twelve months of expected time before overhaul or major refurbishment, whichever is applicable, based upon Lessee's average experience during the immediately preceding 2 year period. Page 7 Section 6. Return Condition Adjustment. (a) Each item referred to in Sections 2(c), 2(d), 3, the first two lines of Section 4 and in Section 4(a) and 4(e) (each such item, an "Adjustable Item" and each such section, an "Adjustable Return Condition") may be returned with less than the required limits, subject, however, to the minimum requirements set forth in item (e) below. (b) If the Lessee does not meet the conditions set forth for an Adjustable Item in the relevant Adjustable Return Condition then Lessee shall pay to the Lessor (for deficient condition) an Equivalency Payment in accordance with the following formula: [*] The components of the formula above shall be as agreed between Lessor and Lessee. If Lessor and the Lessee fail to reach agreement on any components of the above formula, such amount will be determined as the average price that would be charged by a third party to restore the Aircraft to the conditions required under the Lease and this Exhibit D-1, based on one quotation obtained by Lessor and one quotation obtained by Lessee, both from a reputable, FAA and Manufacturer-approved EMB-145 repair station in the United States. If the prices of such quotations differ by more than [*], Lessor and Lessee shall obtain a third quotation from another reputable, FAA and Manufacturer-approved EMB-145 repair station in the United States, the quotation which is farthest from the average of all three quotations shall be disregarded and the average of the two remaining quotations shall be binding upon Lessor and Lessee as the components of the formula. (c) The Equivalency Payment for each return condition of each Adjustable Item in the relevant Section referred to in the first paragraph of this Section 6, whether positive or negative, shall be aggregated in order to determine the total Equivalency Payment due from Lessee. (For clarification, items in more than the - ---------- * Confidential Page 8 required condition shall be netted against items in less than the required condition when determining the amount of the total payment due, provided however that such netting is only applicable to the following major components: Engines, APU and landing gear). If the cumulative Equivalency Payment after such netting is negative, it shall be deemed to be zero. (d) [intentionally omitted] (e) Notwithstanding the Equivalency Payment that may be otherwise payable or available under this Section 6, if: (i) Any installed Engine has less than the number of on-wing hours remaining before overhaul or major refurbishment, in accordance with the Maintenance Program, for such overhaul or major refurbishment to be scheduled not earlier than one year after the date of redelivery, (ii) Any Engine life limited part has a remaining useful life until the next scheduled replacement of not less than one year after the date of redelivery, (iii) The APU has remaining less than one year of the expected life before removal, (iv) The main landing gear or the nose landing gear has less than the number of cycles remaining prior to removal for overhaul, for such removal for overhaul to be scheduled not earlier than one year after the date of redelivery or, the cycles exceed one hundred and ten percent (110%) of the airframe cycles, or (v) The brakes have less than the C check brake wear limits with the brakes set at normal parking break pressure, or the tires have a remaining useful life of less than one year after the date of redelivery, then, in any such case, Lessee shall, at its own cost and expense, overhaul, refurbish and/or replace each non-complying item so that it meets the applicable level specified in items (i) through (v) above. For avoidance of doubt, this Section 6 shall be applicable whether or not the Engines, APU or any other hour or cycle controlled component is maintained under a PBH Agreement, as contemplated by Section 5. Section 7. Inspection Upon Return Lessor shall have the right to inspect the Aircraft upon return, and the following conditions shall apply: (a) Ground Inspection - The Aircraft, including the Aircraft Documents, shall be made available to Lessor for ground inspection by Lessor or its designee at Lessee's facilities. Such inspection shall commence no later than fourteen (14) Business Days prior to the date of return of the Aircraft. Lessee shall remove the Aircraft from scheduled service and open the areas of the Aircraft as required to perform the necessary checks as specified in Section 2 of this Exhibit D-1. In Page 9 addition, Lessee shall allow Lessor to accomplish its inspection to determine that the Aircraft, including the Aircraft Documents are in the condition set forth in Sections 1, 2, 3 and 4 of this Exhibit D-1. During such checks, Lessor's personnel shall have the right to reasonably request that adjacent additional panels or areas be opened in order to allow further inspection by Lessor's personnel. (b) Operational Ground Check - Lessee shall conduct an operations ground check on the Aircraft in accordance with the Maintenance Program manual criteria for the purpose of demonstrating to Lessor the satisfactory operation of the systems, including a full fuel tank leak check, pilot and static systems check and hydraulic system internal leak check. (c) Operational Test Flight - The Aircraft shall be test flown by Lessee, using qualified flight test personnel, for the amount of time necessary to satisfactorily demonstrate the airworthiness of the Aircraft and the proper functioning of all systems and components in accordance with the agreed check flight procedures. During such test flight command, care, custody and control of the Aircraft shall remain at all times with Lessee. Up to five (5) of Lessor's designated representatives (or more if mutually agreed) may participate in such flight as observers. Upon completion of such operational flight-testing, the representatives of Lessee and Lessor participating in such testing shall agree in writing upon any discrepancies required to be corrected by Lessee in order to comply with the conditions required hereunder. (d) Discrepancies - If requested by Lessor in writing, all discrepancies, which are noted during the inspection and acceptance flight(s), shall be corrected at Lessee's expense. If such discrepancies are substantiated by the Maintenance Program and Lessor determines that repairs, modifications or other work items are required to cause the Aircraft to comply with the requirements provided herein, including, without limitation, any maintenance required so that the Engines will meet all Engine parameters and trends specified by the Maintenance Program, Lessee shall cause such repairs and other work items to be commenced and completed prior to return. Section 8. Delegation. Lessee agrees that whenever a determination under this Exhibit D-1 is to be made by, or a right is granted to, the Lessor, the Lessor may, at its option, allow the Manufacturer to make such determination or exercise such right. Section 9. Definitions. For the purpose of this Exhibit D-1, the following terms have the following meanings: "APU" shall mean the auxiliary power unit bearing serial number __________, and any substitute APU which may from time to time be substituted therefor pursuant to the terms of the Lease. Page 10 "CALENDAR CONTROLLED COMPONENTS OR PARTS" means those components or parts, which are identified in the MRB Report which have maintenance tasks at specific calendar-time intervals. "CYCLE-CONTROLLED COMPONENTS OR PARTS" means those components or parts, which are identified in the MRB Report which have maintenance tasks at specific flight-cycle intervals. "HOUR-CONTROLLED COMPONENTS OR PARTS" means those components or parts, which are identified in the MRB Report which have maintenance tasks at specific flight-hour intervals. "LIFE CYCLE FATIGUE ("LCF") PARTS" means those rotating parts which have specific cycle limits as specified by the manufacturer to preclude cycle fatigue failures. "MAINTENANCE REVIEW BOARD REPORT ("MRB REPORT")" means the report published by the maintenance review board detailing the intervals and description of the maintenance tasks and, where applicable, the life limits required for continued airworthiness of the Aircraft. Where the intervals specified in the MRB Report differ from the limit specified by the component manufacturer, the MRB Report shall take precedence. "TERMINATING ACTION" means the alteration or modification of the Aircraft in accordance with mandatory service bulletins, orders, airworthiness directives, and instructions required to eliminate repetitive inspections or maintenance action. Page 11 Exhibit D-2 RETURN CONDITIONS This Exhibit D-2 shall be applicable only if Beneficiary notifies Lessee not later than one hundred eighty (180) days prior to the end of the Basic Term that Beneficiary is demanding payment of a deficiency amount under the Residual Value Guarantee except that this Exhibit D-2 shall be assumed to apply for the purposes stated in the definition of "RVG Appraisal Procedure". Section 1. General Conditions. At the time of return, the Aircraft shall (i) have been continuously and currently maintained in accordance with the Maintenance Program, (ii) comply with the Maintenance Program as authorized by the FAA, in each case as if the Aircraft were to be kept in further commercial passenger service by Lessee, and (iii) meet the following requirements: (a) Operating Condition - The Aircraft shall be in good operating condition, ordinary wear and tear excepted, with all of the Aircraft equipment, components, and systems functioning in accordance with their intended use irrespective of variations or deviations authorized by the Minimum Equipment List or Configuration Deviation List. All replacement equipment, parts, components or items installed on the Aircraft shall be manufactured by the original manufacturer approved by the Manufacturer or a manufacturer holding requisite authority of the FAA, and in case of used, rotable parts, have an FAA-approved serviceable tag. (b) Configuration - The Aircraft shall be in the same passenger configuration with all equipment installed therein as the Aircraft was when delivered under the Manufacturer Purchase Agreement, ordinary wear and tear excepted, including replacements and substitute parts and equipment. The Aircraft shall not suffer any modification or alteration (hereinafter "Modifications") after the Delivery Date provided however that Lessee may make Modifications to the Aircraft as long as they are included as factory-installed features in EMB-145 aircraft delivered to the Lessee subsequent to the delivery of the Aircraft. The term Modifications shall be deemed to include, but not be limited to (i) changes to the Aircraft structure, performance, weight and balance, (ii) changes which materially adversely affect the Aircraft's flight qualities, operational characteristics, operational safety, ease or cost of maintenance, spare parts interchangeability or replaceability, and (iii) substitution of different types of equipment or accessories which are not equivalent in cost value and/or operation capability to the equipment or accessories being replaced, and shall exclude (x) changes pursuant to service bulletins issued by the Manufacturer or the OEMs, and (y) mandatory changes required to be accomplished by Lessee hereunder. All permitted Modifications made to the Aircraft shall be in accordance with FAA-approved data, and Lessee shall provide complete data and documentation to substantiate their certification, approval, and methods of compliance (including, without limitation, a copy of the Aircraft Illustrated Parts Catalog and a copy of the Aircraft Interior Configuration document). A complete listing of all modifications and repairs performed shall be supplied together with the Aircraft. Exhibit D-2 Page 1 Modifications, other than permitted ones, shall be removed and the appropriate repairs to the Aircraft made prior to the day of return of the Aircraft. (c) Certification - The Aircraft shall have, a valid and effective Certificate of Airworthiness of the type "Transport, Category (Passengers)" issued by the FAA, and shall be in full compliance with, and capable of registration under, the provisions of Part 121 of the U.S. Federal Aviation Regulations (or any successor legislation) and other US regulations applicable to the Aircraft's operation and continued airworthiness, without any restrictions, corrections, repairs, limitations, modifications or alterations or overhauls having to be performed to meet such standards. (d) General Appearance - The Aircraft shall be clean by commercial passenger airline standards, cosmetically acceptable, interior complete, and prepared to be placed into scheduled revenue airline operations. Interior items which may be broken shall be repaired or replaced. All decals, signs and placards shall be clean, secure and legible in the English language. The Aircraft shall meet the following minimum requirements: (i) Fuselage, Wings and Empennage - The fuselage shall be within Maintenance Program approved limits regarding dents and abrasions and loose or pulled rivets; all leading edges shall be within Maintenance Program approved limits regarding damage occurring since delivery; the airframe, Engines and wings shall be free of fuel, oil and hydraulic leaks so as to allow unrestricted operation; all leading edges and fuselage areas which are aerodynamically critical shall be free of any scab patches other than those required by the Manufacturer and shall be repaired with repairs which are permanent in nature in accordance with the SRM, or are made in accordance with the Manufacturer's approval. (ii) Interior - Ceilings, sidewalls, bulkhead panels shall be clean, free of cracks and within Maintenance Program approved limits regarding dents; all carpets and seat covers shall be in good condition and clean and meet FAR fire resistance regulations; all seats shall be serviceable and in good condition. All safety equipment shall be installed at the correct stations, a loose equipment check list and location drawings shall accompany the Aircraft and a loose equipment inventory shall be drawn up on the Delivery Date and checked on the day of return of the Aircraft. (iii) Cockpit - All fairing panels shall be free of cracks and shall be clean; all floor coverings shall be clean and effectively sealed and secured, all seat covers and cushions shall be in good condition and clean and shall, as applicable, conform to FAA fire resistance regulations. All seats shall be fully serviceable and in good condition. All instruments and light panels shall be clean, secure and legible, function in accordance with their intended purpose and have all lighting operating properly. (iv) Landing, Gear and Wheel Wells - The landing gear and all wheel wells shall be clean, free of leaks, and repaired as necessary. The main and Exhibit D-2 Page 2 nose landing gear components and their associated actuators and parts shall be in a good operating condition. (v) Cargo Compartment, Galleys and Toilets - All cargo compartment panels shall be installed and be in good condition so as to comply with extended range operations requirements. The cargo compartments, galleys and toilet of the Aircraft shall be in a clean and presentable condition and all cargo securing system components shall be serviceable; all galley inserts (to the extent delivered with the Aircraft) shall be redelivered with the Aircraft. (vi) Windows - Any delamination, and crazing of the windshields and cabin windows of the Aircraft shall be within approved limits of the Maintenance Program and shall be properly sealed. (vii) Doors - All the doors of the Aircraft shall be free moving, correctly rigged and properly sealed and all door assist mechanisms shall be charged in accordance with the AMM. (e) Airworthiness Directives and Service Bulletins - All FAA Airworthiness Directives and amendments or changes to Aviation Regulations issued by the FAA and applicable to the Aircraft which require compliance within a period of six (6) months following the day of return of the Aircraft (or the equivalent hours or cycles, based on the Lessee's EMB-145 last four 4) years of operation average monthly utilization) shall have been accomplished on a Terminating Action basis and in compliance with the issuing agency's and the manufacturer's associated service bulletins, regardless of any operator-specific waiver, deferral, or deviation from such directive or regulation. The Aircraft shall have installed on it all Manufacturer and OEM service bulletin kits requested by Lessee and actually received by Lessee in respect of the Aircraft, and if not installed, Lessee shall deliver them together with the Aircraft at no charge. (f) Deferred Maintenance - The Aircraft shall be free of all deferred or carried over maintenance items, including without limitation, any pilot log book reports, maintenance reports, and the Aircraft's Central Maintenance Computer reports. Any such deferred or carried over maintenance shall be promptly accomplished in a terminating manner prior to the return of the Aircraft at the end of the term of the Lease. (g) Corrosion - The Maintenance Program shall include a corrosion control program based on the corrosion prevention, treatment and correction criteria recommended by the Manufacturer in the CPCP. The Aircraft shall be free from corrosion or shall have been adequately treated in compliance with the Maintenance Program. Complete details of the corrosion control program, as well as a summary of specific corrosion correction, of the Aircraft in accordance with the Maintenance Program shall be available for delivery together with the Aircraft. This summary shall include Lessee's identifying the Manufacturer's task identifier and cross referencing, Lessee's identifier indicating status of accomplishment and findings and incorporation status relative to all Exhibit D-2 Page 3 recommended corrective and preventative actions. The hydraulic system and fuel tanks shall be free from contamination as demonstrated by a laboratory report to be performed after the Aircraft is removed from service and delivered together with the Aircraft. (h) Leased Components - The Aircraft shall be free and clear of all Liens other than any Lessor's Liens and at return shall not have installed thereon any equipment, components and/or parts which are leased or loaned or otherwise owned by a third party. (i) Records - The Aircraft shall be accompanied by all Aircraft Documents. The Aircraft Documents shall be provided in English, and be in good condition, readable and capable of being reproduced. (i) All Parts, components and assemblies identified with safe-life, hard time or condition monitored limits (to the extent that such condition monitored items are to be tracked in accordance with the approved Maintenance Program) shall be provided with part number, serial number, their service histories, accumulated cycles and flight hours, safe-life, hard time or condition monitored limits and remaining service lives on a separate listing and where practicable, be physically verified as installed and have hard copy documentation (i.e., appropriate overhaul or serviceable vendor tags and work orders) to verify their service histories. (ii) All components and assemblies, which are, identified on the maintenance records by part numbers and/or serial numbers other than the Manufacturer's or other manufacturer's shall be provided with two-way cross-reference listing necessary to establish complete traceability. (iii) All documentation, flight records, and maintenance records as specified herein and as specified by Federal Aviation Regulations Sections 121.380, and, as applicable, Section 91.417 and 91.419 (or FAR's as amended), and which normally accompany the transfer of an aircraft or engine shall be delivered together with the Aircraft. In the event of missing or incomplete records, the tasks necessary to produce such complete records shall be accomplished in accordance with the Maintenance Program prior to return of the Aircraft. (iv) All documentation and records shall be in English and shall be made available for inspection in the location they are normally kept which location shall permit direct access to the Aircraft, at least 14 Business Days before the day of return of the Aircraft. (v) Any and all documentation, data, drawings, records and manuals as required to be maintained by the FAA and SMRD, shall be provided, regardless of whether such information is considered proprietary. (vi) Hard Landing inspection reports, Lightning Strike inspection reports or High Intensity Radiated Field (HIRF) check reports as may be required Exhibit D-2 Page 4 should Aircraft records show evidence of any occurrence indicating such inspections or checks to be necessary. (vii) Corrosion Prevention & Control Program (CPCP) inspection findings and correction reports, as required by the Maintenance Program. The head of Lessee's quality control department shall sign a statement certifying that the data and information contained in the documentation and records are true and correct. (j) Exterior Markings - At time of return of the Aircraft, Lessee shall, at its cost remove from the exterior and interior of the Aircraft Lessee's operator specific exterior and interior markings. The area where such markings were removed or painted over shall be refurbished by Lessee as necessary to blend in with the surrounding surface in a good and workmanlike manner. (k) Overhaul and Repair - All components, rotables, and assemblies (including the Engines, APU, and landing gears) shall be documented with work orders, vendor serviceable tags, 8130 tags, form 337, etc. to have been repaired or overhauled by FAA-certified repair stations in such manner so that such components, rotables, assemblies, Engines, APU, and landing gears are approved by the FAA for use on United States-registered and certified aircraft. All overhaul and repair procedures shall have met all FAA requirements necessary to transfer to a new operator under Part 121 of the U.S. Federal Aviation Regulations. (l) Structural Repairs - All repairs that were performed since the Delivery Date and that then exist on the Aircraft shall conform to the SRM and the AMM and shall have FAA approval if required, including without limitation repairs related to impact damage to the Aircraft caused by ground handling equipment or foreign objects. All repairs not covered by the SRM or the AMM shall have been made in accordance with the Manufacturer's approval if required, which approval shall not be unreasonably be withheld and shall be provided with complete data and documentation to verify and substantiate their certification and methods of compliance. A complete listing of all repairs performed shall be supplied together with the Aircraft. Section 2. Condition of Airframe. On the day of return, the Aircraft shall be as follows: (a) C Check Inspection - The Airframe shall have completed, within 100 flight hours of return, the next sequential C check or any multiple thereof. If the Aircraft has logged more than 100 flight hours since the last C check or any multiple thereof, then Lessee shall perform the next scheduled C check or any multiple thereof, as applicable. All observed defects observed during such C check shall be rectified at Lessee's expense, in accordance with the Maintenance Program; (b) Structural and other scheduled Inspections - The Airframe shall have at least twelve (12) months, or two thousand (2,000) flight hours or cycles, whichever is applicable or most limiting, remaining before any scheduled structural tasks or Exhibit D-2 Page 5 maintenance inspections which are not included in (a) above. In the event that a structural task or maintenance inspection interval is less than the above, Lessee shall, at its expense, perform all such tasks immediately prior to return of the Aircraft; (c) Landing Gear Life - The main Landing Gear and the nose Landing Gear shall have at least fifty percent (50%) of the cycles remaining prior to removal for overhaul in accordance with the Maintenance Program, and the landing gear total cycles since new ("TCSN") shall be no more than ten percent (10%) greater than the airframe TCSN; (d) Brakes - The brakes shall have no less than the C check brake wear limits with the brakes set at normal parking break pressure. The tires shall have a remaining useful life of at least fifty percent (50%). Section 3. Condition of Controlled Components. Aircraft and Engine hour or cycle controlled components or parts, at time of return to Lessor, shall have remaining, as a minimum, one half life and/or fifty percent (50%) of the Lessee's approved hour or cycle limit, whichever is applicable or most limiting, before any scheduled removals for overhaul, test, disassembly or replacement. All components or parts controlled on a calendar basis shall have at least twelve (12) months or fifty percent (50%) of its total approved life in hours or cycles, if greater remaining before scheduled removal for testing, overhaul or replacement. However, if a component or part has a life, overhaul or check interval limit that is less than the above, Lessee shall, at its expense, perform all such tasks immediately prior to return. All such hour/cycle or calendar controlled components or parts are defined as those components or parts controlled under the Maintenance Program. Section 4. Condition of Installed Engines and APU. At time of return, each Engine shall be capable of certificated, full rated performance and its life limited parts ("LLP") will have at least fifty percent (50%) of cycles between installation and replacement under the Maintenance Program. (a) Time remaining - Each Engine shall have completed no more than 2,500 flight hours since new or since its last full performance restoration shop visit at which it was subject to a full engine management program rework, based on the reliability goals set out in Rolls-Royce Alison workscope guide, which currently state that the workscope is designed to give 30 degrees centigrade of exhaust gas temperature margin and 5,000 flight hours of on-wing life. To the extent that the shop workscope guide is amended in the future to include different reliability goals then the engine shall have at least fifty percent (50%) of the on-wing hours remaining in accordance with such amended shop workscope guide. (b) Borescope Inspection - On each installed Engine an external visual inspection, accessory inventory check and video-taped borescope inspection in accordance with the requirements of the Maintenance Program shall be performed by Lessee or a designated representative as mutually agreed between Lessee and Lessor Exhibit D-2 Page 6 during the ground inspection per Section 7(a) of this Exhibit D-2 accompanied by a written report on the findings of such inspection herein and satisfactory evidence shall be provided to Lessor reflecting the correction of any discrepancies found during such inspection. (c) Adverse Trend Data - Complete engine records, including but not limited to (i) Group A (Lifed) components (as listed in Engine Manufacturer's Time Limits Manual) as approved by the FAA and (ii) in flight performance data and (iii) shop visit reports from all shop visits, shall be made available to Lessor for review and evaluation. If the Aircraft and/or engine historical and maintenance records and/or trend monitoring indicate a rate of acceleration in performance deterioration or oil consumption on any installed engine beyond the limits of the Maintenance Program, the causes of such conditions shall have been corrected prior to the return date. (d) Oil spectrum analysis - an oil spectrum analysis shall be made on the installed Engines after the Aircraft is removed from service and a written report shall be made available together with the Aircraft. Any discrepancy found in the engine's lubrication system shall have been corrected prior to the return date. (e) APU Life - The installed APU shall have remaining at least fifty percent (50%) of the expected mean time before removal as evidenced by the Lessee's demonstrated on-wing last two years average for APU hours, before scheduled removal for overhaul, heavy maintenance, or replacement of hour limited or LCF parts at the time of return. The APU shall have a video taped borescope inspection and magnetic plug inspection during the ground inspection per Section 7(a) of this Exhibit D-2. Section 5. Provision for "Power-By-The Hour Agreements". If the Engines, APU, or any other hour or cycle controlled components on the day of return are maintained under valid PBH Agreements (as defined below) (and either have been maintained throughout the Term under PBH Agreements, or Lessee has made payments to the maintenance provider to cover the period in which such components where not under such PBH Agreements), under which the Lessee is current on all payments and otherwise in good standing, then, in lieu of the relevant requirements in Sections 2(c), 2(d), 3, 4(a) or 4(e) of this Exhibit D-2, the Lessee shall return each such component in such condition as shall make it eligible for continued maintenance under PBH Agreements, without additional costs, start-up charges, or overhaul requirements. For the purposes hereof, a "PBH Agreement" shall mean a "power-by-the-hour" maintenance program, provided by the Engines, APU or component manufacturer or its successor or designee, providing full maintenance (other than routine day-to-day maintenance; provided, that foreign-object damage and abuse may be excluded or separately charged) for the Engines, APU or such components at no cost other than standard per-cycle rates (i.e., excluding charges based on the current maintenance status of such component), all benefits of which program, including but not limited to the payments made by Lessee under such PBH Agreements while operating the Aircraft, shall be assignable or otherwise transferable to any other carrier without restrictions of any kind. Exhibit D-2 Page 7 Section 6. Return Condition Adjustment. (a) Each item referred to in Sections 2(c), 2(d), 3, the first two lines of Section 4 and in Section 4(a) and 4(e) (each such item, an "Adjustable Item" and each such section, an "Adjustable Return Condition") may be returned with less than the required limits, subject, however, to the minimum requirements set forth in item (e) below. (b) If the Lessee does not meet the conditions set forth for an Adjustable Item in the relevant Adjustable Return Condition then Lessee shall pay to the Lessor (for deficient condition) an Equivalency Payment in accordance with the following formula: [*] The components of the formula above shall be as agreed between Lessor and the Lessee. If Lessor and the Lessee fail to reach agreement on any components of the above formula, such amount will be determined as the average price that would be charged by a third party to restore the Aircraft to the conditions required under the Lease and this Exhibit D-2, based on one quotation obtained by Lessor and one quotation obtained by Lessee, both from a reputable, FAA and Manufacturer-approved EMB-145 repair station in the United States. If the prices of such quotations differ by more than ten percent (10%), Lessor and Lessee shall obtain a third quotation from another reputable, FAA and Manufacturer-approved EMB-145 repair station in the United States, the quotation which is farthest from the average of all three quotations shall be disregarded and the average of the two remaining quotations shall be binding upon Lessor and Lessee as the components of the formula. (c) The Equivalency Payment for each return condition of each Adjustable Item in the relevant Section referred to in the first paragraph of this Section 6, whether positive or negative, shall be aggregated in order to determine the total Equivalency Payment due from Lessee. (For clarification, items in more than the Exhibit D-2 Page 8 - ---------- * Confidential required condition shall be netted against items in less than the required condition when determining the amount of the total payment due, provided however that such netting is only applicable to the following major components: Engines, APU and landing gear). If the cumulative Equivalency Payment after such netting is negative, it shall be deemed to be zero. (d) In no event shall the Equivalency Payment due from the Lessee to the Manufacturer exceed the aggregate amount of any payment and expenses that the Manufacturer may make under the Residual Value Guarantee. (e) Notwithstanding the equivalency charges that may be otherwise payable or available under this Section 6, if: (i) Any installed Engine has completed more than 3,750 flight hours since new or since its last full performance restoration shop visit at which it was subject to a full engine management program rework (or less than twenty-five percent (25%) of the on-wing hours remaining in accordance with an amended RR Allison shop workscope guide), (ii) Any Engine life limited part has a remaining useful life until the next scheduled replacement of less than twenty five percent (25%), (iii) The APU has remaining less than twenty five (25%) of the expected mean time before removal, (iv) The main landing gear or the nose landing gear has less than twenty five percent (25%) of the cycles remaining prior to removal for overhaul, or the cycles exceed one hundred and ten percent (110%) of the airframe, or (v) The brakes have less than the C check brake wear limits with the brakes set at normal parking break pressure, or the tires have a remaining useful life of less than twenty five percent (25%), then, in any such case, Lessee shall, at its own cost and expense, overhaul, refurbish and/or replace each non-complying item so that it meets the applicable level specified in items (i) through (v) above. Section 7. Inspection Upon Return Lessor shall have the right to inspect the Aircraft upon return, and the following conditions shall apply: (a) Ground Inspection - The Aircraft including the Aircraft Documents shall be made available to Lessor for ground inspection by Lessor or its designee at Lessee's facilities. Such inspection shall commence no later than fourteen (14) Business Days prior to the date of return of the Aircraft. Lessee shall remove the Aircraft from scheduled service and open the areas of the Aircraft as required to Exhibit D-2 Page 9 perform the necessary checks as specified in Section 2 of this Exhibit D-2. In addition, Lessee shall allow Lessor to accomplish its inspection to determine that the Aircraft, including the Aircraft Documents are in the condition set forth in Sections 1, 2, 3 and 4 of this Exhibit D-2. During such checks, Lessor's personnel shall have the right to reasonably request that adjacent additional panels or areas be opened in order to allow further inspection by Lessor's personnel. (b) Operational Ground Check - Lessee shall conduct an operations ground check on the Aircraft in accordance with the Maintenance Program manual criteria for the purpose of demonstrating to Lessor the satisfactory operation of the systems, including a full fuel tank leak check, pilot and static systems check and hydraulic system internal leak check. (c) Operational Test Flight - The Aircraft shall be test flown by Lessee, using qualified flight test personnel, for the amount of time necessary to satisfactorily demonstrate the airworthiness of the Aircraft and the proper functioning of all systems and components in accordance with the agreed check flight procedures. During such test flight command, care, custody and control of the Aircraft shall remain at all times with Lessee. Up to five (5) of Lessor's designated representatives (or more if mutually agreed) may participate in such flight as observers. Upon completion of such operational flight-testing, the representatives of Lessee and Lessor participating in such testing shall agree in writing upon any discrepancies required to be corrected by Lessee in order to comply with the conditions required hereunder. (d) Discrepancies - If requested by Lessor in writing, all discrepancies, which are noted during the inspection and acceptance flight(s), shall be corrected at Lessee's expense. If such discrepancies are substantiated by the Maintenance Program and Lessor determines that repairs, modifications or other work items are required to cause the Aircraft to comply with the requirements provided herein, including, without limitation, any maintenance required so that the Engines will meet all Engine parameters and trends specified by the Maintenance Program, Lessee shall cause such repairs and other work items to be commenced and completed prior to return. Section 8. Delegation. Lessee agrees that whenever a determination under this Exhibit D-2 is to be made by, or a right is granted under this Exhibit D-2 to, the Lessor, the Lessor may, at its option, allow the Manufacturer to act as the authorized representative of the Lessor and make such determination or exercise such right. Section 9. Definitions. For the purpose of this Exhibit D-2, the following terms have the following meanings: "RVG APPRAISAL PROCEDURE" means this procedure shall apply only if Lessee exercises the FMV Purchase Option and Beneficiary provides a Residual Notice pursuant to Section 3 of Exhibit A-2 of the Lease and shall be used in such case to determine the Fair Market Sales Value of the Aircraft as herein provided. Manufacturer, Beneficiary and Lessee shall, within thirty (30) Exhibit D-2 Page 10 calendar days after Beneficiary has delivered a Residual Notice, each obtain appraisal values from a recognized independent appraiser (one to be selected by Manufacturer, one by Beneficiary, and one by Lessee), and the average value as determined by the appraisers shall be binding on Manufacturer, Beneficiary and Lessee; provided that if the value or values determined by one or more of the appraisers differs from the average of the values determined by all three appraisers by more than five percent (5%) of such average, the value which differs the most from such average shall be excluded, and the average of the values determined by the other two appraisers shall be binding on Manufacturer, Beneficiary and Lessee. Manufacturer, Beneficiary and Lessee shall each pay its own appraiser. Each appraiser must be associated with a professional organization of aircraft appraisers and each appraisal shall be conducted pursuant to ISTAT 1994 (or any successor) appraisal methods, definitions and assumptions. Fair Market Sales Value as determined hereunder shall mean the value that would be obtained in an arms'-length transaction between an informed and willing buyer-user (other than a lessee currently in possession or a used equipment dealer) under no compulsion to buy and an informed and willing seller under no compulsion to sell. In determining Fair Market Sales Value, it will be assumed that the Aircraft is in the condition, location and overhaul status in which it is required to be returned to the Lessor pursuant to Article XVIII of the Lease, without allowance for any return condition adjustments otherwise permitted by Section 6 of this Section D-2, that Exhibit D-2 of the Lease will apply, that the Lessee has removed all Parts which it is entitled to remove pursuant to Article IX of the Lease and that the Aircraft is not encumbered by the Lease or any Lien. "APU" shall mean the auxiliary power unit bearing serial number __________, and any substitute APU which may from time to time be substituted therefor pursuant to the terms of the Lease. "CALENDAR CONTROLLED COMPONENTS OR PARTS" means those components or parts, which are identified in the MRB Report which have maintenance tasks at specific calendar-time intervals. "CYCLE-CONTROLLED COMPONENTS OR PARTS" means those components or parts, which are identified in the MRB Report which have maintenance tasks at specific flight-cycle intervals. "HOUR-CONTROLLED COMPONENTS OR PARTS" means those components or parts, which are identified in the MRB Report which have maintenance tasks at specific flight-hour intervals. "LIFE CYCLE FATIGUE ("LCF") PARTS" means those rotating parts which have specific cycle limits as specified by the manufacturer to preclude cycle fatigue failures. "MAINTENANCE REVIEW BOARD REPORT ("MRB REPORT")" means the report published by the maintenance review board detailing the intervals and description of the maintenance tasks and, where applicable, the life limits required for continued airworthiness of the Aircraft. Where the intervals specified in the MRB Report differ from the limit specified by the component manufacturer, the MRB Report shall take precedence. "TERMINATING ACTION" means the alteration or modification of the Aircraft in accordance with mandatory service bulletins, orders, airworthiness directives, and instructions required to eliminate repetitive inspections or maintenance action. Exhibit D-2 Page 11 EXHIBIT E-1 TO THE PURCHASE AGREEMENT FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of ___________, ________ between [_____________________] (the "TRANSFEREE") and ________________________________________ (the "TRANSFEROR"). W I T N E S S E T H: WHEREAS, the Transferor is a party to an Aircraft Purchase Agreement [N288SK], dated as of June 5, 2001 among Solitair Corp., Chautauqua Airlines, Inc. (the "Lessee"), the Transferor and Wells Fargo Bank Northwest, National Association, not in its individual capacity (except as otherwise expressly provided therein) but solely as Owner Trustee (as the same may be from time to time amended, the "PURCHASE AGREEMENT") and certain other Transaction Documents (as defined herein); WHEREAS, the Transferor desires to sell and assign to the Transferee [all of]/[an undivided interest in] its right, title and interest in, to and under the Trust Agreement (as defined in the Purchase Agreement) (except as reserved below), and the Transferee desires to (i) purchase and accept from the Transferor the assignment of [all of]/[such undivided interest in] the Transferor's right, title and interest in, to and under the Trust Agreement (except as reserved below) and (ii) assume the Assumed Obligations (as defined herein); and WHEREAS, capitalized terms used herein without definition and which are defined in the Purchase Agreement are used herein with the respective meanings given such terms in the Purchase Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties agree as follows: 1. ASSIGNMENT. Effective as of the date hereof (the "TRANSFER DATE"), the Transferor hereby irrevocably sells, assigns, transfers, conveys and sets over to the Transferee [all of]/[an undivided interest in ___ portion of] its right, title and interest in, to and under the Trust Estate, the Purchase Agreement, the Trust Agreement, the Tax Indemnity Agreement and all other Operative Documents (as defined in the Purchase Agreement), agreements, contracts, documents and instruments executed and delivered at any time prior to the execution and delivery of this Agreement in connection with any of the foregoing (the "TRANSACTION DOCUMENTS"), and any proceeds therefrom, except such rights of the Transferor as have arisen or accrued prior to the Transfer Date (such excepted rights to include, without limitation, the right to receive any amounts due or accrued to the Transferor under any Transaction Document as of a date prior to the Transfer Date and the right to enforce any terms under the Purchase Agreement Exhibit E-1 -- Page 1 or the Tax Indemnity Agreement with respect to acts or events occurring prior to the Transfer Date). 2. ASSUMPTION. The Transferee hereby assumes all of the obligations, liabilities and duties of the Transferor arising from and after the Transfer Date under each Transaction Document [with respect to the undivided interest therein transferred hereunder] (the "ASSUMED OBLIGATIONS") and confirms that from and after the Transfer Date it shall be deemed a party to each Transaction Document to which the Transferor is a party and shall be bound by all the terms thereof (including the agreements and obligations of the Transferor set forth therein) as if it were named as the Transferor therein. 3. FURTHER ASSURANCES. Each party hereto shall, at any time and from time to time, upon the request of the other party hereto, promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the other party may reasonably request to obtain the full benefits of this Agreement and of the rights and powers herein granted. 4. REPRESENTATIONS AND WARRANTIES. The Transferee hereby represents and warrants to the other parties hereto that: (a) ORGANIZATION; AUTHORITY. The Transferee (i) is a __________ duly organized, validly existing and in good standing under the laws of ___________________ and (ii) has the full [corporate] power and authority to conduct its business as presently conducted, to own or hold under lease its properties and to execute, deliver and perform this Agreement and to perform the Assumed Obligations. (b) DUE AUTHORIZATION. The execution, delivery and performance of this Agreement and the performance of the Assumed Obligations have been duly authorized by all necessary corporate action on the part of the Transferee. (c) CONFLICT. The execution, delivery and performance by the Transferee of this Agreement and the performance of the Assumed Obligations and the consummation or performance by the Transferee of the transactions contemplated thereby will not conflict with or result in any violation of, constitute a default under, or result in the creation of any Lien upon any property of the Transferee under, any term of the Certificate of Incorporation or By-laws of the Transferee or any agreement, mortgage, contract, indenture, lease or other instrument, or any Applicable Law, by which the Transferee or its properties or assets are bound, except for any such violation, conflict or default which would not have a material adverse effect on the Transferee or its ability to perform the Assumed Obligations. (d) GOVERNMENT CONSENTS. Neither the execution or delivery of this Agreement and the performance of the Assumed Obligations nor the consummation of any of the transactions contemplated hereby or thereby by the Transferee requires the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of any United States federal, state or other governmental authority or agency, including any judicial body, that would be required to be taken or obtained by the Transferee. Exhibit E-1 -- Page 2 (e) LEGAL, VALID AND BINDING OBLIGATIONS. The Assumed Obligations and this Agreement constitute the legal, valid and binding obligations of the Transferee enforceable against the Transferee in accordance with their respective terms except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the rights of creditors generally and by general principles of equity, regardless of whether enforcement is pursuant to a proceeding in equity or at law. (f) LITIGATION. There are no pending or, to the knowledge of the Transferee, threatened actions or proceedings against the Transferee by or before any court or administrative agency or arbitrator that, either individually or in the aggregate, are reasonably likely to materially adversely affect the ability of the Transferee to perform its obligations under this Assumption Agreement or the Assumed Obligations. (g) SECURITIES REPRESENTATION. The Transferee is acquiring its interest in the Trust Estate for investment and not with a view to any resale or distribution thereof, but subject, nevertheless, to any requirement of law that the disposition of its property remain within its control at all times, and that neither it nor anyone authorized by it to act on its behalf has directly or indirectly offered any interest in the Trust Estate, or any similar security for sale to, or solicited any offer to acquire any of the same from, anyone. (h) LESSOR'S LIENS. Upon the execution of this Assumption Agreement, there will be no Lessor's Lien attributable to the Transferee on the Trust Estate. (i) ERISA. No part of the funds to be used by the Transferee to acquire the interests to be acquired by it hereunder constitutes assets (within the meaning of ERISA and any rules and regulations thereunder) of any ERISA plan. (j) PERMITTED TRANSFEREE. The Transferee is a bank, savings institution, finance company, leasing company or trust company, national banking association acting for its own account or in a fiduciary capacity as trustee or agent under any pension, retirement, profit sharing or similar trust or fund, insurance company, financial institution, fraternal benefit society or a corporation acting for its own account having a combined capital and surplus (or, if applicable, consolidated net worth or its equivalent) of not less than $25,000,000.(1) [The Transferee is an Affiliate(2) of the transferring Beneficiary having a combined capital and surplus (or, if applicable, consolidated net worth or its equivalent) of not less than $25,000,000.](3) The Transferee is reasonably experienced in equipment leasing and financing transactions. The Transferee is not (x) an airline or other Person engaged in air transportation or a competitor of Lessee in the business of air transportation or any Affiliate thereof, (y) a party adverse to the Lessee or any Affiliate of the Lessee in any pending litigation or arbitration (whether as plaintiff - ---------- (1) If a guaranty is being provided pursuant to Section 10(b)(v) of the Purchase Agreement, replace "The Transferee" at the beginning of this sentence with the name of the guarantor. (2) Include if the Transferee is an Affiliate of the transferring Beneficiary. (3) There shall be no such net worth requirement if the transferring Beneficiary remains liable for the obligations of such Affiliate under the Operative Documents. Exhibit E-1 -- Page 3 or defendant) or (z) a Person that has overtly threatened to initiate any such litigation or arbitration against Lessee or any Affiliate of Lessee. Notwithstanding the foregoing or anything else contained in this Agreement, the Transferee makes no representation or warranty in this Agreement with respect to laws, rules or regulations relating to aviation or to the nature or use of the equipment owned by the Owner Trustee, including, without limitation, the airworthiness, value, condition, workmanship, design, patent or trademark infringement, operation, merchantability or fitness for use of the Aircraft. 5. RELIANCE. The representations, warranties, covenants and agreements of the Transferee are made for the benefit of, and may be relied upon by, the Owner Trustee, Lessee and Transferor (collectively, the "BENEFICIARIES"), and each of the Beneficiaries shall be deemed to be an express third party beneficiary with respect thereto, entitled to enforce directly and in its own name any rights or claims it may have against such Transferee as such beneficiary. 6. PAYMENTS. Transferor hereby covenants and agrees to pay over to Transferee, if and when received on or following the Transfer Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Transferor that, under Section 2 hereof, belong to Transferee, and Transferee hereby covenants and agrees to pay over to Transferor, if and when received on or following the Transfer Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Transferee that, under Section 2 hereof, belong to Transferor. 7. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts (or upon separate signature pages), all of which together shall constitute but one and the same instrument. 8. GOVERNING Law. THIS AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Exhibit E-1 -- Page 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered on the date first above written [ ] ------------------------------------------ Transferor By: ----------------------------------------- Name: Title: [ ] ------------------------------------------ Transferee By: ----------------------------------------- Name: Title: Exhibit E-1 -- Page 5 EXHIBIT E-2 TO THE PURCHASE AGREEMENT FORM OF GUARANTY AGREEMENT [DATE] Re: Chautauqua Airlines, Inc. - One Embraer model EMB-145LR Aircraft Bearing United States Registration No. N288SK Ladies and Gentlemen: Reference is made to that certain Assignment and Assumption Agreement dated as of _______________ (the "ASSIGNMENT AGREEMENT") by and between _______________ ("BENEFICIARY") and _______________ ("ASSIGNEE"). Assignee is a direct or indirect subsidiary of the undersigned, _____________________, a ____________ ("GUARANTOR"). Except as otherwise noted herein, all capitalized terms used herein shall have the respective defined meanings set forth in (1) that certain Purchase Agreement [N288SK] (the "PURCHASE AGREEMENT"), dated as of June 5, 2001 among Solitair Corp., Chautauqua Airlines, Inc. (the "Lessee"), the Beneficiary and Wells Fargo Bank Northwest, National Association, a national banking association, not in its individual capacity, except as expressly provided therein, but solely as Owner Trustee ("OWNER TRUSTEE"); and (2) that certain Aircraft Lease Agreement [N288SK] (the "LEASE"), dated as of June 5, 2001 between the Owner Trustee, as Lessor and the Lessee, as Lessee (each of the Lessee and the Owner Trustee, together with its successors and permitted assigns, a "GUARANTEED PARTY"). In connection with the transactions contemplated by the Assignment Agreement, Guarantor represents and warrants to, and covenants with, each Guaranteed Party, as follows: 1. OWNERSHIP OF ASSIGNEE. Assignee is a direct or indirect subsidiary of Guarantor. 2. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants that Guarantor is duly organized and validly existing in good standing under the laws of _____________. The execution, delivery and performance of this Guaranty Agreement are within Guarantor's power and authority, have been duly authorized by all necessary corporate action on the part of the Guarantor and do not contravene the charter or the by-laws of Guarantor or any indenture, mortgage, credit agreement, note, long-term lease or other material agreement to which Guarantor is a party or by which Guarantor is bound, and this Guaranty Agreement constitutes a legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. 3. SUBMISSION TO JURISDICTION, ETC. Guarantor hereby agrees to be bound, to the same extent Beneficiary is bound, by the provisions of Section 12(b) of the Purchase Agreement, which are incorporated herein by reference as if fully set forth herein. Exhibit E-2 -- Page 1 4. UNDERTAKINGS. (a) Guarantor hereby unconditionally and irrevocably guaranties not merely as surety but as primary obligor, the due and punctual: (i) performance by Assignee of all of the obligations of the "Beneficiary" under the Operative Documents assumed by Assignee under the Assignment Agreement; (ii) payment of any and all sums which are payable by the Beneficiary pursuant to any of the Operative Documents which payment obligations were assumed by Assignee under the Assignment Agreement; and (iii) performance of, observance of and compliance with all other obligations, covenants and undertakings and representations and warranties of, or made by, Assignee in the Assignment Agreement or the Beneficiary contained in or arising under the Operative Documents and assumed by Assignee under the Assignment Agreement (such payments and other obligations referred to in this Section 4(a) hereinafter referred to as the "OBLIGATIONS"). Guarantor agrees that it will not use the assets of any ERISA Plan to fund its payment obligations hereunder. (b) Guarantor agrees that this Guaranty Agreement is an unconditional and absolute guaranty of payment and performance (not merely collectability), that its undertakings hereunder are not contingent upon any Guaranteed Party bringing any action against Assignee or resorting to any security and hereby expressly waives any claim that its undertakings hereunder are so contingent. (c) Guarantor irrevocably waives promptness, diligence, demand, and all notices whatsoever as to the Obligations guaranteed hereby, and any other circumstances which might otherwise constitute a defense available to it, or a discharge of it (other than the defense of payment or performance), and agrees that it shall not be required to consent to or receive any notice of any amendment or modification of, or waiver, consent or extension with respect to, the Purchase Agreement or the other Operative Documents to which Assignee is a party that may be made or given as provided herein or otherwise. (d) Guarantor further agrees to pay all expenses (including, without limitation, all fees and disbursements of counsel) that may be paid or incurred by any Guaranteed Party in enforcing any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, the Guarantor under this Guaranty Agreement. (e) Guarantor understands and agrees that its obligations hereunder shall be construed as continuing, absolute and unconditional without regard to (i) the validity, regularity or enforceability of any Operative Document, any of the Obligations or any collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by any Guaranteed Party, (ii) any defense, set-off or counterclaim (other than a defense of payment or performance) that may at any time be available to or be asserted by the Assignee against any Guaranteed Party, or (iii) any other instances whatsoever (with or without notice to or knowledge of the Assignee or the Guarantor) that constitutes, or might be construed to constitute, an equitable or legal discharge of Assignee for the Obligations, or of Guarantor under this Guaranty Agreement, in bankruptcy or in any other instance. 5. NO DISCHARGE. The obligation of Guarantor hereunder will not be discharged by: (a) any extension or renewal with respect to any obligation of Assignee, as Beneficiary, under Exhibit E-2 -- Page 2 the Operative Documents; (b) any modification of, or amendment or supplement to, any such agreement; (c) any furnishing or acceptance of additional security or any release of any security; (d) any waiver, consent or other action or inaction or any exercise or non-exercise of any right, remedy or power with respect to Assignee, or any change in the structure of Assignee; (e) any insolvency, bankruptcy, reorganization, arrangement, composition, liquidation, dissolution or similar proceedings with respect to Assignee; (f) except as provided in Section 6 any change in ownership of the shares of capital stock of Guarantor or Assignee; or (g) any other occurrence whatsoever, except payment in full of all amounts payable by Assignee, as Beneficiary, under the Operative Documents and performance in full of all Obligations of Assignee, as Beneficiary, in accordance with the terms and conditions of the Operative Documents. 6. TRANSFERS. The Guarantor may assign, convey or otherwise transfer its obligations hereunder to any other Person (hereinafter referred to as the "TRANSFEREE GUARANTOR"), provided that (a) the Transferee Guarantor enters into an agreement substantially in the form of this Guaranty Agreement and (b) the Transferee Guarantor meets the requirements of Section 10(b)(iv) of the Purchase Agreement relating to a "guarantor". If pursuant to Section 10(b)(iv) of the Purchase Agreement or the preceding sentence, a new guaranty shall be delivered or the obligations of the Guarantor shall be transferred, the Transferee Guarantor shall deliver an opinion or opinions of counsel substantively similar to the form of opinion attached to the Purchase Agreement as Exhibit G to the effect that the obligations incurred by the Transferee Guarantor pursuant hereto constitute the legal, valid, binding and enforceable obligations of such Transferee Guarantor. Upon the satisfaction by the Guarantor of the conditions set forth in this Section 6, the Guarantor shall be released and discharged of any and all further obligations under this Guaranty Agreement. 7. REINSTATEMENT. Guarantor agrees that this Guaranty Agreement shall be automatically reinstated with respect to any payment made prior to the termination of this Guaranty Agreement by or on behalf of Assignee pursuant to the Purchase Agreement or the other Operative Documents to which Assignee is a party if and to the extent that such payment is rescinded or must be otherwise restored, whether as a result of any proceedings in bankruptcy or reorganization or otherwise. 8. NO SUBROGATION. Notwithstanding any payment or payments made by Guarantor hereunder or any set-off or application of funds of Guarantor by any Guaranteed Party, Guarantor shall not be entitled to be subrogated to any of the rights of Guaranteed Party against Assignee or any collateral, security or guarantee or right of set-off held by any Guaranteed Party for the payment of the Obligations, nor shall Guarantor seek or be entitled to seek any reimbursement from the Assignee in respect of payments made by Guarantor hereunder, until all amounts and performance owing to the Guaranteed Parties by Assignee on account of the Obligations are paid and performed in full. 9. SEVERABILITY. Any provision of this Guaranty Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Exhibit E-2 -- Page 3 10. MISCELLANEOUS. This Guaranty Agreement shall: (a) be binding upon Guarantor, its successors and assigns; (b) inure to the benefit of, and be enforceable by, the Guaranteed Parties but shall not, and is not intended to, create rights in any other third parties; (c) not be waived, amended or modifiedthe written consent of each of the Guaranteed Parties; (d) be governed by and construed in accordance with, the internal laws of the State of New York, and (e) remain in full force and effect until the earlier of (i) payment in full of all sums payable by Assignee, as Beneficiary, under the Assignment Agreement and the Operative Documents and by Guarantor hereunder, and performance in full of all other Obligations of Assignee, as Beneficiary, under the Assignment Agreement and the Operative Documents and (ii) the compliance by Guarantor with Section 6. All notices to, requests of, demands on and other communications with Guarantor shall be made in writing and shall be personally delivered, sent by facsimile or telecommunication transmission (which in either case provides written confirmation to the sender of its delivery) or sent by registered or certified mail, postage prepaid, or by prepaid courier service to Guarantor at: ______________________________________, Attention: ______________________, telephone (___) __________] facsimile [(___) __________]. IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly executed this ______ day of ________________________. [GUARANTOR] By: ------------------------------------ Name: Title: Exhibit E-2 -- Page 4 EXHIBIT F COUNTRY LIST Australia Italy Austria Japan Belgium Luxembourg Canada The Netherlands Denmark New Zealand Finland Norway France Portugal Germany Singapore Iceland Switzerland Ireland United Kingdom EXHIBIT G GENERAL TAX INDEMNITY Section 1.01 INDEMNITY. Lessee agrees for the benefit of each Tax Indemnitee to pay and, on written demand, to indemnify and hold each Tax Indemnitee harmless from all Taxes, howsoever levied or imposed, whether levied or imposed upon or asserted against any Tax Indemnitee, this Lease, the Aircraft, or any part thereof or interest therein, or otherwise by any Federal, state or local government, political subdivision, or taxing authority in the United States, by any government or taxing authority of or in a foreign country or of or in a territory or possession of the United States or by any international taxing authority upon or with respect to, or arising out of or connected with, or based upon or measured: (a) by the Aircraft, or any part thereof, or interest therein; (b) by the exportation, importation, ownership, delivery, non-delivery, warehousing, removal, leasing, exchange, acceptance, assigning, possession, repossession, condition, recording, use, location, presence, operation, settlement of any insurance or warranty claim, sale, subleasing, rental, retirement, chartering, imposition of any Lien, abandonment, registration or change in registration, preparation, installation, modification, repair, maintenance, replacement, transportation, storage, transfer of title, return or other disposition of the Aircraft or any part thereof or interest therein; (c) by the rentals, receipts or earnings arising from any one or more of the items or acts described in Section 1.01 (a) or (b) above (including, without limitation, the Rent), or any other payment contemplated by this Lease; (d) upon or with respect to this Lease, or any other Operative Document pertaining to or in connection with the transactions contemplated by this Lease; or (e) otherwise with respect to or in connection with the transactions contemplated by this Lease. Section 1.02 EXCEPTIONS TO INDEMNITY. Notwithstanding anything to the contrary in this Agreement or any other Operative Document, the indemnity provided for in this Exhibit G does not extend to any of the following Taxes: (a) Taxes that are based on or measured by gross or net income or receipts, capital or net worth or capital stock, capital adequacy, or reserves or that are capital gains Taxes, excess profits Taxes, minimum or alternative minimum Taxes, accumulated earnings Taxes, personal holding company Taxes, succession Taxes, estate Taxes, franchise Taxes, doing business Taxes, or similar Taxes; PROVIDED, HOWEVER, that this exception (a) shall not apply to (i) Taxes that are in the nature of sales, use, or property Taxes or (ii) Taxes if Taxes of such type would not have been incurred by a Tax Indemnitee but for the use, operation, location, or registration of the Aircraft by Lessee or any Affiliate thereof or any sublessee, or the activities or place of incorporation or business organization of Lessee or any Affiliate of Lessee, in a jurisdiction in which such Taxes have been incurred (PROVIDED, HOWEVER, that Lessee shall only incur responsibility for Taxes of such type only if and to the extent that such Taxes are imposed as a result of such use, operation, location, registration, or activities and not as a result of the activity of a Tax Indemnitee and PROVIDED, FURTHER, that this clause (ii) shall not apply to any Taxes of such type imposed by any Federal, state or local government, political subdivision, or taxing authority in the United States); (b) withholding taxes imposed on any indebtedness of any Tax Indemnitee; (c) Taxes incurred by a Tax Indemnitee or any of its Affiliates by (A) engaging in activities in the jurisdiction imposing such Tax which activities or property are unrelated to the transactions contemplated by this Lease or other Operative Documents, (B) being incorporated therein or maintaining an office or having a place of business therein and (C) such Tax Indemnitee's failure to file any form, document or certificate within thirty (30) days following notice by Lessee to such Tax Indemnitee that such form, document or certificate is required to be filed in order to avoid or mitigate applicability of such Tax; (d) Taxes (including excess taxes) incurred as the result of any voluntary or involuntary transfer or Financing by Lessor or any other Tax Indemnitee of any interest in the Aircraft, any part thereof, this Lease or any Operative Document, the Trust Estate or in the Lessor or any Tax Indemnitee except following (w) an Event of Default in the exercise of remedies, (x) the exercise of the Purchase Option pursuant to the Lease, (y) the substitution, replacement, modification, pooling or improvement of the Aircraft or any part thereof pursuant to Article IX of the Lease, or (z) an Event of Loss; (e) Taxes incurred by any Tax Indemnitee because of a Lessor's Lien or the gross negligence or willful misconduct of such Tax Indemnitee or the breach or inaccuracy of any representation, warranty or covenant of such Tax Indemnitee in this Lease or any other Operative Document; (f) Taxes attributable to acts or events occurring after the redelivery of the Aircraft to the Lessor, except to the extent fairly attributable to acts or events occurring prior thereto; (g) Taxes imposed against a transferee of a Tax Indemnitee to the extent of the excess of such Taxes over the amount of such Taxes which would have been imposed had there not been a transfer by an original Tax Indemnitee of any interest of such Tax Indemnitee in the Aircraft, the Trust Estate, or the Operative Documents; (h) Taxes for which the Lessee is obligated to indemnify the Beneficiary under the Tax Indemnity Agreement; (i) United States withholding taxes imposed on payments to a foreign person (other than any such withholding taxes imposed on payments to Aero); (j) Taxes imposed with respect to any fees received by or the Owner Trustee; (k) interest, penalties, fines or additions to tax to the extent they relate to Taxes for which no indemnity would be payable by the Lessee pursuant to this Section 1.02; (l) Taxes imposed by section 4975 of the Code; or (m) Taxes arising from or attributable to the like-kind exchange transaction described in Section 10(b)(vi) of the Purchase Agreement to the extent such Taxes exceed the amount of Taxes that would have been imposed in the absence of such like-kind exchange transaction. Section 1.03 CONTESTS. If a claim is made against a Tax Indemnitee for Taxes with respect to which Lessee is liable for a payment or indemnity under this Lease, such Tax Indemnitee will promptly give Lessee notice in writing of such claim; PROVIDED, HOWEVER, that such Tax Indemnitee's failure to give notice will not relieve Lessee of its obligations hereunder except to the extent that such failure actually or 2 effectively (i) results in the imposition of penalties or interest by the applicable taxation authority or (ii) has a material adverse impact upon Lessee's right to contest such Taxes in accordance with this Section 1.03. So long as (i) a contest of such Taxes does not involve any material danger of the sale, forfeiture, seizure or loss of the Aircraft or any interest therein (except if the Lessee shall have adequately bonded any Lien that results in such risk or otherwise made adequate provision to protect the interests of the Tax Indemnitees), (ii) adequate reserves have been provided for such Taxes by Lessee or, if required by applicable law, an adequate bond has been posted, (iii) in the event the Tax Indemnitee decides after consultation with the Lessee to pay the Tax prior to the contest, the Lessee shall have provided to the Tax Indemnitee an interest-free advance in an amount equal to the Tax which the Tax Indemnitee is required to pay, and (iv) no Event of Default described in clauses (a), (b), (g), (h), (i), or (j) of Section 17.01 of the Lease shall have occurred and be continuing, then such Tax Indemnitee at Lessee's written request will in good faith, with due diligence and at Lessee's expense (including paying the reasonable legal and accounting fees of such Tax Indemnitee), contest (or permit Lessee to contest its own name if permitted by applicable Law or in the name and on behalf of such Tax Indemnitee) the validity, applicability or amount of such Taxes. Section 1.04 TAX OBLIGATIONS AND AFTER-TAX BASIS OF PAYMENTS. Notwithstanding any other provision anywhere contained in the Operative Documents, it is understood that all of the Lessee's obligations with respect to taxes are set forth in this Exhibit G (and Section 1.04 of Exhibit H to the Lease to the extent that payments by the Lessee thereunder are required to be made on an "after-tax basis") and in the Tax Indemnity Agreement, and if the Lessee shall be required under any provision of the Operative Documents to pay any tax imposed upon any Tax Indemnitee or with respect to a payment made by the Lessee under the Operative Documents for which the Lessee is not responsible under this Exhibit G, Section 1.04 of Exhibit H to the Lease or the Tax Indemnity Agreement, it shall be entitled to prompt reimbursement of such amount from the party whose tax liability was paid. Notwithstanding anything in this Exhibit G to the contrary, Lessee further agrees that, with respect to any indemnity payment hereunder, such indemnity payment shall include any amount necessary to hold the recipient of the indemnity payment harmless on a net after-tax basis (after taking into account all relevant Tax benefits and savings whether by way of deduction, credit, allocation, apportionment or otherwise, realized or, except in the case of foreign tax credits, the present value of such Tax benefits and savings expected to be realized) from all Taxes required to be paid by such recipient with respect to such indemnity payment, so that such recipient shall receive an amount which, net of any Taxes required to be paid or withheld by (or for the account of) such recipient in respect of such amount, and taking into account the aforementioned tax benefits and savings, shall be equal to the amount of indemnity payment otherwise required hereunder. All computations for the purposes hereof shall be based on tax rates in effect on the date payment pursuant to this Section is made. Computations involving the loss of use of money or calculations of present value shall be based on the Treasury Rate, as adjusted for applicable income tax effects and compounded semiannually. If any Tax Indemnitee or Indemnitee shall realize a tax benefit not taken into account in the preceding paragraph in the form of a deduction or foreign tax credit against United States income tax liability, as a result of any claims or Taxes paid or indemnified against by the Lessee under Section 1.04 of Exhibit H to the Lease or this Exhibit G (whether by way of deduction, credit, allocation or apportionment of income or otherwise), such Tax Indemnitee or Indemnitee shall pay to the Lessee an amount which, after subtraction of any further tax savings such Tax Indemnitee or Indemnitee realizes as a result of the payment thereof, is equal to the amount of such tax benefit; PROVIDED, in calculating the amount of any credits against United States Federal income taxes realized by the Tax Indemnitee with respect to foreign Taxes, it shall be assumed that (i) to the extent Tax Indemnitee's ability to utilize foreign tax credits to reduce its liability for United States Federal taxes is actually increased by reason of 3 net foreign source taxable income attributable to the transaction contemplated by the Operative Documents, the foreign tax credit generated with respect to the foreign income tax for which the Lessee is obligated to make an indemnity payment hereunder shall be deemed to be utilized prior to any other foreign tax credit of the Tax Indemnitee; (ii) except as provided in the preceding clause (i), any foreign tax credit not described in the succeeding clauses (iii) and (iv) shall be deemed to be utilized prior to any foreign tax credit attributable to the Lessee; (iii) any foreign tax credit generated by Lessee shall be utilized ahead of any credit generated by another lessee of the Beneficiary with respect to whom the Beneficiary has a contractual obligation to pay over the benefits arising therefrom on a basis that assumes that such credits shall be utilized after all other credits available to the Beneficiary have been utilized, and (iv) except as provided in clause (i), any foreign tax credit generated by the Lessee shall be utilized on a PARI PASSU basis with all other credits generated in connection with any other leases of the Beneficiary not described in clause (iii) and with respect to whom the Beneficiary does not have a contractual obligation to pay over the benefits arising therefrom on a basis that assumes that such credits shall be utilized ahead of all other credits of the Beneficiary. Each payment made by any Tax Indemnitee or Indemnitee to the Lessee pursuant to this paragraph shall be made within 30 days after the respective Tax Indemnitee or Indemnitee files a tax return (including estimated returns) which reflects the tax benefits described in the prior sentence. Section 1.05 REPORTS. In case any report or return is required to be made with respect to any Taxes (other than income Taxes) that are an obligation of Lessee hereunder or for which an indemnification obligation may arise under this Exhibit G, Lessee will, to the extent it has knowledge thereof make such report or return in such manner that is not inconsistent with the ownership of the Aircraft and the Engines in Lessor, and, upon request, send a copy of the applicable portions of such report or return to Lessor. In addition, the Tax Indemnitees shall furnish Lessee, at Lessee's written request and expense, with any information in Tax Indemnitee's possession or control (and not within the control of Lessee) that is reasonably necessary to make any tax filing, report or return (but no Tax Indemnitee shall be required to furnish its tax return, although it may be required to furnish information contained therein). Section 1.06 REFUNDS. Upon receipt by a Tax Indemnitee of a refund or credit of all or any part of any Taxes that Lessee has paid or for which the Lessee has reimbursed or indemnified the Tax Indemnitee, such Tax Indemnitee will promptly pay to Lessee the net amount of such Taxes refunded or credited, after taking into account any net Tax benefit, and interest received or credited thereto. Section 1.07 SURVIVAL. All the obligations under this Exhibit G shall survive the assignment (subject to the limitations in Section 1.02), expiration or other termination of this Lease and the Operative Documents. Section 1.08 PAYMENT PROCEDURES. Any amount payable to a Tax Indemnitee pursuant to this Exhibit G shall be paid within 30 days after receipt of a written demand therefor from such Tax 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 such amount need not be paid prior to the later of (i) 1 business day prior to the date that the indemnifiable Taxes are due or (ii) in the case of amounts which are being contested by the Lessee in good faith or by the Tax Indemnitee pursuant to Section 1.03, the time such contest is finally resolved. Within 15 days following the Lessee's receipt of the computation of the amount of the indemnity, the Lessee may request that an accounting firm to be jointly selected by the Lessee and such Tax Indemnitee (but not including the accounting firm that regularly prepares the certified financial statements of the Lessee or such Tax Indemnitee unless such firm consists of one of the "Big 5" accounting firms in which case such firm shall be deemed acceptable to the parties) determine whether such computations of the Tax Indemnitee are correct. The computations 4 of such accounting firm shall be final, binding and conclusive upon the parties and the Lessee shall have no right to inspect the books, records or tax returns of the Tax Indemnitee to verify such computation. All fees and expenses payable in connection with such verification shall be borne by the Lessee unless such verification discloses an error adverse to the Lessee of more than 5% of the amount computed by the Tax Indemnitee, in which case such fees and expenses shall be paid by the Tax Indemnitee. Section 1.09 NON-SIGNATORIES. As a condition precedent to any performance by the Lessee in connection with any indemnity, payment or other obligation pursuant to this Exhibit G with respect to any Person claiming as a Tax Indemnitee which is not a signatory to this Lease, such Person shall expressly agree in writing with the Lessee to be bound by all the terms of this Exhibit G and this Lease applicable to such Person in its capacity as a Tax Indemnitee. 5 EXHIBIT H GENERAL INDEMNITY Section 1.01 GENERAL INDEMNITY. Except as otherwise expressly set forth in Section 1.03, Lessee agrees to indemnify, reimburse, hold harmless and defend each Indemnitee from and against any and all claims, damages, losses, liabilities, demands, suits, judgments, causes of action, legal proceedings, whether civil or criminal, penalties, fines and other sanctions, and any reasonable attorneys' fees and other reasonable costs and expenses in connection herewith, (including any of the foregoing arising or imposed with or without fault of any Indemnitee, or under the doctrine of absolute or strict liability) and including any third party claims arising from or in any way connected with injury to or death of any Person or loss or damage to property (any and all of which are hereafter referred to as "CLAIMS") which in any way result from, pertain to or arise out of, or are in any manner related to (a) the Lease, any other Operative Document or the Manufacturer Purchase Agreement or the breach of any representation, warranty or covenant made by Lessee hereunder, thereunder or in any document delivered by Lessee in connection herewith or therewith, or (b) the condition, ownership, manufacture, purchase, delivery, lease, sublease, acceptance, possession, return, disposition, use, operation, maintenance, repair, alteration or control of the Aircraft, the Airframe, any Engine or any Part, either in the air or on the ground during the Term, or (c) any defect in the Aircraft, any Engine or any Part (whether or not discovered or discoverable by Lessee or Lessor) arising from the material or any articles used therein or from the design, testing, or use thereof or from any maintenance, service, repair, overhaul, or testing of the Aircraft, any Engine or any Part, whether or not the Aircraft, such Engine or such Part is in the possession of Lessee, and regardless of where the Aircraft, such Engine or such Part may then be located, or (d) any transaction, approval, or document contemplated by the Lease, any Operative Document or the Manufacturer Purchase Agreement or given or entered into in connection herewith or therewith. Lessee shall be subrogated to all rights and remedies that any Indemnitee may have against the Manufacturer and its subcontractors or any other person as to any such Claims, but only to the extent that Lessee has paid in full to such Indemnitee the amount claimed by it hereunder with respect to such Claims. Section 1.02 LESSEE WAIVER AND LIMITATION OF LIABILITY. Except as expressly set forth in Section 1.03, Lessee hereby waives and releases each Indemnitee from any Claims (other than Claims attributable to or arising out of the willful misconduct or gross negligence of such Indemnitee), whether existing now or hereafter arising, for or on account of or arising out of or in any way connected with injury to or death of personnel of Lessee or loss or damage to property of Lessee or the loss of use of any property that may result from or arise in any manner out of or in relation to the ownership, leasing, condition, use or operation of the Aircraft, in the air or on the ground, or that may be caused by any defect in the Aircraft, from the material or any article used therein or from the design or testing thereof, or use thereof, or from any maintenance, service, repair, overhaul or testing of the Aircraft regardless of when such defect may be discovered, whether or not the Aircraft is at the time in the possession of Lessee, and regardless of the location of the Aircraft at any such time. Section 1.03 EXCEPTIONS. Notwithstanding anything to the contrary herein, the indemnity provided for in Section 1.01 will not extend to any Claim of any Indemnitee to the extent it: (a) is attributable to acts or events occurring after the redelivery of the Aircraft to Lessor, except to the extent fairly attributable to acts or events occurring prior thereto; (b) is directly attributable to the gross negligence or willful misconduct of such Indemnitee or the breach or inaccuracy of any representation, warranty or covenant of such Indemnitee in the Lease or in any other Operative Document; (c) other than as expressly provided in Section 1.04 of this Exhibit H, is a Tax or loss of a Tax benefit, whether or not the Lessee is required to indemnify therefor pursuant to Article XIV hereof or pursuant to the Tax Indemnity Agreement; (d) is a cost or expense expressly required to be paid by such Indemnitee or its permitted transferees (and not by the Lessee) pursuant to the Lease or any other Operative Document and for which the Lessee is not otherwise obligated to reimburse such Indemnitee, directly or indirectly pursuant to the terms of the Lease or such other Operative Document; (e) is, in the case of the Beneficiary, Lessor's Liens attributable to the Beneficiary; in the case of the Owner Trustee, Lessor's Liens to the extent attributable to the Owner Trustee; in the case of WFB, Lessor's Liens to the extent attributable to WFB; in the case of a Financing Party, Lessor's Liens to the extent attributable to such Financing Party; (f) is, in the case of the Beneficiary or the Owner Trustee, attributable to the sale by such Indemnitee of any interest in the Aircraft, the Beneficial Interest or any similar interest (including a sale resulting from bankruptcy or other proceedings for the relief of debtors in which such Indemnitee is the debtor and which is not caused by the Default of the Lessee), unless in each case such sale shall occur pursuant to the exercise of remedies under Section 17.02 hereof or following the occurrence of an Event of Default; (g) in the case of the Beneficiary, is a Claim relating to, resulting from, arising out of or in connection with a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Code resulting from the direct or indirect use of assets of any ERISA Plan to acquire or hold Beneficiary's interest in the Trust Estate or in the case of any transferee of the Beneficiary referred to in Section 10(b)(v) of the Purchase Agreement, to purchase the Beneficial Interest pursuant to Section 10(b)(v) of the Purchase Agreement; (h) except during the continuation of an Event of Default, is attributable to any amendment to any of the Operative Documents which is not requested, or consented to, by the Lessee or is not required or made pursuant to the terms of any of the Operative Documents; (i) constitutes the loss of future profits of such Indemnitee or losses attributable to such Indemnitee's overhead; or (j) arises from or is attributable to the like-kind exchange transaction described in Section 10(b)(vi) of the Purchase Agreement to the extent such Claim exceeds the amount of Claim that would have been imposed in the absence of such like-kind exchange transaction. Section 1.04 AFTER-TAX BASIS OF PAYMENTS. Lessee further agrees that, with respect to any payment or indemnity hereunder, such payment or indemnity shall include any amount necessary to hold the recipient of the payment or indemnity harmless on a net after-tax basis from all Taxes required to be paid by such recipient or otherwise withheld with respect to such payment or indemnity (after taking into account all related Tax benefits and savings), subject to, and calculated in accordance with, Sections 1.05 and 1.09 of EXHIBIT H to the Lease, MUTATIS MUTANDIS. 2 Section 1.05 PAYMENTS. Any amount payable as an indemnity to any Indemnitee by Lessee pursuant to this Exhibit H is to be paid to such party directly, in immediately available funds, by bank wire transfer at such bank or to such account as specified by the payee in written directions to Lessee, within thirty (30) days after receipt of a written demand therefor from such Indemnitee (or, if such indemnity is payable from insurance proceeds, promptly after timely receipt of such insurance proceeds). Section 1.06 REFUNDS. If any Indemnitee obtains a recovery of all or any part of any indemnity amount that Lessee has paid in full to such Indemnitee, such Indemnitee will promptly pay to Lessee the net amount recovered by such Indemnitee, together with any tax benefit actually realized in connection therewith, PROVIDED no Specified Default is then continuing. If any Indemnitee is subsequently obligated to repay all or any portion of any such recovery, then Lessee shall, upon demand by Lessor, repay to Lessor any amounts paid in respect thereof by Lessor pursuant to this Section 1.06. Section 1.07 DEFENSE OF CLAIMS. Unless an Event of Default has occurred and has not been waived by Lessor, Lessee and its insurers will have the right (in each such case at Lessee's sole expense) to investigate, defend or compromise any claim for which indemnification is sought as provided in this Section 1.07 (so long as Lessee has agreed in writing reasonably acceptable to the relevant Indemnitee that Lessee is liable to such Indemnitee for any Claims relating to or arising out of the Claim for which indemnification is sought, PROVIDED that Lessee will not be so liable to the extent that it is determined that one or more of the exclusions contained in Section 1.03 would be applicable to such Claim), and each Indemnitee will cooperate with Lessee and its insurers with respect thereto. If a claim is made against an Indemnitee involving one or more Claims and such Indemnitee has notice thereof, such Indemnitee shall promptly after receiving such notice give notice of such Claim to Lessee; PROVIDED that the failure to give such notice shall not affect the obligations of Lessee hereunder except to the extent Lessee is prejudiced by such failure or the Lessee's indemnification obligations are increased as a result of such failure. If no Specified Default shall have occurred and be continuing, Lessee shall be entitled, at its sole cost and expense, acting through counsel reasonably acceptable to the respective Indemnitee, (A) in any judicial or administrative proceeding that involves solely a claim for one or more Claims, to assume responsibility for and control thereof, (B) in any judicial or administrative proceeding involving a claim for one or more Claims and other claims related or unrelated to the transactions contemplated by the Operative Documents, to assume responsibility for and control of such claim for Claims to the extent that the same may be and is severed from such other claims (and such Indemnitee shall use its best efforts to obtain such severance), and (C) in any other case, to be consulted by such Indemnitee and to be allowed, at Lessee's sole expense, to participate therein. Notwithstanding any of the foregoing to the contrary, Lessee shall not be entitled to assume responsibility for and control of any such judicial or administrative proceedings or compromise any claim if such proceedings or compromise will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on, the Aircraft, the Beneficial Interest or any part thereof unless in such an event Lessee shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk. The Indemnitee may participate at its own expense and with its own counsel in any judicial proceeding controlled by Lessee pursuant to the preceding provisions. Section 1.08 SURVIVAL. All the obligations of Lessee under this Exhibit H shall survive the assignment, expiration or other termination of the Lease. Such obligations are expressly undertaken by Lessee for the benefit of, and shall be enforceable directly by, Lessor and each other Indemnitee, provided that if an Indemnitee is not a party to the Lease, Lessee may require such Indemnitee to agree in writing, in a form reasonably acceptable to Lessee, to the terms of this Exhibit H prior to making any payment to such Indemnitee hereunder. PURCHASE AGREEMENT ASSIGNMENT NO. 2 - (N288SK) PURCHASE AGREEMENT ASSIGNMENT NO. 2 - (N288SK), dated as of June 29, 2001 (this "Assignment"), among (1) AERO LTD., a Cayman Islands corporation ("Assignor"), (2) Wells Fargo Bank Northwest, National Association ("WFB"), not in its individual capacity but solely as Owner Trustee under Trust Agreement (N288SK) dated as of the date hereof ("Trust Agreement") between Mitsui & Co. (U.S.A.), Inc. ("Beneficiary") and WFB ("Assignee"), and (3) Chautauqua Airlines, Inc., a New York corporation ("Lessee"). WHEREAS, Solitair Corp. as buyer, and EMBRAER-Empresa Brasileira de Aeronautica S.A., a corporation organized under the laws of Brazil ("Manufacturer"), have entered into the Purchase Agreement, pursuant to which, among other things, Manufacturer has agreed to manufacture and sell to Solitair Corp. and it has agreed to purchase from Manufacturer, certain aircraft, including the Aircraft (each such capitalized term is as defined in the Purchase Agreement Assignment No. 1 described below). WHEREAS, immediately prior to the execution and delivery of this Assignment, Solitair Corp. as assignor and Assignor as assignee are entering into the Purchase Agreement Assignment No. 1 - (N288SK) dated as of even date herewith (the "Purchase Agreement Assignment No. 1"), pursuant to which, among other things, Solitair Corp. is assigning to Assignor certain of its right, title and interest in, to and under the Purchase Agreement including, without limitation, the right to purchase the Aircraft from Manufacturer upon and subject to the terms and conditions set forth in the Purchase Agreement and the Purchase Agreement Assignment No. 1; and WHEREAS, Assignor desires to sell and transfer to Assignee all of its present and future rights, title, obligations and interest in, to and under the warranties and indemnities under the Purchase Agreement that are described in clause (y) of the definition of the Purchase Agreement in the Purchase Agreement Assignment No. 1 (the "Assigned Warranties"); NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements of the parties contained herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Assignor and Assignee agree as follows: Section 1. DEFINITIONS. Capitalized terms used but not defined herein shall have the respective meanings set forth or incorporated by reference, and shall be construed and interpreted in the manner described, in Purchase Agreement Assignment No. 1. Section 2. TRANSFER AND ASSUMPTION. Assignor does hereby sell, assign and transfer to Assignee all of Assigned Warranties and Assignee hereby accepts the Assigned Warranties from Assignor. Assignor and Assignee agree that such sale, assignment, transfer and acceptance is effective as of the date hereof. Assignor hereby acknowledges and consents to the assignment of warranties with respect to the Aircraft by Assignee to Lessee pursuant to Section 10.01 of the Lease. Notwithstanding anything in this Assignment to the contrary, so long as no Event of Default 1 shall have occurred and the Lease shall not have been terminated under Section 17.02 thereof, Lessee may, to the exclusion of Assignee, exercise in Lessee's name the right to obtain any recovery or benefit resulting from the enforcement of any of the Assigned Warranties under the Purchase Agreement in respect of the Aircraft subject to the terms of the Lease and may exercise all other rights and powers of the "Buyer" with respect to the Assigned Warranties and may, without the consent of the Assignee, enter into amendments or modifications thereof. Manufacturer shall not be deemed to have knowledge of, and need not recognize the occurrence or discontinuance of, any Event of Default under, or termination of, the Lease, unless and until Manufacturer has received written notice thereof from Assignee addressed to Manufacturer, to its Director of Contracts by mail to EMBRAER-Empresa Brasileira de Aeronautica S.A., Av. Brigadeiro Faria Lima, 2170, 12.227-901 Sao Jose dos Campos-SP, Brazil, or by telecopy to telecopy no.: (55-123) 45-1257, and, in acting in accordance with the terms and conditions of the Purchase Agreement and this Assignment, Manufacturer may act with acquittance and conclusively rely upon any such notice. If Manufacturer so receives notice from Assignee that an Event of Default shall have occurred and the Lease shall have been terminated under Section 17.02 thereof, Manufacturer will perform all the duties and obligations under the Purchase Agreement with respect to the Assigned Warranties for the benefit of Assignee and will make any and all payments that it thereafter is required to make in respect of the Assigned Warranties directly to Assignee at the account or location as Assignee from time to time notifies Manufacturer in writing. Section 3. In accordance with the Purchase Agreement, the assignment herein is subject to the following conditions: (a) Assignee is not and will not be owned, effectively controlled or managed by any airframe manufacturer which competes with Manufacturer in the thirty-seven (37) to seventy (70) seat turbo jet market; and (b) In the event Assignee subsequently transfers the Aircraft and/or any of Assignee's remaining rights to the Assigned Warranties with respect to the Aircraft, to any other entity, Assignee agrees to notify Manufacturer of the identity of such entity at least thirty (30) calendar days prior to such transaction (provided that if Assignee fails to notify Manufacturer within this time, Assignee may not assign its remaining rights without Manufacturer's consent, which shall not be unreasonably withheld) and provide Manufacturer with prior written notice of any events under such agreement that would cause any rights thereby assigned to revert to Assignee under such agreement; provided, however, that, pursuant to the Purchase Agreement, Assignee shall not transfer the Aircraft to an entity which is owned, effectively controlled or managed by any airframe manufacturer which competes with Manufacturer in the thirty-seven (37) to seventy (70) seat turbo jet market. Section 4. Anything herein contained to the contrary notwithstanding: (a) Neither Assignee nor Beneficiary shall have any obligation or liability under the Purchase Agreement by reason of, or arising out of, this Assignment, or be obligated to perform any of Assignor's duties or obligations under the Purchase Agreement, to make any payment, to present or file any claim, or to take any other action to collect or enforce any claim for any payment assigned hereunder; 2 (b) Assignee confirms, for Manufacturer's benefit, that in exercising any rights under the Purchase Agreement or in making any claim with respect to the Aircraft or other goods and services delivered or to be delivered pursuant to the Purchase Agreement, the terms and conditions of the Purchase Agreement shall apply to and bind Assignee (and any assignee of Assignee) to the same extent as Assignor; and (c) Except as stated herein, nothing contained herein shall subject Manufacturer or Assignor to any liability to which it, as the case may be, would not otherwise be subject under the Purchase Agreement or modify in any respect the rights of Manufacturer or Assignor thereunder. Section 5. NOTICES. Any notices provided for in the Purchase Agreement Assignment No. 1 shall be delivered to Assignee and Lessee at the following address or such other place as Assignee or Lessee, as the case may be, may designate in accordance with the Purchase Agreement Assignment No. 1: (a) if to Assignee to: Wells Fargo Bank Northwest, National Association MAC: U1254-031 79 South Main Street, 3rd Floor Salt Lake City, Utah 84111 Tel: (801) 246-5630 Fax: (801) 246-5053 Attn: Corporate Trust Department with a copy to: Mitsui & Co. (U.S.A.), Inc. 200 Park Avenue New York, New York 10166 Tel: (212) 878-4314 Fax: (212) 878-0979 Attn: General Manager, Aerospace, Marine and Motor Vehicle Department (b) if to Lessee to: Chautauqua Airlines, Inc. 2500 S. High School Road Indianapolis, Indiana 46241 Tel: (317) 484-6047 Fax: (317) 484-6060 Attn: President with a copy to: Wexford Capital LLC 411 West Putnam Avenue Greenwich, Connecticut 06830 Tel: (203) 862-7000 3 Fax: (203) 862-7490 Attn: President Section 6. HEADINGS. The headings of the Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. Section 7. GOVERNING LAW. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO CONFLICT OF LAWS RULES OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. Section 8. WAIVER OF WARRANTIES. THE ASSIGNEE HEREBY WAIVES, RELEASES AND RENOUNCES, ALL WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE ASSIGNOR OTHER THAN THE WARRANTY OF TITLE CONTAINED IN THE WARRANTY BILL OF SALE ISSUED OF EVEN DATE HEREWITH BY THE ASSIGNOR TO THE ASSISGNEE, AND ASSIGNEE FURTHER WAIVES AND RELEASES ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF ASSIGNEE AGAINST ASSIGNOR EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY NON-CONFORMANCE OR DEFECT OR FAILURE OR ANY OTHER REASON IN ANY AIRCRAFT OR OTHER THING DELIVERED UNDER THE PURCHASE AGREEMENT, INCLUDING DATA, DOCUMENT, INFORMATION OR SERVICE, INCLUDING BUT NOT LIMITED TO: a. ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS; b. ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; c. ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OR OTHER RELATED CAUSES OF ASSIGNOR, WHETHER ACTIVE, PASSIVE OR IMPUTED; AND d. ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO ANY AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO ANY AIRCRAFT OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. Section 9. COUNTERPARTS. This Assignment and the acknowledgment and consent to be signed by the Manufacturer and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts (or upon separate signature pages bound together into one or more counterparts), each of which when so executed shall be deemed to be an original, and all of which counterparts, taken together, shall constitute one and the same instrument. Section 10. WFB is entering into this Assignment solely as Owner Trustee under the Trust Agreement and not in its individual capacity and neither WFB nor any entity acting as successor Owner Trustee or additional Owner Trustee under the Trust Agreement shall be personally liable for, or for any loss in respect of, any of the statements, representations, warranties, agreements or obligations stated to be those of the Assignee hereunder, as to 4 which all interested parties shall look solely to the Trust Estate (as defined in the Trust Agreement), except to the extent expressly provided otherwise in the other Operative Documents (as defined in the Trust Agreement), PROVIDED HOWEVER, that nothing in this Section 10 shall be construed to limit in scope or substance the liability of WFB or any entity acting as successor Owner Trustee or additional Owner Trustee under the Trust Agreement in its individual capacity for the consequences of its own willful misconduct or gross negligence or (in receiving, handling or remitting funds) its simple negligence, or the inaccuracy or breach of its representations, warranties or covenants made in such capacity in any other Operative Documents. [Remainder of the Page is Intentionally Left Blank.] 5 IN WITNESS WHEREOF, Assignor and Assignee have caused this Purchase Agreement Assignment No. 2 to be duly executed and sealed as of the day and year first written above. AERO LTD., as Assignor By: ---------------------------------------- Name: Title: WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Owner Trustee on behalf of Mitsui & Co. (U.S.A.), Inc., as Assignee By: ---------------------------------------- Name: Title: CHAUTAUQUA AIRLINES, INC., as Lessee By: ---------------------------------------- Name: Title: 6 Annex 1 to Purchase Agreement Assignment No. 2 - (N288SK) CONSENT AND AGREEMENT No. 2 - (N288SK) The undersigned, EMBRAER-EMPRESA BRASILEIRA DE AERONAUTICA S.A., a corporation organized and existing under the laws of Brazil, hereby acknowledges notice of and consents to all of the terms (including without limitation the assignment of the Assigned Warranties by Assignee to Lessee pursuant to Section 10.01 of the Lease) of the foregoing Purchase Agreement Assignment No. 2 - (N288SK), dated as of June 29, 2001, among Aero Ltd., Wells Fargo Bank Northwest, National Association, not in its individual capacity but solely as Owner Trustee on behalf of Mitsui & Co. (U.S.A.), Inc. (the "Beneficiary") and Chautauqua Airlines, Inc. (the "Lessee"), to the extent they relate to the Manufacturer (herein called the "Assignment No. 2", the defined terms therein being hereinafter used with the same meaning) and hereby confirms to the Assignee and the Lessee that: (i) all representations, warranties, indemnities and agreements of the Manufacturer under the Assigned Warranties with respect to the Aircraft shall inure to the benefit of the Assignee to the same extent as if originally named the "Buyer" therein, subject to the terms and conditions of the Assignment No. 2, the Purchase Agreement and the Purchase Agreement Assignment No. 1 -(N288SK) dated as of June 29, 2001 between Solitair Corp. and Assignor ("Assignment No. 1"); (ii) neither Assignee nor Beneficiary shall be liable for any of the obligations or duties of Solitair Corp. or the Assignor under the Purchase Agreement or Assignment No. 1, nor shall the Assignment No. 2 give rise to any duties or obligations whatsoever on the part of the Assignee owing to the Manufacturer except for Assignee's agreement to effect that in exercising any rights under the Purchase Agreement as assigned by Assignment No. 1, or in making any claims with respect to the Aircraft or other things (including without limitation data, sale documents and services) delivered or to be delivered pursuant to the Purchase Agreement as assigned by Assignment No. 1, the terms and conditions of the Purchase Agreement as assigned by Assignment No. 1, shall apply to and be binding upon Assignee to the same extent as if Assignee had been the original "Buyer" thereunder, and with respect to such agreement the Manufacturer agrees that, anything contained in the Purchase Agreement or the Assignment No. 2 to the contrary notwithstanding, so long as the Manufacturer shall not have received notice that an Event of Default shall have occurred and the Lease shall have been terminated under Section 17.02 thereof, the Assignee shall not have any responsibility to the Manufacturer for failure to comply with any of the terms of the Purchase Agreement as assigned by Assignment No. 1 with respect to the Aircraft while subject to the terms of the Lease to Lessee so long as the Assignee acts upon the written instructions of Lessee (to which instructions the Manufacturer understands it shall have access on request); provided that no person other than the Manufacturer shall have any rights against the Assignee with respect to the undertaking and agreement set forth in this clause (ii); (iii) the Manufacturer will continue to pay to the Lessee all payments which the Manufacturer may be required to make in respect of the Aircraft under the Purchase Agreement as assigned by Assignment No. 1 unless and until the Manufacturer shall have received written notice addressed to its Contracts Administrator, by mail to EMBRAER-Empresa Brasileira de Aeronautica S.A., Av. Brigadeiro Faria Lima, 2170, 12.227-901 Sao Jose dos Campos, SP, Brazil, or by telecopy to telecopy no.: (55-123) 45-1257, that an Event of Default shall have occurred and the Lease shall have been terminated under Section 17.02 thereof (which such notice from the Assignee shall be conclusive proof thereof to the Manufacturer and as to which the Manufacturer shall have no obligation to inquire), whereupon the Manufacturer will make any and all payments and take any and all actions which it may be required thereafter to make or take in respect of the Aircraft under the Purchase Agreement as assigned by Assignment No. 1 and the Assigned Warranties which have been assigned under the Assignment No. 2 directly to the 1 Assignee at its address at Wells Fargo Bank Northwest, National Association, MAC: U1254-031,79 South Main Street, 3rd Floor, Salt Lake City, Utah 84111, Tel: (801) 246-5630, Fax: (801) 246-5053, Attn: Corporate Trust Department, with copy to Mitsui & Co. (U.S.A.), Inc., 200 Park Avenue, New York, New York 10166, Tel: (212) 878-4314, Fax: (212) 878-0979, Attn: General Manager, Aerospace, Marine and Motor Vehicle Department; and (iv) from and after the delivery of the Aircraft and payment in full therefor as invoiced by the Assignor to the Assignee on the Delivery Date, the Manufacturer will not assert any lien or claim against the Aircraft or any part thereof arising with respect to or in connection with any work or other services performed before the delivery and acceptance of the Aircraft. The Manufacturer hereby represents and warrants that (A) the Manufacturer is a corporation duly organized and existing in good standing under the laws of Brazil, (B) the making and performance of the Purchase Agreement have been duly authorized by all necessary corporate action on the part of the Manufacturer, do not require any stockholder approval, do not contravene the Manufacturer's By-Laws or any indenture, credit agreement or other contractual agreement to which the Manufacturer is a party or by which it is bound, and the making of the Purchase Agreement does not contravene any law binding on the Manufacturer, (C) the making and performance of this Consent and Agreement have been duly authorized by all necessary corporate action on the part of the Manufacturer, do not require any stockholder approval and do not contravene any law binding on the Manufacturer or contravene the Manufacturer's By-laws or any indenture, credit agreement or other contractual agreement to which the Manufacturer is a party or by which it is bound and (D) the Purchase Agreement constituted as of the date thereof and at all times thereafter to and including the date of this Consent and Agreement constitutes a binding obligation of the Manufacturer enforceable against the Manufacturer in accordance with its terms subject to: (i) the limitations of applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally; and (ii) general principles of equity (regardless of whether such enforceability is considered in -a proceeding in equity or at law), which principles do not make the remedies available at law or in equity with respect to the Purchase Agreement inadequate for the practical realization of the benefits intended to be provided thereby and this Consent and Agreement is a binding obligation of the Manufacturer enforceable against the Manufacturer in accordance with its terms subject to: (a) the limitations of applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally; and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), which principles do not make the remedies available at law or in equity which respect to this Consent and Agreement inadequate for the practical realization of the benefits intended to be provided thereby. [The remainder of this page has been left blank intentionally.] 2 THIS CONSENT AND AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, AS APPLICABLE TO CONTRACTS BETWEEN CITIZENS OF THE STATE TO BE PERFORMED WHOLLY WITHIN THAT STATE, AND WITHOUT REGARD TO CONFLICTS OF LAW RULES OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. Dated as of June 29, 2001 EMBRAER-EMPRESA BRASILEIRA DE AERONAUTICA S.A. By ------------------------------------------ Name: Title: By ------------------------------------------ Name: Title: NOTE TO EXHIBIT 10.32 The two additional Aircraft Purchase Agreements are substantially identical in all material respects to the filed Aircraft Purchase Agreement except as follows:
- ------------------------------------- ----------------------------------- ----------------------------------- TAIL NUMBER CLOSING DATE OWNER-PARTICIPANT - ------------------------------------- ----------------------------------- ----------------------------------- N286SK June, 2001 Mitsui & Co. - ------------------------------------- ----------------------------------- ----------------------------------- N287SK June, 2001 Mitsui & Co. - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- -----------------------------------
EX-10.47 17 a2082173zex-10_47.txt EXHIBIT 10.47 JUNIOR LOAN AGREE EXHIBIT 10.47 CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 ================================================================================ JUNIOR LOAN AGREEMENT WITH RESPECT TO SEVEN EMB-145 MODEL EMB-135KL AIRCRAFT among CHAUTAUQUA AIRLINES, INC. As Borrower, and EMBRAER-EMPRESA BRASILEIRA DE AERONAUTICA S.A. Dated as of June 11, 2002 ================================================================================ CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. THE OMITTED MATERIALS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 1 JUNIOR LOAN AGREEMENT, dated as of June 11, 2002 between CHAUTAUQUA AIRLINES, INC., a New York corporation (the "Borrower" or "Chautauqua Airlines"), and Embraer-Empresa Brasileira de Aeronautica S.A., a Brazilian Federal public company, with its main offices in Av. Brig. Faria Lima, 2170, 12227-901, Sao Jose dos Campos, Brazil (the "Lender" or "Manufacturer"). WHEREAS, the Borrower and the Manufacturer have entered into the Interim Loan Agreements, pursuant to which the Manufacturer has loaned [*] to the Borrower in order to enable the Borrower to purchase the seven Aircraft from the Manufacturer (as defined herein); WHEREAS, the Borrower plans to pay the Lender [*] of each Aircraft as partial payment of the amounts due under the Interim Loan Agreements, by borrowing such amounts from FINAME pursuant to the FINAME Loan Agreements; WHEREAS, Borrower desires to borrow the remaining [*] from the Lender on the terms of this Junior Loan Agreement, and Borrower and Lender desire to enter into this Junior Loan Agreement with respect to the loan of such amounts. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINITIONAL PROVISIONS. (a) Unless otherwise specified herein or therein, all capitalized terms used in this Agreement, the Note or any certificate or other document made or delivered pursuant hereto shall have the meanings set forth in Annex A hereto. (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to Borrower and its Subsidiaries, to the extent not otherwise defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Annex, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (e) References to any Person shall include such Person's successors and assigns subject to any limitations provided for herein or in the other Borrower Loan Documents. 1 - -------------- * Confidential (f) References to agreements shall include such agreements as amended, modified or supplemented. (g) The words "include," "includes" and "including" are not limiting. SECTION 2. AMOUNT AND TERMS OF LOAN 2.1 PROCEDURE FOR BORROWING. On the Borrowing Date, the Lender shall make the Loan with respect to each Aircraft to the Borrower in Dollars in the amount of the Commitment. The closing (the "CLOSING") of the Loans shall take place before 12:30 P.M., New York time, on the Borrowing Date at the offices of Katten Muchin Zavis Rosenman, New York, New York, or at such other time and place as the parties hereto shall have agreed. The Lender shall make the Loan with respect to each Aircraft to the Borrower by terminating the Interim Security Agreement and releasing its Lien with respect to the relevant Aircraft, and such Loan shall be applied to payment of the remaining amounts Borrower owes to the Lender pursuant to the Interim Loan Agreement with respect to each Aircraft and, if any proceeds of the Loans remain after payment of all amounts due to Lender under the Interim Loan Agreements, such balance shall be paid by the Lender to the Borrower at the Closing. 2.2 TERMS OF REPAYMENT OF THE LOANS; INTEREST; EVIDENCE OF DEBT. (a) the Borrower shall make scheduled principal payments on each Loan in monthly installments in [*] starting with January 31, 2003 (each such date, a "Payment Date"). (b) On each Payment Date, the Borrower shall pay interest accrued in respect of the unpaid principal amount of such Loan from the date the proceeds made thereof are made available to the Borrower until such date, at the Debt Rate. For the avoidance of doubt, interest shall accrue on each Loan from the Borrowing Date. The expected amounts of such interest for each Payment Date [*] with respect to such Loan. (c) The Borrower hereby unconditionally promises to pay to the Lender the unpaid principal amount of and accrued interest on the Loans on the Maturity Date. (d) Payment of all amounts due to the Lender hereunder or under each Note shall be payable by the Borrower in Dollars in Immediately Available Funds to the Lender by wire transfer at such account as is specified by the Lender no later than 11:30 A.M., New York time, on the due date therefor. (e) Upon payment in full by the Borrower of the principal of, and interest on, a Note, and in the case of the last Note to be outstanding, all other amounts then due and owing under any Borrower Loan Document or as otherwise agreed in the Borrower Loan Documents, such Note shall be surrendered by the Lender to the Borrower for cancellation. (f) The Borrower agrees to execute and deliver to the Lender on the Borrowing Date a promissory note of the Borrower evidencing the Loan with respect to each 2 - -------------- * Confidential Aircraft, each such note to be substantially in the form of Annex B hereto, with appropriate insertions as to date and principal amount payable to the Lender in a principal amount in Dollars equal to the principal amount of the Loan with respect to such Aircraft (each, a "NOTE"). (g) If (i) the principal of a Loan, (ii) any interest payable thereon or (iii) any other amount relating to the Loan payable hereunder or under any other Borrower Loan Document shall not be paid when due (whether at the stated maturity, by acceleration or otherwise and not giving effect to any grace period in determining when any such amount is due), to the extent permitted by applicable law, the amount of such overdue principal, interest or other amount shall bear interest at the Default Rate, in each case from and including the date of such non-payment until but excluding the date on which such overdue principal, interest or other amount is paid in full (as well after as before judgment). Interest accruing pursuant to the preceding sentence of this Section 2.2(f) shall be payable from time to time on demand. (h) Interest shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each. Any payment hereunder that would otherwise be due on a day that is not a Business Day shall be due on the next Business Day. (i) The Borrower agrees to record separately the name and address and any other necessary identifying information of Lender in a register maintained as part of a book-entry system. The Borrower and the Lender shall treat the party whose name is recorded in such register as Lender with all entitlements under this Agreement. The Borrower shall record the name of the transferor, the name of the transferee and the amount of the transfer in the register in the case of a transfer. Notwithstanding anything to the contrary set forth in this Agreement or the other Borrower Loan Documents, no assignment or transfer by the Lender of any rights or obligations under or in respect of the Loan or a Note shall be effective unless and until the Borrower shall have recorded such assignment or transfer in the register maintained pursuant to this paragraph; provided that if any such assignment or transfer occurs while an Event of Default has occurred and is continuing, Lender may act as Borrower's agent for effecting registration of such assignment or transfer. (j) Payments of principal and other amounts due hereunder shall be applied as follows: FIRST, to the payment of any amount (other than principal and interest) due to Lender hereunder or under the Borrower Loan Documents; SECOND, to the payment of accrued and unpaid interest due hereunder; and THIRD, to the repayment of principal hereunder. 2.3 MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If a Note shall become mutilated, destroyed, lost or stolen, the Borrower shall, upon the written request of the registered holder thereof, issue, and deliver in replacement thereof, a new Note, payable to such registered holder in the same principal amount, with the same final maturity date, bearing the same interest rate and dated the same date as the Note so mutilated, destroyed, lost or stolen. If the Note being replaced has become mutilated, such Note shall be surrendered to the Borrower. If destroyed, lost or stolen, Lender shall furnish to the Borrower such indemnity as may be reasonably required by the Borrower to save the Borrower harmless from any cost, expense, damage, loss and liability 3 resulting therefrom, and an affidavit as to the destruction, loss or theft of such Note and of the ownership thereof. 2.4 MANDATORY AND OPTIONAL PREPAYMENT. (a) Except as expressly provided in SECTIONS 2.4(b) or 2.4(c), the Borrower may not prepay a Note. (b) Upon the occurrence of any of the following events, the Borrower shall prepay the principal of the relevant Loans together with all accrued and unpaid interest on such Loan and all other amounts then due with respect to such Loans: (i) a Total Loss with respect to an Aircraft, in which case prepayment with respect to the Loan with respect to such Aircraft shall occur on the Loss Payment Date with respect to such Aircraft; (ii) the issuance of any shares pursuant to the initial public offering of Republic, in which case prepayment of all of the Loans shall occur on the first Business Day following such issuance; and (iii) the sale or transfer of an Aircraft by Borrower (other than to FINAME or the Security Trustee on the date hereof pursuant to the FINAME Security Agreement), in which case prepayment of the Loan with respect to such Aircraft shall occur prior to or simultaneous with such transfer. (c) The Borrower shall have the right to prepay a Loan in full prior to the Maturity Date, without premium or penalty, upon five days' prior notice to the Lender; PROVIDED that no Event of Default shall have occurred and be continuing, and PROVIDED that if all outstanding Loans are being prepaid, all other liabilities of the Borrower then due and owing under the Borrower Loan Documents shall also be paid. 2.5 USE OF PROCEEDS OF THE LOAN. The proceeds of each Loan shall be applied by the Borrower solely towards payment of amounts due under the relevant Interim Loan Agreement. 2.6 TAXES. All payments to or for the account of the Lender under this Agreement or the other Borrower Loan Documents shall be made without deduction or withholding for or on account of any present or future Indemnified Taxes whether or not collected by way of withholding or deduction from any payment thereunder, except to the extent required by Applicable Law. If any amount payable to the Lender under this Agreement or the other Borrower Loan Documents becomes subject to any Indemnified Tax imposed by way of withholding or deduction, the Borrower shall indemnify and hold harmless the Lender against such Indemnified Taxes and shall pay an additional amount to the Lender so that the net amount actually received by the Lender, after reduction by withholding of any such Indemnified Tax, including any reduction for withholding applicable to additional sums payable under this Section 2.6, shall be equal to the full amount that the Lender would have otherwise received under this Agreement or the other Borrower Loan Documents. Whenever any withholding Taxes are paid by the Borrower, the Borrower shall promptly forward to the Lender an official receipt (or certified copy thereof) or other documentation reasonably acceptable to the Lender evidencing such payment to the relevant tax authority. The Lender agrees to provide to the Borrower, not later than the Borrowing Date, and at reasonable times thereafter upon the request 4 of the Borrower, an IRS Form W-8 BEN properly completed and executed by the Lender or any substantively identical successor form, provided that such Form W-8 BEN shall only be required after the Borrowing Date if payments under this Agreement to the Lender would not otherwise be exempt from withholding and the Lender is legally entitled to provide such form; provided, however, that each Loan Transferee or Loan Participant agrees to provide to Borrower upon its request, either IRS Form W-9, IRS Form W-8 BEN or such other IRS Form W-8, as appropriate, but such form will only be required from a Loan Transferee or Loan Participant if payments under this Agreement to the Loan Transferee or the Loan Participant would not otherwise be exempt from withholding. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER 3.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Borrower (1) is a corporation duly incorporated, validly existing and in good standing pursuant to the laws of the State of New York, (2) is duly qualified to do business as a foreign corporation in good standing in all jurisdictions in which failure so to qualify would have a Material Adverse Effect, (3) is a Citizen of the United States and a Certificated Air Carrier, (4) holds all licenses, certificates, permits and franchises from the appropriate agencies of the United States of America and/or all other Governmental Authorities having jurisdiction necessary to authorize it to engage in air transport and to carry on scheduled passenger service as presently conducted (except for any of the foregoing the failure of the Borrower to hold or maintain which would not have a Material Adverse Effect), (5) has its chief place of business and chief executive office (as such terms are defined in Article 9 of the Uniform Commercial Code) at 2500 S. High School Road, Indianapolis, Indiana, (6) has the corporate power and authority to carry on its business as currently conducted, and (7) except for "code sharing" arrangements with other airlines, does not conduct business under a trade, assumed or fictitious name. 3.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The execution, delivery and performance by the Borrower of this Agreement have been duly authorized by all necessary corporate action on the part of the Borrower, do not require any stockholder approval, or approval or consent of any trustee or holders of any indebtedness or obligations of the Borrower except such as have been duly obtained, and this Agreement does not contravene any law, judgment, government rule, regulation or order now binding on the Borrower, or the Articles of Incorporation or Bylaws of the Borrower, or contravene the provisions of, or constitute a default under, or result in the creation of any Lien upon the property of the Borrower under its Articles of Incorporation or Bylaws or any indenture, mortgage, contract or other agreement to which the Borrower is a party or by which it or any of its properties is bound or affected. Neither the execution and delivery by the Borrower of this Agreement nor the performance by the Borrower of its obligations hereunder require the consent, approval or authorization of, the giving of notice to, or the registration with, or the taking of any other action in respect of any federal, state or foreign Governmental Authority (other than a Brazilian Governmental Authority) or agency on the part of the Borrower in connection with the borrowing of the Loan or with the execution, delivery, performance, validity or enforceability of the Borrower Loan Documents to which the Borrower is a party. Assuming due authorization, execution and delivery of this 5 Agreement by Lender, this Agreement, when entered into by the Borrower, will constitute a valid and legally binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law); and an implied covenant of good faith and fair dealing. 3.3 PURPOSE OF THE LOAN. The proceeds of the Loans will be used by the Borrower to pay amounts it owes the Lender pursuant to the Interim Loan Agreements. 3.4 [intentionally left blank]; 3.5 LITIGATION. (a) There is no pending or, to the knowledge of the Borrower, threatened action or proceeding before any court or administrative agency, and there are no final judgments of record against the Borrower which, either individually or in the aggregate in the case of any group of related lawsuits, is reasonably likely to have a Material Adverse Effect; (b) The Borrower is not in default of any material obligation for the payment of borrowed money, for the deferred purchase price of property or for the payment of any rent, nor is there any event which has occurred and is continuing that, under the terms of the indenture, mortgage, loan agreement or other agreement or instrument relating to such obligation, with the lapse of time or the giving of notice, or both, would constitute a default thereunder, which default(s), either individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect; and (c) The Borrower is not in violation of any law, order, injunction, decree, rule or regulation applicable to the Borrower of any court or administrative body, which violation would be reasonably likely to have a Material Adverse Effect; 3.6 NO DEFAULT. There has not occurred any event which constitutes a Default or an Event of Default under this Agreement which is presently continuing; 3.7 TAXES. The Borrower has filed or caused to be filed all U.S. federal, state and local and non-U.S. tax returns that are required to be filed by them and have paid or caused to be paid all taxes shown to be due on such return or on any assessment received by the Borrower, except any that are being contested diligently and in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP; 3.8 ERISA. (a) No "employee benefit plan" (as defined in Section 3(3) of ERISA) maintained by the Borrower or any ERISA Affiliate of either has incurred an "accumulated funding deficiency" (within the meaning of ERISA) and neither the Borrower nor any ERISA Affiliate of either has incurred any material liability to the Pension Benefit Guaranty Corporation; 6 (b) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code (including all provisions thereof, compliance with which is required for any intended favorable Tax treatment) and other federal or state law, except where such non-compliance is not reasonably be expected to have a Material Adverse Effect. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and, to the best knowledge of the Borrower, nothing has occurred that would cause the loss of such qualification. The Borrower and each ERISA Affiliate have made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that has resulted, or is reasonably expected to result, in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect; and (c) The Borrower's interest in the Aircraft does not and will not constitute the assets of any "employee benefit plan" as defined in Section 3(3) of ERISA or any "plan" within the meaning of Section 4975(e)(1) of the Code; 3.9 [INTENTIONALLY LEFT BLANK]; 3.10 INVESTMENT COMPANY. None of the Borrower or any subsidiary or Affiliate of it is an "investment company" required to be registered under the Investment Company Act of 1940, as amended; 3.11 MARGIN STOCK. The Borrower is not engaged principally in the business of extending credit for the purpose of buying or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System ("REGULATION U")) and none of the proceeds from the issuance of the Note will be used directly or indirectly by the Borrower to purchase or carry "margin stock" as such term is defined in Regulation G of the Board of Governors of the Federal Reserve System; 3.12 FINANCIAL STATEMENTS. The financial statements and any related notes of the Borrower of the fiscal year ended December 31, 2001 have been prepared in accordance with GAAP, and fairly present in all material respects in accordance with GAAP the financial condition of the Borrower as at such date and the results of its operations for the periods covered by such statements, and since December 31, 2001, there has been no change in such condition or operations which would result in any Material Adverse Effect; SECTION 4. CONDITIONS PRECEDENT TO THE LENDER'S OBLIGATIONS 7 The agreement of the Lender to make the Loans requested to be made by it to the Borrower on the Borrowing Date is subject to the satisfaction, or waiver by the Lender, of the following conditions precedent prior to or concurrently with the making of the Loans: 4.1 MATERIAL ADVERSE CHANGE. (a) no event shall have occurred that would result in a Material Adverse Change since December 31, 2001, in the business, operations or financial condition of the Borrower which change has a material adverse impact on the Borrower's ability to perform any of its obligations under the Borrower Loan Documents to which it is a party. (b) No change shall have occurred after the date of the execution and delivery of this Junior Loan Agreement in Applicable Law which would make it a violation of law or regulations for (1) the Borrower or the Lender to execute, deliver and/or perform the Borrower Loan Documents to which any of them is a party or (2) the Lender to make its Commitment available. 4.2 FEES AND EXPENSES. (a) On the Borrowing Date, the Lender shall have received from Borrower all amounts then accrued and payable to Lender pursuant to Section 9.11. 4.3 DOCUMENTS. Assuming due authorization, execution and delivery by the Lender and each other party other than the Borrower of the Borrower Loan Documents to which it is a party, each of the Borrower Loan Documents shall have been duly authorized, executed and delivered by the Borrower and shall be in full force and effect and executed counterparts shall have been delivered to the Borrower and the Lender, and their respective counsel, PROVIDED that only the Lender shall receive executed originals of the Note. 4.4 [INTENTIONALLY LEFT BLANK] 4.5 AUTHORIZATION. On the Borrowing Date, the Lender shall have received the following, in each case in form and substance reasonably satisfactory to it: (a) a copy of the Articles of Incorporation of the Borrower certified by the Secretary of State of the State of New York and a copy of the Bylaws and resolutions of the board of directors of the Borrower certified by the Secretary or Assistant Secretary of the Borrower, duly authorizing the execution, delivery and performance by the Borrower of each of the Borrower Loan Documents to which the Borrower is a party, and an incumbency certificate as to the Person or Persons authorized to execute and deliver such documents on its behalf and including specimens of the signatures of such Person or Persons; and (b) such other documents and evidence with respect to the Borrower as the Lender or its counsel may reasonably request in order to establish the authority of the Borrower to consummate the Borrower Loan Documents to which it is a party and the taking of all corporate proceedings in connection therewith. 8 4.6 GOVERNMENTAL APPROVAL. All appropriate action required to have been taken by Borrower on or prior to the Borrowing Date by any governmental or political agency, subdivision or instrumentality of the United States or Brazil in connection with the transactions contemplated by this Agreement shall have been taken, and all orders, permits, waivers, authorizations, exemptions and approvals of such entities required to be in effect on the Borrowing Date in connection with the transactions contemplated by this Agreement shall have been issued, and all such orders, permits, waivers, authorizations, exemptions and approvals shall be in full force and effect on the Borrowing Date. 4.7 FINAME LOAN MATTERS. On the Borrowing Date the following statements shall be true, and the Lender shall have received evidence reasonably satisfactory to it to the effect that all conditions to the closing of the FINAME Loan Agreements shall have been either been waived by FINAME or satisfied, and FINAME shall be prepared to provide all funds immediately for the FINAME Loan with respect to all of the Aircraft. 4.8 REPRESENTATIONS. The representations and warranties of the Borrower contained herein and in the other Borrower Loan Documents to which the Borrower is a party shall be true and accurate as though made on and as of such date except to the extent that such representations and warranties relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such date), and the Lender shall have received a certificate of a Responsible Officer of the Borrower to such effect. 4.9 ADDITIONAL CONDITIONS. On the Borrowing Date, (a) no event shall have occurred and be continuing, or be reasonably likely to result from the purchase, sale or mortgage of the Aircraft, which constitutes a default or a breach under the Solitair Purchase Agreement, the Republic Purchase Agreement, or the Partial Assignment of Purchase Agreement; (b) no Material Adverse Change shall have occurred, or other event that would have a Material Adverse Effect; and (c) [intentionally left blank] 4.10 OPINIONS. On the Borrowing Date the Lender shall have received an opinion addressed to it from Hughes Hubbard & Reed, LLP, counsel for the Borrower, in form and substance reasonably satisfactory to it. 4.11 CERTIFICATES. The Lender shall have received a certificate signed by an officer of the Borrower dated the Borrowing Date addressed to the Lender and certifying as to the fulfillment of all conditions in Section 4.6 (insofar as it relates to the United States), Section 4.8 and Section 4.14 (to the knowledge of the Borrower). 4.12 [INTENTIONALLY LEFT BLANK] 9 4.13 TOTAL LOSS. On the Borrowing Date no Total Loss (or event which with the passage of time would be reasonably likely to become a Total Loss) with respect to the Airframe or any Engine shall have occurred. 4.14 LITIGATION. No action or proceeding shall have been instituted nor shall governmental action be threatened before any court or Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any court or Governmental Authority at the time of the Borrowing Date to set aside, restrain, enjoin or prevent the completion and consummation of this Agreement or any of the transactions contemplated hereby. 4.15 CLOSING DOCUMENTS. All proceedings taken in connection with the transactions contemplated hereby and the other Borrower Loan Documents and all documents and papers relating thereto shall be reasonably satisfactory to the Lender and its counsel, and the Lender and its counsel shall have received copies of such documents and papers as the Lender or its counsel may reasonably request in connection therewith or as a basis for such counsel's closing opinion, all in form and substance reasonably satisfactory to the Lender and its counsel. 4.16 [INTENTIONALLY LEFT BLANK] SECTION 5. [INTENTIONALLY LEFT BLANK] SECTION 6. [INTENTIONALLY LEFT BLANK] SECTION 7. COVENANTS OF THE BORROWER 7.1 COVENANTS OF THE BORROWER. The Borrower hereby agrees that, so long as the Loan is owing to the Lender hereunder, it shall furnish to the Lender: (a) (i) within 45 days after the end of each of the first three quarterly fiscal periods in each fiscal year of the company, a consolidated balance sheet of the Borrower (and its consolidated subsidiaries, if any) prepared by it as of the close of such period, together with the related consolidated statements of income and changes in cash flow for such period, together with a certificate of an authorized officer of the Borrower that such financial statements present fairly in all material respects in accordance with generally accepted accounting principles the information contained therein subject to year end adjustments and the absence of required footnote, (ii) within 120 days after the close of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower (and its consolidated subsidiaries, if any) as of the close of such fiscal year, together with the related consolidated 10 statements of income and changes in cash flow for such fiscal year, as audited by independent public accountants. (b) together with the delivery of each set of financial statements pursuant to paragraphs (a) above, a certificate executed by an authorized officer of the Borrower stating that, to his knowledge, no Default or Event of Default has occurred thereunder or if any has occurred specifying the nature thereof and the steps proposed to be taken to cure such Default or Event of Default, if curable; (c) such other reports and information regarding the Borrower as Lender shall reasonably request; (d) [intentionally left blank] (e) Promptly upon receipt thereof by the Borrower, copies of all communications regarding any event that could reasonably be expected to result in a Material Adverse Effect, received by the Borrower from the manufacturer of any of the Engines or the Borrower's insurance carrier or broker, as the case may be, and promptly upon sending the same, copies of all notices and communications regarding events described above sent by the Borrower to such manufacturer of such Engines or such insurance carrier or broker. 7.2 COVENANTS OF THE BORROWER. The Borrower will not consolidate with or merge into any other person under circumstances in which Borrower is not the surviving corporation, or convey, transfer or lease in one or more transactions all or substantially all of its assets to any other Person, unless: (a) such Person is organized, existing and in good standing under the Laws of the United States, any State of the United States or the District of Columbia and, upon consummation of such transaction, such person will be a Certificated Air Carrier; (b) such Person executes and delivers to the Lender a duly authorized, legal, valid, binding and enforceable agreement, reasonably satisfactory in form and substance to Lender, containing an effective assumption by such person of the due and punctual performance and observance of each covenant, agreement and condition in the Borrower Loan Documents to be performed or observed by Borrower; (c) such Person makes such filings and recordings with the FAA pursuant to the Transportation Code as shall be necessary to evidence such consolidation or merger; (d) immediately after giving effect to such consolidation or merger no Event of Default shall have occurred and be continuing; and 11 (e) the net worth (as determined under GAAP) of such Person immediately after giving effect to such transaction is not materially less than the greater of (x) the net worth (determined as aforesaid) of the Borrower immediately prior to such transaction or (y) the net worth (determined as aforesaid) of the Borrower on December 31, 2001. Upon any such consolidation or merger of Borrower with or into, or the conveyance, transfer or lease by Borrower of all or substantially all of its assets to, any person in accordance with this Section 7.2, such Person will succeed to, and be substituted for, and may exercise every right and power of, Borrower under the Borrower Loan Documents with the same effect as if such Person had been named as "Borrower" therein. No such consolidation or merger, or conveyance, transfer or lease, shall have the effect of releasing Borrower or such Person from any of the obligations, liabilities, covenants or undertakings of Borrower under the Borrower Loan Documents. 7.3 CERTAIN ADDITIONAL COVENANTS OF BORROWER. The Borrower agrees and covenants that it will: (a) EXISTENCE AND CITIZENSHIP. At all times maintain (a) subject to Section 7.2, its corporate existence in good standing under the laws of its charter jurisdiction and keep current all necessary filings related thereto, (b) its status as a Citizen of the United States, (c) its status as a Certificated Air Carrier, (d) its right to transact business in each jurisdiction in which the character of the properties owned or leased by it or the business conducted by it makes such qualification necessary, except to the extent failure to comply with this clause (d) will not have a Material Adverse Effect and (e) all licenses, certificates, permits and franchises necessary to authorize the Borrower to engage in the business of air transport and the carrying on of scheduled passenger service as presently conducted. (b) PAYMENT OF TAXES AND CLAIMS. Pay when due all Taxes, assessments and other liabilities payable by the Borrower, except (other than with respect to Taxes collected by withholding) as contested in good faith and by appropriate proceedings, PROVIDED reserves reasonably deemed appropriate by the Borrower have been established with respect thereto, and except to the extent that failure to comply with this Section 7.3(b) will not have a Material Adverse Effect. (c) NOTICE OF LITIGATION. Give prompt written notice to the Lender in reasonable detail of any litigation or governmental proceeding pending or, to its knowledge, threatened against the Borrower that Borrower would have had to have report if it were subject to, the reporting requirements of the Securities Exchange Act of 1934, as amended. (d) SALE OF THE AIRCRAFT. Not sell, transfer, convey, lease or otherwise dispose of (or enter into any commitment to sell, transfer, convey, lease or otherwise dispose of) 12 all or part of any of the Aircraft (whether in one or a series of transactions), except as permitted pursuant to the FINAME Security Agreement. (e) LOCATION OF CHIEF PLACE OF BUSINESS. Not change the location of its chief place of business or chief executive office without 30 days' prior written notice to Lender (which relocation shall not occur to a jurisdiction in which the Uniform Commercial Code has not been enacted or is not in full force and effect). (f) CODE-SHARING. Except for "code sharing" arrangements with other airlines, shall not conduct business under a trade, assumed or fictitious name without 10 days' prior written notice to Lender. 7.4 CERTAIN ADDITIONAL COVENANTS OF THE BORROWER. The Borrower covenants and agrees with the Lender, as follows: (a) [intentionally left blank] (b) [intentionally left blank]. (c) [intentionally left blank]. (d) [intentionally left blank]. SECTION 8. EVENTS OF DEFAULT 8.1 EVENTS OF DEFAULT. Each of the following shall constitute an "EVENT OF DEFAULT": (a) (i) The Borrower shall fail to make the payment of principal of or interest on any Loan within five (5) Business Days after the same shall become due or (ii) the Borrower shall fail to make any payment when the same shall become due of any other amount due from Borrower under this Agreement and such failure shall continue unremedied for ten (10) days after the receipt by the Borrower of written demand therefor from the Lender, as the case may be; or (b) The Borrower shall fail to carry and maintain on or with respect to the Aircraft (or cause to be carried and maintained) insurance required to be maintained in accordance with the provisions of the FINAME Security Agreement; or (c) The Borrower shall have failed to perform or observe (or caused to be performed and observed) in any material respect any other covenant or agreement to be performed or observed by it under any Borrower Loan Document, and, if it is possible to remedy such a failure, such failure shall continue unremedied for a period of 30 days after written notice thereof by Lender; PROVIDED, that if the Borrower shall have undertaken to cure any such failure which relates to maintenance, service, repair, overhaul or 13 modifications, and, notwithstanding the reasonable diligence of the Borrower in attempting to cure such failure, such failure cannot be cured by the payment of money or otherwise within said 30-day period but is curable with future due diligence, there shall exist no Event of Default under this Section 8.1(c) so long as the Borrower is proceeding with due diligence to cure such failure, and the Lender's rights and interests in the Aircraft are not adversely affected thereby in any material respect, and such failure is cured within an additional period of 90 days; or (d) Any representation or warranty made by the Borrower herein or in any other Borrower Loan Document or any other document or certificate furnished by the Borrower in connection herewith or therewith or pursuant hereto or thereto shall prove to have been incorrect in any material respect as of the time made or deemed made, PROVIDED, that no such Event of Default shall be deemed to have occurred if the effect of such incorrectness is capable of being cured and is cured within a period of 30 days after the receipt by the Borrower of a written notice from Lender notifying the Borrower, of the existence of such incorrectness, and the Borrower's and the Lender's rights and interests in the Aircraft are not adversely affected thereby in any material respect; or (e) The commencement of an involuntary case or other proceeding in respect of the Borrower under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law in the United States or seeking the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Borrower for all or substantially all of its property, or seeking the winding-up or liquidation of its affairs and the continuation of any such case or other proceeding undismissed or unstayed for a period of 60 consecutive days, or an order for relief under Chapter 11 of the Bankruptcy Code with respect to the Borrower as debtor or any other order, judgment or decree shall be entered in any proceeding by any court of competent jurisdiction appointing, without the consent of the Borrower, a receiver, trustee or liquidator of the Borrower or for all or substantially all of its property, or sequestering of all or substantially all of the property of the Borrower and any such order, judgment or decree or appointment or sequestration shall be final or shall remain in force undismissed, unstayed or unvacated for a period of 60 consecutive days after the date of entry thereof; or (f) (i) The Borrower shall consent to the appointment of a custodian, receiver, trustee or liquidator (or other similar official) of itself, the Aircraft or of a substantial part of its property, or shall admit in writing its inability to pay its debts generally as they come due, or a court of competent jurisdiction shall determine that the Borrower is generally not paying its debts as such debts become due, or the Borrower shall make a general assignment for the benefit of creditors, or the Borrower shall take any corporate action to authorize any of the foregoing; or (ii) The Borrower shall file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization in a proceeding under any bankruptcy laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition 14 filed against the Borrower in any such proceeding, or the Borrower shall, by voluntary petition, answer or consent, seek relief under the provisions of any now existing or future bankruptcy or other similar law providing for the reorganization or winding-up of debtors, or providing for an agreement, composition, extension or adjustment with its creditors, or the Borrower shall take any corporate action to authorize any of the foregoing; or (iii) The commencement of proceedings to liquidate or dissolve the Borrower; or (g) The Borrower shall have failed to perform or observe (or caused to be performed and observed) in any material respect any other covenant or agreement to be performed or observed by it pursuant to Article 10, and such failure shall continue unremedied for a period of 10 days; (h) An "Event of Default" (as defined in any loan agreement referred to below in this Section 8.1(h)) shall have occurred and be continuing under any other loan agreement between the Lender and the Borrower pursuant to which the Lender has provided aircraft financing to the Borrower (but only so long as the initial Lender is the Lender), or under any of the FINAME Loan Agreements; or (i) the Borrower shall cease to be a Certificated Air Carrier; or (j) the Borrower shall receive a notice of default or exercise of remedies with respect to the payment or performance of any indebtedness or other obligation to any third party and any such default or exercise of remedies results in an acceleration of such indebtedness or obligations; provided that the aggregate amount of any such indebtedness or obligation is in excess of $500,000 (determined in the case of borrowed money by the amount outstanding under the agreement pursuant to which such borrowed money was borrowed, in the case of a deferred purchase price by the remaining balance and in the case of a lease by the present value of the remaining rent payable thereunder). then, and in any such event, (A) if such event is an Event of Default specified in paragraphs (e) or (f) of this Section 8.1, the Loan (with accrued interest thereon) and all other amounts owing under this Agreement and the Note shall immediately become due and payable, and (B) if such event is another Event of Default, at any time while such Event of Default is continuing, the Lender may, by written notice to the Borrower, declare the Loan (with accrued interest thereon) and all other amounts owing under this Agreement and the Note to be due and payable forthwith, whereupon the same shall immediately become due and payable and the Lender may exercise the rights and remedies provided in the Borrower Loan Documents. Except as expressly provided above in this Section 8.1, presentment, demand, protest and all other notices of any kind with respect to an Event of Default are hereby expressly waived. SECTION 9. MISCELLANEOUS 15 9.1 AMENDMENTS AND WAIVERS. This Agreement or any terms hereof may only be amended, supplemented or modified with the prior written consent of the Borrower and the Lender. The Lender may, from time to time, waive, on such terms and conditions as the Lender may specify in such instrument, any of the requirements of this Agreement or any Event of Default and its consequences. In the case of any waiver the Borrower and the Lender shall be restored to their former positions and rights hereunder, and any Event of Default waived shall be deemed to be cured and not continuing; no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent on such subsequent or other Event of Default. Any amendment or waiver effected in accordance with this Section 9.1 shall be binding upon the Lender and any subsequent Lender and the Borrower. 9.2 NOTICES; CONSENT TO JURISDICTION; JOINDER. (a) All notices, demands, instructions and other communications of any kind required or permitted to be given to or made upon any Party pursuant hereto or in respect of this Agreement shall be made in English, in writing, and shall be personally delivered or sent by registered or certified mail, postage prepaid, by facsimile device, or by overnight service or prepaid courier service, and shall be deemed to be given for purposes hereof (A) if delivered in person or by overnight service or prepaid courier service, on the day that such writing is delivered, (B) if given by registered or certified mail, on the date of receipt, or (C) if made by fax, upon receipt by the sender of transmission confirmation (PROVIDED, that any such fax transmission shall be confirmed by mailing a copy of such notice or transmission by registered mail). Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this Section 9.2(a), notices, demands, instructions and other communications in writing shall be given to or made upon the respective Parties hereto at their respective addresses (or to their respective facsimile numbers) as follows: (i) if to the Borrower or Lender, to the respective addresses set forth in Section 9.2(e), or to such other address as any such Party indicates by notice to the other Party; or (ii) if to any subsequent Lender, addressed to such subsequent Lender at such address as such subsequent Lender shall have furnished by notice to the parties hereto. (b) Each Party hereby irrevocably agrees that any legal suit, action or proceeding brought by any other Party or any Indemnitee that is not a Party, which arises out of or relates to the Borrower Loan Documents or any of the transactions contemplated hereby or thereby or any document referred to herein or therein, may be instituted in the United States District Court for the Southern District of New York and the state courts of the State of New York sitting in the City of New York, and without prejudice to any Party's right to remove to the federal courts, appellate courts from any thereof (collectively, the "STIPULATED COURTS"), and each Party hereby expressly submits itself to the exclusive personal jurisdiction of such Stipulated Courts and waives any objection that it may now or hereafter have to the personal jurisdiction or venue of any action in any such Stipulated Court or that any such action was brought in an inconvenient forum, and agrees not to plead or claim the same by way of motion as a defense or otherwise. EACH PARTY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN 16 ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER BORROWER LOAN DOCUMENT OR THE ENFORCEMENT HEREOF OR THEREOF. (c) [intentionally left blank] (d) Each Party hereby irrevocably and unconditionally waives personal service of process and consents that service of process upon it may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, at its address for notice as determined in Section 9.2(e), or by personal service, and service so made shall be deemed completed when such service is received at such address; PROVIDED, that nothing herein shall affect the right to serve process in any other manner permitted by Applicable Law. (e) Any such notice or communication to a party hereto shall be made in English, in writing, by registered mail, fax, telex or cable, as permitted under applicable law, and shall be given as follows: Borrower: Chautauqua Airlines, Inc. 2500 S. High School Road Indianapolis, Indiana 46241 Attention: President Tel: 317-484-6047 Fax: 317-484-6060 With a Copy to: Wexford Capital LLC 411 West Putnam Avenue Greenwich, Connecticut 06830 Attention: Jay Maymudes Tel: 203-862-7050 Fax: 203-862-7350 Lender/Manufacturer Embraer - Empresa Brasileira de Aeronautica S.A. Av. Brigadeiro Faria Lima, 2170 12227-901 Sao Jose dos Campos, SP Brazil Attention: Director - Contracts Tel: (011) 5512-3927-1410 Fax: (011) 5512-3927-1257 (f) Any party listed above may change its address and the transmission numbers for notices by notice in the manner provided in this Section 9.2. 17 9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder and in any document or certificate delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loan hereunder. 9.4 LOAN ASSIGNMENTS AND TRANSFERS. The Lender may assign and transfer its right, title and interest in the Loan, and the Note, including all of its rights and obligations therein and in the Borrower Loan Documents in whole or in part ("LOAN TRANSFEREES") or grant participations therein to ("LOAN PARTICIPANTS") in private nonpublic placements pursuant to Section 4(2) of the United States Securities Act of 1933, as amended, or Rule 144A ("Rule 144A") thereunder or similar laws or regulations, and the Borrower shall cooperate reasonably and in good faith in accordance with the following provisions in assisting the Lender in effecting such assignment, transfer or grant, PROVIDED that the Borrower shall have no greater obligation or liability (including any increased payment pursuant to Section 2.6) to any transferee than it would have had to the initial Lender or as a result of any grant of a participation. The Borrower hereby waives any right of set-off it may have against such entity with respect to claims against the Lender, the Manufacturer and other third parties. A Loan Transferee may create a perfected lien on the Junior Loan Agreement and the other documents to secure the indebtedness of the Loan Transferee to its lenders. The Parties agree that each Loan Transferee, upon any such assignment and transfer, shall be and have all beneficial rights of Lender to the extent of the interest so assigned and transferred and shall to such extent accede to all rights of Lender under all the Borrower Loan Documents upon execution and delivery to the Borrower of a lender transfer notice, and that no consent, approval or other notice of or to any party to the Borrower Loan Documents is necessary in connection therewith. Without limiting the generality of the foregoing, the Borrower authorizes Lender to disclose to any actual or prospective Loan Transferee or Loan Participant any and all financial information in Lender's possession concerning the Borrower, which has been delivered to Lender pursuant to the Borrower Loan Documents or in connection with Lender's credit evaluation of the Borrower prior to entering into the Borrower Loan Documents. This Junior Loan Agreement shall be binding upon and inure to the benefit of the Borrower, Lender and their respective successors and permitted assigns. Except as otherwise expressly permitted or required by the provisions of the Borrower Loan Documents, the Borrower may not assign any of its rights or obligations hereunder or under any Borrower Loan Document without the prior written consent of Lender. 9.5 CONTRACTUAL CURRENCY. (a) All payments of the unpaid balance of the Loan and interest thereon and any other amount payable hereunder or under any other Loan Document shall be paid in Dollars. (b) If any expense required to be reimbursed pursuant to this Junior Loan Agreement or any other Borrower Loan Documents is originally incurred in a currency other than Dollars, the Borrower shall nonetheless make reimbursement of that expense in Dollars, in an amount equal to the amount in Dollars that would have been required for the person that incurred 18 that expense to have purchased, in accordance with normal banking procedures, the sum paid in such other currency (after any premium and costs of exchange) on the date of payment of such expenses. 9.6 SEVERABILITY. Any provision of this Junior Loan Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 9.7 ENTIRE AGREEMENT. The Borrower Loan Documents embody the entire agreement and understanding between Lender and the Borrower and supersede all prior agreements and understandings relating to the subject matter thereof. 9.8 GOVERNING LAW. THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA. All obligations of the Borrower and the rights of Lender and any holder of any Note shall be in addition to, and not in limitation of, those provided by Applicable Law. 9.9 WAIVER OF IMMUNITIES. The Lender agrees that, to the extent that the Lender or any of its property is or becomes entitled at any time to any immunity on the grounds of sovereignty or otherwise from (a) any legal action, suit, arbitration proceeding or other proceeding, (b) set-off or counterclaim, (c) the jurisdiction of any court of competent jurisdiction, (d) service of process, (e) relief by way of injunction, order for specific performance or for recovery of property, (f) attachment of its assets prior to judgment or after judgment, (g) attachment in aid of execution or levy, (h) execution or enforcement of any decree or judgment, (i) judgment or jurisdiction or from any other legal process in any jurisdiction, the Lender, for itself and its property, does, to the full extent permitted by Applicable Law, rule or regulation, hereby irrevocably and unconditionally waive all rights to, and agrees not to plead or claim, any such immunity with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Agreement or the other Borrower Loan Documents, or the subject matter hereof or thereof. Such agreement shall be irrevocable and not subject to withdrawal in any and all jurisdictions or under any statute, including the Foreign Sovereign Immunities Act of 1976 of the United States of America. The foregoing waiver shall constitute a present waiver of immunity at any time any action is initiated against the Lender with respect to this Agreement. 9.10 CONFIDENTIALITY. Each of the Borrower and Lender hereby assumes the obligation to maintain in total and absolute confidentiality the terms and conditions of the Borrower Loan Documents not required by the terms of any of the Borrower Loan Documents to be filed or recorded in the public record and shall not disclose or reproduce the same by any means or for any purpose, except as follows: (1) as otherwise required or contemplated by the Borrower Loan Documents, (2) to its accountants, lawyers and financial and other professional advisors, (3) to its employees, its Affiliates and their employees, and to each other party to the 19 Borrower Loan Documents, (4) as required by force of law (including applicable securities laws), (5) as required by judicial or administrative decision of a Governmental Authority, (6) for the purpose of effecting any transfer or participation permitted pursuant to Section 9.4 hereof, PROVIDED that in case of a disclosure referred to in Clauses (4) and (5) above, the party requiring disclosure shall use its reasonable best efforts to limit the extent of such disclosure to the extent permitted by law. Without limiting its obligations pursuant to the preceding sentence, Borrower agrees that if it is required, in the reasonable opinion of its counsel, to file publicly or otherwise disclose the terms of this Agreement under applicable federal and/or state securities or other laws, it shall promptly (but in no case less than four (4) Business Days prior to the proposed filing in question) notify Lender so that Lender has a reasonable opportunity to contest or limit the scope of such required disclosure, and Borrower shall request, and shall use its best reasonable efforts to obtain, confidential treatment for such sections of this Agreement as Lender may designate. Borrower further agrees that it shall not in any circumstances file publicly or otherwise disclose the terms of this Agreement under applicable federal and/or state securities or other laws if it has not complied with its obligations pursuant to the previous sentence. 9.11 EXPENSES OF LENDER AND TRANSACTION EXPENSES. Except as otherwise provided herein, the Borrower agrees (a) to pay or reimburse the Lender for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation and execution of this Agreement and the other Borrower Loan Documents, and any amendment, supplement or modification provided for in this Agreement or any other Borrower Loan Document, or requested by the Borrower to, this Agreement and the other Borrower Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Lender and (b) to pay, indemnify, and hold the Lender harmless from, any and all United States recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying such United States recording and filing fees, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Borrower Loan Documents and any such other documents relating thereto. 9.12 GENERAL INDEMNITY. (a) The Borrower hereby agrees to indemnify on an After-Tax Basis each Indemnitee against, and agrees to protect, save and hold harmless each of them from any and all Expenses imposed on, incurred by or asserted against any Indemnitee, in any way relating to or arising out of or which would not have occurred but for (1) the Borrower Loan Documents and the consummation of the transactions contemplated thereby or any Default or Event of Default thereunder and the enforcement of any of the terms thereof; (2)[intentionally left blank]; PROVIDED that the foregoing indemnity of an Indemnitee shall only apply for claims relating to Lender in its capacity as lender under the Borrower Loan Documents and not to Lender in its capacity, if any, as manufacturer, repairer, supplier or aircraft servicing agent, or any Expense to the extent resulting from or arising out of or which would not have occurred but for one or more of the following: (A) any express representation or warranty by such Indemnitee 20 in the Borrower Loan Documents being incorrect; or (B) the failure by such Indemnitee to perform or observe any express agreement, covenant or condition in any of the Borrower Loan Documents except to the extent such failure by such Indemnitee proximately results from any failure by the Borrower to observe any covenant, agreement or condition applicable to the Borrower in any Borrower Loan Document; or (C) the willful misconduct or the gross negligence of or violation of law by such Indemnitee (other than any of the foregoing imputed to such Indemnitee solely by reason of its interest in the Aircraft or being party to the Borrower Loan Documents); or (D) a disposition (voluntary or involuntary) of all or any part of its interest in any Note or in any of the Borrower Loan Documents other than, in each case, during the continuance of a Specified Default or an Event of Default under this Junior Loan Agreement or (E) any Tax, or any loss of Tax benefits or increase in Tax liability under any Tax law, PROVIDED, HOWEVER, that this CLAUSE (E) shall not apply to any obligation of the Borrower under Section 2.b or to Taxes arising from making any payment pursuant to this SECTION 9.12 on an After-Tax Basis; or (F) the authorization or giving or withholding of any future amendments, supplements, waivers or consents with respect to any of the Borrower Loan Documents which amendments, supplements, waivers or consents (x) are not or were not requested by the Borrower, (y) are not occasioned by a specific requirement of the Borrower Loan Documents and (z) are not entered into pursuant to a Default or an Event of Default; or (H) except to the extent resulting from a breach of the Borrower representations contained in SECTION 3.2, the offer, sale or delivery by such Indemnitee in violation of the Securities Act or a violation by such Indemnitee of any other applicable law or regulation relating to the transfer of any Note, or (I) except to the extent caused by acts or events occurring prior thereto, acts or events which occur after the earlier of: (x) the payment by the Borrower of all amounts required to be paid under the Borrower Loan Documents following a Total Loss and termination of the Loan; or (y) termination of the Loan and payment by the Borrower of all amounts required to be paid by Borrower pursuant to the terms of the Borrower Loan Documents. (b) If a claim is made against an Indemnitee involving one or more Expenses and such Indemnitee has notice thereof, such Indemnitee shall promptly after receiving such notice give notice of such claim to the Borrower; provided, that the failure to provide such notice shall not diminish any of the Borrower's obligations to indemnify hereunder except to the extent the Borrower's right to contest the imposition of such Expense shall be prejudiced or to the extent such failure otherwise adversely affects the Borrower. The Borrower shall be entitled, at its cost and expense (and acting through counsel reasonably acceptable to the respective Indemnitee) (1) in any judicial or administrative proceeding that involves solely a claim for one or more Expenses, to assume responsibility for and control thereof, (2) in any judicial or administrative proceeding involving a claim for one or more Expenses and other claims related or unrelated to the transactions contemplated by the Borrower Loan Documents, to assume responsibility for and control of such claim for Expenses to the extent that the same may be and is severed from such other claims (and such Indemnitee shall use its best efforts to obtain such severance), and (3) in any other case, to be consulted by such Indemnitee with respect to judicial proceedings subject to the control of such Indemnitee and to be allowed, at the Borrower's sole expense, to participate therein. Notwithstanding any of the foregoing to the contrary, the Borrower shall not be entitled to assume responsibility for and control of any such judicial or administrative proceedings if (A) any Specified Default or Event of Default shall have occurred and be continuing, (B) such 21 proceedings will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Lien permitted under the Borrower Loan Documents) on, the Aircraft or any material part thereof unless in such an event the Borrower shall have posted a bond or other security reasonably satisfactory to the relevant Indemnitees in respect to such risk or (C) such proceedings are reasonably likely to involve the imposition of criminal liability, or material civil penalty for which such Indemnitee is not indemnified hereunder, on an Indemnitee; PROVIDED, HOWEVER, no such proceeding shall be compromised or settled on a basis that admits gross negligence or misconduct on the part of such Indemnitee without such Indemnitee's prior written consent. The Indemnitee may participate at its own expense and with its own counsel in any judicial proceeding controlled by the Borrower pursuant to the preceding provisions so long as such participation shall not materially interfere with the Borrower's conduct or the defense of any such proceeding. (c) The Indemnitee shall cooperate in good faith with the Borrower and, at the Borrower's expense, shall supply the Borrower with such information reasonably requested by the Borrower as is necessary or advisable for the Borrower to control or participate in any proceeding to the extent permitted by this SECTION 9.12. Such Indemnitee shall not (unless such Indemnitee waives its right to be indemnified with respect to such Expense under this SECTION 9.12) enter into a settlement or other compromise with respect to any Expense without the prior written consent of the Borrower (except during the continuance of an Event of Default when such consent shall not be required if the Indemnitee has given the Borrower at least 15 days prior written notice of the nature and scope of the proposed settlement or compromise), which consent shall not be unreasonably withheld, conditioned or delayed. (d) The Borrower shall supply the Indemnitee with such information (which may, in the case of confidential or proprietary information be supplied subject to a reasonable confidentiality requirement) reasonably requested by the Indemnitee as is necessary or advisable for the Indemnitee to control or participate in any proceeding to the extent permitted by this SECTION 9.12. (e) So long as no Specified Default or Event of Default under this Junior Loan Agreement shall have occurred and be continuing, upon payment of any Expense pursuant to this SECTION 9.12, the Borrower, without any further action, shall be subrogated to, and may pursue, any claims the Indemnitee may have relating thereto other than claims against any Brazilian government entity. Each Indemnitee hereby agrees to give, at the Borrower's expense, such further assurances or agreements and to cooperate with the Borrower to permit the Borrower to pursue such claims, if any, to the extent reasonably requested by the Borrower. (f) The Borrower's obligations under the indemnities provided for in this Agreement shall be those of a primary obligor, whether or not the Person indemnified shall also be indemnified with respect to the same matter under the terms of any other document or instrument, and the Person seeking indemnification from the Borrower pursuant to any provision of this Agreement may proceed directly against the Borrower without first seeking to enforce any other right of indemnification. 22 (g) To the extent permitted by applicable law, interest at the Debt Rate plus the Default Rate shall be paid, on demand, on any amount or indemnity not paid when due pursuant to this SECTION 9.12 until the same shall be paid. Such interest shall be paid in the same manner as the unpaid amount in respect of which such interest is due. SECTION 10. SPECIAL PROVISIONS RE LIENS 10.1 REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that as of the Closing, and immediately upon the Closings: (a) it has granted no security interests with respect to the Collateral other than the FINAME Security Agreements; (b) there are and will upon Closing be no Liens on any of the Collateral other than Permitted Liens; and; (c) there are and will upon Closing be no Permitted Liens of the kind described in Section 3.1(h) of the FINAME Security Agreements on any of the Collateral. 10.2 COVENANT AND AGREEMENTS. The Borrower covenants and agrees that (a) it shall not enter into any agreement granting a security interest in any of the Collateral other than the FINAME Security Agreements; (b) it shall maintain all of the Collateral free of Liens other than Permitted Liens; (c) it shall maintain all of the Collateral free of Permitted Liens of the kind described in Section 3.1(h) of the FINAME Security Agreements; and (d) it shall make reasonable best efforts to agree upon the terms of security agreements with the Lender (and such other agreements reasonably requested by the Lender) that grant a security interest in the Collateral to secure the Borrower's obligations under this Agreement, and that the terms of such security agreements shall, to the extent consented to by FINAME, be no less beneficial to the Lender than the terms of the FINAME Security Agreements are to FINAME and the Security Trustee (including, for the avoidance of doubt, a perfected security interest in and Liens over all of the Collateral); provided that the Liens of the Lender shall in all respects be subordinate to those of FINAME and the Security Trustee, and that it shall take all actions reasonably requested by the Lender in order to grant such interests to the Lender. 23 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. CHAUTAUQUA AIRLINES, INC. By: --------------------------------- Name: Title: EMBRAER-EMPRESA BRASILEIRA DE AERONAUTICA S.A. By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: WITNESS: 24 Schedule 1 TO JUNIOR LOAN AGREEMENT [TO BE ATTACHED TO EACH NOTE] [*] 25 - -------------- * Confidential Schedule 2 TO JUNIOR LOAN AGREEMENT CERTAIN FINANCIAL TERMS "COMMITMENT" means, for each Aircraft, [*] "DEBT RATE" means an annual rate of seven point five percent (7.5%) "DEFAULT RATE" means the Debt Rate [*] "MATURITY DATE" means December 31, 2003 "TOTAL INVOICE COST" for each Aircraft, has the meaning [*] 26 - -------------- * Confidential ANNEX A TO JUNIOR LOAN AGREEMENT FINANCING OF SEVEN EMBRAER EMB-145 MODEL EMB-135 KL AIRCRAFT DEFINITIONS RELATING TO LOAN AGREEMENT "AFFILIATE" means with respect to a specified Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such Person. "AIRCRAFT" means each Airframe, the Engines and the Parts. "AIRFRAME" means (i) each of the seven Embraer EMB-145 model EMB-135 KL aircraft identified in Schedule 3 to the Junior Loan Agreement having the United States registration number and Manufacturer's serial number set forth in that Schedule (except Engines and engines installed thereon) and (ii) and any and all Parts so long as the same shall be incorporated or installed in or attached to the Airframe. "AFTER-TAX BASIS" means, with respect to any payment to be received or accrued by any Person, the amount of such payment supplemented, if necessary, by a further payment or payments so that the sum of all such payments, after deduction of all Taxes actually payable to any taxing authority as a result of the receipt or accrual of such payments shall be equal to the payment to be received or accrued, after taking into account any Tax savings realized as a result of the indemnified liability. "APPLICABLE LAW" means all applicable laws, treaties, judgments, decrees, injunctions, writs and orders of any Governmental Authority having jurisdiction over the applicable party hereto and rules, regulations, orders, directives, licenses and permits of any Governmental Authority having jurisdiction over the applicable party hereto and all interpretations, implementation and enforcement of any of the foregoing by any Governmental Authority, in each case having the force of law. "BORROWER" has the meaning set forth in the recitals hereto. "BORROWER LOAN DOCUMENTS" means the Junior Loan Agreement and any other agreement or instrument specifically agreed by the Parties hereto to be identified as a "Borrower Loan Document" for purposes hereof. "BORROWING DATE" means the date of this Agreement. 27 "BRAZIL" means the Federative Republic of Brazil. "BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which commercial banks are authorized or required by law, regulation or executive order to be closed in New York, New York, or Rio de Janeiro, Brazil. "CERTIFICATED AIR CARRIER" means a Citizen of the United States holding an air carrier operating certificate issued under Chapter 447 of the Transportation Code for aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, or if such certification shall cease to be available, an air carrier eligible for certification as to the matters contemplated by such certification. "CHANGE IN U.S. TAX LAW" means (a) any change after the Borrowing Date to the Code, the Regulations or administrative guidance or (b) any formal or informal change in any Internal Revenue Service position with respect to, or interpretation of, U.S. Tax Law, regardless of how and when such change is advanced, announced or articulated. "CITIZEN OF THE UNITED STATES" has the meaning set forth in Section 40102(a)(15) of the Transportation Code. "CLOSING" has the meaning set forth in Section 2.1 of the Junior Loan Agreement. "CODE" means the United States Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL" has the meaning provided in the FINAME Security Agreement with respect to each Aircraft. "COMMITMENT" has the meaning set forth in Schedule 2 to the Junior Loan Agreement. "DEBT RATE" has the meaning set forth on Schedule 2 to the Junior Loan Agreement "DEFAULT" means an event that, with the giving of notice or the lapse of time or both, would become an Event of Default. "DEFAULT RATE" has the meaning set forth in Schedule 2 to the Junior Loan Agreement. "DOLLARS" and "$" mean the lawful currency of the United States. "ENGINE" means (i) unless and until replaced by a Replacement Engine pursuant to the FINAME Security Agreement each of the two Rolls-Royce AE3007A1/3 engines, having the 28 manufacturer's serial numbers set forth in Schedule 3 to the Junior Loan Agreement, whether or not from time to time installed on the relevant Airframe or installed on any other airframe or any other aircraft, or (ii) any Replacement Engine substituted for an Engine under the FINAME Security Agreement, together in each case with any and all Parts incorporated or installed in or attached thereto. "EQUIPMENT" means the Aircraft, the Airframe, any Engine and/or any Part. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCLUDED TAXES" means (i) Taxes imposed by a jurisdiction within which Lender is incorporated or maintains its principal place of business and (ii) Taxes that would not have been imposed but for a connection between the Lender and the taxing jurisdiction other than the transactions contemplated hereby, and (iii) Taxes that would not have been imposed but for Lender's, Loan Transferee's or Loan Participant's failure to provide Borrower with any certification in accordance with Section 2.6 of the Junior Loan Agreement. "EVENT OF DEFAULT" means any of the events set forth in Section 8.1 of the Junior Loan Agreement. "EXPENSES" means any and all liabilities, obligations, losses, damages, settlements, penalties, claims (including, but not limited to, negligence, strict or absolute liability, liability in tort and liabilities arising out of violation of laws or regulatory requirements of any kind), actions, suits, out-of-pocket costs, expenses and disbursements (including reasonable legal fees, costs of investigation of whatsoever kind and nature and expenses, and out-of-pocket costs and expenses relating to enforcement of, and reasonable out-of-pocket costs and expenses relating to amendments, supplements, waivers and consents to and under the Borrower Loan Documents. "FAA" means the U.S. Federal Aviation Administration and any agency or instrumentality of the U.S. Government succeeding to its functions. "FINAME" means Agencia Especial de Financiamento Industrial-Finame and, where the context so requires, its security trustee pursuant to the FINAME Loan Agreement. "FINAME LOAN" means the loans made by FINAME to the Borrower pursuant to each FINAME Loan Agreement. "FINAME LOAN AGREEMENT" means each Loan Agreement with respect to an Aircraft, dated as of June 11, 2002, between FINAME and the Borrower. "FINAME SECURITY AGREEMENT" means each Aircraft Security Agreement with respect to an Aircraft, dated as of June 11, 2002 between the Security Trustee and the Borrower. 29 "GAAP" means generally accepted accounting principles in the United States. "GOVERNMENT" means the government of the United States and any instrumentality or agency thereof. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof and entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "IMMEDIATELY AVAILABLE FUNDS" means funds with good value on the day and in the city in which payment is received. "INDEMNIFIED TAXES" means any Taxes other than Excluded Taxes. "INDEMNITEE" means Lender and its officers, directors, employees, agents, servants, successors and permitted assigns of any of the foregoing Persons. "IRS" means the United States Internal Revenue Service or any agency or instrumentality of the U.S. Government succeeding to its functions. "JUNIOR LOAN AGREEMENT" means the Junior Loan Agreement, dated as of June 11, 2002, between the Borrower and the Lender. "LENDER" has the meaning set forth in the introductory paragraph of the Junior Loan Agreement. "LIEN" means any mortgage, lease, security interest, lien, title retention arrangement or other claim or encumbrance. "LOAN" means, in the case of any Aircraft, the loan in the amount of the Commitment for such Aircraft made by the Lender, such Loan to be evidenced by the Junior Loan Agreement and the relevant Note. "INTERIM LOAN AGREEMENT" means each Interim Loan Agreement with respect to an Aircraft, dated as of the initial delivery date, between the Borrower and the Lender, as further set forth in Schedule 3 to the Junior Loan Agreement. "LOSS PAYMENT DATE" has the meaning with respect to any Aircraft provided in the FINAME Security Agreement relating to such Aircraft. "MANUFACTURER" means Embraer - Empresa Brasileira de Aeronautica S.A., and its successors and permitted assigns. 30 "MATERIAL ADVERSE CHANGE" means a material adverse change since the date of the last audited financial statements of the Borrower in the business, operations or financial condition of the Borrower, which change has a material adverse impact on the Borrower's ability to perform any of its obligations under the Borrower Loan Documents to which it is a party. Without limiting the generality of the foregoing, a material adverse change shall have occurred within the meaning of the immediately preceding sentence if any of the following shall occur: (i) a material financial or material non-financial default of the Borrower in any obligation owed to Lender, (ii) any event described in Section 8.1(e) or (f) of the Junior Loan Agreement, (iii) the termination of any of the Borrower's existing code-sharing agreements with US Airways, Inc., America West Airlines, Inc., or American Airlines, Inc. (or, as applicable, with any affiliate of such companies) and the non-replacement of such agreements by code-sharing or other revenue generating arrangements of substantially equivalent value within a period of one (1) month after such termination, or (iv) the material and adverse grounding of all or a substantial portion of Borrower's fleet of aircraft or the imposition of operating restrictions on Borrower by any order or administrative action by the FAA or any other aviation authority, and such order or administrative action is not applicable to regional air carriers generally; and notwithstanding the specificity of the foregoing clauses (i) to (iv), the first sentence of this paragraph shall be interpreted non-exclusively in accordance with normal commercial practices. "MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties or financial condition of the Borrower or the Borrower and its Affiliates taken as a whole; (b) a material impairment of the ability of the Borrower to perform its obligations under any Borrower Loan Document; or (c) a material adverse effect upon (i) the legality, validity, binding effect or enforceability against the Borrower of any Borrower Loan Document to which it is a party or (ii) the protections that would be afforded Lender under Section 1110 of the United States Bankruptcy Code if Lender and Borrower had entered into security agreements with respect to the Aircraft (other than a change in United States law which would make such benefits unavailable to aircraft leases or secured loans generally under United States law). "MATURITY DATE" has the meaning provided in Schedule 2 to the Junior Loan Agreement. "MOODY'S" means Moody's Investor Service, Inc. "NOTE" means each Note, dated the Borrowing Date, in the amount of the Commitment with respect to the relevant Aircraft and executed by the Borrower in favor of the Lender pursuant to Section 2.2 of the Junior Loan Agreement. "PARTIAL ASSIGNMENT" means the Partial Assignment of Purchase Agreement dated April 19, 2002, among Solitair, Republic and Embraer. "PARTS" means all parts, appliances, components, instruments, accessories and furnishings (other than complete engines) which are from time to time be installed in or attached to the Airframe or to any Engine. 31 "PARTY" means each party to the Junior Loan Agreement. "PAYMENT DATE" has the meaning provided in Section 2.2(a) of the Junior Loan Agreement. "PERMITTED LIENS" has the meaning provided in the FINAME Security Agreements. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, trustee(s) of a trust, unincorporated organization or Governmental Authority. "SECURITY TRUSTEE" means JPMORGAN CHASE BANK, a New York banking corporation (together with its permitted successors and assigns), as security trustee under the FINAME Security Agreement. "SOLITAIR" means Solitair Corp. "SOLITAIR PURCHASE AGREEMENT" means that Purchase Agreement No. GCT-025/98 dated June 17, 1998 (together with all amendments and supplements thereto other than the Republic Purchase Agreement and the Partial Assignment of Purchase Agreement), between Solitair and Manufacturer relating to certain Embraer EMB-145 aircraft, including the Aircraft. "REPLACEMENT ENGINE" means a Rolls-Royce AE3007A1/3 engine or an improved model having a value, utility, condition and remaining useful life at least equal to the replaced Engine (assuming that such Engine was in the condition required by the Security Agreement), and being suitable for installation and use on the Airframe that is substituted for an Engine pursuant to the FINAME Security Agreement. "REPUBLIC" means Republic Airways Holdings, Inc. "REPUBLIC PURCHASE AGREEMENT" means that Amended and Restated Purchase Agreement No. GCT-025/98 dated April 19, 2002 (together with all amendments and supplements thereto), between Republic and Manufacturer relating to certain Embraer EMB-145 aircraft. "RESPONSIBLE OFFICER" means, with respect to any corporation, its Chairman of the Board, its President, any Senior Vice President, the Chief Financial Officer, any Vice President or the Treasurer, or any other management employee (a) whose power to take the action in question has been authorized, directly or indirectly, by the Board of Directors of such corporation, (b) working under the supervision of such Chairman of the Board, President, Senior Vice President, Chief Financial Officer, Vice President or Treasurer and (c) whose responsibilities include the administration of the transactions and agreements contemplated by the Junior Loan Agreement and the Security Agreement. 32 "SECTION 1110" means Section 1110 of the United States Bankruptcy Code, or any successor or replacement provision of the United States Bankruptcy Code. "SPECIFIED DEFAULT" means (a) an event or condition described in Section 3.3.1(a), (e) or (f) that, after the giving of notice or lapse of time, or both, would become an Event of Default, or (b) any Event of Default. "SUBSIDIARY" means, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. "TAX" and "TAXES" mean any and all fees and taxes imposed or asserted by any Governmental Authority, including income, gross receipts, sales, rents, use, turnover, value added, property, excise and stamp taxes, license, levies, imposts, duties, recording charges or fees, charges, assessments or withholding of any nature whatsoever, together with any assessments, penalties, fines, additions to tax and interest thereon. "TERM" means the period between the Borrowing Date and the Maturity Date. "TOTAL INVOICE COST" has the meaning provided on Schedule 2 to the Junior Loan Agreement. "TOTAL LOSS" means, in the case of any Aircraft, an "Event of Loss" with respect to such Aircraft, as defined in the FINAME Security Agreement relating to such Aircraft. "TRANSPORTATION CODE" means 49 U.S.C. subtitle VII, as amended, and any successor statute thereto. "UNITED STATES" and "U.S." each means the United States of America. "UNITED STATES PERSON" shall have the meaning given such term in Section 7701(a)(30) of the Code. "U.S. TAX LAW" includes the Code, any regulations promulgated or proposed thereunder (the "Regulations") and any private letter rulings as of November 30, 2001 (as though such rulings have the force of law), in each case. 33 ANNEX B TO JUNIOR LOAN AGREEMENT THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE. ACCORDINGLY, THIS PROMISSORY NOTE MAY NOT BE SOLD, UNLESS EITHER REGISTERED UNDER SUCH ACT AND SUCH APPLICABLE STATE LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. PROMISSORY NOTE Relating to One (1) Embraer EMB-145 model EMB-135 KL Aircraft U.S. Registration No. ________ Manufacturer's Serial Number ________ $ ______________ June __, 2002 Chautauqua Airlines, Inc., a New York, U.S.A. corporation ("BORROWER"), for value received, hereby promises to pay to Embraer - Empresa Brasileira de Aeronautica S.A., a Brazilian corporation, or its registered assigns ("LENDER"), at Caixa Postal 343, CEP 12227-901, Sao Jose dos Campos, Sao Paulo, Brazil (or at such other location as Lender may from time to time designate in writing to Borrower), the principal sum of ________________ dollars (US $ ______________ ) (the " LOAN"), or such other amount as shall equal the aggregate unpaid principal amount of the Loan made by Lender to Borrower under that certain Junior Loan Agreement dated as of June __, 2002 (as at any time hereafter amended, the "JUNIOR LOAN AGREEMENT"), by and among Borrower and Lender, in lawful money of the United States of America and Immediately Available Funds. The Borrower shall make scheduled principal payments on the Loan in monthly installments in the amounts and on the dates identified on Schedule 1 hereto (each such date, a "Payment Date"). On each Payment Date, the Borrower shall pay interest accrued in respect of the unpaid principal amount of the Loan from the date the proceeds made thereof are made available to the Borrower until such date, at the Debt Rate. The expected amounts of such interest for each Payment Date are stated on Schedule 1 hereto. The Borrower shall pay the unpaid principal amount of and accrued interest on the Loan on December 31, 2003 (the "Maturity Date"). Any payment of interest, principal or any other payment not paid to Lender when due and payable hereunder shall, from the date when due and payable until the date when fully paid, bear interest at the Default Rate. All payments of principal, interest and other amounts to be made by Borrower to Lender hereunder shall be made to the account specified and in the manner provided in the Junior Loan 34 Agreement. Lender shall apply the payment of principal and other amounts due on this Promissory Note as follows: FIRST, to the payment of any amount (other than principal and interest) due to Lender hereunder or under the Borrower Loan Documents with respect to the Loan; SECOND, to the payment of accrued and unpaid interest due on this Promissory Note; and THIRD, to the payment of principal under this Promissory Note. This Promissory Note and the Loan may be prepaid in full at any time or from time to time without penalty, premium or prepayment fee, provided that such prepayment is of all principal outstanding on the Loan, and all other liabilities of the Borrower with respect to the Loan then due under the Borrower Loan Documents. Borrower may be obligated to prepay this Promissory Note as specified in the Junior Loan Agreement and subject to the requirements thereof. Borrower agrees to record separately the name and address and any other necessary identifying information of Lender in a register maintained as part of a book-entry system. Borrower and Lender shall treat the party whose name is recorded in such register as Lender hereunder with all entitlements under this Promissory Note. Notwithstanding anything to the contrary set forth in this Promissory Note or the other Borrower Loan Documents, no assignment by Lender of any rights or obligations under or in respect of the Loan or the Note shall be effective unless and until Borrower shall have recorded such assignment in the register maintained pursuant to the preceding paragraph; PROVIDED that if any such transfer occurs while an Event of Default has occurred and is continuing, Lender may act as Borrower's agent for effecting registration of such transfer. Borrower shall record the name of the transferor, the name of the transferee and the amount of the transfer in the register in the case of a transfer that complies with the requirements of the Junior Loan Agreement. This Promissory Note is a Note referred to in the Junior Loan Agreement. Upon the occurrence of an Event of Default and for so long as such Event of Default shall continue, the principal hereof and accrued interest hereon may be declared to be or may automatically become forthwith due and payable, and Lender shall be entitled to recover, in addition to all other sums due hereunder, all of the reasonable costs and expenses, including, without limitation, court costs and attorney fees, incurred by Lender in enforcing its rights hereunder. Borrower waives diligence, demand, presentment, notice of nonpayment and protest, all in the sole discretion of Lender and without notice and without affecting in any manner the liability of Borrower. Capitalized terms used herein that are not otherwise defined herein shall have the meanings ascribed to them in the Junior Loan Agreement. THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 35 IN WITNESS WHEREOF, Borrower has caused this Promissory Note (_________) to be executed by one of its authorized officers as of the date hereof. CHAUTAUQUA AIRLINES, INC. By: Name: Title: 36 Schedule 3 TO JUNIOR LOAN AGREEMENT TOTAL INVOICE COST
- --------------------------------------------------------------------------------- U.S. Manufacturer's Engine Serial Engine Serial [*] Registration No. Serial Number Number #1 Number #2 - --------------------------------------------------------------------------------- N372SK 145538 CAE312019 CAE312020 [*] N373SK 145543 CAE312026 CAE312021 [*] N374SK 145544 CAE312032 CAE312031 [*] N375SK 145569 CAE312062 CAE312065 [*] N376SK 145578 CAE312079 CAE312090 [*] N377SK 145579 CAE312091 CAE312100 [*] N378SK 145593 CAE312048 CAE312049 [*] - ---------------------------------------------------------------------------------
- ----------- *Confidential EX-10.47A 18 a2082173zex-10_47a.txt EXHIBIT 10.47A PROMISSORY NOTE EXHIBIT 10.47A CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. THE OMITTED MATERIALS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE. ACCORDINGLY, THIS PROMISSORY NOTE MAY NOT BE SOLD, UNLESS EITHER REGISTERED UNDER SUCH ACT AND SUCH APPLICABLE STATE LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. PROMISSORY NOTE (N372SK/145538) Relating to One (1) Embraer EMB-145 model EMB-135 KL Aircraft U.S. Registration No. N372SK Manufacturer's Serial Number 145538 $[*] June 11, 2002 Chautauqua Airlines, Inc., a New York, U.S.A. corporation ("BORROWER"), for value received, hereby promises to pay to Embraer - Empresa Brasileira de Aeronautica S.A., a Brazilian corporation, or its registered assigns ("LENDER"), at Caixa Postal 343, CEP 12227-901, Sao Jose dos Campos, Sao Paulo, Brazil (or at such other location as Lender may from time to time designate in writing to Borrower), the principal sum of [*] dollars (US $[*]) (the " LOAN"), or such other amount as shall equal the aggregate unpaid principal amount of the Loan made by Lender to Borrower under that certain Junior Loan Agreement dated as of June 11, 2002 (as at any time hereafter amended, the "JUNIOR LOAN AGREEMENT"), by and among Borrower and Lender, in lawful money of the United States of America and Immediately Available Funds. The Borrower shall make scheduled principal payments on the Loan in monthly installments in the amounts and on the dates identified on Schedule 1 hereto (each such date, a "Payment Date"). On each Payment Date, the Borrower shall pay interest accrued in respect of the unpaid principal amount of the Loan from the date the proceeds made thereof are made available to the Borrower until such date, at the Debt Rate. The expected amounts of such interest for each Payment Date are stated on Schedule 1 hereto. The Borrower shall pay the unpaid principal amount of and accrued interest on the Loan on December 31, 2003 (the "Maturity Date"). Any payment of interest, principal or any other payment not paid to Lender when due and payable hereunder shall, from the date when due and payable until the date when fully paid, bear interest at the Default Rate. All payments of principal, interest and other amounts to be made by Borrower to Lender hereunder shall be made to the account specified and in the manner provided in the Junior Loan - ------------------------------------------------------------------------------- * Confidential 1 Agreement. Lender shall apply the payment of principal and other amounts due on this Promissory Note as follows: FIRST, to the payment of any amount (other than principal and interest) due to Lender hereunder or under the Borrower Loan Documents with respect to the Loan; SECOND, to the payment of accrued and unpaid interest due on this Promissory Note; and THIRD, to the payment of principal under this Promissory Note. This Promissory Note and the Loan may be prepaid in full at any time or from time to time without penalty, premium or prepayment fee, provided that such prepayment is of all principal outstanding on the Loan, and all other liabilities of the Borrower with respect to the Loan then due under the Borrower Loan Documents. Borrower may be obligated to prepay this Promissory Note as specified in the Junior Loan Agreement and subject to the requirements thereof. Borrower agrees to record separately the name and address and any other necessary identifying information of Lender in a register maintained as part of a book-entry system. Borrower and Lender shall treat the party whose name is recorded in such register as Lender hereunder with all entitlements under this Promissory Note. Notwithstanding anything to the contrary set forth in this Promissory Note or the other Borrower Loan Documents, no assignment by Lender of any rights or obligations under or in respect of the Loan or the Note shall be effective unless and until Borrower shall have recorded such assignment in the register maintained pursuant to the preceding paragraph; PROVIDED that if any such transfer occurs while an Event of Default has occurred and is continuing, Lender may act as Borrower's agent for effecting registration of such transfer. Borrower shall record the name of the transferor, the name of the transferee and the amount of the transfer in the register in the case of a transfer that complies with the requirements of the Junior Loan Agreement. This Promissory Note is a Note referred to in the Junior Loan Agreement. Upon the occurrence of an Event of Default and for so long as such Event of Default shall continue, the principal hereof and accrued interest hereon may be declared to be or may automatically become forthwith due and payable, and Lender shall be entitled to recover, in addition to all other sums due hereunder, all of the reasonable costs and expenses, including, without limitation, court costs and attorney fees, incurred by Lender in enforcing its rights hereunder. Borrower waives diligence, demand, presentment, notice of nonpayment and protest, all in the sole discretion of Lender and without notice and without affecting in any manner the liability of Borrower. Capitalized terms used herein that are not otherwise defined herein shall have the meanings ascribed to them in the Junior Loan Agreement. THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. [REMAINDER OF PAGE INTENTIONALLY BLANK -- SIGNATURE PAGE FOLLOWS] - ------------------------------------------------------------------------------- 2 IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be executed by one of its authorized officers as of the date hereof. CHAUTAUQUA AIRLINES, INC. By: ---------------------------------- Name: Title: - ------------------------------------------------------------------------------- Schedule 1 to Promissory Note AMORTIZATION SCHEDULE (N372SK) [*] - -------- * Confidential EX-10.48 19 a2082173zex-10_48.txt EXHIBIT 10.48 Exhibit 10.48 AGREEMENT AGREEMENT (the "AGREEMENT") made as of this 7th day of June, 2002, by and between REPUBLIC AIRWAYS HOLDINGS INC., a Delaware corporation (the "Company"), and DELTA AIR LINES, INC., a Delaware corporation ("DELTA"). W I T N E S S E T H: WHEREAS, on the date hereof Delta, the Company and Chautauqua Airlines, Inc., a subsidiary of the Company ("CHAUTAUQUA"), are entering into that certain Delta Connection Agreement (the "CONNECTION CARRIER AGREEMENT"); and WHEREAS, in connection therewith, the Company has agreed to grant Delta certain rights to participate in an initial public offering of the Company's Common Stock (as defined below), on the terms and subject to the conditions set forth herein, and to grant Delta certain other rights; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: A G R E E M E N T: 1. CERTAIN DEFINITIONS. As used herein, the following terms shall have the following respective meanings: "COMMISSION" shall mean the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "COMMON STOCK" shall mean the common stock, par value $.001 per share, of the Company. "CURRENT REGISTRATION STATEMENT" shall mean the Company's registration statement on Form S-1 under the Securities Act currently on file with the Commission (registration number 333-84092), as amended from time to time. "IPO" shall mean an initial public offering of Common Stock pursuant to the Current Registration Statement. "IPO SHARE PRICE" shall mean the price per share at which the IPO Shares are offered to the public pursuant to the IPO. "IPO SHARES" shall mean the shares of Common Stock offered for sale pursuant to the IPO. "LOCK-UP" shall have the meaning set forth in Section 5. "PARTICIPATION SHARES" shall have the meaning set forth in Section 2(a). "PERCENTAGE AMOUNT" shall mean, for each Terminated Aircraft, a percentage calculated by DIVIDING (a) the aggregate number of months from the date each Terminated Aircraft was taken out of service through December 31, 2009, by (b) 1,719. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "TERMINATED AIRCRAFT" shall have the meaning set forth in Section 3(b). "TERMINATED SHARE AMOUNT" shall have the meaning set forth in Section 3(b)(i). "WARRANT" shall have the meaning set forth in Section 3(a). "WARRANT SHARE SHORTFALL" shall have the meaning set forth in Section 3(b)(iii). "WARRANT SHARES" shall mean the shares of Common Stock issued upon exercise of the Warrant. "WARRANT SHORTFALL" shall have the meaning set forth in Section 3(b)(i). 2. IPO PARTICIPATION RIGHTS. (a) The Company hereby grants to Delta the right to purchase up to five percent (5%) of the IPO Shares offered for sale pursuant to the Company's IPO, at a per share purchase price equal to the IPO Share Price. Delta may purchase all or less than all of the IPO Shares granted to it pursuant to this Agreement (any such IPO Shares purchased by Delta, the "Participation Shares"). (b) The Company shall provide to Delta a copy of the preliminary prospectus (and any amended or supplemental prospectus) concurrent with its distribution to the public. The Company shall provide Delta with no less than 72 hours' prior written notice of the commencement of public trading of the IPO Shares. Delta shall provide written notice to the Company of the number of IPO Shares that Delta will purchase pursuant to this Agreement no later than 48 hours prior to the commencement of public trading of the IPO Shares. 3. WARRANT. (a) Concurrently with the execution and delivery of the Connection Carrier Agreement, the Company shall issue to Delta a warrant to purchase shares of Common Stock in the form attached as EXHIBIT A hereto (the "WARRANT"), provided that the Warrant shall not be effective until the effective date of an initial public offering of the common stock of the Company. (b) Notwithstanding anything to the contrary contained in the Warrant, in the event that at any time prior to January 1, 2010, (i) Delta takes any of the Chautauqua aircraft out of service pursuant to Section 11(F) of the Connection Carrier Agreement or (ii) Chautauqua or the Company takes any of the Chautauqua aircraft out of service pursuant to Section 11(B) or 11(C) of the Connection Carrier Agreement, (each such aircraft, a "TERMINATED AIRCRAFT"), Delta shall, within three business days after such Terminated Aircraft has been taken out of service, (i) First, if Delta continues to hold any portion of the Warrant, cancel, without any consideration therefor, such portion of the Warrant as is exercisable for the number of shares of Common Stock (the "TERMINATED SHARE AMOUNT") equal to (A) the Percentage Amount MULTIPLIED BY (B) the original number of shares of Common Stock issuable upon exercise of the Warrant; provided, that if the number of shares of Common Stock issuable upon exercise of the Warrant or that portion thereof which Delta continues to hold is less than the Terminated Share Amount (such difference being the "WARRANT SHORTFALL"), all of such remaining portion of the Warrant shall be cancelled without any consideration therefor; and (ii) Then, if a Warrant Shortfall exists, and Delta holds any Warrant Shares , at the Company's option, sell to the Company, at the Exercise Price (as defined in the Warrant), a number of Warrant Shares as is equal to the Warrant Shortfall, and (iii) Finally, if the Company has exercised its option set forth in the previous clause (ii), and if the number of Warrant Shares held by Delta prior to the application of the previous clause (ii) is less than the number of shares constituting the Warrant Shortfall (such difference being the "WARRANT SHARE SHORTFALL"), pay to the Company a portion of the pretax profit, if any, realized by Delta from the sale or transfer by Delta of the Warrant or the Warrant Shares calculated by multiplying the aggregate pretax profit realized by Delta from the sale or transfer of the Warrant Shares and/or the Warrant by a fraction, (A) the numerator of which is the number of Warrant Shares constituting the Warrant Share Shortfall and (B) the denominator of which is the aggregate number of (x) Warrant Shares sold or transferred by Delta and (y) shares of Common Stock represented by any portion of the Warrant that was sold or transferred by Delta. 4. REGISTRATION RIGHTS. Pursuant to an amended and restated registration rights agreement, in the form attached hereto as EXHIBIT B, to be entered into by and among the Company, Delta and certain other investors in the Company on the date hereof, Delta shall be granted registration rights with respect to certain securities of the Company. 5. LOCK-UP. Delta agrees, if requested by the principal underwriter managing the IPO, not to publicly sell the Participation Shares or the Warrant Shares held by Delta without the prior written consent of such underwriter for no more than one hundred eighty (180) days following the effective date of the Current Registration Statement (the "LOCK-UP"); provided that the terms of any such Lock-Up are no more restrictive than the terms of the least restrictive lock-up or similar restriction imposed on any stockholder of the Company affiliated with Wexford Capital LLC or any executive officer of the Company. 6. AMENDMENT; WAIVER. No amendment, alteration or modification of this Agreement shall be valid unless in each instance such amendment, alteration or modification is expressed in a written instrument executed by Delta and the Company. No waiver of any provision of this Agreement shall be valid unless it is expressed in a written instrument duly executed by the party or parties making such waiver. The failure of any party to insist, in any one or more instances, on performance of any of the terms and conditions of this Agreement shall not be construed as a waiver or relinquishment of any rights granted hereunder or of the future performance of any such term, covenant or condition but the obligation of any party with respect thereto shall continue in full force and effect. 7. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or transmitted by facsimile or delivered by nationally recognized overnight courier, addressed: if to Delta, to the following address: Delta Air Lines, Inc. 1030 Delta Blvd. Atlanta, Georgia 30320 Attention: Sr. Vice President - Finance, Treasury and Corp. Dev. Phone: (404) 714-1724 Fax: (404) 677-1182 with a copy to: Delta Air Lines, Inc. 1030 Delta Blvd. Atlanta, Georgia 30320 Attention: Sr. Vice President and General Counsel Phone: (404) 715-2191 Fax: (404) 715-2233 and if to the Company, to the following address, or at such other address as the Company shall have furnished to Delta: Republic Airways Holdings Inc. 2500 S. High School Road, Suite 160 Indianapolis, IN 46241 Attention: Bryan Bedford Phone: 317-484-6047 Fax: 317-484-4547 Alternatively, to such other address as a party hereto supplies to the other party in writing. 8. SUCCESSORS AND ASSIGNS. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective permitted transferees, successors and assigns of the parties hereto; provided, that neither party hereto may assign its rights hereunder without the prior written consent of the other party (such consent not to be unreasonably withheld). 9. GOVERNING LAW. This Agreement is to be governed by and interpreted under the laws of the State of Delaware without giving effect to the principles of conflicts of laws thereof. 10. TITLES AND SUBTITLES. The titles of the sections of this Agreement are for the convenience of reference only and are not to be considered in construing this Agreement. 11. SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not be deemed to affect the validity or enforceability of any other provision of this Agreement. 12. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 13. ENTIRE AGREEMENT. This Agreement, together with the Connection Carrier Agreement and the other agreements delivered in connection herewith and therewith, constitutes the full and entire understanding and agreement between the parties with respect to the subject matter hereof and supersedes all previous agreements, arrangements and understandings, whether written or oral, with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. REPUBLIC AIRWAYS HOLDINGS INC. By: /s/ Robert H. Cooper ------------------------------------ Name: Robert H. Cooper Title: EVP and CEO DELTA AIR LINES, INC. By: /s/ Frederick Buttrell ------------------------------------ Name: Frederick Buttrell Title: President and CEO, Delta Connection, Inc. EXHIBIT A FORM OF IPO WARRANT (See Exhibit 10.50) EXHIBIT B FORM OF REGISTRATION RIGHTS AGREEMENT (See Exhibit 10.15) EX-10.49 20 a2082173zex-10_49.txt EXHIBIT 10.49 PRIVATE PLACEMENT WARRANT NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THERE IS NO PUBLIC OR OTHER MARKET FOR THIS WARRANT OR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF, AND NO SUCH PUBLIC OR OTHER MARKET MAY EVER DEVELOP. THE HOLDER HEREOF SHOULD BE AWARE THAT IT WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. PRIVATE PLACEMENT WARRANT TO PURCHASE SHARES OF COMMON STOCK OF REPUBLIC AIRWAYS HOLDINGS, INC. Date: June 7, 2002 THIS IS TO CERTIFY THAT, for value received, DELTA AIR LINES, INC., a Delaware corporation ("Delta"), is entitled, subject to the terms herein, to purchase from REPUBLIC AIRWAYS HOLDINGS INC., a Delaware corporation (the "COMPANY"), one million five hundred thousand (1,500,000), subject to adjustment pursuant to Section 4 hereof, fully paid and nonassessable shares of the Company's common stock, $.001 par value (the "COMMON STOCK"), at a price per share of $12.50 (the "EXERCISE PRICE"), subject to adjustment pursuant to Section 4 hereof, all on the terms and conditions and pursuant to the provisions hereinafter set forth. The term "WARRANT SHARES," as used herein, refers to the shares of Common Stock purchasable hereunder. As used herein, the term "HOLDER" shall initially mean Delta, and shall subsequently mean each person or entity to whom this Warrant is duly assigned. 1. EXERCISE OF WARRANT. This Warrant is exercisable, in whole or part, at any time or from time to time after the date hereof until 5:30 p.m., New York time, on June 7, 2012 (the "EXERCISE PERIOD"). 2. MANNER OF EXERCISE; PAYMENT FOR SHARES; ISSUANCE OF CERTIFICATES. (a) MANNER OF EXERCISE. Subject to the provisions of this Warrant, the Warrant Shares may be purchased by the Holder, in whole or in part, by the surrender of this Warrant together with a completed election to purchase agreement in the form attached to this Warrant (the "ELECTION AGREEMENT"), to the Company during normal business hours on any business day, during the Exercise Period, at the Company's principal executive offices (or such 1 other office or agency of the Company as it may reasonably designate by notice to the Holder), and upon payment to the Company of an amount of consideration equal to the aggregate Exercise Price of the purchased Warrant Shares ("TOTAL PURCHASE PRICE"). (b) PAYMENT FOR SHARES. The Total Purchase Price may be paid (i) in cash, by certified or official bank check or by wire transfer for the account of the Company; (ii) notwithstanding (i), at any time (x) when the Company is in breach of its obligations under Sections 4.1, 4.2 or 4.3 of that Amended and Restated Registration Rights Agreement, dated as of the date hereof, by and among the Company, Delta and the other parties thereto (the "Registration Rights Agreement") or (y) that is one year after the issue date of this Warrant and the Company is not qualified to register shares of Common Stock on Form S-3 (or any comparable or successor form) if the Fair Market Value (as defined below) of the Company's Common Stock is greater than the Exercise Price, in lieu of exercising this Warrant by payment of cash, the Holder may elect to receive shares of Common Stock computed as of the date of such calculation using the following formula: X= Y(A-B) ------ A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised and canceled A = the Fair Market Value of one share of the Company's Common Stock B = the Exercise Price (subject to adjustment as provided in Section 4) or (iii) in any combination of the foregoing. (c) DEFINITIONS. (i) "FAIR MARKET VALUE" shall mean, as of any date of determination, with respect to any Common Stock, (x) if there is a Qualified Public Market (as defined below) for such Common Stock, the value per share determined pursuant to clause (i) or (ii) below of this definition or (y) if there is no such Qualified Public Market, the value determined pursuant to clause (iii) below of this definition: (i) if such Common Stock is listed or quoted on a national securities exchange or admitted to unlisted trading privileges on such an exchange, the average last reported sale price (as reported in THE WALL STREET JOURNAL) of a share of such Common Stock over the 5 trading day period immediately prior to the date of 2 determination or if no such sale is made on any such day, the mean of the closing bid and asked prices for such Common Stock on such day on such exchange; or (ii) if such Common Stock is not so listed or admitted to unlisted trading privileges, the average mean of the last bid and asked prices reported for a share of such Common Stock over the 5 trading day period immediately prior to the date of determination (A) by the National Association of Securities Dealers Automatic Quotation System or (B) if reports are unavailable under clause (A) above by the National Quotation Bureau Incorporated; or (iii) if such Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, then the Company shall give prompt written notice to the Holder of the need to determine the Fair Market Value of such Common Stock, as well as a statement of the fair market value of such Common Stock determined in good faith by the Board of Directors of the Company. In such event, the Fair Market Value of such Common Stock shall be the fair market value per share agreed to by the Board of Directors of the Company and the Holder; PROVIDED, HOWEVER, if no such agreement is reached within thirty (30) days of the date on which the event for which the Fair Market Value is required to be determined occurs, then the Fair Market Value shall be determined as follows: the Company and the Holder shall each designate promptly in a written notice to the other its determination of the fair market value of such Common Stock as of the applicable reference date, and the Fair Market Value of such Common Stock as of the applicable reference date shall then be determined by a nationally recognized independent appraiser (the "INDEPENDENT FINANCIAL EXPERT") selected by the Holder from a group of three appraisers chosen by the Company (with whom the Company does not have an existing business relationship) and the Holder assuming an arm's-length private sale between a willing buyer and a willing seller, neither acting under compulsion. The determination by the Independent Financial Expert of the Fair Market Value shall be final and binding on the Company and the Holder. The costs and expenses of any such Independent Financial Expert making such valuation shall be paid by the Company, except that such expenses shall be borne solely by the Holder to the extent that the Independent Financial Expert concludes that the valuation of such Common Stock made by the Board of Directors of the Company is within five percent (5%) of the Fair Market Value. 3 (ii) "QUALIFIED PUBLIC MARKET" shall mean with respect to the Common Stock of the Company, an active trading market on a national securities exchange or over-the-counter market which consists of such publicly held Common Stock in the Company, with a minimum market value of $10,000,000 for such Common Stock. A "Qualified Public Market" shall be deemed to exist if the financial parameters set forth in the immediately preceding sentence have been met for the Common Stock for a period of 5 consecutive days. (d) ISSUANCE OF CERTIFICATES. The Warrant Shares so purchased shall be deemed to be issued to the Holder (or its designee), as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Election Agreement shall have been delivered, and payment of the Total Purchase Price shall have been made as set forth above. Certificates for the Warrant Shares so purchased, with the legend specified in SUBSECTION 10(f) hereof, shall be delivered to the Holder within a reasonable time, not to exceed three (3) business days after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the Holder and shall be registered in the name of the Holder (or its designee). If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant to the Holder evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares issuable hereunder. Notwithstanding anything to the contrary contained herein, Delta acknowledges that the Company has no, and may never have any, shares of Common Stock registered under the Securities Act. 3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and agrees as follows: (a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid and nonassessable and free and clear from all taxes, liens, charges and preemptive rights with respect to the issue thereof. (b) RESERVATION OF SHARES. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the full exercise of this Warrant. (c) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. (d) NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid, or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment. 4 4. ADJUSTMENT TO THE NUMBER OF WARRANT SHARES. During the Exercise Period, the number of Warrant Shares and the Exercise Price shall be subject to adjustment from time to time as provided in this SECTION 4. (a) SUBDIVISION OR COMBINATION OF COMMON STOCK. During the Exercise Period, if the Company subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) any shares of Common Stock into a greater number of shares or other class of shares or securities or combines (by any reverse stock split, recapitalization, reorganization, reclassification or otherwise) any shares of Common Stock into a smaller number of shares or other class of shares or securities, then, after the date of record for effecting such subdivision or combination, the then this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as a result of such subdivision or combination with respect to the shares of Common Stock which were subject to the purchase rights under this Warrant immediately prior to such subdivision or combination for the same aggregate exercise price of an amount equal to the original Exercise Price multiplied by 1,500,000 (b) CONSOLIDATION, MERGER OR SALE. During the Exercise Period, in case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, then as a condition of such consolidation, merger or sale or conveyance, adequate provision will be made whereby the Holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such consolidation, merger or sale or conveyance taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this SECTION 4 will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. (c) NOTICE OF ADJUSTMENT. Upon the occurrence of any event that requires any adjustment of the number of Warrant Shares and Exercise Price, then, and in each such case, the Company shall issue a certificate signed by its Chief Executive Officer or Chief Financial Officer to the Holder, which such certificate shall state the increase or decrease in the number of Warrant Shares purchasable and Exercise Price, setting forth in reasonable detail the event requiring the adjustment, the method of calculation for the adjustment and the facts upon which such calculation is based. The Company shall give notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. The Company shall also give notice to the Holder at least thirty (30) days prior to the date on which a merger, consolidation, sale or conveyance of all or substantially all of the assets of the Company, or similar event, shall take place. 5 5. NO FRACTIONAL SHARES. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant. In lieu of delivering any fractional shares to which the Holder would otherwise be entitled, the number of shares of Common Stock shall be rounded to the nearest whole number. 6. ISSUE TAX. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder of such shares for any issuance or transfer tax or other costs in respect thereof, all of which taxes and costs shall be paid by the Company. 7. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 8. NO OBLIGATION TO COMPLETE A PUBLIC OFFERING. Notwithstanding anything herein to the contrary, Delta understands and agrees that the Company makes no representation or warranty of any kind that the Company will engage in or complete an initial public offering of the Common Stock or any other securities of the Company at any time. Delta understands and acknowledges that there is no public market for this Warrant or the shares of Common Stock issuable hereunder, and that such a public market may never develop. 9. INVESTMENT REPRESENTATIONS. Delta, as the initial Holder of this Warrant, represents to the Company that (a) Delta is acquiring this Warrant for its own account, for investment purposes and not with a view to the distribution thereof, and (b) Delta is an "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities Act). 10. TRANSFER AND REPLACEMENT OF WARRANT. (a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to the Holder may be sold, transferred, assigned, pledged or otherwise disposed of (each, a "Transfer"), in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office of the Company referred to in SECTION 11 below; PROVIDED, that any Transfer shall be subject to the conditions set forth in SUBSECTION 10(e). Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered Holder as the owner and Holder of this Warrant for all purposes, and the Company shall not be affected by any notice to the contrary. (b) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such 6 mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (c) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant in connection with any Transfer or replacement as provided in this SECTION 10, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes and all other expenses (other than legal expenses, if any, incurred by the Holder) in connection with the preparation, execution, and delivery of Warrants pursuant to this SECTION 10. (d) REGISTER. The Company shall maintain, at its principal executive offices (or such other office of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person or business entity in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (e) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of the surrender of this Warrant in connection with any exercise, Transfer, or exchange of this Warrant, this Warrant (or in the case of any exercise, the Warrant Shares issuable hereunder) shall not be registered under the Securities Act, and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, Transfer, or exchange (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel, which opinion and counsel shall be reasonably acceptable to the Company, to the effect that such exercise, Transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, and (ii) that the Holder or transferee, as applicable, execute and deliver to the Company an investment intent representation letter in form and substance reasonably acceptable to the Company. Notwithstanding anything in this SUBSECTION 10(e) to the contrary, the Holder may transfer this Warrant to any affiliate of the Holder without compliance with CLAUSE (i) of this SUBSECTION 10(e). (f) LEGENDS. (i) This Warrant (and each new or replacement Warrant issued in accordance with the terms hereof), unless and until such time as the same is no longer required under the applicable requirements of the Securities Act, or any applicable state securities laws, shall bear the following legend: "NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE 7 SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." (ii) Each certificate or instrument (if any) representing any Warrant Shares issued upon the exercise of this Warrant (and each certificate or instrument representing any Warrant Shares issued to transferees of this Warrant or such certificate or instrument), unless and until such time as the same is no longer required under the applicable requirements of the Securities Act, or any applicable state securities laws, shall bear substantially the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." 11. NOTICES. All notices, requests and other communications required or permitted to be given or delivered hereunder to the Holder of this Warrant shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to such Holder at the address shown for such Holder on the books of the Company, or at such other address as shall have been furnished to the Company by notice from such Holder. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the Company shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed to the office of the Company at 2500 South High School Road, Indianapolis, IN 46241, Attention: President, or at such other address as shall have been furnished to the Holder of this Warrant by notice from the Company. Any such notice, request or other communication may be sent by facsimile, but shall in such case be subsequently confirmed by a writing personally delivered or sent by certified or registered mail or by recognized overnight mail courier as provided above. All notices, requests and other communications shall be deemed to have been given either at the time of the receipt thereof by the person entitled to receive such notice at the address of such person for purposes of this SECTION 11 or, if mailed by registered or certified mail or with a recognized overnight mail courier upon deposit with the United States Post Office or such overnight mail courier, if postage is prepaid and the mailing is properly addressed, as the case may be. 12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 8 13. MISCELLANEOUS. (a) AMENDMENTS. This Warrant may only be amended by an instrument signed by the Company and the Holder. (b) DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions of this Warrant. (c) SEVERABILITY AND SAVINGS CLAUSE. If any one or more of the provisions contained in this Warrant is for any reason (i) objected to, contested or challenged by any court, government authority, agency, department, commission or instrumentality of the United States or any state or political subdivision thereof, or any securities industry self-regulatory organization (collectively, "GOVERNMENTAL AUTHORITY"), or (ii) held to be invalid, illegal or unenforceable in any respect, the Company and the Holder agree to negotiate in good faith to modify such objected to, contested, challenged, invalid, illegal or unenforceable provision. It is the intention of the Company and the Holder that there shall be substituted for such objected to, contested, challenged, invalid, illegal or unenforceable provision a provision as similar to such provision as may be possible and yet be acceptable to any objecting Governmental Authority and be valid, legal and enforceable. Further, should any provisions of this Warrant ever be reformed or rewritten by a judicial body, those provisions as rewritten will be binding, but only in that jurisdiction, on the Holder and the Company as if contained in the original Warrant. The invalidity, illegality or unenforceability of any one or more provisions of this Warrant will not affect the validity and enforceability of any other provisions of this Warrant. (d) COUNTERPARTS. This Warrant may be executed in any number of counterparts, including by facsimile, and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. (e) REDEMPTION. This Warrant is not redeemable by the Company. (f) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or a legal holiday. 9 IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed, as of the date first above written. REPUBLIC AIRWAYS HOLDINGS INC. By: /s/ Robert H. Cooper ------------------------------------ Name: Robert H. Cooper Title: EVP and CFO DELTA AIR LINES, INC. By: /s/ Frederick Buttrell ------------------------------------ Name: Frederick Buttrell Title: President and CEO, Delta Connection, Inc. [FORM OF ASSIGNMENT] (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO TRANSFER THE WARRANT) FOR VALUE RECEIVED, ____________________ hereby sells, assigns and transfers unto ________________________________________________________________________ (Please print name, address and taxpayer identification number or social security number of transferee.) the accompanying Warrant, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint: _______________________________________________________________________________ attorney, to transfer the accompanying Warrant on the books of the Company, with full power of substitution. The transferee's tax identification or social security number is __________________. Dated:_______________________, 20___. [HOLDER] By:___________________________________ Name:_________________________________ Title:________________________________ NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the accompanying Warrant or any prior assignment thereof in every particular, without alteration or enlargement or any change whatsoever. [FORM OF ELECTION TO PURCHASE AGREEMENT] (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO EXERCISE THE WARRANT) To:______________________: The undersigned hereby irrevocably elects to (i) purchase [INSERT NUMBER OF] SHARES IN WORDS] ([INSERT NUMBER OF SHARES IN NUMBERS]) of the shares of common stock of Republic Airways Holdings Inc., $.001 par value, ("COMMON STOCK"), pursuant to the provisions of SECTION 2(b)(i) of the accompanying warrant (the "WARRANT"), and tenders herewith payment of the aggregate purchase price for such Warrant Shares in full; (ii) elects to exercise the Warrant for the purchase of [INSERT NUMBER OF SHARES IN WORDS] ([INSERT NUMBER OF SHARES IN] NUMBERS]) of the shares of Common Stock pursuant to the provisions of SECTION 2(b)(ii) (the "CASHLESS exercise" provision) of the attached Warrant; or (iii) elects to exercise this Warrant for the purchase of [INSERT NUMBER OF SHARES IN] WORDS] ([INSERT NUMBER OF SHARES IN NUMBERS]) of the shares of Common Stock pursuant to the provisions of SECTION 2(b)(iii) (the "COMBINATION EXERCISE" provision) of the attached Warrant. The undersigned requests that certificates for such shares of Common Stock be issued in the name of: _____________________________________________________________________________ (Please print name and address.) ______________________________________________________________________________ (Please insert social security or other identifying number.) The undersigned hereby confirms and acknowledges that it is acquiring the shares of Common Stock solely for investment for its own account and not with a view to distribution, and it will not offer, sell or otherwise dispose of any such shares of Common Stock except in compliance with the Securities Act of 1933, as amended, or any applicable state securities laws. If such number of shares of Common Stock shall not be all of the shares of Common Stock evidenced by the accompanying Warrant, the undersigned requests that a new Warrant for the balance remaining of such Warrant Shares shall be issued to, registered in the name of, and delivered to: _______________________________________________________________________________ (Please print name and address.) _______________________________________________________________________________ (Please insert social security or other identifying number.) Dated:_________________, ______. [HOLDER] By:___________________________ Name:_________________________ Title:________________________ NOTICE The signature to the foregoing Election to Purchase Agreement must correspond to the name as written upon the face of the accompanying Warrant or any prior assignment thereof in every particular, without alteration or enlargement or any change whatsoever. EX-10.50 21 a2082173zex-10_50.txt EXHIBIT 10.50 FORM OF WARR TO PURCH SHRS-IPO DATE EXHIBIT 10.50 NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF REPUBLIC AIRWAYS HOLDINGS, INC. Date: ____________, 2002 THIS IS TO CERTIFY THAT, for value received, DELTA AIR LINES, INC., a Delaware corporation ("DELTA"), is entitled, subject to the terms herein, to purchase from REPUBLIC AIRWAYS HOLDINGS INC., a Delaware corporation (the "COMPANY"), one million five hundred thousand (1,500,000), subject to adjustment pursuant to Section 5 hereof, fully paid and nonassessable shares of the Company's common stock, $.001 par value (the "COMMON STOCK"), at the Exercise Price (as defined below), all on the terms and conditions and pursuant to the provisions hereinafter set forth. The term "WARRANT SHARES," as used herein, refers to the shares of Common Stock purchasable hereunder. As used herein, the term "HOLDER" shall initially mean Delta, and shall subsequently mean each person or entity to whom this Warrant is duly assigned. 1. EXERCISE OF WARRANT. This Warrant is exercisable, in whole or part, at any time or from time to time commencing on the closing date (the "Closing Date") of the Company's initial public offering of Common Stock registered under the Securities Act (the "IPO") until 5:30 p.m., New York time, on the tenth (10th) anniversary of the IPO Closing Date (the "EXERCISE PERIOD"). 2. EXERCISE PRICE. The per share price at which the Warrant Shares may be purchased shall equal ninety-five percent (95%) of the public offering price per share of Common Stock as set forth on the cover page of the final prospectus delivered in connection with the Company's initial public offering of shares of Common Stock registered under the Securities Act, subject to adjustment pursuant to Section 5 hereof (the "EXERCISE PRICE"). 3. MANNER OF EXERCISE; PAYMENT FOR SHARES; ISSUANCE OF CERTIFICATES. (a) MANNER OF EXERCISE. Subject to the provisions of this Warrant, the Warrant Shares may be purchased by the Holder, in whole or in part, by the surrender of this Warrant together with a completed election to purchase agreement in the form attached to this Warrant (the "ELECTION AGREEMENT"), to the Company during normal business hours on any business day, during the Exercise Period, at the Company's principal executive offices (or such other office or agency of the Company as it may reasonably designate by notice to the Holder), and upon payment to the Company of an amount of consideration equal to the aggregate Exercise Price of the purchased Warrant Shares ("TOTAL PURCHASE PRICE"). (b) PAYMENT FOR SHARES. The Total Purchase Price may be paid (i) in cash, by certified or official bank check or by wire transfer for the account of the Company, (ii) notwithstanding (i), if the Fair Market Value (as defined below) of the Company's Common Stock is greater than the Exercise Price, in lieu of exercising this Warrant by payment of cash, the Holder may elect to receive shares of Common Stock computed as of the date of such calculation using the following formula: X= Y(A-B) ------ A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised and canceled A = the Fair Market Value of one share of the Company's Common Stock B = the Exercise Price (subject to adjustment as provided in Section 5) or (iii) in any combination of the foregoing. (c) DEFINITIONS. (i) "FAIR MARKET VALUE" shall mean, as of any date of determination, with respect to any Common Stock, (x) if there is a Qualified Public Market (as defined below) for such Common Stock, the value per share determined pursuant to clause (i) or (ii) below of this definition or (y) if there is no such Qualified Public Market, the value determined pursuant to clause (iii) below of this definition: (i) if such Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such an exchange, the average last reported sale price (as reported in THE WALL STREET JOURNAL) of a share of such Common Stock over the 5 trading day period immediately prior to the date of determination or if no such sale is made on any such day, the mean of the closing bid and asked prices for such Common Stock on such day on such exchange; or (ii) if such Common Stock is not so listed or admitted to unlisted trading privileges, the average mean of the last bid and asked prices reported for a share of such Common Stock over the 5 trading day period immediately prior to the date of determination (A) by the National Association of Securities Dealers Automatic Quotation System or (B) if reports are unavailable under clause (A) above by the National Quotation Bureau Incorporated; or (iii) if such Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, then the Company shall give prompt written notice to the Holder of the need to determine the Fair Market Value of such Common Stock, as well as a statement of the fair market value of such Common Stock determined in good faith by the Board of Directors of the Company. In such event, the Fair Market Value of such Common Stock shall be the fair market value per share agreed to by the Board of Directors of the Company and the Holder; PROVIDED, HOWEVER, if no such agreement is reached within thirty (30) days of the date on which the event for which the Fair Market Value is required to be determined occurs, then the Fair Market Value shall be determined as follows: the Company and the Holder shall each designate promptly in a written notice to the other its determination of the fair market value of such Common Stock as of the applicable reference date, and the Fair Market Value of such Common Stock as of the applicable reference date shall then be determined by a nationally recognized independent appraiser (the "INDEPENDENT FINANCIAL EXPERT") selected by the Holder from a group of three appraisers chosen by the Company (with whom the Company does not have an existing business relationship) and the Holder assuming an arm's-length private sale between a willing buyer and a willing seller, neither acting under compulsion. The determination by the Independent Financial Expert of the Fair Market Value shall be final and binding on the Company and the Holder. The costs and expenses of any such Independent Financial Expert making such valuation shall be paid by the Company, except that such expenses shall be borne solely by the Holder to the extent that the Independent Financial Expert concludes that the valuation of such Common Stock made by the Board of Directors of the Company is within five percent (5%) of the Fair Market Value. (ii) "QUALIFIED PUBLIC MARKET" shall mean with respect to the Common Stock of the Company, an active trading market on a national securities exchange or over-the-counter market which consists of such publicly held Common Stock in the Company, with a minimum market value of $10,000,000 for such Common Stock. A "Qualified Public Market" shall be deemed to exist if the financial parameters set forth in the immediately preceding sentence have been met for the Common Stock for a period of 5 consecutive days. (d) ISSUANCE OF CERTIFICATES. The Warrant Shares so purchased shall be deemed to be issued to the Holder (or its designee), as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Election Agreement shall have been delivered, and payment of the Total Purchase Price shall have been made as set forth above. Certificates for the Warrant Shares so purchased, with the legend specified in SUBSECTION 10(f) hereof, shall be delivered to the Holder within a reasonable time, not to exceed three (3) business days after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the Holder and shall be registered in the name of the Holder (or its designee). If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant to the Holder evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares issuable hereunder. 4. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and agrees as follows: (a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid and nonassessable and free and clear from all taxes, liens, charges and preemptive rights. (b) RESERVATION OF SHARES. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the full exercise of this Warrant. (c) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. (d) NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid, or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment. 5. ADJUSTMENT TO THE NUMBER OF WARRANT SHARES. During the Exercise Period, the number of Warrant Shares and the Exercise Price shall be subject to adjustment from time to time as provided in this SECTION 5. (a) SUBDIVISION OR COMBINATION OF COMMON STOCK. During the Exercise Period, if the Company subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) any shares of Common Stock into a greater number of shares or other class of shares or securities or combines (by any reverse stock split, recapitalization, reorganization, reclassification or otherwise) any shares of Common Stock into a smaller number of shares or other class of shares or securities, then, after the date of record for effecting such subdivision or combination, then this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as a result of such subdivision or combination with respect to the shares of Common Stock which were subject to the purchase rights under this Warrant immediately prior to such subdivision or combination for the same aggregate exercise price of an amount equal to the original Exercise Price multiplied by 1,500,000. (b) CONSOLIDATION, MERGER OR SALE. During the Exercise Period, in case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, then as a condition of such consolidation, merger or sale or conveyance, adequate provision will be made whereby the Holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such consolidation, merger or sale or conveyance taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this SECTION 5 will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. (c) NOTICE OF ADJUSTMENT. Upon the occurrence of any event that requires any adjustment of the number of Warrant Shares and Exercise Price, then, and in each such case, the Company shall issue a certificate signed by its Chief Executive Officer or Chief Financial Officer to the Holder, which such certificate shall state the increase or decrease in the number of Warrant Shares purchasable and Exercise Price, setting forth in reasonable detail the event requiring the adjustment, the method of calculation for the adjustment, and the facts upon which such calculation is based. The Company shall give notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. The Company shall also give notice to the Holder at least thirty (30) days prior to the date on which a merger, consolidation, sale or conveyance of all or substantially all of the assets of the Company, or similar event, shall take place. 6. NO FRACTIONAL SHARES. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant. In lieu of delivering any fractional shares to which the Holder would otherwise be entitled, the number of shares of Common Stock shall be rounded to the nearest whole number. 7. ISSUE TAX. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder of such shares for any issuance tax or other costs in respect thereof, all of which taxes and costs shall be paid by the Company. 8. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 9. INVESTMENT REPRESENTATIONS. Delta, as the initial Holder of this Warrant, represents to the Company that (a) Delta is acquiring this Warrant for its own account, for investment purposes and not with a view to the distribution thereof, and (b) Delta is an "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities Act). 10. TRANSFER AND REPLACEMENT OF WARRANT. (a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to the Holder may be sold, transferred, assigned, pledged or otherwise disposed of (each, a "Transfer"), in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office of the Company referred to in SECTION 11 below; PROVIDED, that any Transfer shall be subject to the conditions set forth in SUBSECTION 10(e). Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered Holder as the owner and Holder of this Warrant for all purposes, and the Company shall not be affected by any notice to the contrary. (b) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (c) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant in connection with any Transfer or replacement as provided in this SECTION 10, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes and all other expenses (other than legal expenses, if any, incurred by the Holder) in connection with the preparation, execution, and delivery of Warrants pursuant to this SECTION 10. (d) REGISTER. The Company shall maintain, at its principal executive offices (or such other office of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person or business entity in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (e) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of the surrender of this Warrant in connection with any exercise, Transfer, or exchange of this Warrant, this Warrant (or in the case of any exercise, the Warrant Shares issuable hereunder) shall not be registered under the Securities Act, and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, Transfer, or exchange (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel, which opinion and counsel shall be reasonably acceptable to the Company, to the effect that such exercise, Transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, and (ii) that the Holder or transferee, as applicable, execute and deliver to the Company an investment intent representation letter in form and substance reasonably acceptable to the Company. Notwithstanding anything in this SUBSECTION 10(e) to the contrary, the Holder may transfer this Warrant to any affiliate of the Holder without compliance with CLAUSE (i) of this SUBSECTION 10(e). (f) LEGENDS. (i) This Warrant (and each new or replacement Warrant issued in accordance with the terms hereof), unless and until such time as the same is no longer required under the applicable requirements of the Securities Act, or any applicable state securities laws, shall bear the following legend: "NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." (ii) Each certificate or instrument (if any) representing any Warrant Shares issued upon the exercise of this Warrant (and each certificate or instrument representing any Warrant Shares issued to transferees of this Warrant or such certificate or instrument), unless and until such time as the same is no longer required under the applicable requirements of the Securities Act, or any applicable state securities laws, shall bear substantially the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." 11. NOTICES. All notices, requests and other communications required or permitted to be given or delivered hereunder to the Holder of this Warrant shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to such Holder at the address shown for such Holder on the books of the Company, or at such other address as shall have been furnished to the Company by notice from such Holder. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the Company shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed to the office of the Company at 2500 South High School Road, Indianapolis, IN 46241, Attention: President, or at such other address as shall have been furnished to the Holder of this Warrant by notice from the Company. Any such notice, request or other communication may be sent by facsimile, but shall in such case be subsequently confirmed by a writing personally delivered or sent by certified or registered mail or by recognized overnight mail courier as provided above. All notices, requests and other communications shall be deemed to have been given either at the time of the receipt thereof by the person entitled to receive such notice at the address of such person for purposes of this SECTION 11 or, if mailed by registered or certified mail or with a recognized overnight mail courier upon deposit with the United States Post Office or such overnight mail courier, if postage is prepaid and the mailing is properly addressed, as the case may be. 12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 13. MISCELLANEOUS. (a) AMENDMENTS. This Warrant may only be amended by an instrument signed by the Company and the Holder. (b) DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions of this Warrant. (c) SEVERABILITY AND SAVINGS CLAUSE. If any one or more of the provisions contained in this Warrant is for any reason (i) objected to, contested or challenged by any court, government authority, agency, department, commission or instrumentality of the United States or any state or political subdivision thereof, or any securities industry self-regulatory organization (collectively, "GOVERNMENTAL AUTHORITY"), or (ii) held to be invalid, illegal or unenforceable in any respect, the Company and the Holder agree to negotiate in good faith to modify such objected to, contested, challenged, invalid, illegal or unenforceable provision. It is the intention of the Company and the Holder that there shall be substituted for such objected to, contested, challenged, invalid, illegal or unenforceable provision a provision as similar to such provision as may be possible and yet be acceptable to any objecting Governmental Authority and be valid, legal and enforceable. Further, should any provisions of this Warrant ever be reformed or rewritten by a judicial body, those provisions as rewritten will be binding, but only in that jurisdiction, on the Holder and the Company as if contained in the original Warrant. The invalidity, illegality or unenforceability of any one or more provisions of this Warrant will not affect the validity and enforceability of any other provisions of this Warrant. (d) COUNTERPARTS. This Warrant may be executed in any number of counterparts, including by facsimile, and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. (e) REDEMPTION. This Warrant is not redeemable by the Company. (f) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or a legal holiday. IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed, as of the date first above written. REPUBLIC AIRWAYS HOLDINGS INC. By: ---------------------------------------- Name: Title: DELTA AIR LINES, INC. By: ---------------------------------------- Name: Title [FORM OF ASSIGNMENT] (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO TRANSFER THE WARRANT) FOR VALUE RECEIVED, _____________________________ hereby sells, assigns and transfers unto - -------------------------------------------------------------------------------- (Please print name, address and taxpayer identification number or social security number of transferee.) the accompanying Warrant, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint: - -------------------------------------------------------------------------------- attorney, to transfer the accompanying Warrant on the books of the Company, with full power of substitution. The transferee's tax identification or social security number is _____. Dated: ____________________, 20__. [HOLDER] By: ------------------------------------ Name: ------------------------------------ Title: ------------------------------------ NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the accompanying Warrant or any prior assignment thereof in every particular, without alteration or enlargement or any change whatsoever. [FORM OF ELECTION TO PURCHASE AGREEMENT] (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO EXERCISE THE WARRANT) To: _______________________: The undersigned hereby irrevocably elects (i) to purchase [INSERT NUMBER OF SHARES IN WORDS] ([INSERT NUMBER OF SHARES IN NUMBERS]) of the shares of common stock of Republic Airways Holdings Inc., $.001 par value, ("COMMON STOCK"), pursuant to the provisions of SECTION 3(b)(i) of the accompanying warrant (the "WARRANT"), and tenders herewith payment of the aggregate purchase price for such Warrant Shares in full; (ii) elects to exercise the Warrant for the purchase of [INSERT NUMBER OF SHARES IN WORDS] ([INSERT NUMBER OF SHARES IN NUMBERS]) of the shares of Common Stock pursuant to the provisions of SECTION 3(b)(ii) (the "CASHLESS EXERCISE" provision) of the attached Warrant; or (iii) elects to exercise this Warrant for the purchase of [INSERT NUMBER OF SHARES IN WORDS] ([INSERT NUMBER OF SHARES IN NUMBERS]) of the shares of Common Stock pursuant to the provisions of SECTION 3(b)(iii) (the "COMBINATION EXERCISE" provision) of the attached Warrant. The undersigned requests that certificates for such shares of Common Stock be issued in the name of: - -------------------------------------------------------------------------------- (Please print name and address.) - -------------------------------------------------------------------------------- (Please insert social security or other identifying number.) The undersigned hereby confirms and acknowledges that it is acquiring the shares of Common Stock solely for investment for its own account and not with a view to distribution, and it will not offer, sell or otherwise dispose of any such shares of Common Stock except in compliance with the Securities Act of 1933, as amended, or any applicable state securities laws. If such number of shares of Common Stock shall not be all of the shares of Common Stock evidenced by the accompanying Warrant, the undersigned requests that a new Warrant for the balance remaining of such Warrant Shares shall be issued to, registered in the name of, and delivered to: - -------------------------------------------------------------------------------- (Please print name and address.) - -------------------------------------------------------------------------------- (Please insert social security or other identifying number.) Dated: _______________, _______. [HOLDER] By: ------------------------------------ Name: ------------------------------------ Title: ------------------------------------ NOTICE The signature to the foregoing Election to Purchase Agreement must correspond to the name as written upon the face of the accompanying Warrant or any prior assignment thereof in every particular, without alteration or enlargement or any change whatsoever. EX-10.51 22 a2082173zex-10_51.txt EXHIBIT 10.51 FORM OF WARR TO PURCH SHRS EXHIBIT 10.51 NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK OF REPUBLIC AIRWAYS HOLDINGS, INC. Date: ____________, 20___ THIS IS TO CERTIFY THAT, for value received, DELTA AIR LINES, INC., a Delaware corporation ("DELTA"), is entitled, subject to the terms herein, to purchase from REPUBLIC AIRWAYS HOLDINGS INC., a Delaware corporation (the "COMPANY"), sixty thousand (60,000), subject to adjustment pursuant to Section 5 hereof, fully paid and nonassessable shares of the Company's common stock, $.001 par value (the "COMMON STOCK"), at the Exercise Price (as defined below), all on the terms and conditions and pursuant to the provisions hereinafter set forth. The term "WARRANT SHARES," as used herein, refers to the shares of Common Stock purchasable hereunder. As used herein, the term "HOLDER" shall initially mean Delta, and shall subsequently mean each person or entity to whom this Warrant is duly assigned. 1. EXERCISE OF WARRANT. Subject to adjustment pursuant to Section 5 hereof, this Warrant is exercisable, in whole or part, at any time or from time to time after the date hereof until 5:30 p.m., New York time, on ________________, 20___ [ten years from the date of issuance] (the "EXERCISE PERIOD"). 2. EXERCISE PRICE. The per share price at which the Warrant Shares may be purchased shall be equal to $_______ (the "EXERCISE PRICE"), which Exercise Price is the lesser of (i) the closing price of the Common Stock on the day before the day on which it is publicly announced that an additional aircraft has been placed in service (the "ANNOUNCEMENT DAY") and (ii) the average closing price of the Common Stock over the 30-day period ending on the day prior to the Announcement Day. 3. MANNER OF EXERCISE; PAYMENT FOR SHARES; ISSUANCE OF CERTIFICATES. (a) MANNER OF EXERCISE. Subject to the provisions of this Warrant, the Warrant Shares may be purchased by the Holder, in whole or in part, by the surrender of this Warrant together with a completed election to purchase agreement in the form attached to this Warrant (the "ELECTION AGREEMENT"), to the Company during normal business hours on any business day, during the Exercise Period, at the Company's principal executive offices (or such other office or agency of the Company as it may reasonably designate by notice to the Holder), and upon payment to the Company of an amount of consideration equal to the aggregate Exercise Price of the purchased Warrant Shares ("TOTAL PURCHASE PRICE"). (b) PAYMENT FOR SHARES. The Total Purchase Price may be paid (i) in cash, by certified or official bank check or by wire transfer for the account of the Company, (ii) notwithstanding (i), if the Fair Market Value (as defined below) of the Company's Common Stock is greater than the Exercise Price, in lieu of exercising this Warrant by payment of cash, the Holder may elect to receive shares of Common Stock computed as of the date of such calculation using the following formula: X= Y(A-B) ------ A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised and canceled A = the Fair Market Value of one share of the Company's Common Stock B = the Exercise Price (subject to adjustment as provided in Section 5) or (iii) in any combination of the foregoing. (c) DEFINITIONS. (i) "FAIR MARKET VALUE" shall mean, as of any date of determination, with respect to any Common Stock, (x) if there is a Qualified Public Market (as defined below) for such Common Stock, the value per share determined pursuant to clause (i) or (ii) below of this definition or (y) if there is no such Qualified Public Market, the value determined pursuant to clause (iii) below of this definition: (i) if such Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such an exchange, the average last reported sale price (as reported in THE WALL STREET JOURNAL) of a share of such Common Stock over the 5 trading day period immediately prior to the date of determination or if no such sale is made on any such day, the mean of the closing bid and asked prices for such Common Stock on such day on such exchange; or -2- (ii) if such Common Stock is not so listed or admitted to unlisted trading privileges, the average mean of the last bid and asked prices reported for a share of such Common Stock over the 5 trading day period immediately prior to the date of determination (A) by the National Association of Securities Dealers Automatic Quotation System or (B) if reports are unavailable under clause (A) above by the National Quotation Bureau Incorporated; or (iii) if such Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, then the Company shall give prompt written notice to the Holder of the need to determine the Fair Market Value of such Common Stock, as well as a statement of the fair market value of such Common Stock determined by the Board of Directors of the Company. In such event, the Fair Market Value of such Common Stock shall be the fair market value per share agreed to by the Board of Directors of the Company and the Holder; PROVIDED, HOWEVER, if no such agreement is reached within thirty (30) days of the date on which the event for which the Fair Market Value is required to be determined occurs, then the Fair Market Value shall be determined as follows: the Company and the Holder shall each designate promptly in a written notice to the other its determination of the fair market value of such Common Stock as of the applicable reference date, and the Fair Market Value of such Common Stock as of the applicable reference date shall then be determined by a nationally recognized independent appraiser (the "INDEPENDENT FINANCIAL EXPERT") selected by the Holder from a group of three appraisers chosen by the Company (with whom the Company does not have an existing business relationship) and the Holder assuming an arm's-length private sale between a willing buyer and a willing seller, neither acting under compulsion. The determination by the Independent Financial Expert of the Fair Market Value shall be final and binding on the Company and the Holder. The costs and expenses of any such Independent Financial Expert making such valuation shall be paid by the Company, except that such expenses shall be borne solely by the Holder to the extent that the Independent Financial Expert concludes that the valuation of such Common Stock made by the Board of Directors of the Company is within five percent (5%) of the Fair Market Value. (ii) "QUALIFIED PUBLIC MARKET" shall mean with respect to the Common Stock of the Company, an active trading market on a national securities exchange or over-the-counter market which consists of such publicly held Common Stock in the Company, with a minimum market value of $10,000,000 for such Common Stock. A "Qualified Public Market" shall be deemed to exist if -3- the financial parameters set forth in the immediately preceding sentence have been met for the Common Stock for a period of 5 consecutive days. (d) ISSUANCE OF CERTIFICATES. The Warrant Shares so purchased shall be deemed to be issued to the Holder (or its designee), as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Election Agreement shall have been delivered, and payment of the Total Purchase Price shall have been made as set forth above. Certificates for the Warrant Shares so purchased, with the legend specified in SUBSECTION 10(f) hereof, shall be delivered to the Holder within a reasonable time, not to exceed three (3) business days after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the Holder and shall be registered in the name of the Holder (or its designee). If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant to the Holder evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares issuable hereunder. 4. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and agrees as follows: (a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid and nonassessable and free and clear from all taxes, liens, charges and preemptive rights . (b) RESERVATION OF SHARES. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the full exercise of this Warrant. (c) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. (d) NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid, or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment. 5. ADJUSTMENT TO THE NUMBER OF WARRANT SHARES. During the Exercise Period, the number of Warrant Shares and the Exercise Price shall be subject to adjustment from time to time as provided in this SECTION 5. (a) SUBDIVISION OR COMBINATION OF COMMON STOCK. During the Exercise Period, if the Company subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) any shares of Common Stock into a greater number -4- of shares or other class of shares or securities or combines (by any reverse stock split, recapitalization, reorganization, reclassification or otherwise) any shares of Common Stock into a smaller number of shares or other class of shares or securities, then, after the date of record for effecting such subdivision or combination, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as a result of such subdivision or combination with respect to the shares of Common Stock which were subject to the purchase rights under this Warrant immediately prior to such subdivision or combination for the same aggregate exercise price of an amount equal to the original Exercise Price multiplied by 60,000. (b) CONSOLIDATION, MERGER OR SALE. During the Exercise Period, in case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, then as a condition of such consolidation, merger or sale or conveyance, adequate provision will be made whereby the Holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such consolidation, merger or sale or conveyance taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this SECTION 5 will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. (c) NOTICE OF ADJUSTMENT. Upon the occurrence of any event that requires any adjustment of the number of Warrant Shares and Exercise Price, then, and in each such case, the Company shall issue a certificate signed by its Chief Executive Officer or Chief Financial Officer to the Holder, which certificate shall state the increase or decrease in the number of Warrant Shares purchasable and Exercise Price, setting forth in reasonable detail the event requiring the adjustment, the method of calculation for the adjustment and the facts upon which such calculation is based. The Company shall give notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. The Company shall also give notice to the Holder at least thirty (30) days prior to the date on which a merger, consolidation, sale or conveyance of all or substantially all of the assets of the Company, or similar event, shall take place. 6. NO FRACTIONAL SHARES. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant. In lieu of delivering any fractional shares to which the Holder would otherwise be entitled, the number of shares of Common Stock shall be rounded to the nearest whole number. 7. ISSUE TAX. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder of such shares for any issuance tax or other costs in respect thereof, all of which taxes and costs shall be paid by the Company. -5- 8. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 9. INVESTMENT REPRESENTATIONS. Delta, as the initial Holder of this Warrant, represents to the Company that (a) Delta is acquiring this Warrant for its own account, for investment purposes and not with a view to the distribution thereof, and (b) Delta is an "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities Act). 10. TRANSFER AND REPLACEMENT OF WARRANT. (a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to the Holder may be sold, transferred, assigned, pledged or otherwise disposed of (each, a "Transfer"), in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office of the Company referred to in SECTION 11 below; PROVIDED, that any Transfer shall be subject to the conditions set forth in SUBSECTION 10(e). Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered Holder as the owner and Holder of this Warrant for all purposes, and the Company shall not be affected by any notice to the contrary. (b) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (c) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant in connection with any Transfer or replacement as provided in this SECTION 10, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes and all other expenses (other than legal expenses, if any, incurred by the Holder) in connection with the preparation, execution, and delivery of Warrants pursuant to this SECTION 10. (d) REGISTER. The Company shall maintain, at its principal executive offices (or such other office of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person or business entity in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (e) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of the surrender of this Warrant in connection with any exercise, Transfer, or exchange of this Warrant, this Warrant (or in the case of any exercise, the Warrant Shares issuable hereunder) shall not be -6- registered under the Securities Act, and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, Transfer, or exchange (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel, which opinion and counsel shall be reasonably acceptable to the Company, to the effect that such exercise, Transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, and (ii) that the Holder or transferee, as applicable, execute and deliver to the Company an investment intent representation letter in form and substance reasonably acceptable to the Company. Notwithstanding anything in this SUBSECTION 10(e) to the contrary, the Holder may transfer this Warrant to any affiliate of the Holder without compliance with CLAUSE (i) of this SUBSECTION 10(e). (f) LEGENDS. (i) This Warrant (and each new or replacement Warrant issued in accordance with the terms hereof), unless and until such time as the same is no longer required under the applicable requirements of the Securities Act, or any applicable state securities laws, shall bear the following legend: "NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." (ii) Each certificate or instrument (if any) representing any Warrant Shares issued upon the exercise of this Warrant (and each certificate or instrument representing any Warrant Shares issued to transferees of this Warrant or such certificate or instrument), unless and until such time as the same is no longer required under the applicable requirements of the Securities Act, or any applicable state securities laws, shall bear substantially the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN -7- EXEMPTION THEREFROM UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." 11. NOTICES. All notices, requests and other communications required or permitted to be given or delivered hereunder to the Holder of this Warrant shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to such Holder at the address shown for such Holder on the books of the Company, or at such other address as shall have been furnished to the Company by notice from such Holder. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the Company shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed to the office of the Company at 2500 South High School Road, Indianapolis, IN 46241, Attention: President, or at such other address as shall have been furnished to the Holder of this Warrant by notice from the Company. Any such notice, request or other communication may be sent by facsimile, but shall in such case be subsequently confirmed by a writing personally delivered or sent by certified or registered mail or by recognized overnight mail courier as provided above. All notices, requests and other communications shall be deemed to have been given either at the time of the receipt thereof by the person entitled to receive such notice at the address of such person for purposes of this SECTION 11 or, if mailed by registered or certified mail or with a recognized overnight mail courier upon deposit with the United States Post Office or such overnight mail courier, if postage is prepaid and the mailing is properly addressed, as the case may be. 12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 13. MISCELLANEOUS. (a) AMENDMENTS. This Warrant may only be amended by an instrument signed by the Company and the Holder. (b) DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions of this Warrant. (c) SEVERABILITY AND SAVINGS CLAUSE. If any one or more of the provisions contained in this Warrant is for any reason (i) objected to, contested or challenged by any court, government authority, agency, department, commission or instrumentality of the United States or any state or political subdivision thereof, or any securities industry self-regulatory organization (collectively, "GOVERNMENTAL AUTHORITY"), or (ii) held to be invalid, illegal or unenforceable in any respect, the Company and the Holder agree to negotiate in good faith to modify such objected to, contested, -8- challenged, invalid, illegal or unenforceable provision. It is the intention of the Company and the Holder that there shall be substituted for such objected to, contested, challenged, invalid, illegal or unenforceable provision a provision as similar to such provision as may be possible and yet be acceptable to any objecting Governmental Authority and be valid, legal and enforceable. Further, should any provisions of this Warrant ever be reformed or rewritten by a judicial body, those provisions as rewritten will be binding, but only in that jurisdiction, on the Holder and the Company as if contained in the original Warrant. The invalidity, illegality or unenforceability of any one or more provisions of this Warrant will not affect the validity and enforceability of any other provisions of this Warrant. (d) COUNTERPARTS. This Warrant may be executed in any number of counterparts, including by facsimile, and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. (e) REDEMPTION. This Warrant is not redeemable by the Company. (f) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or a legal holiday. IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed, as of the date first above written. REPUBLIC AIRWAYS HOLDINGS INC. By: ---------------------------------------- Name: Title: DELTA AIR LINES, INC. By: ---------------------------------------- Name: Title -9- [FORM OF ASSIGNMENT] (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO TRANSFER THE WARRANT) FOR VALUE RECEIVED, _________________________ hereby sells, assigns and transfers unto - -------------------------------------------------------------------------------- (Please print name, address and taxpayer identification number or social security number of transferee.) the accompanying Warrant, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint: - -------------------------------------------------------------------------------- attorney, to transfer the accompanying Warrant on the books of the Company, with full power of substitution. The transferee's tax identification or social security number is _____. Dated: ____________________, 20__. [HOLDER] By: ------------------------------------ Name: ------------------------------------ Title: ------------------------------------ NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the accompanying Warrant or any prior assignment thereof in every particular, without alteration or enlargement or any change whatsoever. -10- [FORM OF ELECTION TO PURCHASE AGREEMENT] (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO EXERCISE THE WARRANT) To: _______________________: The undersigned hereby irrevocably elects (i) to purchase [INSERT NUMBER OF SHARES IN WORDS] ([INSERT NUMBER OF SHARES IN NUMBERS]) of the shares of common stock of Republic Airways Holdings Inc., $.001 par value, ("COMMON STOCK"), pursuant to the provisions of SECTION 3(b)(i) of the accompanying warrant (the "WARRANT"), and tenders herewith payment of the aggregate purchase price for such Warrant Shares in full; (ii) elects to exercise the Warrant for the purchase of [INSERT NUMBER OF SHARES IN WORDS] ([INSERT NUMBER OF SHARES IN NUMBERS]) of the shares of Common Stock pursuant to the provisions of SECTION 3(b)(ii) (the "CASHLESS EXERCISE" provision) of the attached Warrant; or (iii) elects to exercise this Warrant for the purchase of [INSERT NUMBER OF SHARES IN WORDS] ([INSERT NUMBER OF SHARES IN NUMBERS]) of the shares of Common Stock pursuant to the provisions of SECTION 3(b)(iii) (the "COMBINATION EXERCISE" provision) of the attached Warrant. The undersigned requests that certificates for such shares of Common Stock be issued in the name of: - -------------------------------------------------------------------------------- (Please print name and address.) - -------------------------------------------------------------------------------- (Please insert social security or other identifying number.) The undersigned hereby confirms and acknowledges that it is acquiring the shares of Common Stock solely for investment for its own account and not with a view to distribution, and it will not offer, sell or otherwise dispose of any such shares of Common Stock except in compliance with the Securities Act of 1933, as amended, or any applicable state securities laws. If such number of shares of Common Stock shall not be all of the shares of Common Stock evidenced by the accompanying Warrant, the undersigned requests that a new Warrant for the balance remaining of such Warrant Shares shall be issued to, registered in the name of, and delivered to: - -------------------------------------------------------------------------------- (Please print name and address.) - -------------------------------------------------------------------------------- (Please insert social security or other identifying number.) -11- Dated: ___________, _____. [HOLDER] By: ------------------------------------ Name: ------------------------------------ Title: ------------------------------------ NOTICE The signature to the foregoing Election to Purchase Agreement must correspond to the name as written upon the face of the accompanying Warrant or any prior assignment thereof in every particular, without alteration or enlargement or any change whatsoever. -12- EX-10.52 23 a2082173zex-10_52.txt DELTA CONNECTION AGREEMENT EXHIBIT 10.52 EXECUTION COPY DELTA CONNECTION AGREEMENT This Agreement (this "Agreement"), dated and effective the 7th day of June, 2002, is between Delta Air Lines, Inc., 1030 Delta Boulevard, Atlanta, Georgia 30320 ("Delta") Chautauqua Airlines, Inc. ("Chautauqua" or "Operator"), 2500 S. High School Road, Suite 160, Indianapolis, Indiana 46241 and Republic Airways Holdings, Inc. ("Republic"), 2500 S. High School Road, Suite 160, Indianapolis, Indiana 46241. WHEREAS, Delta operates the Delta Connection program; and WHEREAS, Operator desires for Delta to perform and provide various marketing, schedule and fare related, and other services for Chautauqua in connection with the Delta Connection program; and WHEREAS, Delta desires for Operator to operate the Aircraft (as hereinafter defined) as a Delta Connection Carrier in connection with the Delta Connection program; and WHEREAS, Delta is willing to perform and provide various marketing, schedule and fare related, and other services for Chautauqua in connection with the Delta Connection program; and WHEREAS, this Agreement will enhance the ability of Operator and Delta to serve the public and the communities that they serve or may choose to serve; and NOW, THEREFORE, for and in consideration of the mutual undertakings set for herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Delta, Operator and Republic, intending to be legally bound, hereby agree as follows: ARTICLE 1. FARES AND RULES PUBLICATION. A. DELTA CONNECTION PROGRAM AND APPOINTMENT OF DELTA AS AGENT. Chautauqua hereby appoints Delta as its agent to publish its fares, schedules and related information under Delta's two letter flight designator code in city pairs specified by Delta on the fifteen (15), including one (1) spare, Embraer ERJ 135 aircraft and seven (7) Embraer ERJ 145 aircraft set forth on EXHIBIT A attached hereto and any other aircraft subsequently agreed by the parties to be operated by Chautauqua (collectively, the "Aircraft"), and Delta hereby accepts such appointment. Delta hereby grants Chautauqua the authority to operate as a Delta Connection Carrier, and Chautauqua hereby accepts such grant, to conduct air transportation operating the Aircraft utilizing certain services together with certain trademarks and service marks owned by Delta or which Delta has the right to use, all as provided herein. B. FARES, RULES AND SEAT INVENTORY. Delta, in its sole discretion, shall establish and publish all fares and related tariff rules for all seats on the Aircraft, including fares and rules for local traffic in - ---------- Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act. The omitted materials have been filed separately with the Securities and Exchange Commission. the city pairs served by such Aircraft. Operator shall not schedule the Aircraft, nor publish any fares, tariffs, or related information for the Aircraft. In addition, Delta will control all seat inventory and revenue management decisions for the Aircraft. C. SCHEDULES PUBLICATION. Delta, in its sole discretion, shall establish and publish all schedules for the Aircraft, including city-pairs served, frequencies, and timing of scheduled departures. Chautauqua shall operate the Aircraft in the city pairs designated by Delta, subject to the frequency, scheduling and other requirements established by Delta from time to time and in a manner at least comparable to Chautauqua's operational standards as of the date hereof. Delta will notify Chautauqua of schedule times, frequencies and related information for the Aircraft as sufficiently in advance of the schedule publication date so that the information can be properly disseminated to Chautauqua for pilot and flight attendant staffing, and related operational requirements. In all cases schedules shall make reasonable accommodation for Chautauqua's operational needs, including without limitation, crew overnights and maintenance requirements for the Aircraft. In the event Delta changes the hub location served by the Aircraft from Orlando (MCO) to another location, Delta shall provide Chautauqua with 90 days prior written notice of such change and Delta and Chautauqua shall meet as soon as practicably possible to review and revise the Direct Costs and corresponding Base Compensation as a result of such change in the manner provided in Section 4(E) hereof. In the event Delta opens or closes a non-hub station served or to be served by Chautauqua, Delta shall provide Chautauqua with 60 days prior written notice of such opening or closing unless such station is staffed by, or to be staffed by, Chautauqua, in which case Delta shall provide Chautauqua with 90 days prior written notice of such opening or closing. Notwithstanding any other provision of this Agreement, Delta shall not change the hub location served by Chautauqua to STL, MEM, BNA, MCI or any other location within 50 statute miles of St. Louis, Missouri. ARTICLE 2. EXCLUSIVITY. A. With the exception of (i) aircraft operated or committed to be operated for American Airlines ("AA"), America West Airlines ("HP") and US Airways ("US") pursuant to (a) codeshare agreements in place as of the date hereof between Operator and each such carrier (each such agreement, an "Existing Codeshare Agreement," and such agreements, collectively, the "Existing Codeshare Agreements," and such aircraft, collectively, the "Committed Aircraft"), or (b) any amendment to or modification of a Existing Codeshare Agreement, including an agreement with a successor to such carrier that assumes an Existing Codeshare Agreement by operation of law, in each case that does not increase the number of aircraft that is subject to such Existing Codeshare Agreement beyond the number of Committed Aircraft and the Option Aircraft (as defined below) subject to the Existing Codeshare Agreement prior to such amendment or modification (a "Permitted Codeshare Amendment"), (ii) the following option aircraft allocated to existing Chautauqua codeshare partners as follows: AA-20 options, HP-12 options and US-25 options (collectively, the "Option Aircraft"), (iii) subject to the rights and restrictions set forth below in Section 2(D), any Committed Aircraft and/or Option Aircraft - 2 - that need to be repositioned with another carrier due to the termination (on whole or in part) or breach of an Existing Codeshare Agreement or a Permitted Codeshare Amendment (the "Repositioned Aircraft" and together with the Committed Aircraft and the Option Aircraft, the "Excluded Aircraft"), and (iv) any Excluded Aircraft that are operated under a Reverse Codeshare Agreement (as defined below), Operator agrees to list its flights only under Delta's code during the Term of this Agreement (the "Delta Connection Flights"). For purposes of this Agreement, a "Reverse Codeshare Agreement" is an agreement pursuant to which Chautauqua operates Excluded Aircraft under the designator code of another carrier or under Chautauqua's RP designator code and the other party to an Existing Codeshare Agreement or a Permitted Codeshare Amendment remains obligated to compensate Chautauqua with respect to flights operated under such designator code. B. Operator must obtain prior written approval from Delta if it chooses to enter into a code-sharing (or similar) arrangement with another carrier, excluding, however (i) the Existing Codeshare Agreements with AA, HP or US (or any successors to such carriers who assume an Existing Codeshare Agreement by operation of law), (ii) the Permitted Codeshare Amendments, (iii) subject to the rights and restrictions set forth below in Section 2(D), a code-sharing arrangement that relates to the Repositioned Aircraft, and (iv) a Reverse Codeshare Agreement. Notwithstanding anything herein to the contrary except as provided in Section 2(D), any such new code-sharing arrangement shall strictly prohibit Operator from operating any aircraft, other than Repositioned Aircraft as set forth in Section 2(D), for the new code share partner into or out of [*] C. During the Term of this Agreement, Operator shall not operate any flights under its own flight designator code into or out of [*] excluding flights operated under a Reverse Codeshare Agreement. D. With respect to any Repositioned Aircraft, but subject to the rights of AA under its existing Codeshare Agreement: (i) prior to entering into an agreement with a third party to operate any such aircraft for another party or operating any such aircraft for itself, Operator shall first provide written notice to Delta offering the opportunity to purchase, lease, or codeshare (or any combination thereof) such aircraft on terms no less favorable as offered to any third party (the "Right of First Refusal for Repositioned Aircraft"); and (ii) in the event that Delta does not exercise its Right of First Refusal for Repositioned Aircraft within 10 business days after receipt of notice thereof, Operator shall be prohibited during the remaining term of this Agreement from flying greater than [*] flights per day into each of [*] with the Repositioned Aircraft without Delta's prior written consent. ARTICLE 3. COMPENSATION. A. BASE COMPENSATION. - 3 - - ---------- *Confidential In exchange for the flying and operation of the Aircraft, Delta shall pay Chautauqua one hundred percent (100%) of the Base Rate Costs, the Reimbursable Costs and the Pass Through Costs (each as such term is defined below, and collectively, the "Direct Costs") and 100% of the Other Reimbursable Costs relating to all flights undertaken by Chautauqua in connection with the Delta Connection Program using the Aircraft. In addition, in any month in which Chautauqua achieves a completion rate for the Delta Connection Flights of at least [*]% (or at least [*]% until such time as Chautauqua has taken delivery of 10 of the Aircraft plus 1 spare) Delta shall pay Chautauqua a mark-up of [*] ([*]%) of such Direct Costs incurred during such month (the "Mark-Up"), subject to certain limitations set forth below. (i) The "Base Rate Costs" shall include all direct, cash operating costs, (specifically excluding any prepayments except as expressly provided herein) based upon the model attached hereto as EXHIBIT B and subject to the minimum/maximum Aircraft Utilization Requirements set forth on EXHIBIT D (the "Minimum Utilization Requirements"). (ii) The "Reimbursable Costs" shall include the following: (1) ENGINE MAINTENANCE EXPENSE - Chautauqua's engine maintenance costs incurred pursuant to its agreement with Rolls Royce in the form and substance attached hereto as EXHIBIT F which has been approved by Delta. (2) AIRCRAFT RENT/OWNERSHIP COSTS - Chautauqua's actual aircraft rent/ownership expenses for the Aircraft; provided, however any Mark-Up of the Aircraft Rent/Ownership Costs shall be capped at an amount equivalent to a monthly rate of $[*] for each ERJ-145 Aircraft and $[*] for each ERJ-135 Aircraft. In the event that Chautauqua leases an Aircraft, the Aircraft Rent/Ownership Costs for such Aircraft shall be the amount payable by Chautauqua under the respective lease. In the event Chautauqua owns an Aircraft subject to debt financing, the Aircraft Rent/Ownership Costs for such Aircraft shall be the amount payable by Chautauqua as debt payments in respect of such Aircraft, calculated as if [*]% of the Aircraft purchase price was financed by such debt. In the event that the amounts financed under such lease or debt financing do not include Chautauqua's third party costs and expenses incurred in connection with the acquisition and financing of such Aircraft, the Aircraft Rent/Ownership costs shall include, in addition to the amount of such lease payments or debt payments, the additional costs that would have been reflected in the lease or debt service payments, under the terms of the respective lease or debt financing, [*]% of such costs and expenses, not to exceed [*]% of the purchase price of the respective Aircraft (the "Additional Financing Amount"). (3) FUEL EXPENSE - Chautauqua's actual Aircraft fuel expenses; provided, however, any Mark-Up of the Fuel Expense shall be capped at an amount equivalent to a $[*] per gallon fuel price. (iii) The "Pass Through Costs" shall include the following variable costs for which Delta shall bear the risk of price fluctuations, provided that such costs shall be reconciled on a monthly basis to reflect the actual costs incurred by Operator: - 4 - - ---------- *Confidential (1) Landing Fees; (2) Hull Insurance and any other insurance required by Delta under Article 14; (3) Passenger Liability Costs; (4) War Risk Insurance; (5) Glycol (but not if provided by Delta or an affiliate of Delta); (6) Catering Costs; (7) Recurring Training Costs; (8) Property Taxes on the Aircraft; provided, however, any Mark-Up of any Property Tax shall be capped at an amount equivalent to [*]% of the value of the Aircraft. (9) The cost of any Support Services (as defined below) and any ticketing services, in each case only if not provided by Delta at its own expense; and (10) All costs to change the livery of any Aircraft pursuant to any request by Delta. B. OTHER REIMBURSABLE COSTS. Delta shall reimburse Chautauqua for one hundred percent (100%) of the costs incurred for the following items, but it is expressly agreed that no Mark-Up of such costs shall be paid by Delta: (1) Any Federal Aviation Administration ("FAA") or Department of Transportation ("DOT") fines administered or levied against Operator due to an action or omission principally caused by Delta or an affiliate of Delta; and (2) Start-Up Training Costs associated with operating the Aircraft; provided, however in no event shall Delta be required to reimburse Chautauqua in excess of $[*] in aggregate for such costs. C. NON-REIMBURSABLE COSTS. The parties hereby acknowledge and agree that Delta SHALL NOT be responsible, nor reimburse, Operator for any of the following costs: (1) Any and all [*] and/or [*]; (2) Any and all FAA or DOT fines administered or levied against Operator due to action or omission not principally caused by Delta or an affiliate of Delta; and (3) Any depreciation, amortization or interest expense relating to the Aircraft, except to the extent included in the Aircraft Rent/Ownership Costs or the model attached as EXHIBIT B. D. INCENTIVE COMPENSATION. 1. MONTHLY INCENTIVE COMPENSATION. In addition to the Base Compensation (as defined below), Chautauqua shall have the opportunity to earn additional compensation (the "Monthly Incentive Compensation") based upon its completion rate (actual) and on-time arrival rate for each month, - 5 - - ---------- *Confidential each in connection with the operation of the Aircraft. For each month during the Term of this Agreement that Chautauqua has a completion rate for its Delta Connection Flights of [*]% or greater, Delta shall pay Chautauqua an additional [*] ([*]%) Mark-Up of the Direct Costs relating to such month. In addition, for each month during the Term of this Agreement that Chautauqua has an on-time arrival rate (i.e. within 15 minutes of the scheduled arrival time) for its Delta Connection Flights of [*]% or greater, Delta shall pay Chautauqua an additional [*] ([*]%) Mark-Up of the Direct Costs relating to such month. 2. SEMI-ANNUAL INCENTIVE COMPENSATION. In addition to the Base Compensation and the Monthly Incentive Compensation, Chautauqua shall have the opportunity to earn additional compensation (the "Semi-Annual Incentive Compensation") based upon its performance in certain performance categories as set forth herein. During each six-month period (measured from each January 1 through June 30 and July 1 through December 31) during the Term of this Agreement, Delta shall pay Chautauqua an additional [*] ([*]%) Mark-Up of the Direct Costs for each of the following performance goals that Chautauqua achieves during the applicable six-month period: (i) a completion rate for its Delta Connection Flights of [*] ([*]%) or greater; (ii) an on-time arrival rate for its Delta Connection Flights of [*] ([*]%) or greater; and (iii) a baggage claim rate for its Delta Connection Flights of less than [*] claims per thousand passengers. C. ACCOUNTING PROVISIONS. Delta shall retain all revenues (passenger, cargo, mail or any other revenue, including without limitation, any guaranteed or incentive payments from airport, local or municipal authorities in connection with scheduling flights to such airport or locality) in connection with the operation of the Delta Connection Flights. Operator shall promptly forward to Delta all monies with respect to all airline ticket sales, on-board sales, baggage charges, passenger charges, cargo sales and all other revenue collected in connection with the operation of the Aircraft (including credit card transactions). On the 5th, 10th, 15th and 20th day of each month (or if not a business day, on the following business day) Delta will advance to Chautauqua twenty-five percent (25%) of the estimated monthly Direct Costs and Mark-Up (collectively, the "Base Compensation"). In computing the amount of the advance, Delta will use the projected fuel costs, and Delta will estimate the anticipated number of weekly block hours based on the greater of (i) the scheduled block hours of the Aircraft and (ii) the Minimum Utilization Requirements. Not later than twenty-five (25) days following the end of each month, Delta and Operator will reconcile the actual costs incurred by Chautauqua for the Base Compensation (subject to the Minimum Utilization Requirements), with the estimated payments made pursuant to the previous paragraph. The reconciliation will include a comparison of Chautauqua's actual completion rate for such month with the minimum completion rate required to achieve the Mark-Up pursuant to Section 3(A) hereof, any applicable Monthly Incentive Compensation based on Chautauqua's actual - 6 - - ---------- *Confidential completion rate and on-time arrival rate for the applicable month, and in the event such month is the end of a Semi-Annual Incentive Compensation measuring period, will also include any applicable Semi-Annual Incentive Compensation that may be due based upon Operator's performance during such period. Within two (2) business days of completing such reconciliation, Delta or Operator, as the case may be, shall wire transfer to an account designated by the other party, monies equal to the reconciled amount. Notwithstanding anything herein to the contrary, in the event Chautauqua is unable to operate any of the Aircraft, or any of the Delta Connection Flights, due to a strike, labor dispute, work stoppage or similar event, provided in each such case that such event is substantially within the control of, or caused by, some action or inaction of Operator or relates to the Aircraft, Delta shall not be obligated to pay Chautauqua any Base Compensation, incentive compensation, or other amounts, in connection with such non-operated Aircraft and Delta Connection Flights. However, in the event Chautauqua is unable to operate any of the Aircraft, or any of the Delta Connection Flights, due to a strike, labor dispute, work stoppage, or similar event, that is substantially within the control of, or caused by, some action or inaction of Delta, Delta shall be obligated to pay Chautauqua Base Compensation based on the Minimum Utilization Requirements, and Chautauqua's eligibility for any Monthly Incentive Compensation or Semi-Annual Incentive Compensation shall be calculated without regard to any cancellations, delays or complaints caused by or relating to such events. In the event Chautauqua is unable to operate any of the Aircraft, or any of the Delta Connection Flights, due to an event that is not substantially within the control of, or caused by, some action or inaction of either Chautauqua or Delta, Delta shall be obligated to pay Chautauqua's fixed costs (i.e. labeled as "Per Scheduled Aircraft Per Day" and "Fixed Per Day" on EXHIBIT B attached hereto, as well as Aircraft Rent/Ownership Costs, Hull Insurance, Property Taxes and Heavy Inspection Costs for inspections already in process prior to any such event), but not any variable costs or Mark-Up, with respect to such non-operated Aircraft and Delta Connection Flights during the period that Chautauqua is unable to operate such Aircraft or the Delta Connection Flights. D. REVIEW OF BASE AMOUNT AND SERVICE LEVELS. Operator shall maintain complete and accurate books and records to support and document all revenues, costs and expenses related to the Aircraft hereunder, in accordance with generally accepted accounting principles consistently applied and in accordance with the accounting policies and procedures used by the parties to develop the Direct Costs. Prior to the setting of the Annual Rate Plan, Delta's in-house accounting staff and any independent accountants selected by Delta shall be entitled, following reasonable notice to Operator, to review and inspect Operator's books, records and costs incurred with respect to services provided in prior periods, the service levels achieved, and the determination of charges due pursuant to this Agreement for the purpose of (i) prospectively adjusting the Base Rate Amount in connection with an annual review pursuant to Section 3(E) hereof, or (ii) auditing Reimbursable Costs, Pass Through Costs or Other Reimbursable Costs.. Any such review will be conducted during regular business hours at Operator's offices. E. COST CHANGES. - 7 - Operator shall provide Delta an estimate of the next calendar year's projected operating costs by September 30th of each year during the Term. Delta will have the right to review and provide comments and suggestions to such estimate, and such suggestions will be duly considered by Operator. Operator and Delta hereby agree to meet promptly after each September 30th of each year during the Term in order to review and revise the Direct Costs and corresponding Base Compensation, as appropriate, for the subsequent calendar year utilizing the same methodology as initially used to determine the Direct Costs and Base Compensation (the "Annual Operating Plan") and will use commercially reasonable efforts to reach agreement on an Annual Operating Plan for the next calendar year prior to December 31 of each year. In the event that the parties are unable to agree on any Annual Operating Plan, the parties further agree that (i) at the request of either party, and at the expense of the requesting party, the parties shall engage a mutually agreed independent consultant, to determine the applicable Annual Operating Plan, [*], and (ii) if no new Annual Operating Plan has been adopted by the beginning of the next calendar year, the existing Annual Operating Plan shall be used on an interim basis to determine the Direct Costs and Base Compensation, subject to reconciliation and retroactive adjustment upon the adoption of a new Annual Operating Plan. Any determination by the independent consultant shall be binding on and implemented by the parties. The Annual Rate Plan will apply for all completed flights during the calendar year applicable to such plan, and with respect to the Base Rate Costs only, Operator will bear any risks of additional expenses not reflected therein. Operator shall be entitled to payment of all Reimbursable Costs, Pass Through Costs and Other Reimbursable Costs based on the actual amounts incurred without regard to the Annual Rate Plan. Operator will use its commercially reasonable efforts consistent with the business practices and policies used to develop the first years Direct Cost model and with the prudent operation of its business to minimize its costs to operate the Aircraft in accordance with this Agreement. Operator and Delta each agree to notify the other as soon as reasonably practicable of any anticipated or potentially substantial change of cost or operational performance. ARTICLE 4. AIRPORT RELATED AND TICKETING SERVICES. A. TICKETING SERVICES. Delta will provide its own primary airport ticketing services, and, if applicable, Chautauqua will provide supplemental ticketing services for Delta Connection Flights at Delta's airport ticketing locations and will use Delta ticket stock for such purposes. B. SIGNAGE. Delta will design, provide and pay for appropriate airport and other signage to reflect the Delta Connection and the relationship between Chautauqua and Delta. The nature and type of such signage will be in the sole discretion of Delta, subject to any airport, governmental or quasi-governmental restrictions or requirements. Delta will be responsible for installing and maintaining all such signage, but the parties will mutually determine which party will obtain any necessary formal or informal approvals from appropriate airport or other authorities to install such signage. The parties will fully cooperate with each other in all endeavors relating to such signage and any necessary approvals. ARTICLE 5. CUSTOMER SERVICES. - 8 - - ---------- *Confidential A. Operator will handle all customer related services in connection with the Delta Connection Flights in a professional, businesslike and courteous manner. In order to insure a high level of customer satisfaction for the Delta Connection Flights, Operator will: 1. establish and maintain customer handling procedures and policies that are similar to those utilized by Delta; and 2. establish, maintain and enforce employee conduct, appearance and training standards and policies that are similar to those utilized by Delta. B. Operator and Delta will periodically meet to discuss and review Operator's customer handling procedures and policies and Operator's employee conduct, appearance and training standards and policies to insure compliance with this Article 5. Each party will seek to set forth concerns and complaints under this Article 5 in writing to the other party. To the extent Delta advises Operator of any deviation from Article 5(A) hereof, the parties shall meet to mutually determine appropriate solutions and to agree to the terms of a written corrective action plan and the timing of its implementation. In the event Operator shall fail, in any material respect, to adopt or implement any such agreed written corrective action plan in the time period described therein, such failure may be deemed a material breach of this Agreement. C. Chautauqua shall adopt as its own Delta's Terms and Conditions of Contract of Carriage ("Contract of Carriage"), as amended from time to time, and be bound by its terms with respect to its operation of Delta Connection Flights. ARTICLE 6. TRAFFIC DOCUMENTS AND RELATED PROCEDURES. To the extent that Chautauqua will handle traffic documents or passenger handling services in connection with any Delta Connection Flights, the following terms and conditions shall apply: A. Pursuant to mutually acceptable procedures, Delta will periodically provide Chautauqua with Delta machine and manual ticket stock, miscellaneous charges orders, credit card refund drafts, credit card refund vouchers, FIMS, expense vouchers, expense checks, travel credit vouchers and other related documents (collectively referred to as "Traffic Documents"). Delta will maintain a supply of Traffic Documents at a suitable location and, upon written request from Chautauqua, will provide Chautauqua with appropriate supplies of Traffic Documents. B. Unless otherwise agreed to by Delta in writing, Traffic Documents may be used, completed, validated and issued only by Chautauqua and only in connection with transactions related to Delta Connection Flights and for no other purpose. C. Chautauqua will promptly surrender and return all Traffic Documents to Delta upon Delta's written request. D. Chautauqua will maintain records of the Traffic Documents in a manner and format acceptable to Delta. Chautauqua will acknowledge receipt in writing of all Traffic Documents in the manner prescribed by Delta. - 9 - E. Chautauqua will conform with and abide by all of Delta's rules and regulations regarding the Traffic Documents. F. Chautauqua will take all reasonable and necessary measures to safeguard the Traffic Documents as of the time of receipt and thereafter and will maintain the Traffic Documents in accordance with mutually agreed upon security procedures. Chautauqua shall be responsible for all risk of loss, use, misuse, misappropriation or theft of Traffic Documents as of the time Chautauqua takes possession of the Traffic Documents. G. REPORTING AND REMITTING WITH RESPECT TO TRAFFIC DOCUMENTS. 1. On a daily basis, Chautauqua will provide Delta with a report for each Chautauqua ticketing location of all ticketing and related transactions on Traffic Documents for the prior day. Such report will be in a format determined by Delta and will include, without limitation, all credit card transactions and supporting documentation. 2. Chautauqua will issue all Traffic Documents, and will collect appropriate charges, in accordance with the tariffs, fares, rates, rules and regulations of Delta and any other applicable carriers. Operator shall be responsible for all undercharges and incorrect fares, rates and charges on Traffic Documents issued by or for Chautauqua, and Delta may deduct from sums due Operator or bill Operator for the amount of any such undercharges or incorrect fares, rates and charges. The amount of such undercharges will be determined by utilizing the ACH Procedures for passenger tickets and on a direct billing basis for baggage/cargo related items. H. REFUND VOUCHERS. 1. Delta will use Delta refund vouchers for all refund transactions handled by Delta involving Chautauqua. 2. Chautauqua will use Delta refund vouchers, and Delta credit card refund vouchers for credit card sales refunds, and will comply with Delta's rules and regulations for handling and processing such refunds. Delta will supply Chautauqua with an adequate supply of refund vouchers and credit card refund vouchers. ARTICLE 7. FREQUENT FLYER PARTICIPATION. During the Term of this Agreement, the parties agree that passengers on Chautauqua's Delta Connection Flights will be eligible to participate in the Delta SkyMiles frequent flyer program or any other similar program developed by Delta (the "Program") and all Program award tickets will be honored for travel on Delta Connection Flights on the following terms and conditions: A. ADMINISTRATION. Administration of the Program shall be performed by and at the cost of Delta. Delta will promote and administer the Program. B. PROGRAM INFORMATION. Title and full and complete ownership rights to Program membership data and information developed by Delta, wherever located, shall remain with Delta or an affiliate of Delta. Operator understands and agrees that such data and information constitutes Delta's (or its - 10 - affiliates') proprietary information. Any membership lists, labels, data, or other compiled membership information supplied to Operator in any form and any and all copies thereof are to be used by Operator exclusively in the performance of its obligations under this Agreement and will not be otherwise used, sold, licensed, leased, transferred, stored, duplicated or transmitted, in any form or by any means, without Delta's prior written consent. All such information will either be returned to Delta or destroyed at Delta's request. ARTICLE 8. SUPPORT SERVICES. Delta may provide certain support services to Chautauqua, including customer reservations, customer service, ground handling, ramp handling, station operations, on call maintenance, fuel service, de-icing, baggage transfers, security and passenger screening, pricing, scheduling, revenue accounting, revenue management, frequent flyer, advertising and similar support services (collectively, "Support Services") in connection with the operation of the Aircraft, and Delta will be responsible for all taxes and fees associated therewith. Any and all services provided by Delta to Operator shall be at no cost to Operator and shall not be subject to any reimbursement or any Mark-Up. ARTICLE 9. AUTOMATION SERVICES. Delta agrees to provide Chautauqua the following automation and related services for the Delta Connection Flights, and Chautauqua agrees to participate in such services in the manner described below. A. INTERNAL RESERVATIONS EQUIPMENT. Delta shall provide or arrange for the provision to Chautauqua of an electronic reservations system (currently referred to as "Deltamatic" but including any successor reservations system adopted by Delta) and shall provide Chautauqua with: (i) the ability to access passenger name records, (ii) automated ticketing capabilities, (iii) operational messaging switching capabilities, (iv) the ability to update Delta Connection Flight information, (v) the ability to distribute flight releases and weather packages, and (vi) perform other reservations-related functions for the Delta Connection Flights (Deltamatic and any successor system are hereinafter referred to as the "Res System"). Delta reserves the right to modify the functionality of the Res System at any time. Chautauqua will use the Res System made available by Delta for the Delta Connection Flights only. B. DELTA'S RIGHTS AND OBLIGATIONS. 1. Delta will install or cause to be installed the equipment requested by Chautauqua at the locations set forth on EXHIBIT C to this Agreement and shall provide Chautauqua connection to the Res System. The equipment described on EXHIBIT C and any software installed on the Equipment at the time of its delivery to Chautauqua are hereinafter referred to as the "Equipment." Chautauqua understands and agrees that: (i) all Equipment shall remain the sole property of Delta; (ii) Chautauqua shall not remove any identifying marks from the Equipment; (iii) Chautauqua shall not subject the Equipment to any lien; and (iv) Delta may enter Chautauqua's premises to remove the Equipment immediately upon termination of this Agreement. EXHIBIT C may be amended from time to time by mutual agreement of the parties to reflect the installation, removal or relocation of Equipment. 2. Delta will provide initial and recurrent training to Chautauqua training staff and other key designated personnel in the use of the Res System, at Delta's training centers unless otherwise - 11 - agreed. Delta may remove from a training program any Chautauqua employee who is not satisfactorily participating therein. 3. Delta will provide, or arrange to provide, all repairs and maintenance services required for the Equipment and will use reasonable business efforts to keep the Equipment and the Res System in good repair and condition. Chautauqua will not perform or attempt to perform repairs or maintenance of any kind on the Equipment without prior consultation with Delta and will promptly contact Delta regarding the need for repairs or maintenance. C. CHAUTAUQUA'S RIGHTS AND OBLIGATIONS. 1. Chautauqua will not for any reason relocate or remove any of the Equipment without Delta's prior written consent. Delta will pay all costs associated with the installation, relocation or removal of Equipment. 2. Chautauqua will use the Equipment and the Res System in strict conformity with the training and operating instructions provided by, or arranged to be provided by, Delta. Without limiting the generality of the foregoing, Chautauqua will not use the Res System to develop or publish any reservation, ticketing, sales, cargo, tariff or other guide, to provide services not authorized by this Agreement to third parties, to train persons other than Chautauqua's employees in the use of the Equipment or the Res System, or for other uses designated by Delta in writing as prohibited. Chautauqua may not publish, disclose or otherwise make available to any third party the compilations of air carrier service or fares obtained from the Res System; provided, however, that Chautauqua may use specific air carrier service and fare data for the benefit of its customers. 3. Chautauqua will ensure that its employees attend training sessions related to the Res System, and it is Chautauqua's responsibility to insure that each employee receives full and adequate training on the Res System. 4. Chautauqua will protect the Equipment from loss, damage or theft and shall prevent its unauthorized use or improper operation. Chautauqua will make no alterations to the Equipment and will return the Equipment to Delta upon the termination of this Agreement in the same condition as received, excepting only ordinary wear and tear in the normal course of Chautauqua's operations. Chautauqua will obtain and maintain insurance for the Equipment against all risks of damage and loss, including without limitation loss by fire, theft and such other risks of loss as are customarily insured in a standard all-risk policy. Such insurance shall also provide the following: (a) Full replacement value coverage for the Equipment (subject to policy deductibles); (b) An endorsement naming Delta as the loss payee to the extent of its interest in the Equipment; and (c) An endorsement requiring the insurer to give Delta at least thirty (30) days prior written notice of any intended cancellation, nonrenewal or material change of coverage; provided that only ten (10) days prior written notice of cancellation, nonrenewal or material change - 12 - of coverage need be given in the event that such cancellation, nonrenewal or material change in coverage is caused solely by failure to make a premium payment. Upon request by Delta, Operator will promptly provide satisfactory evidence of the insurance required pursuant to this Section 9(C)(4). Notwithstanding the foregoing, Operator shall be liable to Delta for any loss or damage to the Equipment, regardless of cause, occurring while the Equipment is in the possession, custody or control of Operator. 5. Operator waives any proprietary rights that it may have with respect to information entered into the Res System. D. ENTRY AND INSPECTION. Delta personnel and persons designated or authorized by Delta may enter Operator's premises during normal business hours for the purposes of (a) monitoring, inspecting, and reviewing Operator's use of and operations with respect to the Res System, (b) performing repairs or maintenance on the Equipment, (c) installing, removing, replacing or relocating the Equipment (unless otherwise permitted by this Agreement), or (d) training or retraining Operator's employees in the use of the Res System; provided that such activities may not unreasonably interfere with Operator's business. E. LIMITATIONS ON LIABILITY. In addition to any other limitations on liability set forth herein: 1. Delta is not responsible for errors or inaccuracies in the availability records, fare quotes, or other information contained in the Res System at any time, for any planned or unplanned interruptions, delays or malfunctions in the operation of the Res System or the Equipment or for the merchantability or fitness for a particular purpose of any of the data or Equipment made available to Operator. 2. OPERATOR HEREBY WAIVES AND RELEASES DELTA AND ITS AFFILIATES AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS FROM ANY AND ALL OBLIGATIONS AND LIABILITIES AND ALL RIGHTS, CLAIMS AND REMEDIES OF OPERATOR AGAINST DELTA OR ITS AFFILIATES OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, DUE TO ANY DEFECTS OR INTERRUPTIONS OF SERVICE IN, OR ERRORS OR MALFUNCTIONS BY, SOFTWARE, THE EQUIPMENT OR THE RES SYSTEM, INCLUDING ALL LIABILITY, OBLIGATION, RIGHT, CLAIM, OR REMEDY IN TORT, AND INCLUDING ALL LIABILITY, OBLIGATION, RIGHT, CLAIM OR REMEDY FOR LOSS OF REVENUE OR PROFIT OR ANY OTHER DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES. FURTHER, DELTA DISCLAIMS AND OPERATOR HEREBY WAIVES ANY WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR INTENDED USE RELATING TO THE RES SYSTEM, THE EQUIPMENT, DATA, OR SERVICES FURNISHED HEREUNDER. F. PATENT AND COPYRIGHT INDEMNITY. Delta will defend or settle, at its own expense, any action brought against Operator to the extent that it is based on a claim that the Res System provided by Delta pursuant to this Agreement, in its normal use, or any part thereof, infringes any U.S. copyright or patent; and Delta will pay those costs, damages and attorney's fees finally awarded against - 13 - Operator in any such action attributable to any such claim, but such defense, settlements and payments are conditioned on the following: (1) that Delta shall be notified promptly in writing by Operator of any such claim; (2) that Delta shall have sole control of the defense of any action on such claim and of all negotiations for its settlement or compromise; (3) that Operator shall cooperate with Delta in a reasonable way to facilitate the settlement or defense of such claim, provided that Delta shall pay all of Operator's reasonable expenses (including legal fees) in connection with any such cooperation requested by Delta; and (4) should such Res System become, or in Delta's opinion be likely to become, the subject of such claim of infringement, then Operator shall permit Delta, at Delta's option and expense, either to (a) procure for Operator the right to continue using the Res System, or (b) replace or modify the same so that it becomes noninfringing and functionally equivalent, or (c) upon failure of (a) and (b) above despite the reasonable efforts of Delta, accept immediate termination of this Agreement as it relates to such system. This paragraph (F) states the entire liability of Delta with respect to the infringement of copyrights and patents by the Res System provided hereunder or the operation thereof. ARTICLE 10. OPERATION PERFORMANCE. A. Operator agrees to provide the following information to Delta for each month during the Term of this Agreement on a daily basis within three (3) days after each day; provided, however, the information in sub-paragraph (iii) below shall be provided monthly within ten (10) days after the last day of each such month: (i) The number of scheduled Delta Connection Flights that do not arrive at their scheduled destination prior to 15 minutes after their respective scheduled arrival times for such day. Operator understands that it is Delta's current goal that participants in the Delta Connection Program maintain a monthly percentage of on-time arrivals at [*]% of all flights flown or greater. (ii) The completion rate (actual) of the Delta Connection Flights for such day. Operator understands that it is Delta's current goal that participants in the Delta Connection Program maintain a monthly completion rate (actual) of [*]% or greater. (iii) The number of complaints per 1,000 passengers flown on Delta Connection Flights during such month. Operator understands that it is Delta's current goal that participants in the Delta Connection Program maintain a number of complaints at [*] per 1,000 passengers flown or lower. B. In the event Operator fails to meet any of the standards set forth in Section 10(A), Operator agrees to discuss with Delta such performance and potential ways to improve such performance at Delta's request. Operator agrees to develop in consultation with Delta a written remedial plan designed to correct such failure and promptly implement any such written remedial plan. ARTICLE 11. TERM AND TERMINATION. A. This Agreement is effective on the date first written above and shall continue until the tenth (10th) anniversary of such date (such period, and any extension or renewal thereof, the "Term"). At - 14 - - ---------- *Confidential the end of such initial ten-year term, Delta shall have the right to extend the term of the Agreement for an additional five (5) years on the same terms and conditions. In the event of a Merger (as defined below) or Change of Control (as defined below) of Chautauqua or Republic, Delta shall have the right to extend the term of the Agreement for an additional ten (10) years beyond the applicable termination date of this Agreement pursuant to this Section 11(A). B. Notwithstanding the provisions of Section 11(A), either party may terminate this Agreement immediately upon the delivery of written notice to the other party if the other party files a voluntary petition in bankruptcy, makes an assignment for the benefit of creditors, fails to secure dismissal of any involuntary petition in bankruptcy within sixty (60) days after the filing thereof, or petitions for reorganization, liquidation, or dissolution under any federal or state bankruptcy or similar law, or if any such actions are imminent. C. Notwithstanding the provisions of Section 11(A), in the event of a material breach of this Agreement by either party remaining uncured for more than thirty (30) days after receipt of written notification of such breach by the nonbreaching party, or in the case of a matter which cannot reasonably be cured within such thirty (30) day period, as to which the party receiving such notice has not substantially made progress toward curing such breach, then the nonbreaching party may immediately terminate this Agreement at its sole option. D. Notwithstanding the provisions of Section 11(A), in the event a Force Majeure Event (as defined in Article 21) substantially prevents one party's performance of its obligations pursuant to this Agreement, for a period of two (2) or more consecutive months, the other party may terminate this Agreement upon thirty (30) days prior written notice to the party affected by the Force Majeure Event. E. Notwithstanding the provisions of Sections 11(A), (B), (C) and (D), Delta shall have the right to terminate this Agreement immediately and at its sole option upon the occurrence of one or more of the following events by providing written notice of such termination to Operator: (i) Republic or Chautauqua agrees to merge into or with any entity, agrees to be acquired by any entity, agrees to sell substantially all of its assets or enters into a letter of intent, or similar document, to merge into or with any entity, to be acquired by any entity, or to sell substantially all of its assets unless (A) Republic or Chautauqua, as applicable, is the acquiring or surviving entity, or (B) the ultimate beneficial ownership of the surviving entity immediately following such transaction is substantially similar (i.e. at least 75% common ownership) to the ultimate beneficial ownership of Republic or Chautauqua as the case may be immediately prior to such transaction (each such event that is not subject to such exceptions, a "Merger"); (ii) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than forty-nine percent (49%) of either (a) the then outstanding shares of common stock of Republic or Chautauqua, or (b) the combined voting power of the then outstanding voting securities of Republic or Chautauqua entitled to vote generally in the election of such party's directors, unless such Person is (A) Wexford Capital LLC or an affiliate - 15 - thereof, or (B) a Person whose ultimate beneficial ownership immediately following such transaction is substantially similar (i.e. at least 75% common ownership) to the ultimate beneficial ownership of Republic or Chautauqua as the case may be immediately prior to such transaction, (each such event that is not subject to such exceptions, a "Change of Control"); (iii) Chautauqua's product quality with respect to its operation of the Aircraft is not reasonably satisfactory to Delta thirty (30) days after Delta has provided Chautauqua with written notice specifying Delta's dissatisfaction with the product quality and proposing remedial measures to be implemented by Chautauqua; (iv) in the event Chautauqua fails to maintain a completion rate of [*]% with respect to the Delta Connection Flights during any [*] period commencing with the date that at least 11 Aircraft (10 Aircraft and 1 Spare) have been scheduled to be placed into service in the Delta Connection Program; (v) Chautauqua's failure to pass, in Delta's reasonable judgment, a safety and codeshare audit to be conducted by Delta prior to the commencement of any operation of any Delta Connection Flights; and (vi) Chautauqua's level of safety is not reasonably satisfactory to Delta; provided, however, in such event, this Agreement shall first be suspended for up to thirty (30) days from the date that Delta provides written notice to Chautauqua of its dissatisfaction, and then at the end of such up to 30-day period, Chautauqua's level of safety is still not reasonably satisfactory to Delta, Delta may immediately terminate this Agreement by delivery of written notice to Chautauqua. In the event this Agreement is suspended under this Section 11(E)(vi), Delta shall not be obligated to make any payments to Chautauqua in respect of any services that would have been provided by Chautauqua during the period of such suspension or to reimburse Chautauqua for any costs or expenses incurred by Chautauqua during such period. F. Notwithstanding the provisions of Sections 11(A), (B), (C), (D) and (E) hereof, Delta may terminate this Agreement, with or without cause, in its sole discretion, in whole or in part, on not less than one hundred eighty (180) days' prior written notice to Operator; provided, however, that such notice shall not be given prior to thirty-six (36) months after the 22nd Aircraft is scheduled to be placed into service in the Delta Connection Program, and provided further, that Delta may not initially reduce the number of Aircraft in service to a number that is less than twelve (12) other than through a complete termination of the Agreement. [*] G. (i) In the event Delta terminates this Agreement, in whole or in part, pursuant to Section 11(F) hereof, or in the event Operator terminates this Agreement pursuant to Section 11(B), 11(C) or 11(D) hereof, Operator shall have the right to require Delta (a) with respect to - 16 - - ---------- *Confidential all or any of the terminated Aircraft that are owned by Operator at Operator's option (I) to purchase the Aircraft for the Agreed Amount (as defined below), or (II) to sublease the Aircraft from Operator on the Sublease Terms (as defined below), or (b) with respect to all or any of the terminated Aircraft that are leased by Operator to assume the lease with respect to such Aircraft, provided that any assumption by Delta of such lease must be on terms that are no more onerous than the terms that applied to Operator (with no assumption penalties, fees or similar costs to Delta other than taxes, if any, and Delta's own fees and expenses incurred to consummate such transfer or assumption) (the "Put Right"). Operator shall have the right to exercise the Put Right by providing written notice to Delta within thirty (30) days after the effective date of any event giving rise to the Put Rights (the "Put Deadline"). (ii) In the event Delta terminates this Agreement, in whole or in part and Operator does not exercise its Put Right within the Put Deadline, Delta shall have the right, which it may exercise by providing written notice to Operator within thirty (30) days after the earlier of (a) the expiration of the Put Deadline, (b) Delta's receipt of written notice from Operator that Operator will not exercise the Put Right with respect to any or all of the terminated Aircraft, or (c) in the event Operator does not have a Put Right, the effective date of such termination, to require Operator (y) with respect to all or any of the terminated Aircraft that are owned by Operator at Delta's option (I) to sell the Aircraft for the Agreed Amount, or (II) to sublease the Aircraft to Delta on the Sublease Terms, or (z) with respect to all or any of the terminated Aircraft that are leased by Operator to assume the lease with respect to such Aircraft, provided that any assumption by Delta of such lease must be on terms that are the same or better than the terms that applied to Operator (with no assumption penalties, fees or similar costs to Delta other than taxes, if any, and Delta's own fees and expenses incurred to consummate such transfer or assumption) (the "Call Right"). In connection with any leased Aircraft, Operator hereby covenants and agrees that Operator shall obtain any and all third party consents, including, without limitation, the lessors of the Aircraft, necessary to effectuate the Put Right and the Call Right without penalty, fee or additional cost (other than taxes, if any, and transaction fees and expenses) to Delta simultaneously with the execution of any such lease. (iii) For purposes of this Section 11(G): (a) the Agreed Amount for an Aircraft shall be [*] H. In the event that Delta terminates this Agreement, in whole or in part, pursuant to Section 11(F), during the period commencing on the date Operator receives Delta's notice of termination and ending on the effective termination date of the portion of the Agreement being terminated by Delta, the Mark-Up of the Direct Costs attributable to the operation of the to-be-terminated Aircraft shall be [*]; provided, however, during such same period, such operations shall not be eligible for any Monthly Incentive Compensation or Semi-Annual Incentive Compensation. I. In the event Delta terminates this Agreement pursuant to Section 11(B), (C), (D) or (E), Delta shall also have the Call Right as set forth in Section 11(G), which must be exercised in the manner and within the time periods set forth therein. - 17 - - ---------- *Confidential J. Termination of this Agreement for any reason shall not relieve either party of rights and obligations incurred prior to the effective date of termination. K. Notwithstanding any other provision of this Agreement, in the event either party has cause to terminate this Agreement under Section 11(B), (C), (D), or (E), such party shall provide written notice of such termination within 45 days after the events constituting cause for such termination plus any applicable cure period or it shall be conclusively deemed to have waived its right to terminate the Agreement based upon such events. L. [*]. M. In the event of any transfer of any of the Aircraft pursuant to Section 11(G), Delta shall reimburse Chautauqua for any prepaid rent paid by Chautauqua under any Aircraft lease to the extent not previously included in the Aircraft Rent/Ownership Costs paid by Delta, provided that Delta previously approved the terms of such lease. ARTICLE 12. LIABILITY PROVISIONS. A. Chautauqua and Republic, jointly and severally, shall be liable for and hereby agrees fully to defend, release, discharge, indemnify, and hold harmless Delta and its affiliates, and each of their respective directors, officers, employees and agents (each, a "Delta Indemnitee") from and against any and all claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses of any kind, character or nature whatsoever (in each case whether groundless or otherwise), including reasonable attorneys' fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to, or recoverable from any Delta Indemnitee in any manner arising out of, connected with, or attributable to this Agreement, the performance, improper performance, or nonperformance of any and all obligations to be undertaken by Operator pursuant to this Agreement, the loss, theft, use, misuse or misappropriation of Traffic Documents, or the operation, non-operation, or improper operation of Operator's aircraft, equipment or facilities at any location, excluding only claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses resulting from the gross negligence or willful misconduct of Delta, its affiliates, and their respective directors, officers, agents or employees. Operator will do all things necessary to cause and assure, and will cause and assure, that Operator will at all times be and remain in custody and control of all aircraft, equipment, and facilities of Operator, and no Delta Indemnitee shall, for any reason, be deemed to be in custody or control, or a bailee, of Operator's aircraft, equipment or facilities. B. Delta shall be liable for and hereby agrees fully to defend, release, discharge, indemnify, and hold harmless each of Republic and Chautauqua and any direct or indirect subsidiary of Republic or Chautauqua, and each of their respective directors, officers, employees, and agents (each, an "Operator Indemnitee") from and against any and all claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses of any kind, character or nature whatsoever, including reasonable attorneys' fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to, or recoverable from any Operator Indemnitee in any - 18 - - ---------- *Confidential manner arising out of, connected with, or attributable to this Agreement, the performance, improper performance or nonperformance of any and all obligations to be undertaken by Delta pursuant to this Agreement, or the operation, non-operation or improper operation of Delta's aircraft, equipment or facilities at any location, excluding only claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses resulting from the gross negligence or willful misconduct of Republic and Operator, their affiliates, and their respective directors, officers, agents or employees. Delta will do all things necessary to cause and assure, and will cause and assure, that Delta will at all times be and remain in custody and control of any aircraft, equipment and facilities of Delta, and no Operator Indemnitee shall, for any reason, be deemed to be in the custody or control, or a bailee, of Delta's aircraft, equipment or facilities. C. Operator and Delta agree to comply with all rules, regulations, directives and similar instructions of appropriate governmental, judicial and administrative entities including, but not limited to, airport authorities, the Federal Aviation Administration and the Department of Transportation (and any successor agencies). D. OTHER THAN ANY WARRANTIES SPECIFICALLY CONTAINED IN THIS AGREEMENT, EACH PARTY DISCLAIMS AND THE OTHER PARTY HEREBY WAIVES ANY WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THIS AGREEMENT OR ITS PERFORMANCE OF ITS OBLIGATIONS HEREUNDER INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR INTENDED USE RELATING TO ANY EQUIPMENT, DATA, INFORMATION OR SERVICES FURNISHED HEREUNDER. EACH PARTY AGREES THAT THE OTHER PARTY IS NOT LIABLE TO IT OR ANY OTHER PERSONS FOR CONSEQUENTIAL OR PUNITIVE DAMAGES UNDER ANY CIRCUMSTANCES. E. INDEMNIFICATION CLAIMS. A party (the "Indemnified Party") entitled to indemnification from the other party under the terms of this Agreement (the "Indemnifying Party") shall provide the Indemnifying Party with prompt written notice (an "Indemnity Notice") of any third party claim which the Indemnified Party believes gives rise to a claim for indemnity against the Indemnifying Party hereunder, and the Indemnifying Party shall be entitled, if it accepts financial responsibility for the third party claim, to control the defense of or to settle any such third party claim at its own expense and by its own counsel; PROVIDED that the Indemnified Party's prior written consent (which may not be unreasonably withheld or delayed) must be obtained prior to settling any such third party claim. If the Indemnifying Party does not accept financial responsibility for the third party claim or fails to defend against the third party claim that is the subject of an Indemnity Notice within thirty (30) days of receiving such notice (or sooner if the nature of the third party claim so requires), or otherwise contests its obligation to indemnify the Indemnified Party in connection therewith, the Indemnified Party may, upon providing written notice to the Indemnifying Party, pay, compromise or defend such third party claim. The Indemnified Party shall provide the Indemnifying Party with such information as the Indemnifying Party shall reasonably request to defend any such third party claim and shall otherwise cooperate with the Indemnifying Party in the defense of any such third party claim. Except as set forth above in this Section 12(E), the Indemnified Party shall - 19 - not enter into any settlement or other compromise or consent to a judgment with respect to a third party claim as to which the Indemnifying Party has an indemnity obligation hereunder without the prior written consent of the Indemnifying Party (which may not be unreasonably withheld or delayed), and the entering into any settlement or compromise or the consent to any judgment in violation of the foregoing shall constitute a waiver by the Indemnified Party of its right to indemnity hereunder to the extent the Indemnifying Party was prejudiced thereby. Any Indemnifying Party shall be subrogated to the rights of the Indemnified Party to the extent that the Indemnifying Party pays for any Loss suffered by the Indemnified Party hereunder. Notwithstanding anything contained in this Section 12(E) to the contrary, Republic, Chautauqua and Delta will cooperate in the defense of any claim imposed jointly against them or as the result of the conduct of the other. ARTICLE 13. WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE PROVISIONS. A. For purposes of workers' compensation insurance, Delta's employees, agents and independent contractors under no circumstances shall be deemed to be, or shall be, employees, agents or independent contractors of Operator. B. For purposes of workers' compensation insurance, Operator's employees, agents and independent contractors under no circumstances shall be deemed to be, or shall be, the employees, agents or independent contractors of Delta. C. Each party assumes full responsibility for, and liability to, its own employees on account of injury, or death resulting therefrom, sustained in the course of their employment. Each party, with respect to its own employees, accepts full and exclusive liability for the payment of applicable workers' compensation and employers' liability insurance premiums with respect to such employees, and for the payment of all taxes, contributions or other payments for unemployment compensation and old age benefits, and other similar benefits now or hereafter imposed upon employers by any government or agency thereof having jurisdiction in respect of such employee. Each party also agrees to make such payments and to make and file all reports and returns and to do all things necessary to comply with all applicable laws at any time imposing such taxes, contributions, or payments. D. Each party will have their workers' compensation insurance carrier endorse its policy to provide a waiver of subrogation against the other party. ARTICLE 14. INSURANCE PROVISIONS. A. Operator shall procure and maintain in full force and effect during the term of this Agreement policies of insurance of the types and in the minimum amounts set forth below, with such insurers and under such terms and conditions as are satisfactory to Delta: 1. All risk hull insurance on an agreed value basis, not to exceed replacement value, except as required by financing agreements. - 20 - 2. Comprehensive aviation liability including, without limitation, premises, products and completed operations, covering bodily injury, personal injury and property damage in an amount not less than [*] per occurrence; provided, however, that non-passenger personal injury coverage may be limited to [*] per occurrence. 3. Workers' compensation for statutory limits. 4. Employer's liability in an amount not less than [*]. 5. Baggage liability in an amount not less than [*] per occurrence. 6. Cargo liability in an amount not less than [*] per loss, casualty or disaster. 7. Automobile liability in an amount not less than [*]. 8. War, Hijacking and Other Allied Perils insurance protecting against the perils outlined in AVN52D or its U.S. equivalent in an amount not less than [*] per occurrence. Such insurance may be maintained through a combination of primary and excess layers. B. Operator shall cause the policies of insurance described in Article 14(A) above to be duly and properly endorsed by Operator's insurance underwriters as follows: 1. As to the policies of insurance described in Articles 14(A)(1), (A)(2), (A)(3), (A)(4), (A)(5), (A)(6), (A)(7) and (A)(8): (a) to provide that any waiver of rights of subrogation against other parties by Operator will not affect the coverage provided hereunder with respect to Delta, its affiliates, and their directors, officers, employees and agents; and (b) to provide that Operator's underwriters shall waive all subrogation rights arising out of this Agreement against Delta, its affiliates, and their directors, officers, employees and agents without regard to any breach of warranty on the part of Operator. 2. As to the policies of insurance described in Articles 14(A)(2), (A)(5), (A)(6), (A)(7) and (A)(8): (a) to provide that Delta, its affiliates, and their directors, officers, employees and agents shall be named as additional insured parties thereunder; and (b) to provide that such insurance shall be primary insurance. 3. As to the policies of insurance described in Articles 14(A)(2) and (A)(7): (a) except for the limits of liability, to provide a cross-liability clause as though separate policies were issued for Delta and Operator and their respective affiliates, and their directors, officers, employees and agents; and (b) to provide contractual liability insurance coverage for liability assumed by Operator under this Agreement. 4. As to any insurance obtained from foreign underwriters, to provide that Delta may maintain against such underwriters a direct action in the United States upon such - 21 - - ---------- *Confidential insurance policies and, to this end, to include a standard service of process clause designating a United States attorney in Washington, D.C. or New York, New York. 5. All insurance policies shall provide that the insurance shall not be invalidated by any action or inaction of Operator. C. Operator shall cause each of the insurance policies to be duly and properly endorsed to provide that such policy or policies or any part or parts thereof shall not be canceled, terminated or materially altered, changed or amended by Operator's insurance underwriters until after thirty (30) days' written notice to Delta, which thirty (30) days' notice shall commence to run from the date such notice is actually received by Delta. D. Not later than the effective date of this Agreement, and from time to time thereafter upon request by Delta, Operator shall furnish Delta evidence satisfactory to Delta of the aforesaid insurance coverages and endorsements, including certificates certifying that the aforesaid insurance policy or policies with the aforesaid limits are duly and properly endorsed as aforesaid and are in full force and effect. E. In the event Operator fails to maintain in full force and effect any of the insurance and endorsements required to be maintained by Operator pursuant to Article 14(A), Delta shall have the right (but not the obligation) to procure and maintain such insurance or any part thereof on behalf of Operator. The cost of such insurance shall be payable by Operator to Delta upon demand by Delta. The procurement of such insurance or any part thereof by Delta does not discharge or excuse Operator's obligation to comply with the provisions set out herein. Operator agrees not to cancel, terminate or materially alter, change or amend any of the policies until after providing thirty (30) days' advance written notice to Delta of Operator's intent to so cancel, terminate or materially alter, change or amend such policies of insurance, which thirty (30) day notice period shall commence to run from the date notice is actually received by Delta. F. With respect to all claims against Operator (but not against Delta) with respect to which Operator is not entitled to be indemnified by Delta pursuant to Article 12(B), whether or not covered by the insurance policies set forth in this Article 14 or otherwise, Delta is responsible only for filing an initial report and has no other obligations with respect to such claims, and Operator is fully responsible for handling all adjustments, settlements, negotiations, litigation and similar activities in any way related to or connected with such claims. G. The parties hereby agree that from time to time during the term of this Agreement Delta may require Operator to procure and maintain insurance coverages in amounts in excess of the minimum amounts set forth in Article 14(A) should the circumstances and conditions of Operator's operations under this Agreement be deemed, in Delta's sole discretion, to require reasonable increases in any or all of the foregoing minimum insurance coverages. ARTICLE 15. OPERATIONS OF CHAUTAUQUA AS A DELTA CONNECTION CARRIER. - 22 - A. Delta and Operator agree that, subject to the provisions of this Agreement, Chautauqua will operate for the Delta Connection Flights exclusively as a Delta Connection carrier. B. Operator acknowledges and agrees that participation in the Delta Connection program obligates Chautauqua to offer and maintain a professional, high quality level of service in terms of schedules, customer service and the like. Accordingly, not less than once each year during the term of this Agreement, the parties will: (a) meet to mutually review and discuss the services, operations and plans of Operator and Delta for the Delta Connection program; and (b) jointly develop a written business plan for the Delta Connection operations and services of Chautauqua. Operator will comply with the business plans so developed and all reasonable recommendations of Delta in this area. ARTICLE 16. REPRESENTATIONS AND WARRANTIES. A. REPRESENTATIONS AND WARRANTIES OF REPUBLIC AND OPERATOR. Republic and Chautauqua, jointly and severally, represent and warrant to Delta as of the date hereof as follows: (1) ORGANIZATION AND QUALIFICATION. Each of Republic and Chautauqua is a duly organized and validly existing corporation in good standing under the laws of the State of New York in the case of Chautauqua and Delaware in the case of Republic, and Chautauqua has the corporate power and authority to own, operate and use its assets and operate the Delta Connection Flights. (2) AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Republic and Chautauqua has the corporate power and authority to execute and deliver this Agreement, and each of the Equity Agreements (as defined in Article 27) and to consummate the transactions contemplated hereby and thereby in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the Equity Agreements, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Republic and Chautauqua. This Agreement and the Equity Agreements have been duly and validly executed and delivered by Republic and/or Chautauqua and are, assuming due execution and delivery thereof by Delta, valid and binding obligations of Republic and/or Chautauqua as the case may be, enforceable against the respective party each in accordance with its respective terms. (3) CONFLICTS; DEFAULTS. Neither the execution or delivery of this Agreement or the Equity Agreements nor the performance by each of Republic and Chautauqua of the transactions contemplated hereby or thereby will (i) violate, conflict with, or constitute a default under any of the terms of either of Republic's or Chautauqua's articles of incorporation, by-laws, or any provision of, or result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement or instrument, including without limitation, any order, judgment or decree relating to the Delta Connection Flights, (ii) result in the creation or imposition of liens in favor of any third person or entity, (iii) violate any law, statute, judgment, decree, order, rule or regulation of any governmental authority, or (iv) constitute any event which, after notice or - 23 - lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens. (4) BROKER. Neither Republic nor Chautauqua has retained or agreed to pay any broker or finder with respect to this Agreement and the transactions contemplated hereby. B. REPRESENTATIONS AND WARRANTIES OF DELTA. Delta represents to Republic and Chautauqua as of the date hereof as follows: (1) ORGANIZATION AND QUALIFICATION. Delta is a duly incorporated and validly existing corporation in good standing under the laws of the State of Delaware. (2) AUTHORITY RELATIVE TO THIS AGREEMENT. Delta has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Delta. This Agreement has been duly and validly executed and delivered by Delta and is, assuming due execution and delivery thereof by Republic or Chautauqua and that Republic or Chautauqua each has full legal power and right to enter into this Agreement, a valid and binding obligation of Delta, enforceable against Delta in accordance with its terms. (3) CONFLICTS; DEFAULTS. Neither the execution or delivery of this Agreement nor the performance by Delta of the transactions contemplated hereby will (i) violate, conflict with, or constitute a default under any of the terms of Delta's articles of incorporation, by-laws, or any provision of, or result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement or instrument, including without limitation, any order, judgment or decree relating to the Delta Connection Flights, (ii) result in the creation or imposition of any liens in favor of any third person or entity, (iii) violate any law, statute, judgment, decree, order, rule or regulation of any governmental authority, or (iv) constitute any event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens. (4) BROKER. Delta has not retained or agreed to pay any broker or finder with respect to this Agreement and the transactions contemplated hereby. ARTICLE 17. RIGHT OF FIRST REFUSAL ON REGIONAL JETS. Subject to the rights of AA and AMR Corporation pursuant to its Existing Codeshare Agreement (or any Permitted Codeshare Amendment of such Existing Codeshare Agreement), and excluding any transaction (including without limitation any lease, sale/leaseback, leveraged lease, single investor lease or similar transaction) undertaken to finance or refinance the purchase or acquisition of any Aircraft or Excluded Aircraft, if at any time during the Term of this Agreement, Operator receives an offer, bid, inquiry or other expression of interest ("Offer") to purchase, lease, sublease, encumber or otherwise acquire any interest in, or to operate on - 24 - behalf of any third party, any aircraft owned or leased by Operator (the "ROFR Aircraft"), which Offer Operator desires to accept, Operator will, within ten (10) business days after the material terms and conditions of such Offer have been determined, notify Delta in writing of such Offer and the material terms and conditions thereof, including the time period for consummating such Offer (the "Offer Notice"). Upon receipt of an Offer Notice, Delta will have fifteen (15) days to either (i) exercise its right of first refusal by providing written notice to Operator that it will consummate the transaction for or in connection with the ROFR Aircraft set forth in the Offer (the "Offered Aircraft") on the same terms and conditions that are set forth in the Offer Notice, or (ii) notify Operator that it does not wish to exercise its right of first refusal (failure to reply in such 15 day period shall be deemed to be an election by Delta not to exercise its right of first refusal). In the event Delta elects to exercise its right of first refusal, such election shall be binding and irrevocable and Operator and Delta shall consummate the transaction contemplated in the Offer Notice on the same terms and conditions that are set forth in the Offer Notice within the time period set forth in the Offer Notice. If Delta elects not to exercise its right of first refusal, Operator may consummate such transaction with the third party or parties making the Offer. Notwithstanding anything to the contrary herein, this Article 17 shall not be applicable to, and Operator shall have no obligation to provide Delta with an Offer Notice in connection with, (i) any Committed Aircraft, or (ii) any Option Aircraft; provided, however, such Option Aircraft are converted into firm orders by the appropriate designated carrier as set forth in Section 2(A) within the third anniversary of the effective date of this Agreement. ARTICLE 18. MOST FAVORED NATIONS. A. If at any time during the Term of this Agreement, Operator reaches an agreement in principle with any third party with respect to any new, amended and/or restated codesharing (or similar) relationship, other than a Permitted Codeshare Amendment, utilizing ERJ 135LR or ERJ 145LR aircraft (the "Third Party Agreement"), Operator must offer Delta, in writing, the right, on an all or nothing basis, to modify and amend this Agreement to incorporate the terms and conditions of such Third Party Agreement (the "MFN Offer"). The MFN Offer shall include all the material terms and conditions of the Third Party Agreement. Delta shall have thirty (30) days from receipt of the MFN Offer to elect whether or not to accept such MFN Offer. Upon Delta electing to accept the MFN Offer, the terms and conditions of such MFN Offer shall govern the Aircraft and this Agreement shall be modified and amended as appropriate. B. The parties acknowledge and agree that the rights granted to Delta in Section 18(A) above shall not apply to any Excluded Aircraft. ARTICLE 19. COVENANTS OF OPERATOR. Operator or Republic, as appropriate, hereby covenants and agrees that: A. If requested by Delta at any time during the Term of this Agreement, Chautauqua shall place its flight designator code, "RP", on certain flights operated by Delta or an affiliate of Delta. B. [*] - 25 - - ---------- *Confidential C. In the event that any of the Aircraft are owned and debt financed by Chautauqua, as soon as reasonably practicable, Chautauqua shall use commercially reasonable efforts to convert any such debt financing into an operating lease arrangement; provided any such lease (i) is financially more favorable than the existing debt financing and (ii) shall be subject to the prior written approval of Delta. D. Upon the addition of any and each aircraft to the original twenty-two (22) Aircraft set forth on Exhibit A to be operated by Chautauqua pursuant to the terms and conditions of this Agreement, and any amendment thereto, Republic shall promptly issue to Delta a warrant to purchase 60,000 shares of Republic Common Stock in the form attached hereto as EXHIBIT E. ARTICLE 20. CONTRACT INTERPRETATION. A. This Agreement is subject to, and will be governed by and interpreted in accordance with, the internal laws of the State of New York, excluding conflicts of laws rules, and of the United States of America. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may only be brought in the courts of the State of Georgia, or, if it has or can acquire jurisdiction, in the United States District Court for the Northern District of Georgia, and each of the parties hereto irrevocably consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives, to the fullest extent permitted by law, any objection to venue laid therein. Process in any action or proceeding referred to in the proceeding sentence may be served on any party anywhere in the world. Each party further agrees to waive any right to a trial by jury. B. The descriptive headings of the several articles and sections of this Agreement are inserted for convenience only, confer no rights or obligations on either party, and do not constitute a part of this Agreement. C. Time is of the essence in interpreting and performing this Agreement. D. This Agreement, together with the Equity Agreements, constitutes the entire understanding between the parties with respect to the subject matter hereof, and any other prior or contemporaneous agreements, whether written or oral, are expressly superseded hereby. E. If any part of any provision of this Agreement shall be invalid or unenforceable under applicable law, such part shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining parts of such provision or the remaining provisions. F. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same instrument. ARTICLE 21. CIRCUMSTANCES BEYOND THE PARTIES' CONTROL. - 26 - With the exception of outstanding rights and obligations and payments that are due, each party will be relieved of its obligations under this Agreement in the event, to the extent and for the period of time that performance is delayed or prevented caused by any acts of God, acts of terrorism or hostilities, war, strike, labor disputes, work stoppage, fire, act of government, court order, in each case reasonably beyond the control of that party, including but not limited to, non-delivery or delay in delivery of the Aircraft or delay in the completion of required training of the Operator's employees by the Aircraft manufacturer or delay in the receipt of any necessary government or regulatory approvals (each, a "Force Majeure Event"). Each of the parties acknowledges that it may or may not realize the full economic or other benefits that it expects to realize from this Agreement and that any failure to realize any or all of such benefits shall not constitute a Force Majeure Event. ARTICLE 21A. NON-EXCLUSIVE LICENSE GRANTED. A. Operator will conduct all operations described herein under the service mark "Delta Connection." Delta hereby grants to Operator a nonexclusive, nontransferrable license to use certain trademarks, service marks, logos and trade names that Delta owns or has the right to use, including, "Delta," "Delta Connection," "SkyMiles," and the Delta widget design (collectively, the "Delta Marks") in connection with the services to be rendered by Operator pursuant to this Agreement; provided, however, that at any time during the Term of this Agreement, Delta may alter, amend or revoke the license hereby granted and require Operator's use of a new or different Delta Mark in connection with the services provided hereunder as Delta may determine in its sole discretion. B. Operator hereby acknowledges Delta's right to use the Delta Marks, further acknowledges the validity of the Delta Marks, and agrees that it will not do anything in any way to infringe or abridge Delta's, or any of its affiliates', rights in the Delta Marks or directly or indirectly to challenge the validity of the Delta Marks. C. Operator shall not use any of the Delta Marks without Delta's prior written consent. D. Nothing in this Agreement shall be construed to give Operator the exclusive right to use any of the Delta Marks, or to abridge Delta's right to use or license any of its trademarks, service marks, trade names or logos (collectively, "Identification") and to license such other uses of such Identification as Delta or its affiliates may desire. E. Should this Agreement be canceled or otherwise terminated for any reason as set forth in Article 11 hereof, all right to use the Delta Marks shall revert to Delta and shall not thereafter be used by Operator in any form or fashion. F. BRANDING. 1. LIVERY. Each of the Aircraft shall be in the color scheme, including exterior paint and interior upholstery and appointments ("Livery") of the Delta Connection Livery, as provided by Delta to Chautauqua from time to time. - 27 - 2. ON BOARD BRANDING. Delta shall control and provide to Chautauqua at no cost all on board branding and in-flight materials including, without limitation, in-flight publications, food and beverage products, paper goods, service ware and flight attendant uniforms. ARTICLE 22. MODIFICATION AND WAIVER. No amendment, modification, supplement, termination or waiver of any provision of this Agreement, and no consent to any departure by any party therefrom, shall in any event be effective unless in writing signed by authorized representatives of all parties, and then only in the specific instance and for the specific purpose given. ARTICLE 23. NOTICES. Unless otherwise provided herein, all notices, requests and other communications required or provided for hereunder shall be in writing (including telecopy or similar teletransmission or writing) and shall be given at the following addresses: (1) If to Delta: Delta Air Lines, Inc. 1030 Delta Boulevard Atlanta, GA 30354 Dept. 663 Attention: Senior Vice President - Network and Revenue Management Telecopy: (404) 773-5310 with copies to: Delta Air Lines, Inc. 1030 Delta Boulevard Atlanta, GA 30354 Dept. 856 Attn: Sr. V.P. - Finance, Treasury and Corporate Development Telecopy: (404) 677-1182 Delta Connection, Inc. 1025 Virginia Avenue Suite 410 Atlanta, GA 30354 Dept. 009 Attn: Chief Financial Officer Telecopy: (404) 677-6247 Delta Air Lines, Inc. - 28 - 1030 Delta Boulevard Atlanta, GA 30354 Dept. 981 Attn: Sr. V.P. and General Counsel Telecopy: (404) 715-2233 (2) If to Operator: Chautauqua Airlines, Inc. 2500 South High School Road Suite 160 Indianapolis, IN 46241 Attention: President Telecopy: 317-484-6060 with a copy to: Wexford Capital LLC 411 West Putnam Avenue Greenwich, CT 06830 Attention: President Telecopy: 203-862-7320 and Attention: General Counsel Telecopy: 203-862-7312 (3) If to Republic: Republic Airways Holdings, Inc. 2500 South High School Road Suite 160 Indianapolis, IN 46241 Attention: President Telecopy: 317-484-6060 Any such notice, request or other communication shall be effective (i) if given by mail, upon the earlier of receipt or the third business day after such communication is deposited in the United States mails, registered or certified, with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means including, without limitation, by air courier, when delivered at the address specified herein. Any party may change its address for notice purposes by notice to the other party in the manner provided herein. ARTICLE 24. ASSIGNMENT. - 29 - This Agreement shall bind and inure to the benefit of Delta and Operator and their respective successors and assigns; provided, however, neither party may assign or transfer this Agreement or any portion hereof to any person or entity without the express written consent of the other party. Any assignment or transfer, by operation of law or otherwise, without such consent shall be null and void and of no force or effect. ARTICLE 25. GOOD FAITH. Each party shall exercise good faith in its dealings with the other party hereto and in performance of its obligations under this Agreement. ARTICLE 26. CONFIDENTIALITY. A. Except as otherwise provided below, each party shall, and shall ensure that its directors, officers, employees, affiliates and professional advisors (collectively, the "Representatives"), at all times, maintain strict confidence and secrecy in respect of all Confidential Information (as defined below) of the other party (including its affiliates) received directly or indirectly as a result of this Agreement. If a party (the "Disclosing Party") in good faith determines that it is required to disclose any Confidential Information of other party (the "Affected Party") in order to comply with any applicable law or government regulation, or under the terms of a subpoena or order issued by a court or governmental body, it shall (a) notify the Affected Party immediately of the existence, terms and circumstances surrounding such request, (b) consult with the Affected Party on the advisability of taking legally available steps to resist or narrow such request and (c) if any disclosure of Confidential Information is required to prevent the Disclosing Party from being held in contempt or subject to other legal penalty, furnish only such portion of the Confidential Information as it is legally compelled to disclose and use commercially reasonable efforts (at the cost of the party whose Confidential Information is being protected) to obtain an order or other reliable assurance that confidential treatment shall be accorded to the disclosed Confidential Information. Each party agrees to transmit Confidential Information only to such of its Representatives as required for the purpose of implementing and administering this Agreement, and shall inform such Representatives of the confidential nature of the Confidential Information and instruct such Representatives to treat such Confidential Information in a manner consistent with this Article 26. For purposes of this Agreement, "Confidential Information" shall mean (a) all confidential or proprietary information of a party, including, without limitation, trade secrets, information concerning past, present and future research, development, business activities and affairs, finances, properties, methods of operation, processes and systems, customer lists, customer information (such as passenger name record or "PNR" data) and computer procedures and access codes; and (b) the terms and conditions of this Agreement, and any reports, invoices or other communications between the parties given in connection with the negotiation or performance of this Agreement; and (c) excludes (i) information already in a party's possession prior to its disclosure by other party; (ii) information obtained from a third person or entity that is not prohibited from transmitting such information to the receiving party as a result of a contractual, legal or fiduciary obligation to the party whose information is being disclosed; (iii) information that is or becomes generally available to the public, other than as a result of - 30 - disclosure by a party in violation of this Agreement; or (iv) information that has been or is independently acquired or developed by a party, or its affiliate, without violating any of its obligations under this Agreement. B. Each party acknowledges and agrees that in the event of any breach of this Article 26, the Affected Party shall be irreparably and immediately harmed and could not be made whole by monetary damages. Accordingly, it is agreed that, in addition to any other remedy at law or in equity, the Affected Party shall be entitled to an injunction or injunctions (without the posting of any bond and without proof of actual damages) to prevent breaches or threatened breaches of this Article 26 and/or to compel specific performance of this Article 26. C. The confidential obligations of the parties under this Article 26 shall survive the termination or expiration of this Agreement. ARTICLE 27. ADDITIONAL DOCUMENTS. Simultaneously with the execution of this Agreement, Republic shall provide to Delta the following securities, documents and agreements (the "Equity Agreements"), each in form and substance reasonably satisfactory to Delta and duly and validly executed and delivered by Republic: (i) an IPO Warrant to purchase 1.5 million shares of Republic Common Stock; (ii) a Private Placement Warrant to purchase 1.5 million shares of Republic Common Stock at a price per share of $12.50; (iii) an Agreement relating to participation rights in Republic's initial public offering and other matters; and (iv) a Registration Rights Agreement. - 31 - IN WITNESS WHEREOF, the parties have executed this Agreement by their undersigned duly authorized representatives: Republic Airways Holdings, Inc. Delta Air Lines, Inc. By: /s/ Robert H. Cooper By: /s/ Frederick Buttrell Name: /s/ Robert H. Cooper Name: /s/ Frederick Buttrell Title: EVP & CFO Title: /s/ President and CEO Delta Connection, Inc. Chautauqua Airlines, Inc. By: /s/ Robert H. Cooper Name: /s/ Robert H. Cooper Title: EVP & CFO - 32 - EXHIBIT A THE AIRCRAFT FIRM AIRCRAFT DELIVERY SCHEDULE
Aircraft Delivery Date of: Number Model Delivery In-Service -------- -------- -------- ---------- DL-1 145 Oct-02 01-Nov-02 DL-2 145 Nov-02 15-Nov-02 DL-3 135 Nov-02 01-Dec-02 DL-4 145 Dec-02 15-Dec-02 DL-5 135 Dec-02 05-Jan-03 DL-6 145 Jan-03 01-Feb-03 DL-7 135 Feb-03 01-Mar-03 DL-8 145 Mar-03 01-Apr-03 DL-9 135 Apr-03 15-Apr-03 DL-10 145 Apr-03 01-May-03 DL-11 135 May-03 15-May-03 DL-12 145 May-03 01-Jun-03 DL-13 135 Jun-03 15-Jun-03 DL-14 135 Jun-03 01-Jul-03 DL-15 135 Jul-03 15-Jul-03 DL-16 135 Jul-03 01-Aug-03 DL-17 135 Aug-03 15-Aug-03 DL-18 135 Aug-03 01-Sep-03 DL-19 135 Sep-03 15-Sep-03 DL-20 135 Sep-03 01-Oct-03 DL-21 135 Oct-03 15-Oct-03 DL-22 135 Oct-03 01-Nov-03
- 33 - EXHIBIT B [*] - 34 - - ---------- *Confidential EXHIBIT C [*] - 35 - - ---------- *Confidential EXHIBIT D [*] - 36 - - ---------- *Confidential EXHIBIT E FORM OF ADDITIONAL WARRANT See Exhibit 10.51 - 37 - EXHIBIT F ENGINE MAINTENANCE AGREEMENT WITH ROLLS ROYCE (SEE ATTACHED) - 38 - Our ref: RRC-CHA-02 June 7, 2002 Chautauqua Airlines 2500 High School Road Indianapolis, IN ROLLS-ROYCE CORPORATION ("ROLLS-ROYCE") PROPOSAL IN RESPECT OF CHAUTAUQUA AIRLINES ("CHAUTAUQUA") ACQUIRING 7 EMBRAER ERJ 145 AIRCRAFT AND 15 EMBRAER ERJ 135 AIRCRAFT POWERED BY ROLLS-ROYCE CORPORATION AE 3007A ENGINES ("ENGINES"). We refer to the recent discussions between Delta Air Lines, Chautauqua and Rolls-Royce Corporation in respect of Chautauqua's decision to purchase 7 Firm Embraer ERJ 145 Aircraft and 15 Firm Embraer ERJ 135 Aircraft and 30 Option Aircraft. These Aircraft shall be purchased generally in accordance with a ratio of two thirds ERJ-135 Aircraft and one third ERJ-145 Aircraft. We understand the delivery stream of the Firm Aircraft to be as follows: ERJ - 145 Aircraft 1 - October 02, 1 - October 02, 1 - November 02, 1 - November 02, 1 - December 02, 1 - December 02, 1 - January 03. ERJ - 135 Aircraft 1 - January 03, 1 - February 03, 1 - March 03, 2 - April 03, 2 - May 03, 2 - June 03, 2 - July 03, 2 - August 03, 2 - September 03, [ROLLS-ROYCE LOGO] SPARE ENGINES Rolls-Royce has assessed that Chautauqua will require 4 Spare Engines to support the fleet of 22 Firm aircraft: Quantity: Four (4) Firm Engines:
DELIVERY DATE ENGINE TYPE (EX-WORKS INDIANAPOLIS) ---------------------------------------------------- one (1) AE3007A1P October 2002 one (1) AE3007A1P February 2003 one (1) AE3007A1P May 2003 one (1) AE3007A1P July 2003
[*] INITIAL PROVISIONING In order to support the 22 Firm Aircraft Rolls-Royce Corporation will require Chautauqua to purchase US$[*] (2002 levels) of Initial Provisioning spare parts. [*] - ---------- * Confidential FLEET HOUR AGREEMENTS In accordance with the letter dated May 23rd from Rolls-Royce to Delta Air Lines, reference CH-DL-052202 and the letter dated June 3rd reference CH-DL-060302; Rolls-Royce is pleased to offer Chautauqua a [*] Fleet Hour Agreement, from EIS of the first Aircraft, at the following Fleet Hour Agreement rates. The rates contained herein are predicated upon 22 Firm Aircraft and 30 Option Aircraft, the operating assumptions contained in this proposal, the purchase of the required levels of Spare Engines, Initial Provisioning and Tooling [*] ENGINE SHOP VISIT COVERAGE The Engine Shop Visit rates contained in the tables in Attachment A cover the following services for all Qualified Engine Events, - Engine Shop Labor (strip, inspect, rework, rebuild, test, dispatch), - All parts requiring replacement or rework during engine shop visit (with the exception of time expired Life Limited Parts and Line Replaceable Units), - All shop visit subcontract charges. The Engine Shop Visit rate assumes use of normal take off rating (AT/O-1) for [*] of all take offs, and use of normal climb and normal cruise ratings for all flights. To the extent Chautauqua's usage of AT/O-1 differs from this assumption, then the Shop Visit Rate will vary in accordance with the table in Attachment C. In the event of an early termination of the Fleet Hour Agreement, a reconciliation will be performed in accordance with Article 12.3 to the Fleet Hour Agreement between Rolls-Royce and Chautauqua dated March 23rd 2001. LINE REPLACEABLE PARTS COVERAGE Line Replaceable Parts may be covered within the Fleet Hour Agreement for $[*] per Engine Flying Hour at 2002 economics. Line Replaceable Parts (LRPs) are defined as all Rolls-Royce supplied line replaceable external engine hardware on the AE 3007A Series engine, (including LRU's), having suffered a Qualified Event with the following exceptions: - - Any line replaceable internal engine components damaged by FOD (e.g. fan blades, spinner, fan bypass vanes, fan case, etc.) - - All life limited parts (LLPs), including those LLPs which are line replaceable. - - All industry standard "common-consumable" external parts without Rolls-Royce part number (e.g. nuts, bolts, o-rings, gaskets, etc.) LIFE LIMITED PARTS COVERAGE Life Limited Parts may be covered for the duration of the Fleet Hour Agreement at the rates contained in the matrices in Attachment B. - ---------- *Confidential MINOR FOREIGN OBJECT DAMAGE COVERAGE Minor FOD would provide for parts repair or replacement as a result of non-negligent FOD damage or erosion during a non-FOD related engine shop visit, for a $[*] per Engine Flying Hour at 2002 economics. - ---------- *Confidential All of the above rates are provided at 2002 economics and are subject to escalation in accordance with the Supplemental Agreement between Rolls-Royce and Chautauqua reference RRC-CHA 140-01. [*] Unless as specifically amended above, the terms and conditions of the existing Agreements between Rolls-Royce and Chautauqua shall apply. FOR AND ON BEHALF OF ROLLS-ROYCE CORPORATION /s/ Ian Crawford Ian Crawford Vice President Customer Business - Rolls-Royce Corporation June 7th 2002. - ---------- *Confidential ATTACHMENT A ENGINE SHOP VISIT MATRIX The Engine Shop Visit rates contained below are stepped rates from EIS of the first aircraft at 2002 economics. ERJ -145 FLEET - AE3007A1P STEPPED FHA RATES FOR AE3007A1P ENGINE SHOP VISIT COVERAGE
Step 1: Years 1-3 Mission Length (FH/Cycle) - -------------------- ---------------------------------------------------------------- Utilization (FH/yr.) 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 - -------------------- ---------------------------------------------------------------- 1800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2400 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2600 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]

Step 2: Years 4-6 Mission Length (FH/Cycle) - -------------------- ---------------------------------------------------------------- Utilization (FH/yr.) 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 - -------------------- ---------------------------------------------------------------- 1800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2400 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2600 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]

Step 3: Years 7-10 Mission Length (FH/Cycle) - -------------------- ---------------------------------------------------------------- Utilization (FH/yr.) 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 - -------------------- ---------------------------------------------------------------- 1800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2400 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2600 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
- ---------- *Confidential ERJ -135 FLEET - AE3007A1/3 STEPPED FHA RATES FOR AE3007A1/3 ENGINE SHOP VISIT COVERAGE
Step 1: Years 1-3 Mission Length (FH/Cycle) - -------------------- ---------------------------------------------------------------- Utilization (FH/yr.) 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 - -------------------- ---------------------------------------------------------------- 1800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2400 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2600 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]

Step 2: Years 4-6 Mission Length (FH/Cycle) - -------------------- ---------------------------------------------------------------- Utilization (FH/yr.) 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 - -------------------- ---------------------------------------------------------------- 1800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2400 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2600 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]

Step 3: Years 7-10 Mission Length (FH/Cycle) - -------------------- ---------------------------------------------------------------- Utilization (FH/yr.) 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 - -------------------- ---------------------------------------------------------------- 1800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2400 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2600 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
- ---------- *Confidential ATTACHMENT B LIFE LIMITED PARTS MATRIX The Life Limited Parts rates contained below are a $ per Engine Flight Hour rate from EIS of the first aircraft at 2002 economics. ERJ - 145 FLEET - AE3007A1P
Mission Length (FH/Cycle) ---------------------------------------------------------------- 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 ---------------------------------------------------------------- 1800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2400 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2600 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
ERJ - 135 FLEET - AE3007A1/3
Mission Length (FH/Cycle) ---------------------------------------------------------------- 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 ---------------------------------------------------------------- 1800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2400 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2600 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2800 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3000 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 3200 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
- ---------- *Confidential ATTACHMENT C AT/O-1 USAGE MATRIX The Shop Visit rate assumes use of normal take off rating (AT/O-1) for [*]% of all take offs, and use of normal climb and normal cruise ratings for all flights. To the extent Chautauqua's usage of AT/O-1 differs from this assumption, then the Shop Visit Rate will vary in accordance with the following table:
PERCENT OF FLIGHTS PERCENT OF FLIGHTS RATE ADJUSTMENT FOR AE 3007 ENGINES USING AT/0-1 POWER USING T/0-1 POWER ------------------ ------------------ ----------------------------------- 100.0% 0.0% [*] 95.0% 5.0% [*] 90.0% 10.0% [*] 85.0% 15.0% [*] 80.0% 20.0% [*] 75.0% 25.0% [*] 70.0% 30.0% [*] 65.0% 35.0% [*] 60.0% 40.0% [*] 55.0% 45.0% [*] 50.0% 50.0% [*] 45.0% 55.0% [*] 40.0% 60.0% [*] 35.0% 65.0% [*] 30.0% 70.0% [*] 25.0% 75.0% [*] 20.0% 80.0% [*] 15.0% 85.0% [*] 10.0% 90.0% [*] 5.0% 95.0% [*] 0.0% 100.0% [*]
- ---------- *Confidential EX-10.54B 24 a2082173zex-10_54b.txt EXHIBIT 10.54B AMEND AND RESTATED EMPLOY AGMT-BEDF Exhibit 10.54(b) AMENDED & RESTATED EMPLOYMENT AGREEMENT THIS AMENDED & RESTATED AGREEMENT is made and entered into as of the Effective Date provided in Section 2, by and between REPUBLIC AIRWAYS HOLDINGS, INC. (hereinafter referred to as the "Company"), a Delaware corporation, and BRYAN K. BEDFORD (hereinafter referred to as the "Executive"). R E C I T A L S WHEREAS, the Executive is party to an Employment Agreement dated as of June 25, 1999 with Chautauqua Airlines, Inc. ("CAI"), a subsidiary of the Company (the "Prior Agreement"); and WHEREAS, subject to the successful completion of the IPO as provided in Section 2 hereof, the Company and the Executive desire to amend certain provisions of the Prior Agreement and to enter into this Amended & Restated Employment Agreement, NOW, THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter set forth, and intending to be legally bound, the parties hereto agree as follows: 1. EMPLOYMENT. Subject to the satisfaction of the conditions set forth in Section 2, the Company agrees to employ the Executive, and the Executive agrees to render his services to the Company, as its President and Chief Executive Officer, during the Term (as defined below). In connection with his employment as President and Chief Executive Officer, (a) the Company shall use its best efforts to nominate the Executive for membership on the Board of Directors of the Company, and (b) the Executive shall serve without additional payment or compensation of any kind as the President and Chief Executive Officer of CAI and of any other direct or indirect subsidiary or affiliate of the Company designated by the Board of Directors of the Company (collectively, with CAI, the "Subsidiaries"). The Executive shall render his services at the direction of the Board of Directors of the Company at the Company's offices in Indianapolis, Indiana. The Executive agrees to use his best efforts to promote and further the business, reputation and good name of the Company and the Subsidiaries (collectively, the "Company Group") and the Executive shall promptly and faithfully comply with all instructions, directions, requests, rules and regulations made or issued from time to time by the Company. 2. INITIAL PUBLIC OFFERING. The effectiveness of this Amended and Restated Employment Agreement is expressly conditioned upon and subject to the successful completion on or before September 30, 2002 of an initial public offering by the Company of shares of its common stock (an "IPO"). The Effective Date of this Amended & Restated Employment Agreement shall be the effective date of the IPO. In the event the Company does not successfully complete an IPO on or before September 30, 2002, this Amended and Restated Employment Agreement shall be null and void and shall have no force or effect and the Prior Agreement shall continue according to its terms. 3. TERM. The term of employment pursuant to this Agreement (the "Term") shall continue until June 30, 2005; provided that either party may terminate this Agreement by providing the other with 30 days prior written notice of such termination. Notwithstanding the foregoing, this Agreement may be terminated by the Company or by the Executive in the event that "Cause" for such termination exists as provided in Section 8 below. In the event (i) the Company terminates this Agreement or the Executive's employment other than for Cause, or (ii) the Executive terminates this Agreement or the Executive's employment for Cause, the Company shall pay the Executive Severance Compensation as provided in Section 4(c) hereof. In the event the Company terminates this Agreement or the Executive's employment for Cause, or in the event the Executive terminates this Agreement or his employment other than for Cause, the Executive shall not be entitled to any Severance Compensation or other compensation of any kind following the effective date of such termination. 4. COMPENSATION. As full and complete compensation for all the Executive's services hereunder, the Company shall pay the Executive the compensation described below. (a) CASH COMPENSATION. (i) During the Term, the Company shall pay the Executive an annual base salary of $340,000 ("Base Salary"). The Board of Directors shall review the Executive's Base Salary each year and shall have the right in its discretion to increase such Base Salary. In the event this Agreement is terminated prior to the expiration of the Term, the Company shall pay to the Executive, in addition to any Severance Compensation payable under Section 4(c), any accrued but unpaid Base Salary through the termination date. (ii) In addition to the Base Salary, during the Term, the Company shall pay to the Executive an annual deferred compensation payment (a "Deferred Compensation Payment") in the amount of $170,000. The Deferred Compensation Payment shall be paid each year during the Term at the end of the calendar year and shall be prorated for the 2005 calendar year for the period from January 1, 2005 through the end of the Term. In the event this Agreement or the Executive's employment is terminated (x) by the Company for Cause or (y) by the Executive other than for Cause, the Executive shall not be entitled to any Deferred Compensation Payment for such year or any subsequent period. In the event this Agreement or the Executive's employment is terminated (x) by the Company other than for Cause, or (y) by the Executive for Cause, the Executive's right with respect to a Deferred Compensation Payment for the year in which such termination occurs shall be governed by Section 4(c). (iii) In addition to the Base Salary and Deferred Compensation Payment, during the Term, the Company may pay to the Executive an annual bonus (a "Bonus") in an amount, if any, as the Board of Directors of the Company shall determine in its discretion. The Bonus, if any, may be paid each year during the Term at the end of the calendar year and may be prorated for the 2005 calendar year for the period from January 1, 2005 through the end of the Term. In the event this Agreement or the Executive's employment is terminated, the Executive shall not be entitled to any Bonus Compensation for such year or any subsequent period. (b) EQUITY COMPENSATION. (i) On the Effective Date of this Agreement, the Company shall issue to the Executive pursuant to the Republic Airways Holdings Inc. 2002 Equity Incentive Plan -2- (the "Plan"), as compensation and without cost to the Executive, options (the "New Options") to purchase [216,000 - BASED ON AN ASSUMED 20MM SHARES]OUTSTANDING AFTER THE IPO, OTHERWISE SUBJECT TO RATABLE ADJUSTMENT] shares of the Company's Common Stock, par value $.001 per share (the "Common Stock"). The New Options shall be in addition to the options to purchase Common Stock previously granted to the Executive. The New Options shall have an exercise price per share that is equivalent to 110% of the price at which shares of Common Stock are offered to the public in the IPO. The New Options shall vest and become immediately exercisable as to 1/24 of the shares subject to the New Options on the last day of each month beginning in July 2003, subject to termination as provided in the Plan. The terms and conditions of the New Options shall be governed in all respects by the Plan, and in the event of any conflict or inconsistency between the terms of this Section 3(b) and the Plan, the terms of the Plan shall control. (ii) The vesting of any options to purchase stock of the Company previously granted to the Executive under the terms of the Prior Agreement or any agreement entered into contemporaneously with the Prior Agreement shall be governed by the terms of such agreement notwithstanding that other terms and provisions of such agreement are superseded by this Amended & Restated Employment Agreement. (c) SEVERANCE COMPENSATION. In the event (i) the Company terminates this Agreement or the Executive's employment with the Company other than for Cause, or (ii) the Executive terminates this Agreement or his employment with the Company for Cause, the Company shall pay to the Executive as Severance Compensation $680,000, provided that in the event the remainder of the Term is less than 24 months, such Severance Compensation shall be prorated for the remainder of the Term, but shall not be less than $170,000. For example, if the Company terminates this Agreement other than for Cause with 20 months remaining in the Term, the Company shall pay the Executive Severance Compensation of $566,667. The Executive shall also receive as Severance Compensation (i) subject to the next following sentence, an immediate vesting of all New Options that would have vested during the 24 months after such termination, or such lesser period through the end of the Term, if the Executive's employment had not been terminated, and (ii) continuation of medical benefits for the lesser of 12 months or the remainder of the Term. Notwithstanding the foregoing, in the event the Executive terminates this Agreement or his employment for Cause as a result of a Change of Control (as defined herein), all unvested New Options shall immediately vest. 5. NO OTHER COMPENSATION. Except as otherwise expressly provided herein, or in any other written document executed by the Company and the Executive, no other compensation or other consideration shall become due or payable to the Executive on account of the services rendered to the Company Group. The Company shall have the right to deduct and withhold from the compensation payable to the Executive hereunder any amounts required to be deducted and withheld under the provisions of any statute, regulation, ordinance, order or any other amendment thereto, heretofore or hereafter enacted, requiring the withholding or deduction of compensation. 6. MEDICAL & 401K BENEFITS. The Company agrees that the Executive shall be entitled to participate in any retirement, 401K, disability, medical, pension, profit sharing, group insurance, or any other plan or arrangement, or in any other benefits now or hereafter generally -3- available to executives of the Company, in each case to the extent that the Executive shall be eligible under the general provisions thereof. 7. VACATION. The Executive shall be entitled to take three weeks of paid vacation which shall accrue monthly during each 12 months of the Executive's employment hereunder, and which vacation shall be taken on dates to be selected by mutual agreement of the Company and the Executive. 8. TERMINATION FOR CAUSE. (a) TERMINATION FOR CAUSE BY THE COMPANY. The Company, by written notice to the Executive, may immediately terminate this Agreement and the Executive's employment hereunder for Cause. As used herein, a termination by the Company "for Cause" shall mean that the Executive has (i) willfully or materially refused to perform a material part of his duties hereunder, (ii) materially breached the provisions of Sections 9, 10 or 11 hereof, (iii) acted fraudulently or dishonestly in his relations with the Company, (iv) committed larceny, embezzlement, conversion or any other act involving the misappropriation of Company funds or assets in the course of his employment, or (v) been indicted or convicted of any felony or other crime involving an act of moral turpitude. (b) TERMINATION FOR CAUSE BY THE EXECUTIVE. The Executive, by 20 business days prior written notice to the Company, may terminate this Agreement and his employment hereunder for Cause, provided that the Company shall have the right to cure such Cause within such 20 business day period. As used herein, a termination by the Executive "for Cause" shall mean that (i) the Company has materially diminished the duties and responsibilities of the Executive with respect to the Company, (ii) the Company has required the Executive to relocate his residence from Indianapolis to another location without the consent of the Executive or (iii) a Change of Control has occurred. As used herein, a "Change of Control" shall mean a transaction, other than a public or private offering of Common Stock by the Company, pursuant to which a shareholder other than Wexford Capital LLC ("Wexford") and its Affiliates acquires majority voting control of the Company. 9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he shall receive in the course of his employment hereunder certain confidential information and trade secrets concerning the Company Group's business and affairs which may be of great value to the Company Group. The Executive therefore agrees that he will not disclose any such information relating to the Company Group, the Company Group's personnel or their operations other than in the ordinary course of business or in any way use such information in any manner which could adversely affect the Company Group's business. For purposes of this Agreement, the terms "trade secrets" and "confidential information" shall include any and all information concerning the business and affairs of the Company Group and any division or other affiliate of the Company Group that is not generally available to the public. 10. NON-COMPETITION. The Executive agrees that without the prior written consent of the Board of Directors during the Term and for a period of 12 months following the termination or expiration of this Agreement, he will not participate as an advisor, partner, joint venturer, investor, lender, consultant or in any other capacity in any business transaction or proposed -4- business transaction (a) with respect to which the Executive had a material personal involvement on behalf of the Company Group during the last 12 months of his employment with the Company, or (b) that could reasonably be expected to compete with the Company Group's business or operations or proposed or contemplated business or transactions of the Company Group that are (I) known by the Executive as of the date of such termination or expiration, and (II) contemplated by the Company Group to proceed during the 12 month period following such termination or expiration. For these purposes, the mere ownership by the Executive of securities of a public company not in excess of 2% of any class of such securities shall not be considered to be competition with the Company Group. 11. NON-SOLICITATION. The Executive agrees that during the Term, and for a period of 12 months following the termination or expiration of this Agreement, he shall not, without the prior written consent of the Company, directly or indirectly, employ or retain, or have or cause any other person or entity to employ or retain, any person who was employed by the Company Group or any of its divisions or affiliates while the Executive was employed by the Company. 12. BREACH OF THIS AGREEMENT. If the Executive commits a breach, or threatens to commit a breach, of any of the provisions of Sections 9, 10 or 11 of this Agreement, then the Company shall have the right and remedy to have those provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed by the Executive that the rights and privileges of the Company granted in Sections 9, 10 and 11 are of a special, unique and extraordinary character and any such breach or threatened breach will cause great and irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. 13. NOTICES. All notices and other communications required or permitted hereunder shall be in writing (including facsimile, telegraphic, telex or cable communication) and shall be deemed to have been duly given when delivered by hand, or mailed, certified or registered mail, return receipt requested and postage prepaid: If to the Company: Republic Airways Holdings, Inc. 2500 South High School Road Indianapolis, IN 46241 Attn: Chief Operating Officer With a copy to each member of the Board of Directors If to the Executive: Bryan K. Bedford 3334 Walnut Creek Drive Carmel, IN 46032 14. APPLICABLE LAW. This Agreement was negotiated and entered into within the State of Indiana. All matters pertaining to this Agreement shall be governed by the laws of the State of Indiana applicable to contracts made and to be performed wholly therein. Nothing in this Agreement shall be construed to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Agreement and any material present or future statute, law, governmental regulation or ordinance as a result of which the parties have no legal -5- right to contract or perform, the latter shall prevail, but in such event the provision(s) of this Agreement affected shall be curtailed and limited only to the extent necessary to bring it or them within the legal requirements. 15. ENTIRE AGREEMENT; MODIFICATION; CONSENTS AND WAIVERS. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements or understandings, written or oral, between the parties with respect to the subject matter hereof. No interpretation, change, termination or waiver of or extension of time for performance under any provision of this Agreement shall be binding upon any party unless in writing and signed by the party intended to be bound thereby. Except as otherwise provided in this Agreement, no waiver of or other failure to exercise any right under or default or extension of time for performance under any provision or this Agreement shall affect the right of any party to exercise any subsequent right under or otherwise enforce said provision or any other provision hereof or to exercise any right or remedy in the event of any other default, whether or not similar. 16. SEVERABILITY. The parties acknowledge that, in their view, the terms of this Agreement are fair and reasonable as of the date signed by them, including as to the scope and duration of post-termination activities. Accordingly, if any one or more of the provisions contained in this Agreement shall for any reason, whether by application of existing law or law which may develop after the date of this Agreement, be determined by an arbitrator or court of competent jurisdiction to be excessively broad as to scope of activity, duration or territory, or otherwise unenforceable, the parties hereby jointly request such court to construe any such provision by limiting or reducing it so as to be enforceable to the maximum extent in favor of the Company compatible with then-applicable law. If any one or more of the terms, provisions, covenants or restrictions of this Agreement shall nonetheless be determined by an arbitrator or court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 17. ASSIGNMENT. The Company may, at its election, assign this Agreement or any of its rights hereunder. This Agreement may not be assigned by the Executive. 18. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 19. ARBITRATION. Each of the parties hereby irrevocably and unconditionally consents to arbitrate any dispute arising out of or relating in any manner to this Agreement or the employment relationship contemplated hereby or the termination thereof, or any alleged breach of any term or provision of this Agreement. Such arbitration shall be conducted by a single arbitrator in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any federal or state court in Indiana (and the parties expressly consent to the jurisdiction of such court), or in any other court having jurisdiction. Each of the Parties agrees that in any arbitration arising out of or relating to this Agreement or the employment relationship contemplated hereby or the termination thereof, or -6- any alleged breach of any term or provision of this Agreement or in any action to enter judgment on an award in such arbitration each party shall bear its own fees and expenses. 20. SURVIVAL. The provisions of Sections 9 through 19 of this Agreement shall survive any expiration or termination of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. REPUBLIC AIRWAYS HOLDINGS, INC. By: /s/ JAY MAYMUDES --------------------------------- Name: Title: BRYAN K. BEDFORD /s/ BRYAN K. BEDFORD ------------------------------------ -7- EX-10.55B 25 a2082173zex-10_55b.txt EXHIBIT 10.55B AMEND AND RESTATED EMPLY AGMT-COOPE Exhibit 10.55(b) AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED AGREEMENT is made and entered into as of the Effective Date provided in Section 2, by and between REPUBLIC AIRWAYS HOLDINGS INC. (hereinafter referred to as the "Company"), a Delaware corporation, and Robert Cooper (hereinafter referred to as the "Executive"). R E C I T A L S WHEREAS, the Executive is party to an Employment Agreement dated as of July 16, 1999 with Chautauqua Airlines, Inc. ("CAI"), a subsidiary of the Company (the "Prior Agreement"); and WHEREAS, subject to the successful completion of the IPO as provided in Section 2 hereof, the Company and the Executive desire to amend certain provisions of the Prior Agreement and to enter into this Amended and Restated Employment Agreement, NOW, THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter set forth, and intending to be legally bound, the parties hereto agree as follows: 1. EMPLOYMENT. Subject to the satisfaction of the conditions set forth in this Section 2, the Company agrees to employ the Executive, and the Executive agrees to render his services to the Company, as its Executive Vice President, Chief Financial Officer, Treasurer and Secretary, during the Term (as defined below). In connection with his employment the Executive shall serve without additional payment or compensation of any kind as an officer of CAI and of other direct or indirect subsidiary or affiliate of the Company designated by the Board of Directors of the Company (collectively, with CAI, the "Subsidiaries"). The Executive shall render his services at the direction of the President and the Board of Directors of the Company at the Company's offices in Indianapolis, Indiana. The Executive agrees to use his best efforts to promote and further the business, reputation and good name of the Company and the Subsidiaries (collectively, the "Company Group") and the Executive shall promptly and faithfully comply with all instructions, directions, requests, rules and regulations made or issued from time to time by the Company. 2. INITIAL PUBLIC OFFERING. The effectiveness of this Amended and Restated Employment Agreement is expressly conditioned upon and subject to the successful completion on or before September 30, 2002 of an initial public offering by the Company of shares of its common stock (an "IPO"). The Effective Date of this Amended and Restated Employment Agreement shall be the effective date of the IPO. In the event the Company does not successfully complete an IPO on or before September 30, 2002, this Amended and Restated Employment Agreement shall be null and void and shall have no force or effect and the Prior Agreement shall continue according to its terms. 3. TERM. The term of employment pursuant to this Agreement (the "Term") shall continue until July 31, 2005; provided that either party may terminate this Agreement by providing the other with 30 days prior written notice of such termination. Notwithstanding the foregoing, this Agreement may be terminated by the Company or by the Executive in the event that "Cause" for such termination exists as provided in Section 8 below. In the event (i) the Company terminates this Agreement or the Executive's employment other than for Cause, or (ii) the Executive terminates this Agreement or the Executive's employment for Cause, the Company shall pay the Executive Severance Compensation as provided in Section 4(c) hereof. In the event the Company terminates this Agreement or the Executive's employment for Cause, or in the event the Executive terminates this Agreement or his employment other than for Cause, the Executive shall not be entitled to any Severance Compensation or other compensation of any kind following the effective date of such termination. 4. COMPENSATION. As full and complete compensation for all the Executive's services hereunder, the Company shall pay the Executive the compensation described below. (a) CASH COMPENSATION. (i) During the Term, the Company shall pay the Executive an annual base salary of $175,000 ("Base Salary"). The Board of Directors shall review the Executive's Base Salary each year and shall have the right in its discretion to increase such Base Salary. In the event this Agreement is terminated prior to the expiration of the Term, the Company shall pay to the Executive, in addition to any Severance Compensation payable under Section 4(c), any accrued but unpaid Base Salary through the termination date. (ii) In addition to the Base Salary, during the Term, the Company shall pay to the Executive an annual deferred compensation payment (a "Deferred Compensation Payment") in the amount of $70,000. The Deferred Compensation Payment shall be paid each year during the Term at the end of the calendar year and shall be prorated for the 2005 calendar year for the period from January 1, 2005 through the end of the Term. In the event this Agreement or the Executive's employment is terminated, the Executive shall not be entitled to any Deferred Compensation Payment for such year or any subsequent period. (iii) In addition to the Base Salary and Deferred Compensation Payment, during the Term, the Company may pay to the Executive an annual bonus (a "Bonus") in an amount, if any, as the Board of Directors of the Company shall determine in its discretion. The Bonus, if any, may be paid each year during the Term at the end of the calendar year and may be prorated for the 2005 calendar year for the period from January 1, 2005 through the end of the Term. In the event this Agreement or the Executive's employment is terminated, the Executive shall not be entitled to any Bonus Compensation for such year or any subsequent period. (b) EQUITY COMPENSATION. (i) On the Effective Date of this Agreement, the Company shall issue to the Executive pursuant to the Republic Airways Holdings Inc. 2002 Equity Incentive Plan (the "Plan"), as compensation and without cost to the Executive, options (the "New Options") to purchase [105,600 - based on an] assumed 20MM shares outstanding after to the IPO, otherwise subject to ratable adjustment] shares of the Company's Common Stock, par value $.001 per share (the "Common Stock"). The New Options shall be in addition to the options to purchase Common Stock previously granted to the Executive. -2- The New Options shall have an exercise price per share that is equivalent to 110% of the price at which shares of Common Stock are offered to the public in the IPO. The New Options shall vest and become immediately exercisable as to 1/24 of the shares subject to the New Options on the last day of each month beginning in August 2003, subject to termination as provided in the Plan. The terms and conditions of the New Options shall be governed in all respects by the Plan, and in the event of any conflict or inconsistency between the terms of this Section 3(b) and the Plan, the terms of the Plan shall control. (ii) The vesting of any options to purchase stock of the Company previously granted to the Executive under the terms of the Prior Agreement or any agreement entered into contemporaneously with the Prior Agreement shall be governed by the terms of such agreement notwithstanding that other terms and provisions of such agreement are superseded by this Amended & Restated Employment Agreement. (c) SEVERANCE COMPENSATION. In the event (i) the Company terminates this Agreement or the Executive's employment with the Company other than for Cause, or (ii) the Executive terminates this Agreement or his employment with the Company for Cause, the Company shall pay to the Executive as Severance Compensation $175,000, provided that in the event the remainder of the Term is less than 12 months, such Severance Compensation shall be prorated for the remainder of the Term. For example, if the Company terminates this Agreement other than for Cause with 4 months remaining in the Term, the Company shall pay the Executive Severance Compensation of $58,333. The Executive shall also receive as Severance Compensation (i) subject to the next following sentence, an immediate vesting of those New Options that would have vested during the 12 months after such termination, or such lesser period through the end of the Term, if the Executive's employment had not been terminated, and (ii) continuation of medical benefits for the lesser of 12 months or the remainder of the Term. Notwithstanding the foregoing, in the event the Executive terminates this Agreement or his employment for Cause as a result of a Change of Control (as defined herein), all unvested New Options shall immediately vest. 5. NO OTHER COMPENSATION. Except as otherwise expressly provided herein, or in any other written document executed by the Company and the Executive, no other compensation or other consideration shall become due or payable to the Executive on account of the services rendered to the Company Group. The Company shall have the right to deduct and withhold from the compensation payable to the Executive hereunder any amounts required to be deducted and withheld under the provisions of any statute, regulation, ordinance, order or any other amendment thereto, heretofore or hereafter enacted, requiring the withholding or deduction of compensation. 6. MEDICAL & 401K BENEFITS. The Company agrees that the Executive shall be entitled to participate in any retirement, 401K, disability, medical, pension, profit sharing, group insurance, or any other plan or arrangement, or in any other benefits now or hereafter generally available to executives of the Company, in each case to the extent that the Executive shall be eligible under the general provisions thereof. 7. VACATION. The Executive shall be entitled to take three weeks of paid vacation which shall accrue monthly during each 12 months of the Executive's employment hereunder, -3- and which vacation shall be taken on dates to be selected by mutual agreement of the Company and the Executive. 8. TERMINATION FOR CAUSE. (a) TERMINATION FOR CAUSE BY THE COMPANY. The Company, by written notice to the Executive, may immediately terminate this Agreement and the Executive's employment hereunder for Cause. As used herein, a termination by the Company "for Cause" shall mean that the Executive has (i) willfully or materially refused to perform a material part of his duties hereunder, (ii) materially breached the provisions of Sections 9, 10 or 11 hereof, (iii) acted fraudulently or dishonestly in his relations with the Company, (iv) committed larceny, embezzlement, conversion or any other act involving the misappropriation of Company funds or assets in the course of his employment, or (v) been indicted or convicted of any felony or other crime involving an act of moral turpitude. (b) TERMINATION FOR CAUSE BY THE EXECUTIVE. The Executive, by 20 business days prior written notice to the Company, may terminate this Agreement and his employment hereunder for Cause, provided that the Company shall have the right to cure such Cause within such 20 business day period. As used herein, a termination by the Executive "for Cause" shall mean that (i) the Company has materially diminished the duties and responsibilities of the Executive with respect to the Company, (ii) the Company has required the Executive to relocate his residence from Indianapolis to another location without the consent of the Executive or (iii) a Change of Control has occurred. As used herein, a "Change of Control" shall mean a transaction, other than a public or private offering of Common Stock by the Company pursuant to which a shareholder other than Wexford Capital LLC ("Wexford") and its Affiliates acquires majority voting control of the Company. 9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he shall receive in the course of his employment hereunder certain confidential information and trade secrets concerning the Company Group's business and affairs which may be of great value to the Company Group. The Executive therefore agrees that he will not disclose any such information relating to the Company Group, the Company Group's personnel or their operations other than in the ordinary course of business or in any way use such information in any manner, which could adversely affect the Company Group's business. For purposes of this Agreement, the terms "trade secrets" and "confidential information" shall include any and all information concerning the business and affairs of the Company Group and any division or other affiliate of the Company Group that is not generally available to the public. 10. NON-COMPETITION. The Executive agrees that without the prior written consent of the Board of Directors during the Term and for a period of 12 months following the termination or expiration of this Agreement, he will not participate as an advisor, partner, joint venturer, investor, lender, consultant or in any other capacity in any business transaction or proposed business transaction (a) with respect to which the Executive had a material personal involvement on behalf of the Company Group during the last 12 months of his employment with the Company, or (b) that could reasonably be expected to compete with the Company Group's business or operations or proposed or contemplated business or transactions of the Company Group that are (I) known by the Executive as of the date of such termination or expiration, and -4- (II) contemplated by the Company Group to proceed during the 12 month period following such termination or expiration. For these purposes, the mere ownership by the Executive of securities of a public company not in excess of 2% of any class of such securities shall not be considered to be competition with the Company Group. 11. NON-SOLICITATION. The Executive agrees that during the Term, and for a period of 12 months following the termination or expiration of this Agreement, he shall not, without the prior written consent of the Company, directly or indirectly, employ or retain, or have or cause any other person or entity to employ or retain, any person who was employed by the Company Group or any of its divisions or affiliates while the Executive was employed by the Company. 12. BREACH OF THIS AGREEMENT. If the Executive commits a breach, or threatens to commit a breach, of any of the provisions of Sections 9, 10 or 11 of this Agreement, then the Company shall have the right and remedy to have those provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed by the Executive that the rights and privileges of the Company granted in Sections 9, 10 and 11 are of a special, unique and extraordinary character and any such breach or threatened breach will cause great and irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. 13. NOTICES. All notices and other communications required or permitted hereunder shall be in writing (including facsimile, telegraphic, telex or cable communication) and shall be deemed to have been duly given when delivered by hand or mailed, certified or registered mail, return receipt requested and postage prepaid: If to the Company: Republic Airways Holdings Inc. 2500 South High School Road Suite 160 Indianapolis, IN 46421 Attention: Bryan K. Bedford, President If to the Executive: Robert Cooper 2423 Winfield Dr. Carmel, IN 46032 14. APPLICABLE LAW. This Agreement was negotiated and entered into within the State of Indiana. All matters pertaining to this Agreement shall be governed by the laws of the State of Indiana applicable to contracts made and to be performed wholly therein. Nothing in this Agreement shall be construed to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Agreement and any material present or future statute, law, governmental regulation or ordinance as a result of which the parties have no legal right to contract or perform, the latter shall prevail, but in such event the provision(s) of this Agreement affected shall be curtailed and limited only to the extent necessary to bring it or them within the legal requirements. 15. ENTIRE AGREEMENT; MODIFICATION; CONSENTS AND WAIVERS. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and -5- supersedes any and all prior agreements or understandings, written or oral, between the parties with respect to the subject matter hereof. No interpretation, change, termination or waiver of or extension of time for performance under any provision of this Agreement shall be binding upon any party unless in writing and signed by the party intended to be bound thereby. Except as otherwise provided in this Agreement, no waiver of or other failure to exercise any right under or default or extension of time for performance under any provision or this Agreement shall affect the right of any party to exercise any subsequent right under or otherwise enforce said provision or any other provision hereof or to exercise any right or remedy in the event of any other default, whether or not similar. 16. SEVERABILITY. The parties acknowledge that, in their view, the terms of this Agreement are fair and reasonable as of the date signed by them, including as to the scope and duration of post-termination activities. Accordingly, if any one or more of the provisions contained in this Agreement shall for any reason, whether by application of existing law or law which may develop after the date of this Agreement, be determined by an arbitrator or court of competent jurisdiction to be excessively broad as to scope of activity, duration or territory, or otherwise unenforceable, the parties hereby jointly request such court to construe any such provision by limiting or reducing it so as to be enforceable to the maximum extent in favor of the Company compatible with then-applicable law. If any one or more of the terms, provisions, covenants or restrictions of this Agreement shall nonetheless be determined by an arbitrator or court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 17. ASSIGNMENT. The Company may, at its election, assign this Agreement or any of its rights hereunder. This Agreement may not be assigned by the Executive. 18. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 19. ARBITRATION. Each of the parties hereby irrevocably and unconditionally consents to arbitrate any dispute arising out of or relating in any manner to this Agreement or the employment relationship contemplated hereby or the termination thereof, or any alleged breach of any term or provision of this Agreement. Such arbitration shall be conducted in Indianapolis, Indiana by a single arbitrator in accordance with the rules of the American Arbitration Association then in effect. Judgement may be entered on the arbitrator's award in any federal or state court in Indiana (and the parties expressly consent to the jurisdiction of such court), or in any other court having jurisdiction. Each of the Parties agrees that in any arbitration arising out of or relating to this Agreement or the employment relationship contemplated hereby or the termination thereof, or any alleged breach of any term or provision of this Agreement or in any action to enter judgment on an award in such arbitration each party shall bear its own fees and expenses. 20. SURVIVAL. The provisions of Sections 9 through 19 of this Agreement shall survive any expiration or termination of this Agreement. -6- IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. REPUBLIC AIRWAYS HOLDINGS INC. By: /s/ JAY MAYMUDES --------------------------- Name: Title: ROBERT COOPER /s/ ROBERT COOPER ------------------------------ -7- EX-10.56B 26 a2082173zex-10_56b.txt EXHIBIT 10.56B AMEND AND RESTATED EMPLOY AGMT-HELL Exhibit 10.56(b) AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED AGREEMENT is made and entered into as of the Effective Date provided in Section 2, by and between CHAUTAUQUA AIRLINES, INC. (hereinafter referred to as the "Company"), a New York corporation, and Wayne C. Heller (hereinafter referred to as the "Executive"). RECITALS WHEREAS, the Executive is party to an Employment Agreement dated as of July 16, 1999 with the Company (the "Prior Agreement"); and WHEREAS, Republic Airways Holdings Inc., the parent of the Company ("RJET"), contemplates issuing shares of common stock in a public offering (the "IPO"); and WHEREAS, subject to the successful completion of the IPO as provided in Section 2 hereof, the Company and the Executive desire to amend certain provisions of the Prior Agreement and to enter into this Amended and Restated Employment Agreement, NOW, THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter set forth, and intending to be legally bound, the parties hereto agree as follows: 1. EMPLOYMENT. Subject to the satisfaction of the conditions set forth in this Section 2, the Company agrees to employ the Executive, and the Executive agrees to render his services to the Company, as its Executive Vice President and Chief Operating Officer, during the Term (as defined below). In connection with his employment the Executive shall serve without additional payment or compensation of any kind as an officer of any direct or indirect subsidiary or affiliate of the Company designated by the Board of Directors of the Company (including without limitation, RJET, collectively, the "Affiliates"). The Executive shall render his services at the direction of the President and the Board of Directors of the Company at the Company's offices in Indianapolis, Indiana. The Executive agrees to use his best efforts to promote and further the business, reputation and good name of the Company and the Affiliates (collectively, the "Company Group") and the Executive shall promptly and faithfully comply with all instructions, directions, requests, rules and regulations made or issued from time to time by the Company. 2. (a) INITIAL PUBLIC OFFERING. The effectiveness ofthis Amended and Restated Employment Agreement is expressly conditioned upon and subject to the successful completion on or before September 30, 2002 of an IPO by RJET. The Effective Date of this Amended and Restated Employment Agreement shall be the effective date of the IPO. In the event RJET does not successfully complete an IPO on or before September 30, 2002, this Amended and Restated Employment Agreement shall be null and void and shall have no force or effect and the Prior Agreement shall continue according to its terms. 3. TERM. The term of employment pursuant to this Agreement (the "Term") shall continue until July 31, 2005; provided that either party may terminate this Agreement by providing the other with 30 days prior written notice of such termination. Notwithstanding the foregoing, this Agreement may be terminated by the Company or by the Executive in the event that "Cause" for such termination exists as provided in Section 8 below. In the event (i) the Company terminates this Agreement or the Executive's employment other than for Cause, or (ii) the Executive terminates this Agreement or the Executive's employment for Cause, the Company shall pay the Executive Severance Compensation as provided in Section 4(c) hereof. In the event the Company terminates this Agreement or the Executive's employment for Cause, or in the event the Executive terminates this Agreement or his employment other than for Cause, the Executive shall not be entitled to any Severance Compensation or other compensation of any kind following the effective date of such termination. 4. COMPENSATION. As full and complete compensation for all the Executive's services hereunder, the Company shall pay the Executive the compensation described below. (a) CASH COMPENSATION. (i) During the Term, the Company shall pay the Executive an annual base salary of $140,000 ("Base Salary"). The Board of Directors shall review the Executive's Base Salary each year and shall have the right in its discretion to increase such Base Salary. In the event this Agreement is terminated prior to the expiration of the Term, the Company shall pay to the Executive, in addition to any Severance Compensation payable under Section 4(c), any accrued but unpaid Base Salary through the termination date. (ii) In addition to the Base Salary, during the Term, the Company shall pay to the Executive an annual deferred compensation payment (a "Deferred Compensation Payment") in the amount of $56,000. The Deferred Compensation Payment shall be paid each year during the Term at the end of the calendar year and shall be prorated for the 2005 calendar year for the period from January 1, 2005 through the end of the Term. In the event this Agreement or the Executive's employment is terminated, the Executive shall not be entitled to any Deferred Compensation Payment for such year or any subsequent period. (iii) In addition to the Base Salary and Deferred Compensation Payment, during the Term, the Company may pay to the Executive an annual bonus (a "Bonus") in an amount, if any, as the Board of Directors of the Company shall determine in its discretion. The Bonus, if any, may be paid each year during the Term at the end of the calendar year and may be prorated for the 2005 calendar year for the period from January 1, 2005 through the end of the Term. In the event this Agreement or the Executive's employment is terminated, the Executive shall not be entitled to any Bonus Compensation for such year or any subsequent period. (b) EQUITY COMPENSATION. (i) On the Effective Date of this Agreement, the Company shall cause RJET to issue to the Executive pursuant to the Republic Airways Holdings Inc. 2002 Equity Incentive Plan (the "Plan"), as compensation and without cost to the Executive, options (the "New Options") to purchase [57,600 ?] BASED ON AN ASSUMED 20MM SHARES OUTSTANDING AFTER THE IPO, OTHERWISE SUBJECT TO RATABLE ADJUSTMENT] shares of RJET's Common Stock, par value $.001 per share (the "Common Stock"). The New Options 2 shall be in addition to the options to purchase Common Stock previously granted to the Executive. The New Options shall have an exercise price per share that is equivalent to 110% of the price at which shares of Common Stock are offered to the public in the IPO. The New Options shall vest and become immediately exercisable as to 1/24 of the shares subject to the New Options on the last day of each month beginning in August 2003, subject to termination as provided in the Plan. The terms and conditions of the New Options shall be governed in all respects by the Plan, and in the event of any conflict or inconsistency between the terms of this Section 3(b) and the Plan, the terms of the Plan shall control. (ii) The vesting of any options to purchase stock of RJET previously granted to the Executive under the terms of the Prior Agreement or any agreement entered into contemporaneously with the Prior Agreement shall be governed by the terms of such agreement notwithstanding that other terms and provisions of such agreement are superseded by this Amended & Restated Employment Agreement. (c) SEVERANCE COMPENSATION. In the event (i) the Company terminates this Agreement or the Executive's employment with the Company other than for Cause, or (ii) the Executive terminates this Agreement or his employment with the Company for Cause, the Company shall pay to the Executive as Severance Compensation $140,000, provided that in the event the remainder of the Term is less than 12 months, such Severance Compensation shall be prorated for the remainder of the Term. For example, if the Company terminates this Agreement other than for Cause with 4 months remaining in the Term, the Company shall pay the Executive Severance Compensation of $46,667. The Executive shall also receive as Severance Compensation (i) subject to the next following sentence, an immediate vesting of those New Options that would have vested during the 12 months after such termination, or such lesser period through the end of the Term, if the Executive's employment had not been terminated, and (ii) continuation of medical benefits for the lesser of 12 months or the remainder of the Term. Notwithstanding the foregoing, in the event the Executive terminates this Agreement or his employment for Cause as a result of a Change of Control (as defined herein), all unvested New Options shall immediately vest. 5. NO OTHER COMPENSATION. Except as otherwise expressly provided herein, or in any other written document executed by the Company and the Executive, no other compensation or other consideration shall become due or payable to the Executive on account of the services rendered to the Company Group. The Company shall have the right to deduct and withhold from the compensation payable to the Executive hereunder any amounts required to be deducted and withheld under the provisions of any statute, regulation, ordinance, order or any other amendment thereto, heretofore or hereafter enacted, requiring the withholding or deduction of compensation. 6. MEDICAL & 401K BENEFITS. The Company agrees that the Executive shall be entitled to participate in any retirement, 401K, disability, medical, pension, profit sharing, group insurance, or any other plan or arrangement, or in any other benefits now or hereafter generally available to executives of the Company, in each case to the extent that the Executive shall be eligible under the general provisions thereof. 3 7. VACATION. The Executive shall be entitled to take three weeks of paid vacation which shall accrue monthly during each 12 months of the Executive's employment hereunder, and which vacation shall be taken on dates to be selected by mutual agreement of the Company and the Executive. 8. TERMINATION FOR CAUSE. (a) TERMINATION FOR CAUSE BY THE COMPANY. The Company, by written notice to the Executive, may immediately terminate this Agreement and the Executive's employment hereunder for Cause. As used herein, a termination by the Company "for Cause" shall mean that the Executive has (i) willfully or materially refused to perform a material part of his duties hereunder, (ii) materially breached the provisions of Sections 9, 10 or 11 hereof, (iii) acted fraudulently or dishonestly in his relations with the Company, (iv) committed larceny, embezzlement, conversion or any other act involving the misappropriation of Company funds or assets in the course of his employment, or (v) been indicted or convicted of any felony or other crime involving an act of moral turpitude. (b) TERMINATION FOR CAUSE BY THE EXECUTIVE. The Executive, by 20 business days prior written notice to the Company, may terminate this Agreement and his employment hereunder for Cause, provided that the Company shall have the right to cure such Cause within such 20 business day period. As used herein, a termination by the Executive "for Cause" shall mean that (i) the Company has materially diminished the duties and responsibilities of the Executive with respect to the Company, (ii) the Company has required the Executive to relocate his residence from Indianapolis to another location without the consent of the Executive or (iii) a Change of Control has occurred. As used herein, a "Change of Control" shall mean a transaction, other than a public or private offering of Common Stock by RJET pursuant to which a shareholder other than Wexford Capital LLC ("Wexford") and its Affiliates acquires majority voting control of RJET. 9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he shall receive in the course of his employment hereunder certain confidential information and trade secrets concerning the Company Group's business and affairs which may be of great value to the Company Group. The Executive therefore agrees that he will not disclose any such information relating to the Company Group, the Company Group's personnel or their operations other than in the ordinary course of business or in any way use such information in any manner which could adversely affect the Company Group's business. For purposes of this Agreement, the terms "trade secrets" and "confidential information" shall include any and all information concerning the business and affairs of the Company Group and any division or other affiliate of the Company Group that is not generally available to the public. 10. NON-COMPETITION. The Executive agrees that without the prior written consent of the Board of Directors during the Term and for a period of 12 months following the termination or expiration of this Agreement, he will not participate as an advisor, partner, joint venturer, investor, lender, consultant or in any other capacity in any business transaction or proposed business transaction (a) with respect to which the Executive had a material personal involvement on behalf of the Company Group during the last 12 months of his employment with the Company, or (b) that could reasonably be expected to compete with the Company Group's 4 business or operations or proposed or contemplated business or transactions of the Company Group that are (I) known by the Executive as of the date of such termination or expiration, and (II) contemplated by the Company Group to proceed during the 12 month period following such termination or expiration. For these purposes, the mere ownership by the Executive of securities of a public company not in excess of 2% of any class of such securities shall not be considered to be competition with the Company Group. 11. NON-SOLICITATION. The Executive agrees that during the Term, and for a period of 12 months following the termination or expiration of this Agreement, he shall not, without the prior written consent of the Company, directly or indirectly, employ or retain, or have or cause any other person or entity to employ or retain, any person who was employed by the Company Group or any of its divisions or affiliates while the Executive was employed by the Company. 12. BREACH OF THIS AGREEMENT. If the Executive commits a breach, or threatens to commit a breach, of any of the provisions of Sections 9, 10 or 1l of this Agreement, then the Company shall have the right and remedy to have those provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed by the Executive that the rights and privileges of the Company granted in Sections 9, 10 and 11 are of a special, unique and extraordinary character and any such breach or threatened breach will cause great and irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. 13. NOTICES. All notices and other communications required or permitted hereunder shall be in writing (including facsimile, telegraphic, telex or cable communication) and shall be deemed to have been duly given when delivered by hand or mailed, certified or registered mail, return receipt requested and postage prepaid: If to the Company: Chautauqua Airlines, Inc. 2500 South High School Road Suite 160 Indianapolis, IN 46421 Attention: Bryan K. Bedford, President If to the Executive: Wayne C. Heller 14039 Honeytree Drive Carmel, IN 46032 14. APPLICABLE LAW. This Agreement was negotiated and entered into within the State of Indiana. All matters pertaining to this Agreement shall be governed by the laws of the State of Indiana applicable to contracts made and to be performed wholly therein. Nothing in this Agreement shall be construed to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Agreement and any material present or future statute, law, governmental regulation or ordinance as a result of which the parties have no legal right to contract or perform, the latter shall prevail, but in such event the provision(s) of this Agreement affected shall be curtailed and limited only to the extent necessary to bring it or them within the legal requirements. 5 15. ENTIRE AGREEMENT; MODIFICATION; CONSENTS AND WAIVERS. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements or understandings, written or oral, between the parties with respect to the subject matter hereof. No interpretation, change, termination or waiver of or extension of time for performance under any provision of this Agreement shall be binding upon any party unless in writing and signed by the party intended to be bound thereby. Except as otherwise provided in this Agreement, no waiver of or other failure to exercise any right under or default or extension of time for performance under any provision or this Agreement shall affect the right of any party to exercise any subsequent right under or otherwise enforce said provision or any other provision hereof or to exercise any right or remedy in the event of any other default, whether or not similar. 16. SEVERABILITY. The parties acknowledge that, in their view, the terms of this Agreement are fair and reasonable as of the date signed by them, including as to the scope and duration of post-termination activities. Accordingly, if any one or more of the provisions contained in this Agreement shall for any reason, whether by application of existing law or law which may develop after the date of this Agreement, be determined by an arbitrator or court of competent jurisdiction to be excessively broad as to scope of activity, duration or territory, or otherwise unenforceable, the parties hereby jointly request such court to construe any such provision by limiting or reducing it so as to be enforceable to the maximum extent in favor of the Company compatible with then-applicable law. If any one or more of the terms, provisions, covenants or restrictions of this Agreement shall nonetheless be determined by an arbitrator or court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 17. ASSIGNMENT. The Company may, at its election, assign this Agreement or any of its rights hereunder. This Agreement may not be assigned by the Executive. 18. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 19. ARBITRATION. Each of the parties hereby irrevocably and unconditionally consents to arbitrate any dispute arising out of or relating in any manner to this Agreement or the employment relationship contemplated hereby or the termination thereof, or any alleged breach of any term or provision of this Agreement. Such arbitration shall be conducted in Indianapolis, Indiana by a single arbitrator in accordance with the rules of the American Arbitration Association then in effect. Judgement may be entered on the arbitrator's award in any federal or state court in Indiana (and the parties expressly consent to the jurisdiction of such court), or in any other court having jurisdiction. Each of the Parties agrees that in any arbitration arising out of or relating to this Agreement or the employment relationship contemplated hereby or the termination thereof, or any alleged breach of any term or provision of this Agreement or in any action to enter judgment on an award in such arbitration each party shall bear its own fees and expenses. 6 20. SURVIVAL. The provisions of Sections 9 through 19 of this Agreement shall survive any expiration or termination of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. CHAUTAUQUA AIRLINES, INC. By: /s/ JAY MAYMUDES --------------------------- Name: Title: WAYNE C. HELLER By: /s/ WAYNE C. HELLER --------------------------- 7 EX-23.2 27 a2073681zex-23_2.txt CONSENT OF DELOITTE & TOUCHE EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 2 to Registration Statement No. 333-84092 of Republic Airways Holdings Inc. of our report dated March 7, 2002 (June 4, 2002 as to the "Net Income (Loss) Available for Common Stockholders Per Share" section of Note 2) appearing in the Prospectus, which is a part of such Registration Statement, and to the reference to us under the headings "Selected Consolidated Financial Information" and "Experts" in such Prospectus. 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